10 Comments
  1. dvdhldn says

    An interesting Marxist perspective https://www.youtube.com/watch?v=qOP2V_np2c0

  2. dvdhldn says

    An interesting Marxist perspective https://www.youtube.com/watch?v=qOP2V_np2c0

  3. Red Rock Management says

    I’m confused By Christopher Wood’s comments above. With a sovereign currency such as the dollar or Yen, I don’t see the public sector crisis. The US will not default on any debts as it can simply credit spreadsheets and the debt is paid. By growing the federal deficit, the private sector gets the dollars it needs to de-leverage. Where is the accounting problem with transferring private sector debts to the public sector?

    1. Edward Harrison says

      Any MMT’er will tell you that the system is premised on the ability to tax and the use of the currency for that purpoose. If te government’s currency loses legitimacy, the system breaks down. The talk about crediting accounts is the typical MMT response to any question about sovereign debt. Sure, you can credit bank accounts ad infinitum. It does not address currency revulsion or inflation.

      The reason commodity prices, gold and silver are increasing in price is because citizens are becoming increasingly uncomfortable with using fiat money. This is true in the US as well as in Europe. Clearly, we have seen a transfer of private debts onto the sovereign through this financial crisis. The U.S. federal debt load has increased 40% just because of the recession alone. I believe more and more people are beginning to flee fiat currencies. And when the next systemic crisis occurs, I believe we will see a breakdown in the system. That has nothing to do with the willingness or ability of sovereigns to credit bank accounts. It has nothing to do with accounting. It has everything to do with the citizenry’s comfort with their respective national currencies.

      1. Karthik Natarajan says

        But then couldn’t the next systemic crisis be hyperinflation, aka a complete and utter loss of confidence in the dollar or its collapse? My concern over and over again is that there are a lot of USD out there, and in light of this BRICS conference, if it gets replaced as the world’s reserve currency, that means there will be a lot of US money floating out there, i.e., more $$s chasing fewer goods AKA huge inflation…

        1. Edward Harrison says

          again, hyperinflation is a political event. you have to assume certain outcomes. it could happen as I stated in this post but it will only occur if the body politic desires this outcome. Read Miss.

        2. Edward Harrison says

          I wrote:

          “Basically Mises has laid out very concisely the fact that the business cycle is due to the extension and over-extension of credit. Trying to continue to expand credit eventually ends in a hyper-inflationary scenario as it did in Weimar Germany in 1923. As a result, most countries are forced to stop.”

          At a minimum, you must assume that the Fed will not act to prevent inflation from continuing upward. You have to assume that the Congress will not act. Further, you have to assume that the relative price level in the U.S. detaches from its trading partners, meaning the US runs a monetary policy that is quite different from other CBs. It makes a good talking point for ideologues and it IS certainly possible but why would one make such an assumption?

          It’s one thing to suggest that gold or silver could rise as currency revulsion steps in but it’s different to assume the monetary stewardship of the world’s reserve currency is markedly different from other countries.

          I suggest you read Austrian devotee Brodsky and Quantaince’s post on QE3:
          https://pro.creditwritedowns.com/2010/08/stabilizing-the-global-monetary-system.html

          1. Karthik Natarajan says

            But do you really think the Fed is going to act to prevent inflation from going upward? With the unsustainable debt, it seems like hyperinflating it is the only option.

            Sorry, but this is what keeps me up at night.

          2. Karthik Natarajan says

            Also with regards to monetary policy similar to other CBs, aren’t the other CBs trying to raise rates to fight inflation? Bernanke doesn’t seem to be doing that.

  4. Red Rock Management says

    I’m confused By Christopher Wood’s comments above. With a sovereign currency such as the dollar or Yen, I don’t see the public sector crisis. The US will not default on any debts as it can simply credit spreadsheets and the debt is paid. By growing the federal deficit, the private sector gets the dollars it needs to de-leverage. Where is the accounting problem with transferring private sector debts to the public sector?

    1. Edward Harrison says

      Any MMT’er will tell you that the system is premised on the ability to tax and the use of the currency for that purpoose. If te government’s currency loses legitimacy, the system breaks down. The talk about crediting accounts is the typical MMT response to any question about sovereign debt. Sure, you can credit bank accounts ad infinitum. It does not address currency revulsion or inflation.

      The reason commodity prices, gold and silver are increasing in price is because citizens are becoming increasingly uncomfortable with using fiat money. This is true in the US as well as in Europe. Clearly, we have seen a transfer of private debts onto the sovereign through this financial crisis. The U.S. federal debt load has increased 40% just because of the recession alone. I believe more and more people are beginning to flee fiat currencies. And when the next systemic crisis occurs, I believe we will see a breakdown in the system. That has nothing to do with the willingness or ability of sovereigns to credit bank accounts. It has nothing to do with accounting. It has everything to do with the citizenry’s comfort with their respective national currencies.

      1. Karthik Natarajan says

        But then couldn’t the next systemic crisis be hyperinflation, aka a complete and utter loss of confidence in the dollar or its collapse? My concern over and over again is that there are a lot of USD out there, and in light of this BRICS conference, if it gets replaced as the world’s reserve currency, that means there will be a lot of US money floating out there, i.e., more $$s chasing fewer goods AKA huge inflation…

        1. Edward Harrison says

          again, hyperinflation is a political event. you have to assume certain outcomes. it could happen as I stated in this post but it will only occur if the body politic desires this outcome.

          Read Mises. “As long as the expansion of credit is continued this will not be noticed, but this extension cannot be pushed indefinitely. For if an attempt were made to prevent the sudden halt of the upward movement (and the collapse of prices which would result) by creating more and more credit, a continuous and even more rapid increase of prices would result”

          Read more: https://pro.creditwritedowns.com/2008/12/what-does-mises-say-about-trying-to-stimulate-the-economy-out-of-recession.html#ixzz1JXtjaHRn

        2. Edward Harrison says

          I wrote:

          “Basically Mises has laid out very concisely the fact that the business cycle is due to the extension and over-extension of credit. Trying to continue to expand credit eventually ends in a hyper-inflationary scenario as it did in Weimar Germany in 1923. As a result, most countries are forced to stop.”

          At a minimum, you must assume that the Fed will not act to prevent inflation from continuing upward. You have to assume that the Congress will not act. Further, you have to assume that the relative price level in the U.S. detaches from its trading partners, meaning the US runs a monetary policy that is quite different from other CBs. It makes a good talking point for ideologues and it IS certainly possible but why would one make such an assumption?

          It’s one thing to suggest that gold or silver could rise as currency revulsion steps in but it’s different to assume the monetary stewardship of the world’s reserve currency is markedly different from other countries.

          I suggest you read Austrian devotee Brodsky and Quantaince’s post on QE3:
          https://pro.creditwritedowns.com/2010/08/stabilizing-the-global-monetary-system.html

          1. Karthik Natarajan says

            But do you really think the Fed is going to act to prevent inflation from going upward? With the unsustainable debt, it seems like hyperinflating it is the only option.

            Sorry, but this is what keeps me up at night.

          2. Karthik Natarajan says

            Also with regards to monetary policy similar to other CBs, aren’t the other CBs trying to raise rates to fight inflation? Bernanke doesn’t seem to be doing that.

  5. Spencer Bradley Hall says

    The legal tie to gold was fictional, the economic tie tenuous, & the protection was a myth.

    The Bretton Woods Agreement of 1944 established, among other things, the International Monetary Fund and confirmed the previous international status of the dollar, that an ounce of gold was equal to $35 and that all dollars were to be freely convertible into gold bullion at that price to foreign and confirmed the previous international status of the dollar, that an ounce of gold was equal to $35 and that all dollars were to be freely convertible into gold bullion at that price to foreigners but not to U.S. nationals.

    In 1949, the U.S. dollar was not only as “good as gold”, but it was also preferred over gold. There were not enough dollars to finance the legitimate needs of the world economy. So, the chronic balance of payments deficits which began in 1950 were for a number of years beneficial to the world economy and to the U.S. Because of our large and chronic balance of payments surpluses after World War II, foreigners were unable to accumulate sufficient dollar balances to efficiently finance world trade. These balances were desperately needed because of the total dominance of the dollar as the reserve custodian, standard of value and transactions currency of the world.

    The Korean Conflict (1950-1953) temporarily solved the problem but, the longer term solution consisted in implementing our “containment policy” against the U.S.S.R. This involved the establishment of approximately 700 military bases, not only around the perimeter of the Soviet Union but throughout the world. We have paid hundreds of billions of dollars to foreigners to acquire the bases and to maintain a garrison of more than 400,000 military personnel abroad. With diminishing merchandise surpluses this policy proved to be financial overkill.

    The Korean War, which began in June, 1950, initiated the chronic balance of payments deficits that persist to this time and which will probably continue as long as foreigners are willing to increase their net investments in this country.

    The U.S. had a net liquidity deficit in every year since 1950 (with the exception of 1957), up to 1976 (when the private sector contributed its first trade deficit ). These deficits were entirely the consequence of excessive U.S. government (Pentagon) unilateral transfers to foreigners (re: foreign policy – solely our far flung military bases and personnel). During all this time the private sector was running a surplus in all accounts: merchandise, services and financial. The Vietnam Ten-year War administered the coup d’etat to our gold bullion standard. By 1968, in an effort to keep the dollar at the $35 par, we had exhausted nearly two thirds of our monetary gold stocks, or approximately 700 million ounces to about 260 million ounces.

  6. Spencer Bradley Hall says

    The legal tie to gold was fictional, the economic tie tenuous, & the protection was a myth.

    The Bretton Woods Agreement of 1944 established, among other things, the International Monetary Fund and confirmed the previous international status of the dollar, that an ounce of gold was equal to $35 and that all dollars were to be freely convertible into gold bullion at that price to foreigners but not to U.S. nationals.

    In 1949, the U.S. dollar was not only as “good as gold”, but it was also preferred over gold. There were not enough dollars to finance the legitimate needs of the world economy. So, the chronic balance of payments deficits which began in 1950 were for a number of years beneficial to the world economy and to the U.S. Because of our large and chronic balance of payments surpluses after World War II, foreigners were unable to accumulate sufficient dollar balances to efficiently finance world trade. These balances were desperately needed because of the total dominance of the dollar as the reserve custodian, standard of value and transactions currency of the world.

    The Korean Conflict (1950-1953) temporarily solved the problem but, the longer term solution consisted in implementing our “containment policy” against the U.S.S.R. This involved the establishment of approximately 700 military bases, not only around the perimeter of the Soviet Union but throughout the world. We have paid hundreds of billions of dollars to foreigners to acquire the bases and to maintain a garrison of more than 400,000 military personnel abroad. With diminishing merchandise surpluses this policy proved to be financial overkill.

    The Korean War, which began in June, 1950, initiated the chronic balance of payments deficits that persist to this time and which will probably continue as long as foreigners are willing to increase their net investments in this country.

    The U.S. had a net liquidity deficit in every year since 1950 (with the exception of 1957), up to 1976 (when the private sector contributed its first trade deficit ). These deficits were entirely the consequence of excessive U.S. government (Pentagon) unilateral transfers to foreigners (re: foreign policy – solely our far flung military bases and personnel). During all this time the private sector was running a surplus in all accounts: merchandise, services and financial. The Vietnam Ten-year War administered the coup d’etat to our gold bullion standard. By 1968, in an effort to keep the dollar at the $35 par, we had exhausted nearly two thirds of our monetary gold stocks, or approximately 700 million ounces to about 260 million ounces.

  7. Spencer Bradley Hall says

    We can help terminate these deficits by (1) the U.S. government drastically reducing its overseas military expenditures – or by transferring most of the cost of maintaining bases and personnel to foreign governments; (2) revitalizing a large segment of U.S. industry so that it will be able to compete in foreign markets; (3) sharply reducing our dependence on foreign energy sources; and, (4) increasing the attractiveness of foreign long-term investment in the U.S.

    Since actions sufficient to eliminate these deficits are highly improbable, the dollar will eventually decline to a level which will eliminate them. At that level our standard of living, for this and other reasons including financing the federal debt, will be much lower than at present, and the capacity of the Pentagon to project conventional military power abroad will be severely circumscribed.

    Since the U.S. is no longer an economically undeveloped nation, but is increasingly an international debtor, what evaluation should be places on our huge trade and current account deficits? For the very short run these deficits keep prices and interest rates lower than they otherwise would be and they subsidize our standard of living. But the deficits also are inexorably forcing the dollar down in terms of its foreign exchange value—and no consortium of central bankers, treasury secretaries, et al. can stop the process

    A weak currency is not a cause; rather it is a symptom of a weak, noncompetitive economy. In time, of course, a declining dollar will eliminate the deficit in our balance-of-trade. But the price exacted will be a sharp decline in imports, principally oil, and the purchase of foreign services, reflecting our relative poverty and inability to compete in the international economy. The fact that we are the world’s number one producer of smart bombs will not arrest that trend.

    The problem is that further depreciation of the dollar will not correct our foreign trade deficit. In fact, further depreciation will only make our stocks and real estate even cheaper and even more attractive as a safe haven in this dangerous would. We are now currently selling our birthright for a mess of pottage. We are becoming a financial hostage to the Pacific Rim, their plantation if you will.

    The volume of dollar-denominated liquid assets held by foreigners is extremely large. Any significant repatriation of these funds, by reducing the supply of loan-funds, will force interest rates up – thus increasing the federal deficit and the burden of all new debt. These events alone could trigger a downswing in the economy resulting in more unemployment, more unemployment compensations, less tax revenues and larger federal deficits — truly a vicious cycle.

    Unfortunately, in this and other financial areas, expectations become reinforcing self-fulfilling prophecies. No country has become and remained a world power if it is a world debtor and has a weak currency. From these unwanted events we can expect a vicious level of stagflation that will become an enduring feature of our economic landscape. And the United States will be forced into a high degree of economic isolation, operate under a command economy — i.e., into an increasingly totalitarian mold.

  8. Spencer Bradley Hall says

    We can help terminate these deficits by (1) the U.S. government drastically reducing its overseas military expenditures – or by transferring most of the cost of maintaining bases and personnel to foreign governments; (2) revitalizing a large segment of U.S. industry so that it will be able to compete in foreign markets; (3) sharply reducing our dependence on foreign energy sources; and, (4) increasing the attractiveness of foreign long-term investment in the U.S.

    Since actions sufficient to eliminate these deficits are highly improbable, the dollar will eventually decline to a level which will eliminate them. At that level our standard of living, for this and other reasons including financing the federal debt, will be much lower than at present, and the capacity of the Pentagon to project conventional military power abroad will be severely circumscribed.

    Since the U.S. is no longer an economically undeveloped nation, but is increasingly an international debtor, what evaluation should be places on our huge trade and current account deficits? For the very short run these deficits keep prices and interest rates lower than they otherwise would be and they subsidize our standard of living. But the deficits also are inexorably forcing the dollar down in terms of its foreign exchange value—and no consortium of central bankers, treasury secretaries, et al. can stop the process

    A weak currency is not a cause; rather it is a symptom of a weak, noncompetitive economy. In time, of course, a declining dollar will eliminate the deficit in our balance-of-trade. But the price exacted will be a sharp decline in imports, principally oil, and the purchase of foreign services, reflecting our relative poverty and inability to compete in the international economy. The fact that we are the world’s number one producer of smart bombs will not arrest that trend.

    The problem is that further depreciation of the dollar will not correct our foreign trade deficit. In fact, further depreciation will only make our stocks and real estate even cheaper and even more attractive as a safe haven in this dangerous would. We are now currently selling our birthright for a mess of pottage. We are becoming a financial hostage to the Pacific Rim, their plantation if you will.

    The volume of dollar-denominated liquid assets held by foreigners is extremely large. Any significant repatriation of these funds, by reducing the supply of loan-funds, will force interest rates up – thus increasing the federal deficit and the burden of all new debt. These events alone could trigger a downswing in the economy resulting in more unemployment, more unemployment compensations, less tax revenues and larger federal deficits — truly a vicious cycle.

    Unfortunately, in this and other financial areas, expectations become reinforcing self-fulfilling prophecies. No country has become and remained a world power if it is a world debtor and has a weak currency. From these unwanted events we can expect a vicious level of stagflation that will become an enduring feature of our economic landscape. And the United States will be forced into a high degree of economic isolation, operate under a command economy — i.e., into an increasingly totalitarian mold.

  9. Spencer Bradley Hall says

    We can help terminate these deficits by (1) the U.S. government drastically reducing its overseas military expenditures – or by transferring most of the cost of maintaining bases and personnel to foreign governments; (2) revitalizing a large segment of U.S. industry so that it will be able to compete in foreign markets; (3) sharply reducing our dependence on foreign energy sources; and, (4) increasing the attractiveness of foreign long-term investment in the U.S.

    Since actions sufficient to eliminate these deficits are highly improbable, the dollar will eventually decline to a level which will eliminate them. At that level our standard of living, for this and other reasons including financing the federal debt, will be much lower than at present, and the capacity of the Pentagon to project conventional military power abroad will be severely circumscribed.

    Since the U.S. is no longer an economically undeveloped nation, but is increasingly an international debtor, what evaluation should be places on our huge trade and current account deficits? For the very short run these deficits keep prices and interest rates lower than they otherwise would be and they subsidize our standard of living. But the deficits also are inexorably forcing the dollar down in terms of its foreign exchange value—and no consortium of central bankers, treasury secretaries, et al. can stop the process

    A weak currency is not a cause; rather it is a symptom of a weak, noncompetitive economy. In time, of course, a declining dollar will eliminate the deficit in our balance-of-trade. But the price exacted will be a sharp decline in imports, principally oil, and the purchase of foreign services, reflecting our relative poverty and inability to compete in the international economy. The fact that we are the world’s number one producer of smart bombs will not arrest that trend.

    The problem is that further depreciation of the dollar will not correct our foreign trade deficit. In fact, further depreciation will only make our stocks and real estate even cheaper and even more attractive as a safe haven in this dangerous would. We are now currently selling our birthright for a mess of pottage. We are becoming a financial hostage to the Pacific Rim, their plantation if you will.

    The volume of dollar-denominated liquid assets held by foreigners is extremely large. Any significant repatriation of these funds, by reducing the supply of loan-funds, will force interest rates up – thus increasing the federal deficit and the burden of all new debt. These events alone could trigger a downswing in the economy resulting in more unemployment, more unemployment compensations, less tax revenues and larger federal deficits — truly a vicious cycle.

    Unfortunately, in this and other financial areas, expectations become reinforcing self-fulfilling prophecies. No country has become and remained a world power if it is a world debtor and has a weak currency. From these unwanted events we can expect a vicious level of stagflation that will become an enduring feature of our economic landscape. And the United States will be forced into a high degree of economic isolation, operate under a command economy — i.e., into an increasingly totalitarian mold.

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