patrick.net

Keynes never said more debt leads to more productivity.

He just said if the private sector is deleveraging, that causes demand to slack, and government deficit spending can make up for that and lead to a better outcome. Japan is the purest experiment, and the results are mixed. A depression would have been likely without the fiscal/monerary stiumulus, but then again they might have cleared bad debts (as Austrians would call it), and have a healthier economy now.

BTW, Austrians are not the only ones that warn of debt/ money supply growth by any means. Post-Keynesians and many other schools of though are very much in alignment with Austrians on this.

"How well do you think it would work for America if we printed money to pay our own debt to ourselves". Wouldn't that be like a husband borrowing money from his wife so he could pay her back?

I agree with AdHominem. Stop the insanity. End the Fed.

Honest Abe says

I agree with AdHominem

Consider me shocked!!

What MarkSF said, just even more so.

Keynes simply argued that counter-cyclical public spending was an efficient tool in the fight against the negative effects of the "business cycle", also in it's more severe form of recessions and depressions.

However, I don't think Keynes ever said he liked public deficit spending for the sake of deficit spending, which is how the right-wingers are trying to paint him.

The problem is that the right-wing elite has already given themselves huge unfunded tax cuts, so that already in good times we are running a public deficit. Then, when the recession hits, they advocate for NO public spending on the little guy, which they denounce as "keynesianism" (BAAAAD, they say), all the while taking 2-3 trillion bailouts for the elite via the Federal Reserve. Have any jobless person had any luck getting some "action" at the FED discount window lately? I don't think so.

To summarize, deficit spending on tax cuts for the rich in good times is good (and maybe even "Austrian" to some), whereas deficit spending on the poor and jobless during the bad times is baaad and "Keynesian". Nice double standard, is it not?

It's nice work to be in the financial elite, if you can get it.

>> The solution is to reduce the percentage of debt by monetizing it.

Unfortunately, as always this is the direction we are all going. Monetizing the debt means that savers/creditors lose, and spenders/debtors win, across the board.

Then there are the consequences. In a closed system (no international trade or capital flow), monetizing "works" to some extent, as intended (savers lose). But in the real world, all the central banks are playing chicken with each other about who is going to take the losses, and when.

The whole game of recession is ALWAYS about who is going to get assigned the losses. It is as simple as that.

Keynes is widely misunderstood. A prime tenet was that during boom cycles money would be set aside to account for the next bust and flatten it out. The squirrel MUST store nuts for the winter. However none of the idiots implementing what they call "Keynesianism" actually do this. They spend every red cent and in fact go into deficits even during the boom, arguing that a "savings glut" is evil and we should maximize growth. Thus when the bust comes we are all wondering what truck hit us.

Monetizing a significant chunk of the U.S. debt would positively crush the little guys. We would experience a sharp jump in inflation, plus a plunge in the forex value of the USD. Since we're running a huge trade deficit, what do you guys think would happen if our currency did a nosedive relative to commodities and other currencies? Your average citizen would end up paying a lot more for gasoline, durable goods, electronics, and American products made of metal, plastic or imported materials. We'd probably experience a sharp spike in unemployment. A 20% reduction in the value of your credit card debt or mortgage is irrelevant when your cash flow is severed.

In the long term monetizing our debt might lead to increased employment in America, but the approach is like solving a food shortage via Soylent Green. It also does nothing to solve the problem that we've keep increasing the debt. Monetizing is only a viable strategy if you're intending to eliminate the debt and keep it gone, otherwise you're just driving up the yields on future Treasury auctions.

MarkinSF said:

"Japan is the purest experiment, and the results are mixed"

Japan has been going backwards for twenty years. The Nikkie is down from 40k to 10k. Housing has deflated at a 7% annual pace. The country has an official debt to GDP of over 200%.
If this is a mixed result I would love to know what proof would be for you.

The funny thing about Keynes is that almost no one has actually read what he wrote - and this includes econ. professors. Keynes was more than a little mad. He advocates digging holes and filling them up again as a serious solution to unemployment. This was not intended as a metaphor.

Keynes feverishly invested in stocks in the late 1920's and declared in 1926 declared "we will not have any more crashes in our time". Three years later this proved a touch optimistic.

Keynes ideas on money supply?
"Thus those reformers, who look for a remedy by creating artificial carrying costs for money through the device of requiring legal tender currency to be periodically stamped in order to retain its quality as money, or in analogous ways, have been on the right track; and the practical value of their proposals deserve consideration."

Properties of interest and money p.234

This is batsh*t crazy. Imagine having to trot down to the bank to validate the money in your wallet every couple of months. This also highlights how profoundly Keynes did not get that credit is money. Does Amex take our credit card bill to the Fed to get it stamped otherwise the debt is forgiven?

Keynesian is popular for the simple reason that it gives license for governments to spend. There are major holes in Austrian though so to say that it is "vindicated" is an exaggeration but Austrian thought at least understands that debt must be repaid in some form (actual cash) or another (recession/depression).

If it was possible for governments to save during good times and spend in bad, as JustMe discusses above, this would likely be a net positive for society. However, despite what JustMe said this is actually not at all what Keynes advocated. Imagining what Keynes thought is very popular. Governments everywhere, regardless of political leaning, have proved incapable of saving during good times. It would take a constitutional amendment with a 99% majority needed to overturn it to make this happen - and even then I have doubts it would work.

Keynes has several useful theories for how the world operates in theory. Unfortunately the world in practice doesn't conform to the theories.

Bob,

Did you even read the article/slides attached at the end of the post?

most of the "debt" is NOT foreign owned (unless you call the banksters foreign which some probably are).

http://www.cnbc.com/id/29880401/The_Biggest_Holders_of_US_Government_Debt

Vicente says

Keynes is widely misunderstood. A prime tenet was that during boom cycles money would be set aside to account for the next bust and flatten it out. The squirrel MUST store nuts for the winter. However none of the idiots implementing what they call “Keynesianism” actually do this. They spend every red cent and in fact go into deficits even during the boom, arguing that a “savings glut” is evil and we should maximize growth. Thus when the bust comes we are all wondering what truck hit us.

Even if he was misunderstood, the entire policy recommendation is flawed from the get go. The idea of targeting aggregate demand means that you are putting at least some capital allocation towards industries that should be going bankrupt. You can also target industries that are in contraction that should be in contractions (like the housing market in 2001.). This is the most inherent flaw in Keynesianism.

AdHominem says

Bob,
Did you even read the article/slides attached at the end of the post?
most of the “debt” is NOT foreign owned (unless you call the banksters foreign which some probably are).
http://www.cnbc.com/id/29880401/The_Biggest_Holders_of_US_Government_Debt

It's not an article, it's a slide show. It presents no analysis, references or citations of any kind. Among the biggest creditors mentioned were (without looking back) Russia, Hong Kong Brazil, the Caymans, Japan, China, the Oil exporting states, UK, and maybe a couple others. Last time I checked these are all considered foreign. How exactly you are using an article which mostly cites examples of foreign creditors to support your argument that there really aren't foreign creditors is a little unclear to me.

Why is "debt" in quotes. These are real debt instruments enforceable in any court of law. You, me, our children, and our children's children really and truly owe this money. Are you contending that what's owed to foreign governments/investors (or even us banks and pension funds) it's somehow not real debt. That would be a grave error. The debt has reached the point where we are borrowing money to pay interest on borrowed money. That never turns out well. Or are you suggesting that the US could just default on the national debt and wipe it out. Technically true but that would destroy the US economy for at least a generation if not forever.

The slideshow only lists the foreign holdings of the central banks of the various countries mentioned. Foreign institutions and foreign private holders of US treasuries simply don't exist to CNBC unless they are lumped in with the general category of institutions and money market funds. Many foreign private investors do own us debt through us institutions and aren't included no matter what. A very curious and really large omission.

The biggest creditor listed is the federal reserve at 5.2 trillion. That's wrong, not at all unusual for CNBC. That figure includes 3 trillion in foreign investments that are held in custody. The correct number is 2.2 trillion. almost all put on the books in the last 2 years. Look at the link to the federal reserve's latest report I have included. If you don't know how investments held in custody works (pretty much yet another shell game, but for another time) there was a big article last year in seeking alpha about it that should be still floating around. I have also included several links to articles discussing the issue of US debt. They are actual articles for the most part that must be read, not just look at the pictures.

http://www.marketoracle.co.uk/Article1571.html
http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm
http://www.federalreserve.gov/Releases/H41/Current/

I consider calculating percentages of foreign debt on the publicly held portion of the debt to be the most valid, since it is not possible for the public to own the inter governmental portions . The 44% number is correct based on that assumption. That is most assuredly not a small percentage. If you prefer, the number for foreign debt (last time I checked) was 26% of the total debt including the inter governmental, still a pretty big number.

There are many, many very good reasons to abolish the fed, but reducing the national debt isn't one of them.

bob,

it appears you want to argue for the sake of argument.

Yes, the vast majority of "debt" is NOT owed to foreigners. You seem to agree with this, I am glad you can read slides and do math. (by the way why so hostile and accusatory?)

I say "debt" because every federal reserve note IS debt. So when we pay our "debts", we pay with debt. Strange system huh? In fact under this system there IS now way to get OUT of debt. And ending the FED is the ONLY way to end the debt system (even inflation or lowering our standard of living can't change the fact that a federal reserve note IS DEBT).

Remember money is borrowed from the fed, the organization that "monetizes" money. Then it charges interest on the money it loans out which means it must create more money to allow people to pay the interest. If it fails to create more money, then default it imminent. There are only two paths, inflation leading to more inflation and more debt or default.

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Thomas Jefferson

I'm not being hostile or accusatory. Your original statement was that a very small fraction of the national debt is owned to foreigners. My contention is the 44% (which I would call almost half) of the national debt held by foreingers isn't a very small fraction, its a really serious amount. Your new statement is that the vast majority of debt isn't owned by foreigners. There is a world of difference between the statements a small fraction (say 2-3%) and not the vast majority (anything less than say 80-90%). Which is your true opinion?

You have a really strange concept of how the federal reserve system works.

Bob,

if you are going to quote me at least get it right.

I said relatively small (not very small).

I also believe your math or source is off in the foreign owned debt. I believe it is now where near half (unless you include foreign bankster owned debt)

You just want to argue semantics again telling me what small fraction means (remember I said relatively small fraction and a fraction is just that A FRACTION (maybe in your world small fraction has a specific meaning, but in a world where a dollar can loose 90% of its purchasing power and still be called a dollar I would say it is meaningless anyway) But I digress. Lay the semantics aside.

It would be interesting for you to DESCRIBE what you mean by strange concept, and perhaps offer your understanding of the FED.

http://www.ustreas.gov/tic/mfh.txt

$3.7T owed to foreign interests as of January

http://www.treasurydirect.gov/NP/BPDLogin?application=np

$4.5T held by US Gov (trust funds)
$8.2T held by others

The ratios are basically 35% held by government trust funds, 30% held by foreigners (including foreign central banks), and 35% held by US private interests.

Thank you Troy,

Those numbers seem more reasonable. The government keeps pretty good records right? Well anyway, it is the best measure we got right now, and I appreciate your sharing. These numbers must be about right and it goes to show that monetizing debt will hurt Americans more than anyone else.

AdHominem says

Bob,
if you are going to quote me at least get it right.
I said relatively small (not very small).
I also believe your math or source is off in the foreign owned debt. I believe it is now where near half (unless you include foreign bankster owned debt)
You just want to argue semantics again telling me what small fraction means (remember I said relatively small fraction and a fraction is just that A FRACTION (maybe in your world small fraction has a specific meaning, but in a world where a dollar can loose 90% of its purchasing power and still be called a dollar I would say it is meaningless anyway) But I digress. Lay the semantics aside.
It would be interesting for you to DESCRIBE what you mean by strange concept, and perhaps offer your understanding of the FED.

Do you read anyone else's post at all? Why is my math off? Let's try this again. As per troy, which you seem to accept, 8.2 trillion is the publicly held debt. 3.7 trillion is foreign. That's 45.12 percent. That's what I said in the first place. I stand by the assertion the 45.12 percent is nearly half. What in the world is the difference between foreign debt and foreign bankster debt? What the heck is foreign bankster anyway? Treasury bills in the hands of foreign entities is foreign debt period. If you want to quibble over your definitions of small fraction vs relatively small fraction vs whatever knock yourself out. My dictionary defines the numerical aspect of small as "of low numerical value; denoted by a low number". In my world low on a scale of 1 to 100 isn't 45, semantics aside.

Discussing the federal reserve system with you would be a sisyphean task that I'm simply not up to.

bob2356 says

Do you read anyone else’s post at all?

Bob I wonder the same about you. Either you can't do math or you choose to ignore the fact that 4.5 trillion of the debt is held by US trust funds. This means only about 1/3 of the debt is owed to foreign interests (including foreign banksters). DID YOU READ TROY'S POST?????Troy says

http://www.ustreas.gov/tic/mfh.txt
$3.7T owed to foreign interests as of January
http://www.treasurydirect.gov/NP/BPDLogin?application=np
$4.5T held by US Gov (trust funds)

$8.2T held by others
The ratios are basically 35% held by government trust funds, 30% held by foreigners (including foreign central banks), and 35% held by US private interests.

Bob for the record you ARE arguing semantics. And again for the record I said "relatively small" which in my book certainly applies to the figure of 30% when compared to the figure of 70%. 30 is relatively small compared to 70. Less than 1/3 of the national debt is owed to foreign interests. Therefore the amount owed to foreigners is relatively small. Your only recourse in debating this is to argue semantics.

I am still waiting for you to provide a better explanation of how the Federal Reserve system works. I suspect you cannot and use words like sisyphean to hide your own lack of understanding. Which is strange considering it is you who decided to argue in the first place. You claimed I had a strange concept of the federal reserve system, and yet offer no understanding of your own. Let's hear your concept!