Should they just have printed debt free money?

[Debaser82]

If you only printed money to cover the spending, that would have been FAR LESS inflationary! As of 2010, the national debt stood at $13,561.60 billion while the total accumulative interest expenditures were $8,575.5 billion. In other words, had we just printed the money and spent it, the debt would be only $4,986 billion.

Martin Armstrong

 

[5yrtrader]

No, there would have been 0 debt if the government just printed off all the money it required.

I would bet that the spending would have been much higher if the government could just print off whatever money it "required" rather than relying on the debt markets to loan it the money it required.

5yr

 

[Random.Capital]

It doesn't make any difference.

 

[oldtime]

Quote from Debaser82:

If you only printed money to cover the spending, that would have been FAR LESS inflationary! As of 2010, the national debt stood at $13,561.60 billion while the total accumulative interest expenditures were $8,575.5 billion. In other words, had we just printed the money and spent it, the debt would be only $4,986 billion.

Martin Armstrong

well, that's kind of what China does. All dollars have to be exchanged through the Peoples Bank of China (PBOC.) And they only parcel them out to Chinese citizens who specifically need dollars to buy from the USA. All the rest become surplus. It worked fine until USA started printing like mad, and then they had so many the only thing they could do with them was buy US Treasuries, hence the notion that China owns all our debt. Actually, it's less than 50%. At any rate, they strictly control the amount of dollars in circulation in China.

The yuan is another matter. It's more like monopoly money and is not exchange traded and no one will accept it outside China.

The idea of "Modern Monetary Policy" is we just keep printing as much as we need. The only constraint being inflation. Taxes and defense spending become a big drag on the economy because that kind of spending is not productive.

But trying to impose a gold or any other standard type of economic theory on a fiat based economy, which is what we have is futile. That's why the kitchen table "this is how my family does it and the government should do it the same way" discussion makes no sense.

 

[oldtime]

at any rate, we can't now print 15 trillion to pay off the debt because we are constrained by inflation.

 

[jlryan87]

Printing money for spending is moral hazard using the terms of economics. Actually this is what has already happened. America want to spend what it cannot afford, so it prints money by selling government bonds. China buys a lot of those bonds. Many American institutions buy those bonds too. In fact, they are major buyers. But you can't get something for nothing. Predictably, the interest on those bond collapsed to about zero. In other words, bond buyers are shortchanged. Under normal circumstances, bond buyers will flee the US bond market. But this is not the case here, since China has limited avenue to turn to for its massive surplus. There are 2 things that could happen. Both are bad for America.

1) China turns to buying commodities with its massive surplus, thereby supercharging inflation.

2) America turn socialist, start giving people free money for living expenses since many people are out of job or soon to be. Part of this money comes from China when it buys American bonds.

There is no easy solution for America because capitalism works. The most productive entity will be rewarded, just like capitalism predicted. The only way out for America is to be more productive. Actually America's case is not that bad. Forget what you heard in the media. It just need to stop wasting money on fighting unnecessary wars.

If you are thinking about printing the direct way, like from money printer, then any time they print to achieve 2x money supply, the value of money will be halved. Companies will just sell their stuff twice as expensive. No one will let the Fed erode the value of their cash. That is inflationary. There are no free money, as in free lunch.

One more thing. Printing for spending will widen the rich poor gap enormously. That is because when newly printed money is spent, it becomes the profit for old money that was used as capital investment. So old money is always productive, while new money is printed just to make old money productive. This is distribtuing money from the poor to the rich. This is class warfare.

 

[oldtime]

Quote from jlryan87:



1) China turns to buying commodities with its massive surplus, thereby supercharging inflation.

difficult to do that without driving up the price. Then what do you have? A commodity that is worth a lot of worthless paper money. Buying black and yellow gold and the backing the yuan with it would be interesting though.

If you judge wealth by how the poorest live, China is very poor, and Greece is very rich. USA aint bad.

 

[jlryan87]

Quote from oldtime:

difficult to do that without driving up the price. Then what do you have? A commodity that is worth a lot of worthless paper money. Buying black and yellow gold and the backing the yuan with it would be interesting though.

Spot on with that. If China corners the commodities market, which I believe it is working on that, then yuan will be strong.

Quote from oldtime:

If you judge wealth by how the poorest live, China is very poor, and Greece is very rich. USA aint bad.

True. China's economic pathway is different than US. I believe it is working towards a socialist utopia, but is finding it hard for the transition. It is making US a socialist utopia though by subsidizing Uncle Sam's spending. Only problem for China is this cannot go on forever. You risk killing the cow that you want to milk. China is massively wealthy but its people on an individual basis are not. Sooner or later the CCP will have to make a transition to market economy, or risk a Chinese spring. The problem for CCP, is that market economy can only exists within the framework of democracy.

 

[oldtime]

democracy is interesting. In China when someone at the top wants to build a railroad, it's a done deal, no debate, and the raiload runs in a straight line from city to city.

In a democracy who knows how many years it would take to grease all the palms and how crooked the end line will be.

It depends on what you call progress. Efficiency is for me not neccesarily the highest goal. Hard to run a family though if all the children are allowed an equal vote.

 

[MKTrader]

Quote from oldtime:



If you judge wealth by how the poorest live, China is very poor, and Greece is very rich. USA aint bad.

Well, maybe, if you look at a snapshot right now. However, there's a very fast-growing middle class in China, and Greece has hell to pay for their excesses.