On Apr 12, 2012, at 8:35 AM, Julio Huato wrote:
Shane wrote:
What a liar! "By definition, the unsustainable trajectories of
deficits and debt that the CBO outlines cannot actually happen,
because creditors would never be willing to lend to a
government with debt, relative to national income, that is rising
without limit." As the head of the Central Bank of a sovereign,
Bernanke knows perfectly well that he has both the power and
the legal responsibility to lend to the government every dollar
needed to finance public expenditures irrespective of the ratio
of government debt to national income, no matter how high.
Shane,
Suppose the central bank monetizes all additional public debt, since
(allegedly) there's no legal obstacle to do such a thing, while
leaving the existing distribution of wealth ownership pretty much
intact, etc. Doesn't that just shift the problem from the credibility
of public debt (the price of government bonds, which is to say their
"yield") to the credibility of the currency (the "purchasing power" of
this particular type of money, say, USD) as a store of value? Just
because you call something "money" doesn't necessarily make it so,
even if you are the state. Fiat money is (credit) money (at zero
nominal interest) *only if* it acts as money!
What makes it money is that it is "legal tender for all debts public
and private."
What makes it "credible" as money is that debts and taxes can be
settled only with legal tender.
Its credibility as a "store of value" (exactly like any commodity
money) is the stability within an acceptable range of the price level
in the overall economy; whereas Bernanke claimed absurdly that no
creditor--not even the central bank!--would lend to the government if
some arbitrary government debt/national income ratio was being exceeded.
Despite the Chartalists, one thing is the legal figure of money and
quite another
thing is its economic existence. The economic existence of money is
premised on (roughly speaking) the entirety of M-C-M' flowing, while
we know that there are all sorts of disruptions along the way.
In which case money would lose its economic existence with every
"disruption,"
but only hyperinflation following military disaster (ie., a situation
in which the state itself loses its sovereignty and thus its economic
existence) can cause the currency to lose its "legal figure" (ie., its
status as legal tender). Only that would make the currency unit lose
its economic existence.
The laws of legal ownership (vs. effective economic ownership) still
apply. I think that the Keynesians delude themselves if they think
that you have to be at full (or near full) employment for an
inflationary cycle to set in. I can easily envision scenarios with
rampant inflation in the face of high unemployment.
I cannot, short of the hyper-inflationary scenario above.
Why not? Because the "excessive" government deficits invoked to
justify Bernanke's fantasy
of rising debt making government unfinancible represent government
spending on goods and
services--and the expenditures go to hire people to produce those
goods and services.
As long as there are real resources available to be hired at current
wage and price levels (which is always the case whenever there is high
unemployment of those resources) the real national economic output
(what you denote as " the entirety of M-C-M' ") must rise in accord
with the increased government spending. Which necessarily limits
drastically any inflation that might hypothetically result from
putting unemployed resources to work.
Shane Mage
This cosmos did none of gods or men make, but it
always was and is and shall be: an everlasting fire,
kindling in measures and going out in measures."
Herakleitos of Ephesos
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