Saturday, 28 May 2016

Here we go...

Donald Trump has has finally go to the madness of money printing to pay off the National Debt.

That's it. We're doomed.


Random said...

It is just an asset swap. Inflation is due to the *flow* of money.

The Fed has already done it to the tune of $5.4tn via its "QE."

I can't believe people still spout this gibberish. Why should the federal government be paying free income on bonds?

Lola said...

R I was waiting for your contribution.

DBC Reed said...

Hooray! Somebody with some kind of democratic mandate has finally questioned why we are paying the banks for creating our own money." The majority of money in the modern economy is created by commercial banks making loans" BoE Bulletin 2014

Lola said...

DBCR. In my view the banks are a state sanctioned specially privileged cartelised supplier of a monopoly product engaged in counterfeiting. The key component in that phrase is 'state sanctioned'. That is the commercial banks are encouraged in their counterfeiting by the state. Isn't all this based on John Law's experiments with the French economy, national debt and banking system in the 1700's? And that didn't end well did it?

R. Yes. But. Government Bonds and Government money have particular differences. Bonds are (should be) sold on the market and offer a rate of interest over a fixed term. Government money is mandated by legal tender laws and is in effect an undated bond offering no coupon. It is also used as 'money' by the economy over which that government has thrall. Government Bonds (Gilts, Treasuries) are not used as money, generally. What Mises is saying is that sooner or later if the government makes money for nothing then people will lose confidence in that money and it will collapse.

Ralph Musgrave said...


I think you are right to describe money creation by private banks as state sanctioned counterfeiting. However, contrary to you suggestion that will end badly (a la John Law), that system has been going for a good 300 years, and there is no reason it can’t go on, unless the AMOUNT counterfieted gets excessive and causes hyperinflation. But we’ve had that pretty much under control for 300 years, so I don’t see the problem.

As to whether that “state sanctioned counterfeiting” SHOULD continue, my answer is “no”, because that counterfeiting is subsidised by taxpayers. My reasons are a bit complicated, but if you’re interested, see the draft of a paper of mine here:

As for Trump’s idea (print money and pay off the debt) that idea is not new. Milton Friedman advocated a “zero government debt” regime, as does Warren Mosler. And converting to that regime is not difficult. As Trump says, we just print money and pay off creditors. What he left out was that to deal with the inflationary effect of that, we’d need to raise taxes a bit. But that’s no big problem in theory, though raising taxes can be a POLITICAL problem of course.

DBC Reed said...

But if the banks make money for nothing the people will have confidence in it.
Not the experience of the Union side in the American War that issued Greenbacks independent of the banks ; not the experience of pre-war Germany when they issued Labour Treasury Certificates.
Please do not publish portraits of that freak Mises; this is supposed to be a pro-Land Tax site.I believe that LVT can make a State created money system work and a bank created money system work.

Lola said...

RM. The 'under control for three hundred years' bit is not a complete observation.

To be consistent lets start from 1694 - the incorporation of the Bank of England. Prior to 1694 'money' was - generally - 'sound'. That is there wasn't much opportunity for credit expansion and pretty ell no state paper money (with the exception of same failed experiments).

Then between 1694 and 2014 we had reliable money, with FRB, which was as you say, under control. (I concede that there were occasions in that period when things didn't go quite right, mostly during or after wars.)

(BTW we could have taken 1913 as the cut off date, as that is when the US Federal Reserve was incorporated.)

Between 1914 (1913 if you like) and now, we have had various attempts at controlling FRB, aka counterfeiting. They all failed. Inflation, the loss of the purchasing power of the money unit, between 1914 (1913) and now has been eye watering and roughly correlates with the rise of FRB/credit creation.

The question therefore is, why? And once we know why, how do we stop it?

Lola said...

Oh, just to add, I am not absolutely anti FRB.

Steven_L said...

Trump will probably just print $ for himself. Then again, maybe they need a Trump type figure to do crazy stuff, like raise interest rates?

Lola said...

"But if the banks make money for nothing the people will have confidence in it. .

Mark Wadsworth said...

As RM says, it is a question of fact and degree. So although all this does not work in theory, it works in practice for most countries for most of the time.

Ralph Musgrave said...


I don’t agree that because we’ve had inflation over the last century or so, that that’s a flaw in FRB (if that's what you're saying). It’s widely accepted by economists that 2% inflation is about optimum, so that’s what we’ve gone for, and ROUGHLY what we’ve experienced (though obviously inflation in the 1970s was too high, and I think prices actually fell in the 1930s).

Had we chosen 0% instead of 2% we could easily have done that, though unemployment would have been a bit higher. And that would have been compatible with FRB.

But to repeat, I don’t favor FRB because I think it is subsidised.

DBC Reed said...

What happened to erstwhile Lola favourite, Murray Rothbard, also a favourite of the saintly Mises ? (or the man who made his name out of saying nothing of any use).Rothbard's "Fractional Reserve Banking" destroys the conventional justification of the banking system utterly.But you appear to cling to it, knowing it is "counterfeit" and "a swindle" and all the other words Rothbard uses.

Lola said...

RM. I remain entirely unconvinced by 'economists thinking the 2% inflation is about right'.

If the implication is that the money supply needs to expand by 2% p.a. - again why?

It all relies on the Great and the Good knowing what they are doing. And by simple observation through my life and having actually met and talked to not a few of the GATG, I have very little faith indeed in their wisdoms. Worse than that I wouldn't trust them as far as I could spit a rat.

DBCR. Thing is I fundamentally do not trust the 'authorities'. Ever. Never have done. In that case it is not surprising that I like Rothbardian and Misean economics. It's not that I laud Rothbard or Mises, it's more that they are also anti-establishment / anti authority / anti coercion. If you were to spend a month or so working in the business area I work in you'd quickly realise how absolutely hopeless the financial services regulatory bureaucrats actually are. Which justifies my sceptism.

As long as you have the rule of law (preferably Common Law), strong property rights, sanctity of private contract and sound money (which is where we came in) you really need very little 'authority'. Anyway 80% of the effort of 'the authorities' is spent trying to market to us their indispensability.

So going back to Trump and money/banking/central banking etc, I view the Bank of England with deep suspicion and their whole inflation setting rules and all the rest of their soothsaying.

Lola said...

POI. Going outside now to fix mower. Will pick this up later.

DBC Reed said...

The film "The Big Short" is encouraging from our point of view as it shows a small bunch of smart yanks betting against the entire American housing market which was working itself up to the 2007-8 bubble. The dramatic impetus of the film comes from the fact that the entire housing finance industry laughs at them for saying there's a bubble and none of their valuations is right.
Just because Rothbard is an outlier doesn't mean he is wrong.Outliers were proved right in 2008 on a huge scale.(Lets face it ,given the opportunity and funds we would have bet the same way: that the housing market AS A WHOLE was ridiculously inflated- and is heading the same way again).
There wasn't the popular money in the market to justify the fancy house price valuations. There isn't the popular money in the money market to validate the present financial valuations.Time to come clean and admit that its all a conventional or fiat arrangement.

Lola said...

DBCR. We'll, yes. We, my business, bey against the housing market leading up to 2008. In the sense that we stopped doing mortgage work and actively encouraged people to pay off debt and not get over- committed.

Lola said...
This comment has been removed by the author.
Ralph Musgrave said...


One argument for 2% inflation (and I’m not saying it’s a totally watertight argument) is that employees feel happy with a small annual wage increase, even if that’s cancelled out by inflation. To paraphrase, the argument is that we can go for zero pay increases and face industrial unrest, or have 2% inflation plus less industrial unrest.

Another point is that it is desirable for the wage paid in different professions to change relative to each other in line with supply and demand, but it’s near impossible to do that by CUTTING the wage in many professions: that just produces unrest. Or as Keynes correctly observed, “wages are sticky downwards”. However, given a small amount of inflation, relative wages can be adjusted without anyone’s nominal wage falling.

Lola said...

Para 1. What?! That is bonkers. Assuming you have 2% deflation (e.g.) then everyone is better off by 2% p.a. Why would you need a pay rise? I am an employer. My pay rise criteria is is the employee adding more value/being more productive? Not getting a pay rise is just another price signal. In nay event people aren't daft. If they are getting better off because of deflation they won't demand pay rises.

DBC Reed said...

Nobody is considering the problems of robot production which Major Douglas saw becoming tricky in 1920.1984 was Orwell's take on various ways of getting round the obvious: National Dividends of unearned income so people could buy the stuff.We still have people competing for jobs when mechanisation will do the work far cheaper.Basically afraid of freedom.( I have written the last sentence so many times.)

Lola said...

DBCR. Ah, the Frankenstein Complex. There will always be, always have been, jobs. Or rather the demand for workers. It's just that the demand for particular skills changes. But as we are blessed with an opposable thumb and a cognitive ability we can adapt to the skills that are required.

However I agree with you regarding the Citizens Income / LVT sum. It's not that we have highly paid labour in the UK. We do not. What we do have is high taxes, high rents and regulationism making that labour very expensive.

In lots of ways where we are now, having proved finally in 1991, that socialism/collectivism etc does not work, is the continuing end game for all that nonsense. The Powers That Be and the rent seekers are fighting a losing battle to preserve their privileges and fat entitlements. They are desperate to prove their indispensibility. Which is where we came in with all the bad money.

DBC Reed said...

I cannot see how the fall of Communism showed that a mixed economy does not work better than the two alternatives. The Americans seem heartily sick of their free trade system where all the jobs get exported (which you assured everybody could not happen) and there's no public sector health insurance.There would appear to be a revolution in attitudes over there: all bets are off for the duration.
I do not see that rent seekers are fighting a losing battle:you and other anti socialists are for taking health, education , transport off the public sector and divvying it out among big corporations all waiting to show what a ruinously expensive mess they can make of it, as they have done with Brit Housing and American Health.
As for robot production: it is possible and an organised system can
make it work.Obviously "chaotic destruction" is not going to see it happen, as I am sure you will agree.

Lola said...

DBCR. Oh come on now. You know as well as I do that the USA is NOT a free market economy. It hasn't been one since, ooooo, 1913 and even before that it was highly politicised. (The massive subsidies to railways for example). What the US is corporate and cronyistic (like the EU). It's aLso been massively socialist, certainly since that old fraud Roosevelt's New Deal (which, predictably, failed). You only have to look at appalling outfits like Fanny May and Freddie Mac to see that it is 'socialist'. The problem for the US is that they have had a succession of useless Presidents and are lumbered with ineffective 'parliament'. The banking crisis in the US was the direct result of unwarranted and excessive credit expansion by the Fed, massive and easy re-securitisation by Fanny May and Freddie Mac and stuff like the anti-red lining policies under Clinton. Yes, sure, the Goldman Sach's got in on the act, but that's what the Fed is for - to bail them out when they fail. There has been public sector health insurance in the US for years (since LBJ I think) - medicaid and medisure(?). What the US is now enduring, as we are here, is the move away from Common Law to some sort of bastardised Roman Code driven by the influx of Hispanics and the parallel move to an entitlement culture.

Socialism, in fact all forms of collectivism (including Keynesianism) have predictably, abjectly and unremittingly, failed.

Again you are analysing the motivations of others through your own prejudicial lens. No-one anywhere (and definitely not me) has ever said that de-nationalising Health, education and housing would mean gifting crony opportunities to 'big corporations'. Quite the reverse. And in re healthcare there was an excellent system of private provision at low cost up to about 1911 (when the first bits of cronyism got in with doctors combining with insurers and appealing to government for special privileges which enabled them to undermine friendly societies and the like). This market self help system based on a lot of charity was finally fully nationalised in 1947 and it has been downhill since then. As for education,'s a total mess.

Robotisation of course will happen. It is happening. But that just means that jobs will change. There will always be 'enough' jobs, unless some ignorant bleeding heart (self interested ) central planner starts sticking their nose in.

The Stigler said...


I'd say that America, like much of the west, is broadly free market. But, the most noticeable thing to me is that whenever people complain about the free market, the examples they give are basically always about the state for instance:-

"the banks". Bailed out by the governments. So, had not Brown or Bush agreed to bail them out, the market would have done its job and a few of them would have gone to the wall, as markets should behave. So, the fault is? The politicians. The "not market".
"expensive healthcare". Because the US government has been successfully lobbied by the doctors to not allow too many trained doctors. Again: ultimate problem is politicians
"the railways". Actually, the rail market is a bunch of highly regulated temporary monopolies. The real problem with the cost of rail is the lack of capacity. What are GWR to do if they fill every seat at £120/ticket? Charge £100? Why would they? But I wouldn't expect a national rail company to do any different. Sweat the assets that people want.

Lola said...

TS. Agreed with all that.

DBC Reed said...

Gobsmacking nonsense, I'm afraid. Gave up at such gems as " No one anywhere ..has said that denationalising health, education and housing(!)would mean gifting crony opportunities to "big corporations" and the reference to the " excellent private healthcare system at low cost up to about 1911"!

Lola said...

DBCR, Fair enough, too generalist. Maybe a better statement would have been that the UK had an excellent system of healthcare for its time. Yes, probably only about 50% were paying members of it, but what was there was effective.
Look, we are getting O/T here. The whole history of healthcare and reform now debate deserves its own post. I just don't have the time to do one right now.