Elihu wrote:around Sept 10, 2001 Rumsfeld said $2.2 Trillion (give or take) was missing for the Pentagon budget
That money was not missing from "the budget," it was the portion of total spending over many years that an audit couldn't account for. Unsurprising for a huge military. But still bad. And
it has nothing to do with any sovereign "debt crisis."Elihu wrote: Besides, "cash" is valuable only because we believe that it holds value. The reality is that cash is just fancy paper with numbers written on it. Once the "money illusion" disappears, "cash" is just worthless wallpaper.
Paper cash, of course, has nothing to do with federal spending or "the debt." Dollars (mostly electronic entries) are in demand not least because the govt requires them in payment of taxes, etc.
Reminder that the dollar is above all a unit of measure. It's not supposed to "hold value" intrinsically except as a tradable tax credit.
Elihu wrote:"money" is an interesting concept to study
Understatement! I wish they would learn about money and save themselves all this trouble.
Elihu wrote:the transition from 'inflation' to 'hyperinflation'
the transition occurs literally overnight when the people realize that the "money" is just fancy paper with numbers on it
No, the transition occurs when a severe resource shock creates shortages, which causes stuff people want to become more valuable. Contributing factors include weak tax collection/compliance regimes—if a govt won't or can't excercise its taxing authority, insufficient consumer demand is removed from the economy and eventually inflation occurs. Plus you have opportunistic price setters with market power who further jack up prices, under cover of existing inflation.
As prices rise, for commerce to continue, more currency (paper or electronic)
must be issued. Issuing more money is the
response to high inflation, almost never the cause.
Hyperinflation is rare, requiring a given set of conditions that seldom exist together, and certainly don't exist in the USA.
Elihu wrote:Debt cannot magically disappear. The piper must always be paid.
Debt can disappear by marking down the debt. Changing a number on the spreadsheet to zero erases debt. But let's ask, what defines "debt"? Is all "debt" the same? No.
"There is no good reason to use the term 'debt' when referring to outstanding Treasury securities. The expression 'national debt' is really 100 years out of date for America, and does not reflect the modern U.S. financial system."
—Frank N. Newman, former Deputy Secretary of the Treasury
If the piper is the currency-issuing governement, it doesn't have to be repaid. The piper, does, however, need to regulate its regular issue of money by also regularly recalling some portion of it back out of the economy.
A $100 Federal Reserve Note in your wallet (recorded as a govt liability) is paid for at the time its purchased, and doesn't have to be "repaid." Likewise, nor does a $100 Treasury note have to be "repaid," because it was
paid for at the time of purchase.
Some versions of the fantasy-horror narrative say that we have to pay the Fed interest, the govt has to pay the Fed interest, and the Fed is "private," stealing from us, etc. All utterly ignorant, paranoid crap.
Elihu wrote:My savings are sometime else's debt.
Net savings come from federal deficits. Real dollar savings in the economy isn't owed to anyone else, not owed to banks, not owed to government. On the other hand, absent federal injectiions (via spending), it's possible for some people to save, but in that case, their savings is indeed owed by someone else to banks.
The private sector cannot produce its own net financial surplus (aka net savings). If the govt never spent more than it taxed back, there'd be no net private savings.
Look at the graph below and see how when the federal deficit rises, so do household savings & business profits.
When the federal deficit falls, so do savings & profits.
fredgraph - savs-profits-deficit.png
That's right—
federal deficit spending is a primary source of business profits. Cutting the deficit cuts available profits. The idiots coming into power believe the opposite. They are either insane, ignorant, or they're lying (or some combination). Either way, they will set off a severe downturn that won't recover until federal spending is restored. This happens every time. Will they ever learn?
Elihu wrote:Why has not Japan defaulted or suffered hyperinflation ?
A) Because a sovereign nation that issues its own floating exchange rate currency cannot default, cannot become insolvent, can never "go bankrupt."
B) Because the Bank of Japan knows what it's doing. Japan has turned mainstream neoclassical/trickle-down macroeconomics upside down— for the correct orientation.
You've heard of "the widow's trade"? Some people lost 100s of millions of dollars betting that Japan would default. (At least one guy leapt out a window.) See (A) above.
If you listen to Michael Hudson (I hope you do), he explains that the eventual problem could be other nations holding dollars while the US is not producing enough stuff for their dollars to buy.
What's the solution? Modern money economists generally advise cessation of selling bonds altogether when the govt spends more than it taxes back. Or limiting govt securities to very short-term notes. The central bank could issue securities for conduct of monetary policy, if necessary.
That's the other thing—
selling bonds is entirely optional for the government, especially since 2008 when the Fed started paying interest on reserves.
Treasury bond issue is an interest rate maintenance operation—not a means of "borrowing" to pay for federal spending.
But FFS, get US productive capacity going again. Four decades of "trickle-down" economics has gutted the US industrial base. INVEST NOW.
Write this down and put it on your 'fridge door:
Bart govt money.jpg
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So much crazy in this. You've gotta stop reading Zerohedge, they'll fill your head with nonsense.
The crazy thing is people expending so much energy over this non-problem. There's a reason for that; can you guess?