Posted by WARREN MOSLER on January 20th, 2011
My comments following Bill Gross’s comments:
I don’t know if the U.S. has reached a desperate point, but it is employing instruments and vehicles and policies that smack of desperation.
He fails to see the function of federal taxes is to regulate aggregate demand, and not to raise revenue per se.
We are not looking at a default here, but at years of accelerating inflation, which basically robs investors and labor of their real wages and earnings.
Apart from the possibility that he’s wrong, and that there will be no accelerating deflation, inflation per se does not make a nation poorer, and does not necessarily reduce real wages and earnings. In fact, real wages could very well be made to increase during an inflationary period. It’s all about policy responses and institutional structure. And as for investors, some will do well and some will do poorly, which most don’t consider an injustice.
We are looking at a currency that almost certainly will depreciate relative to other, stronger currencies in developing countries that have lower levels of debt and higher growth potential.
Maybe and maybe not on both scores.
The dollar may not depreciate.
And lower levels of public debt and higher growth potential do not necessarily mean a currency will appreciate.
For example, Japan has had perhaps the least growth potential and one of the strongest currencies for quite a while, and China has had a policy of keeping its currency weak which has been credited with fostering high growth, etc.
And, on the short end of the yield curve, we are looking at creditors receiving negative real interest rates for a long, long time. That, in effect, is a default.
No, it’s a policy option.
A default is a promise broken.
And there is no national promise by any nation to provide a real return to savers at the short end of the curve.
Ultimately creditors and investors are at the behest of a central bank and policymakers that will rob them of their money.
That’s a serious and groundless accusation of motivation of the Fed.
Robbing implies dishonesty and involuntary confiscation.
However no one is forced by the Fed or anyone else to hold dollars in money market accounts, investors buy securities with known nominal interest rates, and for all practical purposes investors know much the same information regarding inflation as the Fed does.
So when William Gross uses the word ‘rob’ he’s implying the Fed is deliberately publishing false inflation forecasts to trick investors into buying US govt securities at rates lower than if they knew the Fed’s actual inflation forecasts.
I suggest an immediate apology is in order for this groundless, inappropriate, and insulting remark.