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Wed Oct 3, 2012, 02:08 AM

Eliminate the deficit instantly

Reading the comments on an article on another site (linked, however, through DU, I believe) I came upon what was to me a novel idea . . . .

Since the Federal Reserve has been granted the power to print money by both the US and the ROW (everyone else, rest of world), there is really no budget balancing need for taxes at all. What taxes do is, presumably, control inflation. In the absence of inflationary pressures (or perhaps, even under inflationary pressures), FR simply prints off enough money to pay USGOV's obligations and distributes it to whoever is owed those obligations.

I suppose that at some point this could cause a lack of confidence in US$ but right now one major issue with the global economy is that there is too much confidence in US$.

Reading this comment was to some degree mind blowing for me as I contemplated the ramifications of a government that chooses to allow a federal deficit to exist when it is easily within its power to wipe it out. And I have come to view the USGOV debt issue like the debt issue generally as a population control mechanism. And a means of transferring wealth . . . in this case from wage earners to banks.

But why? Why even bother with all this even if it does effectively control the population?

I am having a really hard time understanding the US Sovereign Debt now that I know that it could be waved off instantly.

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Response to abumbyanyothername (Original post)

Wed Oct 3, 2012, 02:16 AM

1. Ithought you were going to say audit Romney and get all his back taxes

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Response to abumbyanyothername (Original post)

Wed Oct 3, 2012, 02:19 AM

2. KR. Because it means you can make the peasants do what you want.

 

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Response to HiPointDem (Reply #2)

Wed Oct 3, 2012, 04:51 AM

6. Exactly nt

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Response to abumbyanyothername (Original post)

Wed Oct 3, 2012, 02:24 AM

3. It's called Modern Monetary Theory...

...and with the decoupling of money from commodities (ie. the gold standard) it's not as crazy as it sounds at first.

Since money is effectively an illusion, so is debt.

The only thing that truly constrains planetary progress for all life forms is the limits of our environment. That is why the careful stewardship of this precious planet is the main thing I worry about.

The rest is an abstraction layer created by elites to control the masses.

Did you notice how fast the money was created out of thin air when the global banking system (fake money illusion) was about to collapse. Where was the "tremendous inflation" that everyone warned us about? Other than a bunch of hedge fundies and gold bugs driving up the commodity prices of everything from wheat to oil prices actually fell. How is that possible if "money printing" causes inflation.

By the way, no money is printed anymore. Numbers are entered into computers. Cash spits out of ATM's. People exchange plastic for goods and services. You can't get much more abstract than that.

It often reminds me of the great powerful "Wizard of Oz."

Just don't look behind the curtain...

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Response to abumbyanyothername (Original post)

Wed Oct 3, 2012, 02:40 AM

4. Why does a dog lick himself?

Because he can.

That's why they do it -- because they can.

And you're right. There is absolutely no reason why the Federal Reserve cannot print more money. In fact, one way to kick start the economy would be dropping money from helicopters.

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Response to abumbyanyothername (Original post)

Wed Oct 3, 2012, 02:57 AM

5. When the Federal Reserve simply prints more money

we get inflation. There needs to be some kind of control on how much money is printed.

Germany in the 1920's tried solving their economic woes by printing more money. And printing more money. And printing more money. After a while, it took a wheelbarrow full of money to buy a loaf of bread. Housewives would race to stores as soon as their husbands were paid to buy goods, before the prices went up.

Printing more money is only good in small increments at best.

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Response to SheilaT (Reply #5)

Wed Oct 3, 2012, 05:03 AM

7. not according to the man who stabilized the mark.

 

"The dollar reached an exchange rate of 12 trillion marks on the free market of the Cologne Bourse. This speculation was not only hostile to the country's economic interests, it was also stupid. In previous years such speculation had been carried on either with loans which the Reichsbank granted lavishly, or with emergency money which one printed oneself, and then exchanged for Reichsmarks.

Now however, three things had happened. The emergency money had lost its value. It was no longer possible to exchange it for Reichsmarks. The loans formerly easily obtained from the Reichsbank were no longer granted, and the Rentenmark could not be used abroad. For these reasons the speculators were unable to pay for the dollars they had bought when payment became due (and they) made considerable losses."

Hjalmar Schact, Stabilizing the Mark


According to schact, it was not the printing of money, it was the speculative attacks on the mark (i.e. short-selling).

The german hyperinflation began in 1922 a few months after the german central bank was made independent of control by the government -- i.e. run entirely by private bankers. (The autonomy law).

The german hyperinflation ended in 1923 when hjalmar schacht instituted regulations that made the speculation that had been going on much more difficult.

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Response to HiPointDem (Reply #7)

Wed Oct 3, 2012, 06:06 AM

8. To a point, you are correct...

And this article written last year goes very much into depth about why money growth does not equal inflation...
http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/

Inflation isn't caused by money itself. The actual value of money itself in a fiat system is zero. It's a piece of paper. It's like monopoly money. The value is based on what it can buy. Say the government were to give out a ton of money to people. Just free money. People then go out and start spending this all over the place. Now you have just created demand all over the place. Which means...bingo....prices go up. Inflation. That's a rather simple example, but the point is to show that the inflation is not caused specifically from the growth of money. It's caused by the rate of which it is spent, or in economic terms...it's "velocity."

Now this does not mean you can go and create all the money you want. It doesn't work like that. If we did what the OP suggests, we'd have other problems that could lead to inflation as a result of a devalued currency which would greatly impact our trade deficit and interest rates.

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Response to davidn3600 (Reply #8)

Wed Oct 3, 2012, 11:05 AM

9. Disagree with this statement

<<Now you have just created demand all over the place.>>

Suppose that availability of money were not the limiting factor on demand. Suppose that at some point human beings just don't want anymore.

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Response to davidn3600 (Reply #8)

Wed Oct 3, 2012, 12:46 PM

11. i didn't say you would create all the money you want, though. but money creation in a deflationary

 

environment where manpower, plant & equipment are underutilized doesn't create hyperinflation.

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Response to abumbyanyothername (Original post)

Wed Oct 3, 2012, 11:25 AM

10. isn't is simpler to just raise taxes progressively 3 % of the GDP and balance the budget

then go back to printing money and deficit spending when the economy slows and paying down the debt when the economy does well. While I don't disagree with the central argument, I just think a long term stable economy generally doesn't solve every solution with deficit spending. The goal of the economy in the last century was to keep it relatively stable as average Americans simple can't tolerate wild boom, bust cycles. One lever economies never seem to end up stable anywhere accept on paper. At least it seems that way to me.

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