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  • Is Inflation Next? [View article]
    No, sorry, still unclear on the concept. There is nothing special about the government or the Fed in this regard. In order for the government to spend money it did not first collect in taxes, someone must freely accept a newly issued liability as fair payment for the value the government spends. It doesn't matter whether that accepted liability is a deferred promise to pay or a sight liability - whether it is an interest bearing note that matures in 10 years, or a sight note that is already "mature" the instant it was issued. Someone has to want that item and take it in exchange, or there is no value transferred to the command and direction of the government.

    And there is no difference in this respect between the government and its bank, the Fed, and me and my bank, Chase. I can issue my own note in the form of a promise to pay in future, and my counterparty (last month, an autodealer) can accept it because they know they can trade it to Chase for a deposit balance at Chase, and they accept that balance as being as good as cash. The number of intermediaries does not matter; the change from deferred to demand liability form does not matter. What matters is merely that someone is willing to hold *Chase's* newly created dollar liability (the deposit, which is a liability to Chase created just as much out of thin air as the Fed's are) as being as good as cash, and that Chase is willing to hold my deferred claim (a term note) as being superior for it, to the cost of issuing that liability to fund it.

    I do not need the autodealer to want to lend to me for 60 months. He will have cash for the transaction the day after tomorrow - or what he considers just as good, a bank balance. Someone is willing to hold the final newly issued liability as an adequate recompense for the real goods transferred, that is all that is required.

    The Treasury could fund itself by borrowing even if it had no control over the Fed, if the Fed were a private bank of issue and willing to buy Treasury bonds for its own profit. The Fed would be willing to do so and to issue new circulating claims to do so, if it were a private for profit bank. The Bank of England did so for 150 years before the British government took effective public control of it, and it made no difference to any of these relationships that it was a purely private institution before then.

    Some people are confused in the matter because they think circulating currency is a special or different or magical form, but it isn't. For some purposes it is more convenient than a deposit balance at Chase, for others it is not. It earns a lot less than an investment in a diversified fund portfolio. Demand for that form is not infinite. There is, I repeat, nothing magical about narrow money among financial claims, and nothing magical about financial claims among types of goods - all follow the normal laws of supply and demand, and all claims can be issued at will by their originators, subject only to the requirement to find a willing counterparty, who can name his own price for whatever he gives up in exchange for those newly issued claims.
    Apr 18 05:13 PM | 3 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    s2L - The Fed's role in the economy stems pretty much entirely from its free trades with willing counterparties. The only place a backing of force might come into it is seizing a bank that fails, I suppose, to prevent it from losing more of its depositor's money. All the effects of Fed activity that you and others actual object to have no backing of force, but are effects of the opportunities it provides to third parties, or the way it competes with private agencies.
    Apr 17 12:04 PM | 2 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    "When you say credit if free, do you mean the natural rate of interest, specifically the overnight rate, is zero?"

    No, I mean the power to expand balance sheets and thus increase total financial claims in existence is an immediate byproduct of financial freedom, is possessed by all economic actors, that it does not require any state action, legal set up, specific currency system, or anything of the sort.

    That power is restricted by some government regulations in our monetary system - which is tighter than credit freedom alone, without any government interference, would allow and result in.

    The position I am rejecting is that easy money is somehow a special government policy distortion or a peculiarity of the Fed or our monetary system, legally speaking. It isn't, bankers and just free capitalists and firms can and do expand effective money supply and credit, as a natural private market thing.
    Apr 16 12:45 PM | 4 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    Capitalism is the real thing out in the real world enriching mankind.

    Crony capitalism is the lie people who despise actual capitalism and actual capitalists tell themselves, to pretend they are all in favor of capitalism in the abstract, while they crucify all actual capitalists and burn financiers in oil.
    Apr 15 07:07 PM | 4 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    It is not a presupposition. It is just a fact, the most massive fact of all of history. Capitalism is good for mankind, and its enemies are mass murderers, in practice. Whatever they claim about their intentions.
    Apr 15 06:13 PM | 4 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    I am for corporations. Greatest thing since sliced bread - except they came first and invented sliced bread. America was founded by corporations. Corporations are men cooperating for large, productive purposes, with large and highly productive results. The age before corporations existed was the age of rigid class hierarchies, slavery, and absolute poverty; the age since is that of merit, freedom, and spreading prosperity. Enemies of corporations are my enemies - and whether they know it or not, of the well being of mankind.
    Apr 15 05:09 PM | 4 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    Meanwhile, the SP500 rose 23.4 times in the same period, in total return terms. With a horrible starting year for stocks and a great one for inflation. Proving that if you don't mind volatility, portfolio investment in actual operating business beats the tar out of miser hording of physical metal. And if you do mind volatility, then Jim's point about recent history applies.
    Apr 15 04:33 PM | 3 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    Without credit, economic freedom would not exist, and the wealth of mankind would still consist of assorted manure piles. Yes, that is what I maintain. Credit freedom is central to capitalism, and specifically financial capitalism is the greatest engine of human prosperity and well being in human history. Hygiene, medicine, and science are the only other items even in the same league, as benefactors of humanity. And the enemies of credit freedom are enemies of economic freedom generally, indirectly therefore of human prosperity. Whatever their intentions, they are not in practice benefactors of mankind but the opposite.
    Apr 15 12:38 PM | 4 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    I bought my coffee this morning by signing a note.
    I bought my new car last month by issuing a note.
    I refinanced my house last year by issuing a note.

    My counterparty in each case found those notes more valuable than cash, of their own free will, with no gun to their heads. And they were right to do so.

    Buying assets by issuing net new credit is not some magical anomaly that only the Fed engages in, it is an everyday market transaction between free and consenting adults. It does not pick anyone else's pocket or break anyone else's leg.

    The political attempt to portray it as somehow nefarious or criminal and urge its restriction or abolition is an attempt to invade my own economic freedom, and I repel such attempts as unjust invasions of my rights, based on fundamental misunderstandings of the nature of value, exchange, credit, and money.
    Apr 15 11:20 AM | 5 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    Asbytec - no, that is just a middleman operation. Someone agrees to hand over their bond to the Fed and to hold cash dollars in return. They accept the Fed's liability, despite it not paying them interest.

    Some people are deeply confused on this point because they think money is special or magical in the matter (e.g. that its value is fixed or something, or demand for it infinite, or acceptance legally forced - no to each), but it simply isn't.

    Every emitter of net new liabilities requires exactly the same thing - a counterparty willing to hold that liability on the terms they offer. If the immediate accepter takes it because he thinks he knows some other place he can park that new asset and get a good deal in doing so, that just pushes the question along to why his counterparty chooses to accept it. Someone does, and holds it willingly, or it will not keep its value or exchange for its face amount.

    It doesn't matter whether the liability so emitted and placed contractually bears interest or not (any asset can be made to bear interest by discounting), whether it is sight-payable or has a deferred maturity, whether it is legally money or isn't, whether the emitter is a government anything or isn't. All those things may modify what specific counterparties are willing to offer for the item, but that is all. If there is a high enough bid to place it, anyone can issue, and it has precisely the same effects.

    Credit is free, naturally. Regulation and law can try to distort those market relations, to be sure, but every attempt to do so is fighting the headwind of those natural relationships.
    Apr 15 11:15 AM | 3 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    Bankers paid all their bills, and all their notes.

    Mainstreet cannot remotely say the same thing.

    But you excuse the one and blame the other.

    If ordinary commercial morality were your standard, you would damn the deadbeats on mainstreet for failing to pay their just debts, and praise to the skies the financiers who paid their own, even when those whose IOUs their owned failed to pay them.

    But you don't. Ergo, ordinary commercial morality is not your standard.

    Ideological opinion and class war dislike of bankers are. That is as transparent as it is unjustified.
    Apr 15 02:47 AM | 3 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    CoinsK - I call horsepucky, and I don't care what imaginary authorities you cite for such a transparently false statement.
    Apr 15 02:20 AM | 3 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    The argument from imaginary infallibility proves nothing because it assumes too much. We can all agree the Fed cannot be managed infallibly. It does not follow it cannot be managed at all, or that we should care about your straw man bashing of it on that basis.

    Without a Fed or any other government regulation of such things we don't get hard money and any kind of perfection. We get banks expanding as much as they like in good times, and smashing into oblivion with total depositor losses in bad. We've both been there and done that, and the institutional wisdom of the entire western world has learned better, over the years.
    Apr 15 02:19 AM | 3 Likes Like |Link to Comment
  • Is Inflation Next? [View article]
    "will create a much bigger problem in the form of hyperinflation but that will begin gradually and then accelerate 3,4,5 years out"

    Wanna bet? I mean that literally - would you care to wager on that little prediction? I claim there will be no hyperinflation in the US in the next 5 years. Specifically, the CPI will be within a factor of 1.33 times its current value 5 years from now.

    The most recent data point published is 235.17 as of the end of February, 2014. I claim that by the end of February 2019, the CPI will be below the level of 313.6. (Probably well below, but certainly no hyperinflation over that five year stretch).
    Apr 15 02:14 AM | 1 Like Like |Link to Comment
  • Is Inflation Next? [View article]
    "Neither you nor I can do this, that would be counterfeiting."

    Um, I issue my own script all the time, and people take it as a form of payment. I just don't sign someone else's name to it. No, that is not counterfeiting, it is just freedom of credit. All I need is a willing counterparty who will take my IOU as being as good as cash, because I can and will make it good in the future with cash that others accept.

    Counterfeiting is not illegal because it is the issuance of new claims at will, but because it is signing someone else's name to those claims. I can't issue your debts - that is what counterfeiting laws prevent. But I can certainly issue mine, and I do. The government is issuing its own debts, and that is no more counterfeiting when they do it, than my signing a credit card slip is counterfeiting when I do it.
    Apr 15 02:04 AM | 4 Likes Like |Link to Comment