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Old 3rd January 2013, 12:55 PM   #41
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Originally Posted by Shambler View Post
Concrete industry is in decline:

http://business.highbeam.com/industr...mixed-concrete

So straight away, you are wrong there, there is a lot of potential for scaling up production of concrete.

Demand for steel is also widely reported to be below pre-recession levels, and there is no indication that the steel industry is incapable of scaling up supply to meet any increased demand, so you are wrong on that point too:

http://finance.yahoo.com/news/steel-...212516693.html

Those private companies wouldn't be crowded out, as obviously nobody is hiring them to build nuclear power plants at the moment; the private sector has thus far totally failed to provide enough efforts into transitioning away from power dependent on fossil fuels, so there is no choice but for government to step in.
Decline in demand is far from being a surplus good.. I doubt the companies actually making concrete and steel are willing to operate at a loss just so this silliness goes thru.

Oh wait.. We can always get the "surplus" labor to make steel and concrete. What then? Transporting all that material needs "surplus" labor too... Let's just call it quits and get the government to run the entire show - USSR had a great track record for extensive use of labor for making stuff no one needed or wanted. They also had 100% employment rate ya know.
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Old 3rd January 2013, 01:10 PM   #42
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Originally Posted by Blank View Post
Decline in demand is far from being a surplus good.. I doubt the companies actually making concrete and steel are willing to operate at a loss just so this silliness goes thru.

Oh wait.. We can always get the "surplus" labor to make steel and concrete. What then? Transporting all that material needs "surplus" labor too... Let's just call it quits and get the government to run the entire show - USSR had a great track record for extensive use of labor for making stuff no one needed or wanted. They also had 100% employment rate ya know.
It's a temporary decline. They can ramp up the production very quickly. They are not operating at a loss right now. They simply are not at 100%.

Same with transportation. Plenty of idle drivers out there.

This isn't about calling it quits. It's about putting in an order that the private market will fill.

The reason private companies aren't building new nuclear reactors is because massive up front costs of billions of dollars and the risks of not staying on budget because the new reactors have little existing implementation. It's not because they can't be competitive once up and running, even if they cost a lot.

The country needs jobs very bad even still. And more orders will cause private market to create them.
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Old 3rd January 2013, 01:13 PM   #43
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Originally Posted by aggle-rithm
I know you've already been over this, but could you give us a quick summary of what the empirical backing is?
It's tricky, but I've collected some information from here, which is useful:
https://rodgermmitchell.wordpress.co.../introduction/

Evidence that federal debt (i.e. government spending) and overall money supply does not directly correlate with inflation:



Evidence that there is no relation between the money supply and inflation:



Evidence that inflation is more closely linked to oil than other factors (thus more closely linked with commodities, particularly those which underpin the entire economy):



Evidence that high government debts (i.e. high government spending), have historically resulted in higher GDP, without unacceptable inflation:



These assist in debunking monetarist/quantity-theory-of-money claims regarding the economy, and bolster the views I put forward regarding the money supply, its relation to inflation, and the effects of government spending (as well as the causes of inflation).


Some 'bonus' information:
Correlation between government surplus spending (i.e. net removal of money from the economy), and economic depressions:
Quote:
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

Recessions often follow a reduction in government spending (also supports the idea that running a surplus, i.e. net removal of money from the economy, is bad):
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Old 3rd January 2013, 01:17 PM   #44
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Originally Posted by Blank View Post
Decline in demand is far from being a surplus good.. I doubt the companies actually making concrete and steel are willing to operate at a loss just so this silliness goes thru.

Oh wait.. We can always get the "surplus" labor to make steel and concrete. What then? Transporting all that material needs "surplus" labor too... Let's just call it quits and get the government to run the entire show - USSR had a great track record for extensive use of labor for making stuff no one needed or wanted. They also had 100% employment rate ya know.
Inflation is caused when the increase in demand occurs faster than than the increase in supply, such that supply can't keep up with demand; since there has been a decline in demand for these industries, that means we know they are capable of ramping up supply to meet demand; that is excess industrial capacity, that can be scaled up to meet demand, thus avoiding inflation.

No companies would be operating at a loss, I don't know where you're getting that idea from.

Originally Posted by daenku32 View Post
It's a temporary decline. They can ramp up the production very quickly. They are not operating at a loss right now. They simply are not at 100%.

Same with transportation. Plenty of idle drivers out there.

This isn't about calling it quits. It's about putting in an order that the private market will fill.

The reason private companies aren't building new nuclear reactors is because massive up front costs of billions of dollars and the risks of not staying on budget because the new reactors have little existing implementation. It's not because they can't be competitive once up and running, even if they cost a lot.

The country needs jobs very bad even still. And more orders will cause private market to create them.
Exactly

Last edited by Shambler; 3rd January 2013 at 01:19 PM.
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Old 3rd January 2013, 01:36 PM   #45
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Originally Posted by Shambler View Post
All of that depends upon what it is spent on, and if it is spent at all; if it stays within the bank account of the company you bought money from, it does not get spent, if instead of buying from a private company, you use a public company to fund extraction/creation of the goods instead, the main source of potential inflation is wages.
So.... you assume that the companies being paid with this extra money aren't going to spend it? Even if that were true, what happens when the bank starts making additional loans based on the increased amount of money sitting in accounts?

Originally Posted by Shambler View Post
If inflation is claimed, it needs to be shown where money is going to end up chasing goods of limited supply, and every time money is spent without chasing goods of limited supply, that reduces the potential inflationary effect of overall spending.
But the producers of goods of non-limited excess supply will then spend that extra money on goods of limited supply. The money doesn't just vanish from the economy once it's spent.

Originally Posted by Shambler View Post
Remember, full employment is the goal no matter what economic theory you're supporting,
Remember, full employment results in higher average wages because employers in need of more workers will be forced to offer higher wages in order to attract workers away from other jobs. Higher average wages results in inflation.
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Old 3rd January 2013, 02:47 PM   #46
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Originally Posted by Brian-M View Post
Remember, full employment results in higher average wages because employers in need of more workers will be forced to offer higher wages in order to attract workers away from other jobs. Higher average wages results in inflation.
I must admit this is the first time I've ran into the argument that "full employment" is a bad thing.

I mean, "overheating economy" is an old argument, but it's not the same as "full employment".
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Old 3rd January 2013, 03:25 PM   #47
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Originally Posted by Shambler View Post
Cheers

Wars are actually the perfect example of government net-spending in action, aimed at economic recovery; WWII got the US out of the last great depression, so just imagine what such a huge expenditure of money could do, if put to productive use in a Job Guarantee, instead of a war (you could put enormous amounts of effort into avoiding the upcoming energy crisis, for one)
No. First of all, the Great Depression was caused by the malinvestment which was a consequence of the massive increase in money and credit by the US Federal Reserve, and then the subsequent and abrupt decrease in the money supply. Wars do not create prosperity, they only destroy. What you are attempting to sell here, is an extreme example of the broken window fallacy.

Quote:

A central bank can't counterfeit money, because counterfeiting is the illegal copying of money, and the central bank is the one place (alongside government, with platinum coin seigniorage) that can print money and have it be non-counterfeit.
Of course it's counterfeiting. When central banks create money, they are stealing purchasing power directly from the savers of money. This affects the poor more than anyone else, since they tend to have more cash as a proportion of their net worth than the rich, as well as minimal debt. The rich have financial assets as opposed to cash, which tends to appreciate in value as the central bank confiscates purchasing power and redistributes it to government bondholders. The only difference between the product of the illegal counterfeiter and the legal counterfeiter, is authenticity, which matters little next to the purchasing power stolen.

Quote:

What central banks do, is print money, and then issue an equal amount of government bonds on the market, as debt; this issuance of bonds/debt, is only done due to legal/political requirement, not through any economic requirement.
Central banks don't issue bonds, Treasuries do. Central banks monetize sovereign debt by counterfeiting money and buying bonds at government bond auctions (usually indirectly via primary dealers). Central banks also extend private credit to their cronies/controllers, in the form of subsidized loans of negligible interest rates, and then these cronies invest the proceeds in sovereign debt, the interest for which is paid by the taxpayer, who has to actually labor for their money.

If governments have the right to create an endless supply of fiat money, as you maintain, then why have they delegated this power to quasi-private central banks, and why do they make private loans to parties who then turn around and loan that money to the government, at interest? Why doesn't the government simply print all of what it needs?

The answer, of course, is that government is run by, and for the benefit of, bankers.

Quote:

With platinum coin seigniorage, the US government is capable of issuing new currency, without any corresponding debt; the only hindrance to this, is political.
What does platinum coin seigniorage have to do with anything? Seigniorage refers to the profit received by government from the difference between the nominal value of money, less the cost of producing that money.

This is obviously very high when we're talking about the Fed giving Goldman Sachs an electronic credit of $100B, and much lower when it actually mints a gold, silver, or rarely, platinum eagle. Seigniorage is nothing more than a tax, a form of counterfeiting.

Quote:

Indeed, I do disagree with the 'quantity theory of money' definition of inflation, and have provided arguments in my posts above, as to why it is false.

Price inflation is what matters in the economy (that is the definition of inflation), and money supply inflation does not directly determine price inflation (as my arguments above support), so it is always important to talk about inflation in terms of price inflation only (and this does not have to be limited to the CPI, it can apply to any goods).
Financial asset inflation is just as important as price inflation, because it is the root of wealth condensation, malinvestment, and economic instability and manipulation. Financial asset inflation ultimately leads to general price inflation, as wealthy financial asset holders eventually turn unrealized capital gains into realized ones, and use the profits to purchase scarce real goods and services that everyone else has to compete for with nothing but the fruits of their labor. If you were truly progressive, or interested in fairness and economic reform, you would already be aware of this.

Quote:

Any semantic redefinition of 'inflation', to mean inflation of the money supply rather than price inflation, which ignores the disconnect between monetary and price inflation, but which also tries to imply the negative effects of price inflation, is inaccurate and asserting it would be inaccurate and tautological, given previous examples showing how this is not true.

So yes, whenever I mention inflation, I always mean 'price inflation' (that is its definition), and attempts to redefine it as money supply inflation, are inherently inaccurate and (unless explicitly disclaimerized as 'money supply inflation', rather than just 'inflation') cause a semantic and intellectual barrier to discussion, because we would not be talking about the same thing.

This is a good example of why 'money supply inflation' needs to be distinguished from 'price inflation'; you say money creation is 'inflation-induced demand', but that is implicitly defining inflation as an increase in the money supply.

That is not the definition of inflation; price inflation, is the primary definition of inflation.
The distinction between monetary inflation and general price inflation is crucial, because the productivity norm serves to obscure the wealth transfer that occurs via counterfeiting.

In other words, the fact that society is productive and creates ever more goods and services tends to hide the fact that there is a banker class who, by manipulating the money supply, obtains real goods and services without producing anything in exchange.

Quote:

Also, central bankers do not 'steal' production, and as I explained earlier, can not 'counterfeit' because they are inherently the only legal issuers of money.
Once again, the legality of a thing, and the authenticity of money and credit means little next to stolen purchasing power. It's the purchasing power that matters. It matters not to me whether Ben Bernanke provides JP Morgan with $100B in "authentic" credit, or whether a criminal prints a $100 bill on his laser printer. What matters is that my purchasing power has been stolen.

Quote:

Money, being a means of exchange, means that when there is not enough money in the economy, people can not exchange their labour for goods (through earning and then spending money); so money enables production, and when there is unemployment in the economy, that is a waste/loss of production that can not be regained.

This means that when government creates money, to provide a Job Guarantee for full employment, it is enabling production that would otherwise not happen, not taking production out of the economy.
Creating money isn't some magical solution bestowed by academics, and central bankers from their ivory towers like some gift from the gods. It's theft from savers. Nothing more, nothing less. Once again, full employment is not the problem. The problem, is creating jobs that produce things that actually benefit society, and government is least-able to solve that problem, whether the revenues come from seigniorage (counterfeiting), or direct taxation.

Quote:

With 'Platinum Coin Seigniorage', it's actually perfectly legal; the only impediment to doing this at the moment, is political, not legal or economic.


If government cut all taxes tomorrow, and kept on spending at its current rate forever, that would eventually become inflationary; if you agree with that, then you would inherently agree that taxes manage/prevent inflation, and thus that fiscal policy manages inflation.
No. If government cut all taxes tomorrow, and funded the astounding budget deficit that would result by simply counterfeiting the public's money, the inflation tax would go up dramatically, but that would be offset by the fact that my conventional taxes were cut.

At the end of the day, the price of milk might increase, but that would be offset by me having more income to buy milk. The burden of government would, however, be shifted on to the backs of the poor as I showed earlier because the inflation tax is a regressive tax. Fiscal policy doesn't "manage inflation" at all. It's just another form of taxation, like the inflation tax.

Quote:

You are again assuming that "money creation = inflation" here, which I've addressed previously.
Money creation is the theft of purchasing power, regardless of whether it results in general price inflation, asset price inflation, or some combination.

Quote:
Indeed like a 'war' effort to remove dependency on oil, to improve infrastructure, provide better education/healthcare etc., or even just to end unemployment itself; 'war' in all contexts, would economically mean extensive spending.
Just a reminder, the broken window fallacy is still a fallacy.

Quote:
The private sector primarily focuses on short-term gains at the moment, and is currently incapable of solving wider long-term issues like the upcoming energy crisis, pollution/climate-change, and generally any issues where monetary gain is not the sole aim.

It's long past the time that these wider long-term issues should have had more effort put towards solving them, and since the private sector has failed here, it is up to government to direct efforts in that direction.
I don't subscribe to anthropogenic climate change, and I don't want to be swindled into paying a carbon tax. If you are so naïve, then I suggest you attempt to secure funding for them using conventional forms of taxation, instead of lobbying for the arbitrary and potentially infinite inflation tax.

Quote:

On the contrary, these views are the only ones which fit the empirical record well, and thus are the only ones which are not intellectually bankrupt; current policies/theory support leaving our economy with mass unemployment, and in allowing economic/social destruction to happen through austerity, which leads to countless deaths, ill health of many people within the population, poverty, homelessness, lost opportunities/prospects/futures for lots of people, etc. etc.. That is morally bankrupt, and inexcusable due to how needless it all is.
The false austerity that forces society to choose between paying interest on phony, counterfeit debts funded by central banks, and borrowed by politicians, is created by the very institutions you espouse and advocate for. There is another solution which doesn't involve either raising taxes, or cutting government spending (even though I think it should be cut, regardless), and that is, debt repudiation, and the abolition of the central bank.

In fact, this is the only moral, and reasonable solution.

Quote:

Well, if you can provide sources to back this up (particularly specific defenses of the quantity theory of money), I'd certainly be interested in checking them out; I haven't come across any defenses of it lately (and given the evidence, not sure how it can be defended), so it would be genuinely interesting to see what arguments there are, which deal with past events/evidence showing it to be wrong.
Start by reading Antal Fekete, and the Real Bills Doctrine. He is also critical of the QTM, but for different reasons than you are.
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- Alan Greenspan 1966

Last edited by Tippit; 3rd January 2013 at 03:37 PM.
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Old 3rd January 2013, 03:27 PM   #48
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Originally Posted by daenku32 View Post
I must admit this is the first time I've ran into the argument that "full employment" is a bad thing.

I mean, "overheating economy" is an old argument, but it's not the same as "full employment".
Full employment isn't a bad thing at all. But stealing from savers in order to pay people to dig ditches, or shuffle paper in meaningless government jobs, is a bad thing.
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- Alan Greenspan 1966
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Old 3rd January 2013, 03:30 PM   #49
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Originally Posted by Shambler View Post
It's tricky, but I've collected some information from here, which is useful:
https://rodgermmitchell.wordpress.co.../introduction/

Evidence that federal debt (i.e. government spending) and overall money supply does not directly correlate with inflation:
I already explained this. If you limit the definition of inflation to be an arbitrary basket of consumer goods and services chosen by the government and hedonically manipulated, then the inflation of financial assets will go unmeasured by such a metric, which is exactly what is happening.

What part of this don't you understand?
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- Alan Greenspan 1966
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Old 3rd January 2013, 04:11 PM   #50
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Originally Posted by Tippit View Post
Full employment isn't a bad thing at all. But stealing from savers in order to pay people to dig ditches, or shuffle paper in meaningless government jobs, is a bad thing.
The savers can buy gold if they don't like their cash to lose value. Or many other commodities. There are plenty of ways for them to avoid being "stolen" from.
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Old 3rd January 2013, 04:50 PM   #51
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Originally Posted by Shambler View Post
It's tricky, but I've collected some information from here, which is useful:
https://rodgermmitchell.wordpress.co.../introduction/

Evidence that federal debt (i.e. government spending) and overall money supply does not directly correlate with inflation:
You seem to be equating federal debt and money supply. I don't see how that follows from the data. Can you explain?
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Old 3rd January 2013, 05:03 PM   #52
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Originally Posted by aggle-rithm View Post
You seem to be equating federal debt and money supply. I don't see how that follows from the data. Can you explain?
I'm not 100% sure of the connection between inflation and that graph (other than that in fractional reserve system each loan essentially increases the money supply), but the graph in question most certainly is not just Federal Debt. It's private debt as well.
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Old 3rd January 2013, 08:29 PM   #53
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Originally Posted by Shambler View Post
Government can create and spend as much money as it likes, with the only limit being inflation.
Originally Posted by Shambler View Post
Banks don't 'create' money, they have a remit to extend credit (give out loans with corresponding debts), which the state then backs.
Originally Posted by Shambler View Post
It's tricky, but I've collected some information from here, which is useful:
https://rodgermmitchell.wordpress.co.../introduction/

Evidence that federal debt (i.e. government spending) and overall money supply does not directly correlate with inflation:
I don't know where you are getting your information from but your ideas about money are all over the place. It appears that you can't even tell the difference between created money and borrowed money.

It's not that difficult. Under fractional reserve banking, governments can't simply print money to cover their budget shortfalls because the resulting credit/deposit expansion by the banks would be highly inflationary. That is why they borrow the money instead. The fed does print money to buy up some government debt but it can only buy a small fraction of the government debt this way.

If you really want the government to be able to print money instead of borrow it then you need to get rid of the fractional reserve banking system. PositiveMoney.org has made a SUBMISSION TO THE INDEPENDENT COMMISSION ON BANKING in the UK that shows how it can be done.

If that looks too boring for you, their Home Page has a number of YouTubes for the unwashed masses.
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Old 3rd January 2013, 08:41 PM   #54
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Originally Posted by daenku32 View Post
I must admit this is the first time I've ran into the argument that "full employment" is a bad thing.

I mean, "overheating economy" is an old argument, but it's not the same as "full employment".
I didn't say it was a bad thing. Just that it would contribute to inflation. (Nothing wrong with a little inflation. It's only when you get a lot of inflation that you run into problems.)
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Old 3rd January 2013, 08:53 PM   #55
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Originally Posted by psionl0 View Post
Under fractional reserve banking, governments can't simply print money to cover their budget shortfalls because the resulting credit/deposit expansion by the banks would be highly inflationary. That is why they borrow the money instead.The fed does print money to buy up some government debt but it can only buy a small fraction of the government debt this way.
FRB and deficit spending are utterly unrelated. Even without FRB governments would still borrow before they print (in normal circumstances). Yes, governments borrow to keep inflation down, but that's not due to supposed credit/deposit expansion, it's because of the dilution of existing currency that printing represents.
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Old 3rd January 2013, 09:01 PM   #56
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Originally Posted by Sceptic-PK View Post
FRB and deficit spending are utterly unrelated. Even without FRB governments would still borrow before they print (in normal circumstances). Yes, governments borrow to keep inflation down, but that's not due to supposed credit/deposit expansion, it's because of the dilution of existing currency that printing represents.
That contradicts everything you have said in the past about how fractional reserve banking works.
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Old 3rd January 2013, 09:06 PM   #57
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Originally Posted by psionl0 View Post
That contradicts everything you have said in the past about how fractional reserve banking works.
Eh? No it doesn't.

FRB and deficit spending are 2 different and separate factors; they may influence inflation to varying degrees, but you are the only person I have ever seen state that deficit spending is funded by borrowing only because of FRB.
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Old 3rd January 2013, 10:05 PM   #58
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You are not connecting the dots. You have described many times how the creation of new base money leads to credit/deposit expansion.

The Whitlam government in the 1970's borrowed from the reserve bank to fund its deficits. This was described in the press at the time as "printing money" and proved to be highly inflationary. Since then, Australian governments have borrowed their money from other sources.
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Old 4th January 2013, 01:30 AM   #59
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Originally Posted by psionl0 View Post
The Whitlam government in the 1970's borrowed from the reserve bank to fund its deficits. This was described in the press at the time as "printing money" and proved to be highly inflationary. Since then, Australian governments have borrowed their money from other sources.
Yes, assuming the central bank just created new money to fund the deficits, of course this would be inflationary. What has that to do with FRB? We're talking about NEW base money, not money transferred from private investors.

Whitlam's spending was off the charts, there was massive wage growth helping drive inflation. You've gotta provide me more than just your say-so if you want me to believe that FRB was at the heart of it. What you would really have to do is cite examples of countries that didn't practise fractional lending, who also printed their own money to fund deficits. You're changing the wrong factor (the origin of the money) to support your point.
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Old 4th January 2013, 04:49 AM   #60
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Originally Posted by Sceptic-PK View Post
Yes, assuming the central bank just created new money to fund the deficits, of course this would be inflationary. What has that to do with FRB?
The only sensible conclusion that I can draw from this is that you believe that credit/deposit expansion is not inflationary.

Originally Posted by Sceptic-PK View Post
We're talking about NEW base money, not money transferred from private investors.
So that's what the reserve bank does.
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Old 4th January 2013, 05:07 AM   #61
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Originally Posted by psionl0 View Post
The only sensible conclusion that I can draw from this is that you believe that credit/deposit expansion is not inflationary.
Of course it can be inflationary. You cited Whitlam as an example, and I pointed out that Whitlam (assuming he funded deficits via the central bank, am taking your word on this) is a perfect example of inflation caused by printing new money into the economy, rather than from borrowing (selling bonds). FRB didn't drive wage increases for instance.

So again, I would like to see some analysis of how FRB drove Whitlam-era inflation, as it goes against what I understand the accepted history is.
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Old 4th January 2013, 05:15 AM   #62
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Originally Posted by aggle-rithm View Post
You seem to be equating federal debt and money supply. I don't see how that follows from the data. Can you explain?
It’s my understanding that MMT treats the issue as a matter of accounting and hence takes the view that the sum of the government balance + the domestic private sector balance + the foreign sector balance = 0. Thus it seems logical that they would treat all money as debt (under the current operational system); and, as Mitchell writes, that the federal deficit is a statement of the net amount of money the federal government has created* in one year.


The figure that usually comes up here is the following, showing how the accounting identity holds together:




* Or as understood by Fullwiler: “… the act of government spending is the creation of reserve balances”.
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Old 4th January 2013, 05:32 AM   #63
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Originally Posted by Sceptic-PK View Post
Of course it can be inflationary.
But it has nothing to do with FRB?

BTW I can't find any on-line information on how the budget deficits were funded in the 1970's. The ancient newspaper articles are probably still on microfiche.
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Old 4th January 2013, 05:37 AM   #64
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Well I'll just file your opinions away with "banks create money out of thin air" then
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Old 4th January 2013, 05:55 AM   #65
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Originally Posted by Sceptic-PK View Post
Of course it can be inflationary.
Sometimes you are so close to getting it.

Originally Posted by Sceptic-PK View Post
Well I'll just file your opinions away with "banks create money out of thin air" then
Darn!

ETA Shambler won't believe either of us anyway so let's quit this old discussion.

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Old 4th January 2013, 05:57 AM   #66
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OK, we've mentioned WWII, now we're going full-on Godwin.

The increase in money supply discussion reminds me of the early economic policy of the Third Reich after hyper-inflation had doomed the Weimar Republic. What Hitler's economist Schacht came up with was an ingenious way of deferring payments that essentially increased the money supply without printing money.

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

However, Schacht did warn Hitler that this was an unsustainable strategy, that at some point the Reich would have to change course to avoid econimic collapse.

Unfortunately, they changed course by invading and plundering the wealth of the nations around them.
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Old 4th January 2013, 06:07 AM   #67
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Originally Posted by psionl0 View Post
It's not that difficult. Under fractional reserve banking, governments can't simply print money to cover their budget shortfalls because the resulting credit/deposit expansion by the banks would be highly inflationary.
Overall that is true, however the effect DEPENDS ON THE STATE OF THE ECONOMY.

When things are headed up, that is just the wrongest thing to do.

When they are headed down, it can actually replace money vanished into lost value.

BUT no, you do not EVER keep doing it. No, just no.

Of course, what we see right now is that the banks are not actually letting the money out, rather they are all fiddling in financial markets with the money, moving it around, and not getting any out to Fred and Joe who used to work at the mill until they raided it and closed it.
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Old 4th January 2013, 06:08 AM   #68
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Originally Posted by lupus_in_fabula View Post
It’s my understanding that MMT treats the issue as a matter of accounting and hence takes the view that the sum of the government balance + the domestic private sector balance + the foreign sector balance = 0. Thus it seems logical that they would treat all money as debt (under the current operational system); and, as Mitchell writes, that the federal deficit is a statement of the net amount of money the federal government has created* in one year.


The figure that usually comes up here is the following, showing how the accounting identity holds together:
http://p.twimg.com/A2E7qOQCIAAAyz9.jpg



* Or as understood by Fullwiler: “… the act of government spending is the creation of reserve balances”.
OK, I can see that.

Looking at Shambler's graphs again, here is the pattern that I see:

1. In times of economic downturn (with the exception of "stagflation" in the seventies) prices go down, as one might expect.
2. In response to the downturn, partly by positive action to stimulate the economy and partly as a consequence of lower tax revenue, the deficit increases.
3. The economy recovers at some point, partly in response to increased money supply and partly as part of the normal economic cycle. Inflation increases as a delayed reaction to the economic recovery.

There is a connection between money supply and inflation, I think, but it's a highly elastic connection.
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Old 4th January 2013, 06:28 AM   #69
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Originally Posted by Shambler View Post
Evidence that inflation is more closely linked to oil than other factors (thus more closely linked with commodities, particularly those which underpin the entire economy):
er, hello? I dont believe your inflation figures.



as you can see, priced in the only currency that doesn't permanently devalue consistently over time, oil still costs about the same as it has for the last 40 years or so.



the Magic Money Tree theory is woo.
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Old 4th January 2013, 07:51 AM   #70
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Originally Posted by aggle-rithm View Post
OK, we've mentioned WWII, now we're going full-on Godwin.

The increase in money supply discussion reminds me of the early economic policy of the Third Reich after hyper-inflation had doomed the Weimar Republic. What Hitler's economist Schacht came up with was an ingenious way of deferring payments that essentially increased the money supply without printing money.

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

However, Schacht did warn Hitler that this was an unsustainable strategy, that at some point the Reich would have to change course to avoid econimic collapse.

Unfortunately, they changed course by invading and plundering the wealth of the nations around them.
The "ingenious" way of deferring payments and increasing the money supply is exactly what's happening now. As the Fed manipulates bond and stock markets higher, investors accrue unrealized capital gains as a virtually endless supply of fiat money bids these assets up. Far from being fearful of what this will do to the economy at large or to the US dollar, investors are trying to frontrun this action by bidding up these securities in advance of the Fed's actions. These "payments" are deferred until the bondholders realize their capital gains.

When greed turns to fear, and the bond market crashes, I would expect either a massive shift into some other asset class, or a mad rush to obtain real goods and services (inflation, as it is conventionally defined).
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Old 4th January 2013, 07:56 AM   #71
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Originally Posted by kevsta View Post
er, hello? I dont believe your inflation figures.
For grins, you can also find a chart of say, 10 year government bonds, and plot the price action out for a decade.

It's all in the definition of "inflation".
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Old 4th January 2013, 08:04 AM   #72
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Originally Posted by Shambler View Post
Evidence that federal debt (i.e. government spending) and overall money supply does not directly correlate with inflation:
You are not plotting inflation against either spending or money supply so I don’t see how your grapic supports this claim.

Originally Posted by Shambler View Post
Evidence that there is no relation between the money supply and inflation:
Again you do not show money supply in the graphic so I don’t see how you can say it supports this claim.

Originally Posted by Shambler View Post
Evidence that inflation is more closely linked to oil than other factors (thus more closely linked with commodities, particularly those which underpin the entire economy):
All you show here is that the price of energy is correlated with prices in general. Since prices in general are moved by the same forces this is not surprising. (IOW correlation doesn’t equal causation).

The reason energy prices are excluded from core inflation isn’t because they are not correlated with other prices but because they are more volatile and subject to other influence.

Originally Posted by Shambler View Post
Evidence that high government debts (i.e. high government spending), have historically resulted in higher GDP, without unacceptable inflation:
Spending and deficit spending are different things. Deficit spending is expected to raise GDP and inflation but the impact on each depends on where in the business cycle you are. It can be inflationary when times are good, but when times are good deficits decrease natural. Simple techniques may not detect this signal, because monetary policy dominates.

Originally Posted by Shambler View Post
Recessions often follow a reduction in government spending
Once again, you don’t show government spending so your conclusion doesn’t follow from your graphic.
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Old 4th January 2013, 08:37 AM   #73
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Originally Posted by Tippit View Post
For grins, you can also find a chart of say, 10 year government bonds, and plot the price action out for a decade.
thats implicit in the inverse relationship to 10 year yield shown in the table as -67% is it not?

Originally Posted by Tippit View Post
It's all in the definition of "inflation".
indeed.
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Old 4th January 2013, 09:21 AM   #74
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Originally Posted by Brian-M View Post
So.... you assume that the companies being paid with this extra money aren't going to spend it? Even if that were true, what happens when the bank starts making additional loans based on the increased amount of money sitting in accounts?
No, I said it depends on what they spend it on, and if they spend it; companies in the current economy, aren't in a rush to expand production, when the demand isn't there to meet the increase in productive capacity.

I also gave the specific example of pumping money into the construction industry, on infrastructure projects, where the chain of expenditure is going to largely stay with surplus (construction) industry capacity.

Originally Posted by Brian-M View Post
But the producers of goods of non-limited excess supply will then spend that extra money on goods of limited supply. The money doesn't just vanish from the economy once it's spent.
If you claim the money will be spent on goods of limited supply, you need to show what those goods will be; the construction industry for one, has lots of excess productive capacity.

Originally Posted by Brian-M View Post
Remember, full employment results in higher average wages because employers in need of more workers will be forced to offer higher wages in order to attract workers away from other jobs. Higher average wages results in inflation.
That's inevitable no matter what your preferred economic policies are, unless you promote a permanent stock of unemployed workers.

As others have said and you seemed to agree with, there is nothing wrong with wage inflation from full employment, so long as it's not excessive.

Full employment is still the end goal of the economic system, no matter what theory you use to guide its functioning.
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Old 4th January 2013, 10:36 AM   #75
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Originally Posted by Tippit View Post
No. First of all, the Great Depression was caused by the malinvestment which was a consequence of the massive increase in money and credit by the US Federal Reserve, and then the subsequent and abrupt decrease in the money supply. Wars do not create prosperity, they only destroy. What you are attempting to sell here, is an extreme example of the broken window fallacy.
The industrial stimulus and jobs provided by the war effort, did bring the US economy back to recovery; a large part of the productive effort was effectively 'wasted', through blowing the crap out of the Axis countries, but the stimulus still brought the US back out of depression.

Originally Posted by Tippit View Post
Of course it's counterfeiting. When central banks create money, they are stealing purchasing power directly from the savers of money. This affects the poor more than anyone else, since they tend to have more cash as a proportion of their net worth than the rich, as well as minimal debt. The rich have financial assets as opposed to cash, which tends to appreciate in value as the central bank confiscates purchasing power and redistributes it to government bondholders. The only difference between the product of the illegal counterfeiter and the legal counterfeiter, is authenticity, which matters little next to the purchasing power stolen.
You can't make up new definitions for words like that, least of all when it is in direct contradiction with the real definition. Counterfeiting is the illegal printing of fiat money, and the central bank is the one place money can be legally printed.

Semantic redefinitions of words like that, are one of the primary ways disinformation is spread within economics, and it is a barrier to discussion, because it means people are reading posts with separate interpretations of words themselves.

Your entire counterfeiting definition as well, is implicitly assuming price inflation = money supply inflation (since it's saying spending power is stolen), and since this is a point that I've shown is false, it is not just inaccurate but it is a barrier to debate; in order to be able to discuss anything, we need to stick to a common dictionary definition of words.

Originally Posted by Tippit View Post
Central banks don't issue bonds, Treasuries do. Central banks monetize sovereign debt by counterfeiting money and buying bonds at government bond auctions (usually indirectly via primary dealers). Central banks also extend private credit to their cronies/controllers, in the form of subsidized loans of negligible interest rates, and then these cronies invest the proceeds in sovereign debt, the interest for which is paid by the taxpayer, who has to actually labor for their money.

If governments have the right to create an endless supply of fiat money, as you maintain, then why have they delegated this power to quasi-private central banks, and why do they make private loans to parties who then turn around and loan that money to the government, at interest? Why doesn't the government simply print all of what it needs?

The answer, of course, is that government is run by, and for the benefit of, bankers.
I agree with the last sentence there, which is why I support the economic arguments I put forward in this thread, which would change that:
Private banks could be replaced with a single public bank, where the government is directly in charge of loans/deposits, and governments would not depend upon private investors to fund the budget (and would not be in the position to provide those investors interest payments as part of the deal, as that method of funding would be obsolete).

Originally Posted by Tippit View Post
What does platinum coin seigniorage have to do with anything? Seigniorage refers to the profit received by government from the difference between the nominal value of money, less the cost of producing that money.

This is obviously very high when we're talking about the Fed giving Goldman Sachs an electronic credit of $100B, and much lower when it actually mints a gold, silver, or rarely, platinum eagle. Seigniorage is nothing more than a tax, a form of counterfeiting.
You're again asserting through your inaccurate definition of 'counterfeiting', that money supply inflation = price inflation, which is false, and which I have debunked at length.

Seigniorage (synonymous with money printing, but without corresponding debt) is not a tax, it does not cause price inflation; it is down to government to decide how it would spend that printed money, and it is how that is spent that determines whether or not inflation happens.

You need to engage with my arguments describing how money supply inflation does not directly cause price inflation, because your arguments seem to be heavily based on that premise, that I have already dealt with and debunked.

Originally Posted by Tippit View Post
Financial asset inflation is just as important as price inflation, because it is the root of wealth condensation, malinvestment, and economic instability and manipulation. Financial asset inflation ultimately leads to general price inflation, as wealthy financial asset holders eventually turn unrealized capital gains into realized ones, and use the profits to purchase scarce real goods and services that everyone else has to compete for with nothing but the fruits of their labor. If you were truly progressive, or interested in fairness and economic reform, you would already be aware of this.
Asset price inflation is usually caused by excess credit in the economy, i.e. banks lending out far too much money to people, leading to a rise in house price since more people can get bigger mortgages.

Just like with general price inflation, an increase in the money supply does not automatically lead to asset price inflation, it depends on how that money is spent.

Originally Posted by Tippit View Post
The distinction between monetary inflation and general price inflation is crucial, because the productivity norm serves to obscure the wealth transfer that occurs via counterfeiting.

In other words, the fact that society is productive and creates ever more goods and services tends to hide the fact that there is a banker class who, by manipulating the money supply, obtains real goods and services without producing anything in exchange.
I agree that banks and others in finance, undeservedly earn income through interest payments which depend upon an expanding money supply, but that injustice is due to the structure of the financial/banking system, it is not due to money creation itself.

The impression I've been getting from some of your arguments, is that it seems you might think that increasing the money supply automatically leads to inflation (i.e. automatically leads to price inflation and thus a loss in the buying power of peoples savings); maybe I'm mistaken and this isn't what you've been saying, but it's, as you say, an important distinction.

Originally Posted by Tippit View Post
Once again, the legality of a thing, and the authenticity of money and credit means little next to stolen purchasing power. It's the purchasing power that matters. It matters not to me whether Ben Bernanke provides JP Morgan with $100B in "authentic" credit, or whether a criminal prints a $100 bill on his laser printer. What matters is that my purchasing power has been stolen.
...
Creating money isn't some magical solution bestowed by academics, and central bankers from their ivory towers like some gift from the gods. It's theft from savers. Nothing more, nothing less.
These are exactly the kinds of argument which makes me think you are equating money supply inflation with price inflation; to steal consumer purchasing power through money creation, money supply inflation must cause price inflation, which I've shown is not the case.

Originally Posted by Tippit View Post
Once again, full employment is not the problem. The problem, is creating jobs that produce things that actually benefit society, and government is least-able to solve that problem, whether the revenues come from seigniorage (counterfeiting), or direct taxation.
The current level of unemployment shows private industry is incapable of solving the problem of achieving continuous full employment; this means that only government can step-in to do this, when private industry fails to, because only government can create the money needed to do that.

Originally Posted by Tippit View Post
No. If government cut all taxes tomorrow, and funded the astounding budget deficit that would result by simply counterfeiting the public's money, the inflation tax would go up dramatically, but that would be offset by the fact that my conventional taxes were cut.

At the end of the day, the price of milk might increase, but that would be offset by me having more income to buy milk. The burden of government would, however, be shifted on to the backs of the poor as I showed earlier because the inflation tax is a regressive tax. Fiscal policy doesn't "manage inflation" at all. It's just another form of taxation, like the inflation tax.
Again, this argument is ignoring/sidestepping my arguments, showing that money supply inflation does not automatically lead to price inflation; you need to engage with that argument.

Originally Posted by Tippit View Post
Money creation is the theft of purchasing power, regardless of whether it results in general price inflation, asset price inflation, or some combination.
That is inherently wrong, because there is no effect on purchasing power for consumers, if prices stay the same after money creation.

Originally Posted by Tippit View Post
Originally Posted by Shambler
The private sector primarily focuses on short-term gains at the moment, and is currently incapable of solving wider long-term issues like the upcoming energy crisis, pollution/climate-change, and generally any issues where monetary gain is not the sole aim.

It's long past the time that these wider long-term issues should have had more effort put towards solving them, and since the private sector has failed here, it is up to government to direct efforts in that direction.
I don't subscribe to anthropogenic climate change, and I don't want to be swindled into paying a carbon tax. If you are so naïve, then I suggest you attempt to secure funding for them using conventional forms of taxation, instead of lobbying for the arbitrary and potentially infinite inflation tax.
You ignored my main argument there, to pick at one point (out of three); what about my main argument, that private industry has proven itself incapable of dealing with long-term issues like the upcoming energy crisis, and pollution?

Contesting climate change is also a heavily denialist/anti-science position; the scientific consensus, and the law of thermodynamics itself, heavily weighs towards agreeing that climate change is a real problem, as well as the impossibility of neverending economic growth.

Originally Posted by Tippit View Post
The false austerity that forces society to choose between paying interest on phony, counterfeit debts funded by central banks, and borrowed by politicians, is created by the very institutions you espouse and advocate for. There is another solution which doesn't involve either raising taxes, or cutting government spending (even though I think it should be cut, regardless), and that is, debt repudiation, and the abolition of the central bank.

In fact, this is the only moral, and reasonable solution.
Well, I actually agree with debt repudiation there, and I don't advocate the current system (my views in this thread, advocate very significant changes); I think also, that private banks should be made redundant by government offering a single public bank (there's no reason interest on debts should go into private hands, for one).

Originally Posted by Tippit View Post
I already explained this. If you limit the definition of inflation to be an arbitrary basket of consumer goods and services chosen by the government and hedonically manipulated, then the inflation of financial assets will go unmeasured by such a metric, which is exactly what is happening.

What part of this don't you understand?
You did not explain this at all, actually; to give an example:
If I startup a bank tomorrow, and government printed $100 trillion and credited it to my bank (given free, without any corresponding debt or national debt), and I did not spend that money on anything, just left it there sitting on my bank ledger, there would be no price or asset inflation.

If that is true, then the money supply does not cause price or asset price inflation, and it is how money is spent that determines whether or not inflation happens.

If you disagree, I would be very interested to hear an explanation, of how that $100 trillion sitting there doing nothing, would cause any kind of inflation.
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Old 4th January 2013, 10:46 AM   #76
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Originally Posted by aggle-rithm View Post
You seem to be equating federal debt and money supply. I don't see how that follows from the data. Can you explain?
That's just a typo in my first sentence; the first graph represents government debt, the second represents money supply.


Originally Posted by psionl0 View Post
I don't know where you are getting your information from but your ideas about money are all over the place. It appears that you can't even tell the difference between created money and borrowed money.

It's not that difficult. Under fractional reserve banking, governments can't simply print money to cover their budget shortfalls because the resulting credit/deposit expansion by the banks would be highly inflationary. That is why they borrow the money instead. The fed does print money to buy up some government debt but it can only buy a small fraction of the government debt this way.

If you really want the government to be able to print money instead of borrow it then you need to get rid of the fractional reserve banking system. PositiveMoney.org has made a SUBMISSION TO THE INDEPENDENT COMMISSION ON BANKING in the UK that shows how it can be done.

If that looks too boring for you, their Home Page has a number of YouTubes for the unwashed masses.
Your responding to a typo, and I have explained at length how changes in the money supply do not automatically lead to inflation, which if you had actually looked at the graphs in the post you're responding to, you would see.

The US government does not need any financial reform to pursue money creation without corresponding debt either, as Platinum Coin Seigniorage can be used.
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Old 4th January 2013, 11:00 AM   #77
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Originally Posted by lupus_in_fabula View Post
It’s my understanding that MMT treats the issue as a matter of accounting and hence takes the view that the sum of the government balance + the domestic private sector balance + the foreign sector balance = 0. Thus it seems logical that they would treat all money as debt (under the current operational system); and, as Mitchell writes, that the federal deficit is a statement of the net amount of money the federal government has created* in one year.


The figure that usually comes up here is the following, showing how the accounting identity holds together:



* Or as understood by Fullwiler: “… the act of government spending is the creation of reserve balances”.
Yes (though my post was just a typo ); the MMT 'accounting identity' that you post there, is a very useful overview of how the economy works:
(Savings - Investments) = (Government Spending - Taxes) + (Exports - Imports)
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Old 4th January 2013, 11:03 AM   #78
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Originally Posted by aggle-rithm View Post
OK, we've mentioned WWII, now we're going full-on Godwin.

The increase in money supply discussion reminds me of the early economic policy of the Third Reich after hyper-inflation had doomed the Weimar Republic. What Hitler's economist Schacht came up with was an ingenious way of deferring payments that essentially increased the money supply without printing money.

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

However, Schacht did warn Hitler that this was an unsustainable strategy, that at some point the Reich would have to change course to avoid econimic collapse.

Unfortunately, they changed course by invading and plundering the wealth of the nations around them.
Interesting alternative currency; this is something the Greeks are doing now as well, but on a smaller scale, to sidestep the inadequate availability of euro's:
http://www.guardian.co.uk/world/2013...poverty-crisis
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Old 4th January 2013, 11:13 AM   #79
The_Animus
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Originally Posted by Shambler View Post
You did not explain this at all, actually; to give an example:
If I startup a bank tomorrow, and government printed $100 trillion and credited it to my bank (given free, without any corresponding debt or national debt), and I did not spend that money on anything, just left it there sitting on my bank ledger, there would be no price or asset inflation.

If that is true, then the money supply does not cause price or asset price inflation, and it is how money is spent that determines whether or not inflation happens.

If you disagree, I would be very interested to hear an explanation, of how that $100 trillion sitting there doing nothing, would cause any kind of inflation.
Interesting discussion, but why use am example that will never happen? What good does showing something that will never happen will not cause inflation? It would be better to give examples of spending that printed money not causing inflation since your claim is that inflation depends on how it's spent.
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Old 4th January 2013, 11:16 AM   #80
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Originally Posted by aggle-rithm View Post
OK, I can see that.

Looking at Shambler's graphs again, here is the pattern that I see:

1. In times of economic downturn (with the exception of "stagflation" in the seventies) prices go down, as one might expect.
2. In response to the downturn, partly by positive action to stimulate the economy and partly as a consequence of lower tax revenue, the deficit increases.
3. The economy recovers at some point, partly in response to increased money supply and partly as part of the normal economic cycle. Inflation increases as a delayed reaction to the economic recovery.

There is a connection between money supply and inflation, I think, but it's a highly elastic connection.
Ya; the connection is more between economic recovery and inflation, as naturally that restores demand, and helps use up economic productive capacity again; once full employment and full economic production is reached again, that's when you want to reign in net spending by government, as that is the point when increases in the money supply does start to cause price inflation, if not curtailed.
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