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"It is in accordance with the Keynesian economics school of thought" This is the magic money language of every 'debt doesn't matter' politician. First - this
by jariel 6y ago
"It is in accordance with the Keynesian economics school of thought"
This is the magic money language of every 'debt doesn't matter' politician.
First - this is not about 'business cycle' it's a meta-cycle and it's possible the money will literally never get paid back.
Second - it's not just debt, it's tinkering with the monetary system itself.
The Fed, since 2008 has been sitting on Trillions of garbage assets (bundled home loans) bought at 'face value' though they were underwater when purchased.
This is a pretty direct attack on the integrity of the institution.
Your dollars were backed by Gold, then The US Governments Ability to Pay Their Debt, then 'Toxic Loans' - and it's only going to get worse.
Canada is throwing in 'a billion here, a billion there' with COVID spending, including a $1B shout out to the PM's favorite charity. It doesn't sound like a low when $250B is blown otherwise.
The amount of spending, the terms (see: EU's deal released just yesterday) are fairly unprecedented and it's going to take generations to sort out.
Both Canada and Germany in the 1990's had to undergo major restructuring, in Canada, due to excessive spending previously & facing serious credit ratings problems. Thankfully, their timing was perfect as the global situation was good.
Spain is contemplating 'permanent UBI' - which they can't remotely afford.
The difference between 'now' and '80 years ago' is that the future of Western nations entailed considerable growth and renewal, now, this is not the case. There's nothing to indicate there will be any way to reliably repay the debt.
So - we are resorting to ugly new measures, which are changing the nature of what 'money' actually means.
This is not 'Keynes' - it's a secular realignment of the entire system.
- imtringued 6y agoI can't follow your comment. Really, the central banks have been trying to raise inflation for decades now but they did so with highly ineffective means. Now that governments found an effective way of increasing inflation to the expected target everyone is suddenly scared of governments abusing this power even though this is what was intended to happen for more than a decade. People were actively looking forward to this.
- zby 6y agoYeah - I think the ideal agreed was about 2%, but maybe that was just the monetarists who prefered it around 2%, I am not sure what other schools propose, maybe 4% is Keynesian? But the point is that what everyone tried to have inflation in a controlled way. The idea was that central banks can do that, but apparently that did not work well enough. Now we are back to letting governments control inflation - and the historical precedent is that this easily leads to hiperinflation.
- Proven 6y agoGovernment-created (this includes central bank-created) inflation is a form of theft from savers and laborers. Ideally there'd be none from that source. Theft executed in a controlled way shouldn't be viewed as ideal. As per the interview there is no doubt whatsoever what the intent is: create inflation higher than yield on government debt (which presumably includes the rate of inflation, perceived risk and other factors) and rob the bondholders (also known as savers, which includes workers with retirement plans or other savings). Before we muse on what inflation rates may be optimal, perhaps we should wonder about the morality and legality of institutionalized theft at scale. If I stole 2% of your savings you'd probably want me in jail. The government and central bank aims to steal 2% every year and statists wonder if 4% or 1% may be better.
- raxxorrax 6y agoDepends on your country I guess, but those that didn't seem to be far more successful with their budgets. It would also mean that the practice of not increasing wages can continue. If you ask businesses to increase wages by 4% every year, I think the "new" economic model will quickly fall out of fashion again. edit: And you basically argue that the economic strategy of Spain or Italy is superior to that of nordic countries, which is questionable in my opinion. Maybe it is "popular" because some countries have large amounts of debt?
- raducu 6y agoCentral banks have experience with past crisis, banks (should)have their true and tested criteria to hand out debt, people and corporations do not meet those criteria, hence the banks did not hand out more debt. You can make the argument that banks used those central banks loans to finance/arbitrage dodgy financial schemes. But the answer is to stop enabling banks to do those things, not to give money creation control to politicians who have absolutely no financial knowledge. Politicians should just spend the tax money they have, or to take more debt themselves if public debt is serviceable, not to mess with the criteria banks have to hand out more debt. We have strict Central Banks laws and autonomy precisely so politicians won't make disastrous financial decisions according to their ineptitude. Politicians messing with money creation is a recipe for disaster since ancient times.
- neilwilson 6y agoI would strongly recommend getting a copy of "The Deficit Myth" by Stephanie Kelton. It's a useful primer on how modern money systems work and will help you get past the word "debt". Essentially whenever you see that word substitute "private wealth" and look at it from the other side of the balance sheet.