Debt Rattle March 11 2015

 

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  • #19763

    DPC Grace Church, New York 1905 • The Blistering Pace Of Dollar’s Rally Is Rattling Markets (MarketWatch) • EM Currency Turmoil As US Rate-Hike Jitter
    [See the full post at: Debt Rattle March 11 2015]

    #19767
    Dr. Diablo
    Participant

    “…A state with a sovereign currency is never revenue constrained. In fact, the government has to first create the money before the private sector can find a way to get the money it requires to pay taxes and by government bonds. Taxes and bonds are therefore not really the source of government funding or finance.”

    No! No! No! Governments do not create money because they do not create wealth: they destroy it. Okay, true, within certain limits, governments can require taxes be paid in their pet paper which is why Income or other tax is created at the same time as fiat currencies. The market can largely go around that if they wish, but in practice, why bother? So aren’t I admitting her points? No! Although it is true the government-created currency works within a country’s borders, ANY currency would work within a country’s borders. It’s when a nation needs to buy things outside their borders that the trouble starts. Then you need to have some real good, some currency the other guy (nation) wants and believes in. Just like now, like her example in Greece–if Greece had no trade (etc) deficit, no problem: they would be solvent. So…adding or removing a national currency does what, exactly? Nothing. They are neither richer or poorer and no more able to buy outside goods. It’s a canard. If you just make up a currency, claim your nation is unlimited and can print unlimited paper-whatever-claims, you’ll immediately flood a market that has no confidence in you or your paper. It’s been done, it’s called “hyperinflation,” and is immediately followed not by infinite prosperity but “default.” Confidence in your tax receipts is what backs your paper. THAT is your currency. And as Greece shows clearly, it ain’t unlimited.

    Next, “advanced tax receipts”. That’s what all fiat currencies are based on already: the belief that the nation can tax itself to run itself and repay loans. So if we already have this, why are we creating another name for it? You can’t borrow against future tax receipts twice, once for expected Euro-participation and once for your own spending. If they swap to one, they lose the other. This is because money is not the thing, it is a REPRESENTATION, a measurement of the thing; ie. “wealth.”

    So far, you’ve got “advanced tax-receipts”/fiat currency and you’re within the borders. So how is “a sovereign currency” “never revenue constrained”? First, there is only so much wealth internally. That’s “revenue.” If you said “never CURRENCY restrained,” it would be true. “Revenue” is wealth; it’s value. There’s a finite limit in a finite country, and a practical cap of how much can be extracted before the internal economy, and revenue, collapses. We’re at or over that cap worldwide already. So all nations are absolutely, always “revenue constrained.” If they weren’t, all nations would print infinitely and infinitely increase their wealth. Ya think somebody might have hit on this before now?

    Put another way, erase money from the equation and look at the physical goods in the nation: are their goods and internal energy unlimited? Their capacity to move them around? Can they make every item they might ever need without external trade? The answer is no. Therefore all nations are finite. Decidedly, extremely, acutely finite. We can therefore declare that besides military conquest and/or default, taxes (and bonds which are a claim on future taxes and/or market credulity) are ABSOLUTELY the ONLY source of government funding.

    Last, “the government has to first create the money…” No. That is how we PRESENTLY do things–and in fact, not even that way entirely as the shadow banking system is extending boundaries–but it is not required, perhaps not even advisable. Did trade exist before or outside of governments? Of course. So how could that be before governments starting printing currency? A hundred ways: gold, silver, seashells, cattle, tobacco, warehouse receipts, bank notes, real bills, etc etc etc etc. In fact, why are they even involved? Especially as under the new system, it’s implied that money/currency only exists if you put the nation in debt? I mean, so which is stronger and better, a debt-free nation or an indebted one?

    So let’s re-state her premise truthfully: “…Any state, with or without a sovereign currency, is ALWAYS revenue constrained. The government does NOT have to first create money before the private sector can find a way to get the money it requires to pay taxes and by (sic: buy) government bonds. Outside of war or theft/reneging via default, taxes and bonds are ALWAYS the real source of government funding or finance.”

    It’s the NFL rule: There ain’t No Free Lunch. Please, let’s not repeat these fallacies or we’ll never apply a workable solution.

    “Europe must not be made to look stupid.” Well, stupid is as stupid does. There’s only so much anyone can do about the appearance of it.

    #19771
    Raleigh
    Participant

    Nigel Farage on an EU army: “Mr. Juncker said, ‘We must convey to Russia that we are serious.’ Who do you think you are kidding, Mr. Juncker? (Laughter) We do not want any part of an EU army, and I doubt the rest of the peoples of Europe do either.” Farage is always fun to listen to. He mentions that the West poked the bear first.

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