Posted On: Wednesday - January 25th 2017 6:58PM MST
In Topics:   Global Financial Stupidity
(Continued from here.)
We left off writing that major financial pain will come to many if the US Gov't debt were defaulted on. At this point, we can give you some good news and some bad news. What'll it be first, readers? OK, the good news first. The good news is that there is another way for governments with control of the money supply to get rid of debt besides via defaulting! Yippee! It's called inflation, (the real definition of which is "an increase (inflation) of the supply of money".) and governments have been doing it for millenia. It's tried and true, and our own Feral Gov't is pretty good at it too, as the Federal Reserve Bank was created specifically to accomplish this task. Hey, high-5's all around!
What ya' do, see, is print paper (back in the day, at least), or create digits in the computers of the big banks, that represent money, so there is more money in the country. That way, if you owe 20 trillion dollars, you could just create 1 trillion bucks a year for a 20-year period that can be used to pay back people that are cashing in the IOU's, i.e. Treasury Bonds. Nice goin', America! We've been doin' this inflation thing for 100 years, exceptionally well. Right-on! U-S-A! U-S-A! U-S-A!
Wait, wait a sec., not so fast, people. I haven't written about the bad news yet. The bad news is that inflation sucks just as bad as a monetary default on debt. It just sucks much more slowly (if that's your thing - not that there's anything wrong with that, no not at all!). This makes saving money a losing proposition, so wisdom and responsibility are punished and Stupidity and irresponsibility are rewarded. This Monetary Stupidity, as it is known by us economists in our prestigious academic positions in our
Money itself obeys the same law of supply and demand as any good or service. Therefore, an increase in the amount of money means that the same face value is less desirable than it was before the increase in the money supply. Supply of it has gone up, so for the same demand, the "price of that money" will go down. That can be measured against various goods and services, and the converse of that is that prices are seen to rise in that monetary unit (the dollar in our case). We are so used to a steady inflation level of a few percent, and periods of much higher, that we are under the mistaken assumption that this is just a natural thing. INFLATION IS EMPHATICALLY NOT A NATURAL THING, WERE THE MONEY SUPPLY NOT SCREWED WITH! The reason we make this assumption is that the Federal Reserve Bank was created 104 years back, so nobody alive has got a memory that includes some years before that. Plenty of info. on the web can teach one that inflation was not a normal thing in the 19th century in this country, as we had solid money back then.
Having just hinted here about the bad effects of inflation, we will post much more about this in the future. The next installment will get into other debt and financial stupidity, not just that of our Feral US Government.