Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse

[boutons_deux]

have the Federal Reserve Board destroy the $1.6 trillion in government bonds it now holds. While at first blush this idea may seem crazy, on more careful thought it is actually a very reasonable way to deal with the crisis. Furthermore, it provides a way to have lasting savings to the budget.

In short, Representative Paul has produced a very creative plan that has two enormously helpful outcomes. The first one is that the destruction of the Fed’s $1.6 trillion in bond holdings immediately gives us plenty of borrowing capacity under the current debt ceiling. The second benefit is that it will substantially reduce the government’s interest burden over the coming decades. This is a proposal that deserves serious consideration, even from people who may not like its source.


http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/ron-pauls-surprisingly-lucid-solution-to-the-debt-ceiling-impasse?utm_source=CEPR+feedburner&utm_medium=feed&utm_campaign=Feed%3A+cepr+%28CEPR%29

[Drachen]

Makes sense. Too much sense.

[Winehole23]

This sounds gimmicky as hell. Will it work?

[boutons_deux]

Dean Baker's usually a solid guy, not a gimmick pusher.

That's why when he says something by a nutcase like Paul looks good, it got my attention.

While the Fed might be able to it, they'd be crucified by the Repugs who want to cause, in their "fundamentalist Christian pandering/anarchist/end-times" bullshit style, another financial apocalypse, no matter how many $Bs it costs the country.

[coyotes_geek]

I'll bet this happens. I'll bet congress & Obama jump all over this. Just vaporize $1.6 trillion worth of funny money and you can maintain status quo until late early fall 2012. Why, if you toss in some token spending cuts and you could avoid having to worry about the debt ceiling again until oh I don't know, let's just call it mid-November 2012.

The chance to take $1.6 trillion of debt off the books without having to agree to significant spending cuts or tax increases before the next election? If you're a politician, what's not to love?

[Agloco]

have the Federal Reserve Board destroy the $1.6 trillion in government bonds it now holds. While at first blush this idea may seem crazy, on more careful thought it is actually a very reasonable way to deal with the crisis. Furthermore, it provides a way to have lasting savings to the budget.

In short, Representative Paul has produced a very creative plan that has two enormously helpful outcomes. The first one is that the destruction of the Fed’s $1.6 trillion in bond holdings immediately gives us plenty of borrowing capacity under the current debt ceiling. The second benefit is that it will substantially reduce the government’s interest burden over the coming decades. This is a proposal that deserves serious consideration, even from people who may not like its source.


http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/ron-pauls-surprisingly-lucid-solution-to-the-debt-ceiling-impasse?utm_source=CEPR+feedburner&utm_medium=feed&utm_campaign=Feed%3A+cepr+%28CEPR%29


This sounds gimmicky as hell. Will it work?

Some help for the ill informed please.....

Is he proposing that we destroy something that doesn't exist? Does this fall under the creative accounting tab a la Arthur Andersen? Does M1, M2, et al. tie into this?

[coyotes_geek]

While I have no reason to doubt Ron Paul's sincerity in putting forth this idea, I can't help but believe that the opportunities his idea would produce would be squandered by a congress and a president more focused on putting painful decisions beyond the next election than prescribing the painful medicine this country needs.

[Blake]

The first one is that the destruction of the Fed’s $1.6 trillion in bond holdings immediately gives us plenty of borrowing capacity under the current debt ceiling.

this made me lol.

[Winehole23]

Helllifiknow.Tearing up $1.6T in US obligations might not be as consequence free as it first appears and can hardly be calculated to inspire investors with confidence.

[Winehole23]

this made me lol.stood out to me, too.

[Halberto]

Maybe people will finally begin to listen to him if this ends up being productive.

[coyotes_geek]

Helllifiknow.Tearing up $1.6T in US obligations might not be as consequence free as it first appears and can hardly be calculated to inspire investors with confidence.

Investors needn't worry. There's $10 trillion of public debt that can be destroyed sitting in between them and the Fed holdings.

[coyotes_geek]

this made me lol.

Yep. This nation is like a shopoholic with a maxed out credit card tormented by a pair of shoes on sale. Oh how glorious it would be if we could just borrow a little more money.

[Winehole23]

Investors needn't worry. There's $10 trillion of public debt that can be destroyed sitting in between them and the Fed holdings.What a relief.

[Drachen]

What a relief.

I don't know if you understand, this is 1.6 T in treasury bonds owned by the treasury. They owe money (plus interest) to themselves. If they forgive themselves their debt, well then no harm no foul.

[Winehole23]

I understand that we're essentially talking about debt forgiveness. Funny you should say they.

[Agloco]

Wonderful system. Thank goodness that the masses are too busy or not concerned enough to learn how it actually works.

Take funny money that I owe to myself and light it on fire so that I can lend more funny money to myself as I write it off. :lol

[Wild Cobra]

This sounds gimmicky as hell. Will it work?
Then the future congress' can claim they don't owe the SS accounts, government employee pension accounts, postal service, etc. any money.

[boutons_deux]

Federal govt won't ever default on SS bonds.

Federal govt won't default on 40%+ of the US debt held by (big) US capitalists, since the capitalists own the federal govt and the Fed.

[Twisted_Dawg]

Let's see how played out:

The Fed Reserve went to the banks holding all of those toxic mortgage back bonds and says "Let"s make a deal!" The Fed offered to buy those bonds with money the Fed invented with a few cyber key strokes. Sweet deal for the banks: unload those worthless toxic mortage bonds for some cold hard cash, albeit invented money!

But there was one little catch. The banks had to agree to use that invented money received from the Federal Reserve and buy new U.S. Govt bonds from the US Treasury. Not a bad deal for the banks: they sell the toxic mortgage bonds and replace them with interest paying bonds. Sweet!

Then the Fed Reserves comes out with QE2 and and invents another $600 billion dollars. The Fed then goes back to the banks and says, "Hey banks.....We want to make you another deal and buy back those US Treasury bonds you got from selling us those nasty toxic mortgage bonds!" The banks couldn't refuse that offer!

So the banks sold those toxic bonds to the Fed, used the money to buy Treasuries and then sold those Treasuries back to the Fed for cash. In short order the banks turned those toxic mortgage bonds into cold hard cash they were suppose to loan out to business. Except that never happened and it got funneled back into the stock market.
The rich bankers taking care of the rich.

So by the Fed junking the $1.6 Trillion in bonds they hold, a big chuck of that came from inventing money to buy the bonds.

Can you say monetize? As in monetize the debt?

[Agloco]

Then the future congress' can claim they don't owe the SS accounts, government employee pension accounts, postal service, etc. any money.

As I understand it, the debt that the Fed holds is non obligatory (ie They owe themselves). The SS stuff is separate.

[Wild Cobra]

As I understand it, the debt that the Fed holds is non obligatory (ie They owe themselves). The SS stuff is separate.
As I think about it, I think you're right.

[CosmicCowboy]

One figure I have heard is that there is 10.9 trillion dollars in circulation. If the US "Forgives" it's own 1.4 trillion dollars in debt, that reduces the intrinsic value of the existing dollars by more that 10%. That doesn't bother anyone?

[MannyIsGod]

How does it lower the value of the dollar? I'm confused. This doesn't add any new money into circulation.

[boutons_deux]

"reduces the intrinsic value of the existing dollars by more that 10%"

If that reduces the exchange rate of the dollar, then exporters of $100Bs of US goods become more competitive.

What Fed should do is make the sellers of toxic shit, now making $100Bs in profits, buy back all the toxic shit they created, about $T1.1.

Of course, the Fed won't do that because the Fed is nothing but subsidiary of the financial sector.

[CosmicCowboy]

How does it lower the value of the dollar? I'm confused. This doesn't add any new money into circulation.

Because it's exactly the same as saying "We don't need to raise the debt ceiling or borrow any more money...we will just print 1.4 Trillion dollars instead..."

[MannyIsGod]

I don't think its the same but I'm no economist. It gives them room to borrow more money, but that is about it. There's really no way around borrowing more money anyway. Well there is, but that is default and that strikes me as far worse.

[CosmicCowboy]

I say fuck the Democrats AND the Republicans.

Republicans "no new taxes of any kind" and Obama's "lets just tax those nasty rich people and their awful corporate jets" are both bum-fucking stupid positions. There is not enough money there to make a substantial difference. It's just pure class warfare.

Time to suck it up, admit we are living beyond our means, raise taxes across the board, cut discretionary spending across the board, cut the military and our "world policeman" role, and raise the retirement age for SS and Medicare.

[MannyIsGod]

To be fair, I think Obama would go for an across the board raising of taxes. Probably not an even one, but none the less. I'm not saying the democrats are without fault, but in the areas of fiscal responsibility the GOP is far far worse, IMO. Their stance of no tax increases is a complete non starter.

[coyotes_geek]

I say fuck the Democrats AND the Republicans.

Republicans "no new taxes of any kind" and Obama's "lets just tax those nasty rich people and their awful corporate jets" are both bum-fucking stupid positions. There is not enough money there to make a substantial difference. It's just pure class warfare.

Time to suck it up, admit we are living beyond our means, raise taxes across the board, cut discretionary spending across the board, cut the military and our "world policeman" role, and raise the retirement age for SS and Medicare.

Couldn't agree with you more. :tu

[CosmicCowboy]

To be fair, I think Obama would go for an across the board raising of taxes. Probably not an even one, but none the less. I'm not saying the democrats are without fault, but in the areas of fiscal responsibility the GOP is far far worse, IMO. Their stance of no tax increases is a complete non starter.

And the Democrats stance of no "entitlement reform" is a complete non-starter if you are serious about deficit reduction.

OGnE83A1Z4U

[MannyIsGod]

They don't have a stance of no entitlement reform at all.

[coyotes_geek]

To be fair, I think Obama would go for an across the board raising of taxes. Probably not an even one, but none the less.

Where's this coming from? Something he said, or just a gut feeling? Because as far as I know Obama has never, ever, ever even hinted that anyone in the bottom 98% should have to pay an extra dollar in taxes.

[Wild Cobra]

Time to suck it up, admit we are living beyond our means, raise taxes across the board, cut discretionary spending across the board, cut the military and our "world policeman" role, and raise the retirement age for SS and Medicare.


To be fair, I think Obama would go for an across the board raising of taxes. Probably not an even one, but none the less.
What do you guys say about this. For 2011 we all pay 4.2% instead of 6.2% for Social security. What if we fix that rate and add a 2-4% Social Tax of all income. Now this tax would have no deductible. Simply be a strait percentage of all wages. We let politicians adjust this amount by a maximum of 1/4% per quarter.

I'm not for new taxes, but I say everyone needs to share in the pain of taxation. We need to stop having people who vote for politicians that promise them other people's money, and they vote for those politicians because it doesn't come out of their pocket.

Everyone needs a dog in the fight.

[CosmicCowboy]

They don't have a stance of no entitlement reform at all.

OK...so they might consider means testing Medicare...That's just more blatant class warfare. Cut the benefits on the ones that paid in the the most for their "medicare" and actually saved for their retirement?....

[coyotes_geek]

OK...so they might consider means testing Medicare...That's just more blatant class warfare. Cut the benefits on the ones that paid in the the most for their "medicare" and actually saved for their retirement?....

People who took ownership in planning for their future need to be punished.

[MannyIsGod]

OK...so they might consider means testing Medicare...That's just more blatant class warfare. Cut the benefits on the ones that paid in the the most for their "medicare" and actually saved for their retirement?....


People who took ownership in planning for their future need to be punished.

Meh, I'm not going to get into a debate about hypothetical specifics. If you guys want to think the Dems are just as guilty as the GOP by all means go ahead.

[MannyIsGod]

Where's this coming from? Something he said, or just a gut feeling? Because as far as I know Obama has never, ever, ever even hinted that anyone in the bottom 98% should have to pay an extra dollar in taxes.

Obama has bent over backwards to reach over to the GOP's outrageous positions so I find it hard to believe he wouldn't reach over to meet an actual sensible one. The GOP arguing for no new taxes gives him the ability to stay in a position that his base likes but if they were actually going to come with an across the board tax increase I think he would have to consider it seriously but I'm sure he'd want a large percentage to come from the top brackets. Really - no matter what anyone says - the bottom 50%'s taxes being raised is pretty much a symbolic move but I'm OK with it because I do believe in what it represents.

[coyotes_geek]

Obama has bent over backwards to reach over to the GOP's outrageous positions so I find it hard to believe he wouldn't reach over to meet an actual sensible one. The GOP arguing for no new taxes gives him the ability to stay in a position that his base likes but if they were actually going to come with an across the board tax increase I think he would have to consider it seriously but I'm sure he'd want a large percentage to come from the top brackets. Really - no matter what anyone says - the bottom 50%'s taxes being raised is pretty much a symbolic move but I'm OK with it because I do believe in what it represents.

I sincerely hope you're right. Taxes do need to go up across the board. The fact that damn near 50% of households don't pay any income tax is ridiculous.

[MannyIsGod]

I sincerely hope you're right. Taxes do need to go up across the board. The fact that damn near 50% of households don't pay any income tax is ridiculous.

Obviously its just based on observations on other issues but I just can't find a place where Obama has been stubborn to the point of breaking down negotiations. Every step of the way he's caved and he's caved rather quickly.

[fyatuk]

Obviously its just based on observations on other issues but I just can't find a place where Obama has been stubborn to the point of breaking down negotiations. Every step of the way he's caved and he's caved rather quickly.

This is actually true. Obama has been a very weak president. He hasn't even been able to lead his own party. He's caved towards some of the weirder dem positions and towards some of the rather non-sensical republican positions. He's even caved in to other countries.

In his own way, he's actually been a weaker leader than Bush, and Bush seemed to have been manipulated just about every step of the way. (NOTE: Not saying worse president, just weaker leader).

[Vici]

This is actually true. Obama has been a very weak president. He hasn't even been able to lead his own party. He's caved towards some of the weirder dem positions and towards some of the rather non-sensical republican positions. He's even caved in to other countries.

In his own way, he's actually been a weaker leader than Bush, and Bush seemed to have been manipulated just about every step of the way. (NOTE: Not saying worse president, just weaker leader).

I think you overstate Bush's leadership. Let's be clear, Cheney had far more weight with congress and Repuiblicans than Bush ever could. Same with Rumsfield and everyone else. Bush was a relative newcomer and because of his cast he was able to do just about whatever he wanted. Republicans, for whatever reason, tend to vote the same way dpwm the lines more then Democrats. When you look at the parties, who would compare to a Cheney or Gingrich from the 90's? With a larger majority Reid and Pelosi couldn't pass a damn thing without tons of compromises.

[fyatuk]

I think you overstate Bush's leadership.

I clearly implied I didn't think Bush was anywhere near a decent leader. He still looked like a strogner leader than Obama. Just both of them pretty much blow.

[RandomGuy]

I don't know if you understand, this is 1.6 T in treasury bonds owned by the treasury. They owe money (plus interest) to themselves. If they forgive themselves their debt, well then no harm no foul.

The treasury is not the Fed, nor vice versa.

My gut says this is an idea that sounds good at first hearing, but when you look into the details, is highly implausible, like most of Mr. Paul's ideas.

If it really were that easy, someone would probably have done it by now.

[RandomGuy]

I sincerely hope you're right. Taxes do need to go up across the board. The fact that damn near 50% of households don't pay any income tax is ridiculous.

Living standards have arguably been flat or falling for close to two decades, and, given run ups in health/education, likely will continue that trend.

Also missing from this statement is an acknowledgement that all the companies these people do business with do pay income taxes, from the mortgage company to the landlord to the grocery store.

You seem to suggest that they do not help bear the burden.

I have more of a problem with the fact that the wealthiest pay a smaller percentage of their income in taxes than at any time in the last century or so.

[Wild Cobra]

I have more of a problem with the fact that the wealthiest pay a smaller percentage of their income in taxes than at any time in the last century or so.
Then fix that by removing all the tax breaks, rather than increasing the tax rates.

By raising the tax rates, you hurt those who don't get the breaks, and it doesn't affect those much who still get the breaks.

[boutons_deux]

"damn near 50% of households don't pay any income tax is ridiculous"

Similar for all industrial countries. It a humane recognition that for a given country, there is a level subsistence expenses that aren't reducible.

Do you really expect a person making under $30K to pay income tax, as well as paying all payroll taxes, sales taxes, property taxes. When Warren Buffet and other hyper-wealthy pays 17%, what do you expect a $30K gross person to pay in income tax?

"removing all the tax breaks, rather than increasing the tax rates."

aka "tax expenditures". The Repugs absolutely refuse to remove tax breaks, since that, in their pervese world, is a tax reaise, which they have sworn never to raise in their campaign to destroy GOVERNMENT-IS-THE-PROBLEM

[LnGrrrR]

Take funny money that I owe to myself and light it on fire so that I can lend more funny money to myself as I write it off. :lol

Our monetary system is retarded.

[RandomGuy]

Then fix that by removing all the tax breaks, rather than increasing the tax rates.

By raising the tax rates, you hurt those who don't get the breaks, and it doesn't affect those much who still get the breaks.

:wow I would agree, starting with capital gains. There are a massive amount of loopholes in the tax code, and it is quite time to fix that.

Simplify the tax code, and work towards a plain old flat tax.

One would have to work in some mechanism for preventing social engineering and favoring special interests through tax breaks.

[coyotes_geek]

Living standards have arguably been flat or falling for close to two decades, and, given run ups in health/education, likely will continue that trend.

Agreed, but what does that have to do with whether or not half the country should be excused from having to pay income tax?


Also missing from this statement is an acknowledgement that all the companies these people do business with do pay income taxes, from the mortgage company to the landlord to the grocery store.

There's no such acknowledgement because it's irrelevant. Income tax payers use the same mortgage companies, landlords and grocery stores that the non-income tax payers are.


You seem to suggest that they do not help bear the burden.

That's because they're not.


I have more of a problem with the fact that the wealthiest pay a smaller percentage of their income in taxes than at any time in the last century or so.

Can't pay a smaller percentage than 0%. Hence the need to raise taxes across pretty much the entire income spectrum.

[coyotes_geek]

Do you really expect a person making under $30K to pay income tax, as well as paying all payroll taxes, sales taxes, property taxes.

Yes.


When Warren Buffet and other hyper-wealthy pays 17%, what do you expect a $30K gross person to pay in income tax?

Not much, but more than $0. Everyone above the poverty line should owe at least $1 in income tax IMO.

As for Warren Buffett, I've said all along I'm fine with raising capital gains tax rates. In fact I think if we got rid of cap gains rates all together we could lower the marginal rates and still come out ahead on revenue.

[angrydude]

the main benefit of this isn't that we could borrow more, it is that we wouldn't have to pay interest on the debt we just destroyed.

[Wild Cobra]

I will say it again.

All income earners should pay a tax that is subject to increase or decrease to them. Not just others. It's about accountability. Accountability of who we vote for. Accountability so people vote for the best for everyone instead of being bough by political promises of doing things they want with other people;'s money.

[Blake]

I say fuck the Democrats AND the Republicans.


:lobt2:

[Drachen]

I think you overstate Bush's leadership. Let's be clear, Cheney had far more weight with congress and Repuiblicans than Bush ever could. Same with Rumsfield and everyone else. Bush was a relative newcomer and because of his cast he was able to do just about whatever he wanted. Republicans, for whatever reason, tend to vote the same way dpwm the lines more then Democrats. When you look at the parties, who would compare to a Cheney or Gingrich from the 90's? With a larger majority Reid and Pelosi couldn't pass a damn thing without tons of compromises.

To be fair, the way I saw it, Pelosi passed everything she damn well pleased.

I will say this though, I agree with CC and am not about to pick apart the process that led him to that which I agree with.

[coyotes_geek]

the main benefit of this isn't that we could borrow more, it is that we wouldn't have to pay interest on the debt we just destroyed.

Well, at least not until we replace the debt we destroyed with new debt........

[Drachen]

The treasury is not the Fed, nor vice versa.



(Slaps forehead) DOH!

[boutons_deux]

"Pelosi passed everything she damn well pleased."

she did pretty well only in the House, but the Senate Repugs and DINOs meant there was never a super majority in the Senate, so House stuff got modified seriously or killed.

[Winehole23]

Well, at least not until we replace the debt we destroyed with new debt........The "borrowing room" boutons cheerily alluded to upstream. New stimulus funded by a straight up gimmick, courtesy of Ron Paul.

There's no way this actually flies, right?

[coyotes_geek]

The "borrowing room" boutons cheerily alluded to upstream. New stimulus funded by a straight up gimmick, courtesy of Ron Paul.

There's no way this actually flies, right?

I wouldn't say no way, but Paul's idea certainly doesn't seem to be picking up any steam. At least not in the media. So that leads me to think that it's not going to fly. For now.

[SnakeBoy]

To be fair, I think Obama would go for an across the board raising of taxes. Probably not an even one, but none the less. I'm not saying the democrats are without fault, but in the areas of fiscal responsibility the GOP is far far worse, IMO. Their stance of no tax increases is a complete non starter.

Really? All he had to do was nothing and we would be using the Clinton tax rates now. The Bush tax cuts became the Obama tax cuts when he renewed them. Can't blame the GOP for that...but you'll find a way I'm sure.

[RandomGuy]

You seem to suggest that they do not help bear the burden.



That's because they're not.



So when someone pays rent, could the landlord offer that property at a lower rate if the landlord didn't have to pay income taxes?

[coyotes_geek]

So when someone pays rent, could the landlord offer that property at a lower rate if the landlord didn't have to pay income taxes?

Sure. Not a very relevant point though since whatever transitive tax burden you're claiming the non-income tax payers are "burdened" with is equally felt by the income tax payers on top of the income taxes that they're paying.

Of course one could also play this game on the other end of the income spectrum and say that the rich shouldn't have to pay any income taxes either because of the taxes paid by whoever they're doing business with.

[Th'Pusher]

Really? All he had to do was nothing and we would be using the Clinton tax rates now. The Bush tax cuts became the Obama tax cuts when he renewed them. Can't blame the GOP for that...but you'll find a way I'm sure.

That would not have been the proper timing, but eventually I all of the bush tax cuts should expire. The key is to phase the cuts/tax increases in over time as to limit drag on on GDP growth. My primary issue with the December Tax agreement is the priorities. First things first…give everyone their tax cuts, the millionaires included, and now we can really get down to business and start cutting subsidies for the poor…and NPR.

[Winehole23]

We have a winner. Congrats. Me and you be the only ones on this board who get it.You may not have been listening carefully. What CC proposed isn't very different from what a number of regular posters regularly say, and he was hardly the first to say it here. That honor goes to coyotes_geek by my casual reckoning...

[Winehole23]

...your desire to be in a very small club with CosmicCowboy, totally notwithstanding

[Winehole23]

Sorry. I'm not a fan.

[Winehole23]

Missing something you said doesn't make me ADHD.

[Parker2112]

lol at all the silly motherfucks that still think the Fed is any part of the US/US Govt.

Or that our govt has any control over the FED,

Or that the treasury has a damn thing to do with the FED.

http://www.youtube.com/watch?v=kcvuBETuwn0

[Winehole23]

Were you talking to somebody?

[Agloco]

Our monetary system is retarded.

:lol

Yeah, in a roundabout way, this is what I was getting at.

[Winehole23]

Let's see how played out:

The Fed Reserve went to the banks holding all of those toxic mortgage back bonds and says "Let"s make a deal!" The Fed offered to buy those bonds with money the Fed invented with a few cyber key strokes. Sweet deal for the banks: unload those worthless toxic mortage bonds for some cold hard cash, albeit invented money!

But there was one little catch. The banks had to agree to use that invented money received from the Federal Reserve and buy new U.S. Govt bonds from the US Treasury. Not a bad deal for the banks: they sell the toxic mortgage bonds and replace them with interest paying bonds. Sweet!

Then the Fed Reserves comes out with QE2 and and invents another $600 billion dollars. The Fed then goes back to the banks and says, "Hey banks.....We want to make you another deal and buy back those US Treasury bonds you got from selling us those nasty toxic mortgage bonds!" The banks couldn't refuse that offer!

So the banks sold those toxic bonds to the Fed, used the money to buy Treasuries and then sold those Treasuries back to the Fed for cash. In short order the banks turned those toxic mortgage bonds into cold hard cash they were suppose to loan out to business. Except that never happened and it got funneled back into the stock market.
The rich bankers taking care of the rich.

So by the Fed junking the $1.6 Trillion in bonds they hold, a big chuck of that came from inventing money to buy the bonds.

Can you say monetize? As in monetize the debt?Nice rundown. TGIF. :toast

[Wild Cobra]

What do you all think about just printing more money to cover the expenditures rather than increasing the ceiling?

[Winehole23]

hUH?

[Winehole23]

nO MATTER WHAT YOU SAY IT'S A BAD IDEA

[Wild Cobra]

LOL...

All my ideas are bad?

OK. Let's reelect Obama!

[Winehole23]

bAD IDEA.

[Winehole23]

i DONT KNOW WHAT REVERSED CAPITALIZATION MEANS EITHER

[Wild Cobra]

Seriously. What if we devalue the dollar by printing more?

[ElNono]

Seriously. What if we devalue the dollar by printing more?

You cause inflation, which can easily get out of control driven by speculation, and turn into hyperinflation. For reference see Brazil and Argentina, late 90's.

[ElNono]

Not to mention that salaries dwindle down while cost of living remains the same. You basically just moved whatever is left of the middle class under the line of poverty or very close to.

[Wild Cobra]

You cause inflation, which can easily get out of control driven by speculation, and turn into hyperinflation. For reference see Brazil and Argentina, late 90's.
I still see it as a better alternative than losing our national wealth to the trade imbalance.

[Wild Cobra]

Not to mention that salaries dwindle down while cost of living remains the same. You basically just moved whatever is left of the middle class under the line of poverty or very close to.
I disagree. Printing more money would affect the value of money vs. other currencies far more than internal inflation. National inflation would be kept in check with similar COLA pay adjusts. However, it would make foreign goods more expensive to us, and exports more affordable to the people of other nations. It would help bring manufacturing back to our shores.

[ElNono]

I still see it as a better alternative than losing our national wealth to the trade imbalance.

How many hyperinflations have you lived through? I mean, academically everything is easy, but you really don't know what you're advocating.


I disagree. Printing more money would affect the value of money vs. other currencies far more than internal inflation. National inflation would be kept in check with similar COLA pay adjusts. However, it would make foreign goods more expensive to us, and exports more affordable to the people of other nations. It would help bring manufacturing back to our shores.

Except that local manufacturing capacity isn't there. It went away when the currency was valued more, and it's not coming back overnight. That 'adjustment period', which normally takes at least months, sometimes years, is a spiral of high inflation where salaries can't keep up with the price of goods. You ALWAYS end up that cycle with more poor people, and the political cost of it is very, very high (People have a tendency to remember the guy in charge when the price of milk went up 300% in one week and the salaries didn't move)

You're also talking about this in a vacuum. Just like every other monetary shenanigan, you can make money out of inflation/hyperinflation. Meaning you WILL have speculators creating artificial lack of supply to extend the period of crisis.

Funny thing is, you are far from the first to suggest or even try this. It always ends bad without fault. That said, the US might just have to go for it at some point if it can't cover it's debts.

[ElNono]

BTW, I'll tell you how it plays out too... There's basically two scenarios:

1) Government starts printing in small batches, trying to 'control' the inflationary effect. People starts noticing the slow increase in inflation from printing, and realize that they'll be better off not holding on to dollars, but buying some other currency, precious metal not pegged to the dollar, etc. At which point everybody starts trying to pull money off the banks, and you trigger a bank run, along with panic because the money isn't there to try to sidestep the inflationary spiral. Most politicians/connected businessmen likely bought Euros/gold a week before. At that point the government is simply forced to ration access to money and go ahead with a full blown depreciation (whose effects I explain in point 2)

2) The government decides to devalue the dollar overnight, say, by adding an extra 0 ($10 dollars are now worth $1). An average salary of $60K/year now has overnight been transformed into a $6K/year salary. Gas is still going to cost $4/gallon. Goods that need to be transported and imported goods (everything made in China, basically) will now be appreciated by 10. Obviously, local production doesn't start overnight, and takes months, even years. Standard of living literally plummets. There's rationing of goods due to lack of supply. Companies have their value diluted too. There's a lack of trust to invest since you just don't know when the government will devalue overnight again and make you waste your investment.

I've seen both play out and they're both a disaster. It can be argued that in the long run (decade maybe), the country can have a better outlook and be more competitive. But this is not a solution, it's a catastrophe you self impose because you're just not serious in doing what needs to be done for this to be fixed properly (stop spending more than what you collect).

[Winehole23]

How many hyperinflations have you lived through?Please forgive us, profe. The answer is none.

None of us norteamericanos have lived through even one period of hyperinflation. Ever.



(but we will probably catch up):depressed

[ElNono]

Please forgive us, profe. The answer is none.

None of us norteamericanos have lived through even one period of hyperinflation. Ever.

(but we will probably catch up):depressed

If he would've done at least a modicum of research of how his proposal works out in the real world (and there's a plethora of literature out there), I would think he wouldn't even think about it.

Or maybe he's advocating it since he already moved his assets to gold/silver/euros? :lol

I do agree that unless there's something structurally substantial done about the budget, the temptation to fire up the magical money machine will be too great to just pass up. Most countries that end up with this shit do it for the exact same reason (the 'easy' way out)

[Winehole23]

(Urp)