Comments on: Slash and Burn

By: Mark Thornton

Mark Thornton — Fri, 21 Nov 2008 09:22:18 +0000

Dear Prakash:

If the Fed buys bonds it actually increases the money supply.

If the Treasury pays off bonds it does not decrease the money supply. The money simply goes from taxpayer to Treasury to another taxpayer.

However, if there was no government debt and the Fed was limited to purchasing government debt then the Fed could not influence the money supply.

It is true that governments that want to spend beyond their means would like paper money to “back” the debt and to serve as an underhanded way of paying the debt off with depreciated currency, however it does not necessary hold that reducing the debt would reduce the money supply.

Mark

By: Prakash

Prakash — Fri, 21 Nov 2008 08:35:03 +0000

DD,

Paying off government debt is “burning money” in a fiat system. Paying off government debt (buying back bonds) reduces the total amount of money in circulation, correct me Mark, if I’m wrong.

regards,Prakash

By: Mark Thornton

Mark Thornton — Thu, 20 Nov 2008 05:38:34 +0000

I had a graduate student who gave me that figure. He wrote about midwives in his dissertation.

By: Mark Anderson

Mark Anderson — Tue, 18 Nov 2008 16:10:02 +0000

Dr. Thornton is right about we would do better to have the government burn the money. When you understand what inflation truly is, it is easy to arrive at that position.

If all the government did was confiscate dollars from producers, but never spent one red cent of the proceeds, then the government is transferring resources from one producer to another. But when the government actually spends the money as they do, this then transfers wealth to non-producers – i.e., government agents, employees, and so forth – disconnecting consumption from production.

By: fizikteoretik

fizikteoretik — Tue, 18 Nov 2008 15:01:33 +0000

“Simply allowing midwifes to go into business creates jobs and cuts the cost of giving birth by up to 90%.” It’s not just money – morbidity and mortality would improve also. Planned home births with midwives have better outcomes than hospital births, even with high-risk pregnancies – it is a well-known statistic.

By: theblob

theblob — Tue, 18 Nov 2008 06:20:29 +0000

I love the money fires.

By: Anonymous Coward

Anonymous Coward — Tue, 18 Nov 2008 06:10:24 +0000

Where do you get the 90% figure?

By: Nick Bradley

Nick Bradley — Tue, 18 Nov 2008 05:05:25 +0000

DD, I think you’re right. My understanding is that under fractional reserve banking, money is created as it is lent out and destroyed as it is paid off. Correct?

A good idea I’ve always heard thrown around (Ross Perot used to talk about it) is to swap government assets for assumption of debt. For example, if you wanted a million dollars in vehicles from the US fleet, you would assume $1 million in US government debt and would be responsible for paying it off.

By: Som

Som — Tue, 18 Nov 2008 03:17:48 +0000

I knew it! The Joker from The Dark Knight was the real hero! If he keeps burning stacks of fiat money like that, Obama should forcefully usher him in to replace Bernanke, a “necessary and proper” executive order!

Alas, if there was any true justice in this world, the FED’s board of directors would wear white makeup, dye their hair green, wear tacky purple and plaid, and put on exaggerated lipstick to be exposed as the true clowns they really are!

By: DD

DD — Tue, 18 Nov 2008 03:13:51 +0000

Here is a questions I wonder if someone can answer. I understand he wants to burn the money the Government makes so it doens’t spend it, but wouldn’t just paying off the debt be wiser? Wouldn’t that have the same effect as Mark is describing, but at least we’ll pay off some of that debt?