Re: “The 7 Deadly Innocent Frauds” DRAFT comments

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(email exchange)

>   Here are some comments — this was interesting reading, and I do think it
>   makes sense on strictly a macro level (which is obviously what he’s going for).


>   #1 explanation is interesting, especially regarding the example of parents and
>   children with coupons. I do feel, however, that the author doesn’t give much
>   consideration to the inflationary results of the ‘govt check don’t bounce’ thesis
>   (I’m referencing the debate the author describes at the Australia conference).
>   While it’s probably true, I do think inflation has a material impact (at least at
>   the micro level, which I suppose isn’t really the point of this article).

Right, the point is inflation is the issue, not solvency or sustainability. But critics of deficit spending never even attempt to quantify the inflationary aspect.

Instead, they seem to focus on ‘money supply’ for their inflation forecasting and ‘inflation expectation’ issues, both of which are not causal, but that’s another story.

>   Under #2, I think the rhetoric about do we have to send goods and services back
>   in time to pay for historical debt is a red herring and not applicable (and I’m not
>   surprised the Senator couldn’t really say much about it off-hand while his wife ‘got
>   it’). It’s the debt servicing that people worry about, and that is in current terms
>   (no time machine required). However, the thesis of gov’t checks not bouncing
>   speaks to how the debt can be serviced.

yes, and that distribution is entirely in the hands of the living who are in no case ruled from the grave.

>   Paying off China — to book a Treasury Note sale, the gov’t on its own books would
>   debit cash (for the receipt)

yes, and the Tsy’s account at the Fed is debited. right now we have a self imposed constraint that says the tsy’s balance at the fed can’t be negative.

but that is not an operational constraint, just a self imposed constraint

>   and credit the liability (to book the obligation).

again, via the Fed.

>   The buyer’s accounts mentioned wouldn’t really be booked by the gov’t I don’t think,
>   but I get the point.

the buyer’s funds go to the fed where they are ‘accounted for’ as owning the securities.

>   #3 and #7 go together in what is really being discussed is the use of leverage
>   (spending more than what you have). As long as the discussion stays at the macro
>   level, that’s fine as the gov’t can just keep printing money (again, ignoring any effects
>   of inflation).

and by printing you mean simply ‘spending’ as that’s all there is- changing numbers on bank accounts. using the word ‘printing’ rather than ‘spending’ is used by the mainstream to color thinking in a fixed fx direction that no longer is applicable.

>   But, it is quite a slippery slope to intertwine micro-level examples such as a hybrid car
>   factory and such as once you leave the gov’t level, leverage can have catastrophic
>   results (see the current deleveraging in the economy and how that’s affecting people on
>   a micro level). All this is fine as long as you have no monetary constraints, but for anyone
>   with no access to a US$ printing machine, it falls apart.

Included with my 3 current proposals to reverse the current situation is the govt funding an $8 hr job for anyone willing able to work.

The other two are a full payroll tax holiday and $300 billion to the states on a per capita basis with no strings attached. Together they restore demand, output, and employment.