Why not just monetize the debt?

[CA renter]

[quote=Fearful]
Really, it’s the middle that pays the most. The rich have inflation-indexed investments and the poor have inflation-indexed income.[/quote]

I’m with you, Fearful.

Not only does it hurt the middle most, but the “inflation index” does not do a good job of tracking inflation, IMO. I’ve seen far more inflation in the real world than what the CPI states. So, for those whose “safety net” income is indexed to the CPI, it seems to me as though their real purchasing power is going down more than what the “official” numbers state.

[scaredyclassic]

There’s always winners and losers.

But given the enormity of our collective debts.

Is there any other endgame?

[SD Realtor]

Is there any other endgame?

Yes, it is basically a lower standard of living for those that cannot keep up as well as more time spent keeping up by those who are in the middle.

It is simply a slow process. In terms you like to use, you work then you die. Now you just work harder, have less, then you die.

[dumbrenter]

[quote=SD Realtor]Is there any other endgame?

Yes, it is basically a lower standard of living for those that cannot keep up as well as more time spent keeping up by those who are in the middle.

It is simply a slow process. In terms you like to use, you work then you die. Now you just work harder, have less, then you die.[/quote]

This is one thing that economists / analysts never tell even though I am sure they knew it all along. One of the effects of globalization will be that in longer term, there will have to be some sort of equalization of standard of living. This means that those living in one country whose people have a way higher standard of living compared to the rest will have to give up some.

[scaredyclassic]

Sounds unamerican.

[DomoArigato]

[quote=walterwhite]
Is there any other endgame?[/quote]

Raising taxes and cutting the defense budget would easily solve the budget issue. But like you said, that’s unamerican.

[briansd1]

[quote=dumbrenter][quote=SD Realtor]Is there any other endgame?

Yes, it is basically a lower standard of living for those that cannot keep up as well as more time spent keeping up by those who are in the middle.

It is simply a slow process. In terms you like to use, you work then you die. Now you just work harder, have less, then you die.[/quote]

This is one thing that economists / analysts never tell even though I am sure they knew it all along. One of the effects of globalization will be that in longer term, there will have to be some sort of equalization of standard of living. This means that those living in one country whose people have a way higher standard of living compared to the rest will have to give up some.[/quote]

That’s not how it works.

Globalization will result in more parity, but we can get richer still, at a lower growth rate, while developing countries catch up to us, at a faster rate, That’s actually very good for the world.

I think the psychological discomfort is that we, Americans, are no longer wildly richer than that rest of the world.

One example. In the past, Americans were use to new immigrants being the tired, poor, huddled masses yearning to breathe free, the wretched refuse. Now many immigrants come to the best universties and drive luxury cars to class. They get H1B visas and buy houses in Carmel Valley and 4S Ranch. Some Americans think that’s “wrong.”

There’s globaliztion of knowledge and capital. That’s just how it it works.

[Allan from Fallbrook]

[quote=briansd1]
That’s not how it works.

Globalization will result in more parity, but we can get richer still, at a lower growth rate, while developing countries catch up to us, at a faster rate, That’s actually very good for the world.

I think the psychological discomfort is that we, Americans, are no longer wildly richer than that rest of the world.

There’s globaliztion of knowledge and capital. That’s just how it it works.[/quote]

Brian: Except globalization isn’t really resulting in more parity in all. Everything is interconnected and, in many ways, its a zero-sum game (i.e. for someone to win, someone else has to lose). You need look no further than the so-called BRIC countries (Brazil, Russian, India and China) to see the interconnectedness.

There are more and more reports lately of the bust occurring in China’s real estate market (http://www.foreignaffairs.com/articles/136963/patrick-chovanec/chinas-real-estate-bubble-may-have-just-popped) and the effects on Brazil (iron ore), Russia (lumber), as well as Australia and Canada, as Chinese demand for their goods and services has plummeted. Rather than a “rising tide lifting all boats”, we’re seeing more of a boom-and-bust cycle and one eerily reminiscent of the one here in the US that led to the fall 2008 crash.

The Chinese “miracle” is nothing more than a Potemkin village, fueled by bad loans pouring into infrastructure and real estate and the bills are coming due. Europe is in equally dire straits, but for different reasons and lacks the economic vitality necessary to pull free of massive debt obligations tied to their social model.

As battered as the US is, we’re still in a far better position to weather the storm and eventually pull out and ahead. As you correctly pointed out in another post, we simply lack the political will (or leadership) to do so.

[sreeb]

[quote=DomoArigato]So we’d get some inflation which would cause the value of any remaining debt to go down, further alleviating any ‘debt crisis’. Additionally, the value of the dollar would likely go down, no? This would increase the competitiveness of American exports and likely lead to higher employment.

What are the bad things that would happen, if any? Would we just be trading fear of invisible bond vigilantes with fear of the inflation boogeyman? Maybe the only thing we have to fear is fear itself?[/quote]

How much debt do you intend to monetize and how much inflation do you expect to get?

I believe it is impossible to predict with confidence but allow me to throw out some numbers.

Lets assume that on Friday, you announce that you are monetizing $15T (the nominal federal debt) thereby creating $15T in new money in addition to $10T of existing money (M2). You have effectively devalued the dollar by $25T/$10T so each dollar is now worth 40 cents.

On Monday morning, gas will cost $10/gal and everything in Walmart will have doubled over the weekend (although the shelves are empty of anything you need as those with available cash or credit already bought everything). World trade collapses as importers and exporters find that either they are bankrupt or their suppliers refuse to honor their contracts.

Government revenue plummets as wages lag and corporate profits disappear. Government expenses, market based and indexed to inflation grow. Lenders, concerned about inflation or default, demand high interest rates. More monetization occurs to finance the government which leads to further dollar devaluation. You can trade a box of cereal for a slightly used pair of re-released Air Jordans.

[sreeb]

DomoArigato,

Did you actually read the whole article you quoted from?

Yes, it is true that poor government policy destroyed the Zimbabwe economy (just as poor government policy is destroying ours) and damage to the economy preceded hyperinflation. However the failed economy did not cause hyperinflation, it only reduced government revenue. Hyperinflation started when the government responded by printing money to pay current expenses rather than altering policy or reducing spending.

Hyperinflation can’t occur in the absence of a huge expansion of the money supply.

[quote=DomoArigato][quote=paranoid]If you want to becom another zimbabwe, go for it.[/quote]

Hyperinflation in Zimbabwe was due to destruction of productive capacity, not due to monetization of existing debt:

Hyperinflation in Zimbabwe began shortly after destruction of productive capacity in Zimbabwe’s civil war and confiscation of white-owned farmland. Food output capacity fell 45%, manufacturing output 29% in 2005, 26% in 2006 and 28% in 2007, and unemployment rose to 80%.

http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

It’s important to understand differences in economic situations so that you aren’t so easily fooled.[/quote]

[DomoArigato]

[quote=sreeb]
Yes, it is true that poor government policy destroyed the Zimbabwe economy (just as poor government policy is destroying ours) and damage to the economy preceded hyperinflation. [/quote]

Anyone who compares the U.S. to Zimbabwe, Portugal, Italy, Ireland, Greece, and/or Spain is an idiot.

[DomoArigato]

[quote=sreeb]
How much debt do you intend to monetize and how much inflation do you expect to get?
[/quote]

Maybe just start off with monetizing 2% of the debt to see what happens? You predict that interest rates would go up, but everyone thought interest rates would go up when the U.S. was downgraded by S&P, but interest rates actually went down.

Personally, I don’t believe that the U.S.’s current debt is anything to be worried about. If anything, the U.S. should be borrowing more while rates are low. My preferred solution would be to raise taxes and cut the defense budget. However, the U.S. Government shouldn’t be reducing spending during a recession, so the money saved from the defense budget cuts should go towards strengthening the social safety net.

I was only proposing monetization of the debt to those that believe in invisible bond vigilantes.

[SD Realtor]

Anyone who compares the U.S. to Zimbabwe, Portugal, Italy, Ireland, Greece, and/or Spain is an idiot.

Ummm… okay…..it used to be just Zimbabwe… then it was Greece and Zimbabwe… now it seems like more and more countries.

Seems like the list is growing…

Perhaps you can show us successful historical references where your scheme actually was successful.

********************

Brian I respectfully disagree with your rose colored outlook on globalization. The reality of globalization has clearly been contrary to your posting for more USA citizens over the past 30 years. That is globalization essentially levels the standard of living for the masses who are not rich or in a ruling class. In that respect our masses in the USA have quite a ways to come down. Until the working class ALL AROUND THE WORLD is essentially equal and labor costs are around the same, then capitalism will always dictate that you go to the lower cost center to build and obtain labor if the quality of the finished product is equivalent.

We have seen over the past 30 years, with increased globalization, the inequality of wealth in the USA has decreased proportionally. The middle class has shrunk, the lower class has grown, and the rich guys have all gotten richer. The quantity of rich people has not grown as fast as the quantity of poor people and probably has not grown as fast as the middle class has shrunk. We have seen many headlines about the increasing disparity of wealth in this country.

I don’t have clear evidence of that, and it is a speculative statement however I think it is pretty clear.

I am not saying capitalism is bad, however it is a consequence of it when you follow the string… for better or for worse.

The only “system” I know of where everyone wins, and everything gets better for everyone is a ponzi scheme.

[Rich Toscano]

[quote=DomoArigato][quote=sreeb]
Yes, it is true that poor government policy destroyed the Zimbabwe economy (just as poor government policy is destroying ours) and damage to the economy preceded hyperinflation. [/quote]

Anyone who compares the U.S. to Zimbabwe, Portugal, Italy, Ireland, Greece, and/or Spain is an idiot.[/quote]

OK…

sreeb wasn’t comparing the US to Zimbabwe or anyone else. He was pointing out that — based on the article that you yourself cited — your characterization of the cause of hyperinflation in Zimbabwe was incomplete.

Your response is to call him an idiot? For saying something that he didn’t even say, no less? Something that, had he said it, wouldn’t even be idiotic anyway (eg, we have worse debt/deficit situations than some of the countries you cited)?

Nicely done.

[Rich Toscano]

[quote=DomoArigato]
I was only proposing monetization of the debt to those that believe in invisible bond vigilantes.[/quote]

That doesn’t make sense, because if there were such a thing as bond vigilantes, they would likely be more upset about debt monetization than they would about high debt levels.

[Author]

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