I'm learning macro economic theory currently and I'm interested in reading opposing points of view. We've been covering a piece by Warren Mosler (for educational purposes only) that discusses the origins of money specifically in a system such as the United States of America.

I'm wondering if any of this is new info to anyone here or what the general take on it will be.

Ex:

It seems like this isn't commonly known or accepted information, at least in the Politics forum proper.

http://en.wikipedia.org/wiki/Monetiz...onetizing_debt

If your debt is in dollars, and you are the money monopolist, then you can always create more dollars. This would screw over your debtors and everybody else, but that's the reality of a money monopolist.

yep, this is why treasury bills are seen as risk free assets.. there is not risk of the government going insolvent because of it's taxation power and power of money supply

Treasuries (other than holding currency) are riskiest of assets, yes you will be paid back in dollars, but will those dollars keep up with inflation? It depends.

I know this is the commonly accepted point of view, but why? If we want our economy to grow, wouldn't restricting the money supply cause deflation?

If you increase money supply in dollars, the economy will grow in dollars. But in terms of real GDP it would stay the same. #2. If you don't increase the money supply, the economy might not grow in dollars, but in terms of real GDP it would stay the same.

But here is the kicker. In reality the economy #2 will grow much faster today in real GDP. The reason is in #2 the private sector is allowed to spend the money they earned working on the factory line, painting houses. The economy in #1 is based on taxing and spending it on union pensions and wage increases. In the old days of government like during Ike/Roosevelt if you sent a tax dollar to congress, they would spend it on roads and bridges where needed and cost effective adding to the economy.

I take it you have issues with the OP that you're not letting on to?

An economy grows by producing more. If more is produced and the amount of money stays the same, that means that prices fall. In the computer industry we see an extreme drop in prices year in and year out. Under a non-growing amount of fiat money, or slowly increasing amount of commodity money, secular price deflation (which is what lower prices due to a growing economy is called) would exist in many more markets.

I'd like to buy more healthcare, better housing, cheaper flights, etc, for the same amount of laboring.


If more money meant a better economy, then Zimbabwe would be extremely rich right now.

I guess the American government is about as stable as the Zimbabwean government, excellent comparison.

How will you be able to buy more healthcare, etc.? I assume that companies who make less money, which would be all of them, would in turn want to pay their workers less. No?

Why do you think price deflation prevents economic growth?

ding ding ding! You got it. The reason why the US however is not like Zimbabwe, is because obviously, the US produces a lot more stuff with that money unlike zimbawbe. However, it will catch up the U.S eventually if they do not adjust.

LK here is a solid blog post by poker player / economist brandon adams wrt his thoughts on mosler: http://www.macroeconomicwoes.com/unc...economics.html

lets play name the fallacies go...

Specifically, from 20:00 - 26:00.

"The crucial question: How is it possible to operate profitably if they have to pay prices for factors of production now and in the future, when the greater supplies of goods and services come to the market, prices will go down?"

I'm saying this isn't true. That's the point of this thread. The ones and zeroes get moved from the gubmint/fed reserve to a bank to pay for stuff and a bond is issued to suck the money back out so as to control the Fed Funds Rate.

http://seekingalpha.com/article/2307...es-bonds-later


I did happen upon a recent study by, I think, the Minnesota Fed (?) that said deflation doesn't necessarily have a link with depressions, though it does happen somewhat frequently along with lower growth. But that's neither here nor there.

Really?

PQ = MV

So, no. You are wrong. Even if we were in an ancient economy with a currency such as gold coins that could accurately be counted at any one point in time, you could still maintain the same price level (in terms of gold coins necessary to purchase X bundle of goods) by having people conduct more transactions.

And, of course, it's not particularly useful to think about "prices" falling, but rather how much wealth actually exists and how it is distributed.

That's not particularly the aim of this thread.

There's so much talk and worry about the deficit and the idea that the national debt will destroy us all that I thought some understanding of how our system actually works might do some good.

Perhaps in another thread we can get to, say, how if the gov't paid down the debt, no one in America would have any savings.

I really didn't say that.

Everyone is afraid of inflation, which happens when there are too many dollars chasing too few goods. But it seems like the contingent on this forum seems okay with the opposite, too few dollars chasing too many goods, which can lead to unemployment.

Though, I guess with less people working, our economic growth wouldn't be as optimal as it could be.

Increased productivity requires increased capital investment. Capital investment requires resources to first be produced, then saved (instead of consumed), and then invested. Inflation reduces the value of savings, thus reducing capital investment, thus reducing productivity (or at least, preventing it from increasing as much as it would have, given no inflation).

Where do you disagree with this reasoning?

Also, what is your reasoning for why fewer dollars chasing more goods leads to unemployment? If you consider minimum wage laws, as well as other State (government) programs mandating costs for employers set in $X amounts, then it is clear why this would happen, and with inflation these mandates and laws do less damage, but that's an effect of the State laws/controls themselves, not deflation per se.

Too much spending relative to what we produce as a country leads to inflation via higher aggregate demand. Would anyone disagree?

Too little spending relative to what we produce as a country leads to unemployment via lower aggregate demand. Would anyone disagree?

Yes. I disagree.

On both accounts I assume?

Yes.

Would you care to elaborate or is it everyone's job to guess what you're thinking?

It's impossible for "too much spending" to raise "aggregate demand". A dollar spent on one thing cannot be spent on another, hence aggregate demand is unchanged. If people buy fewer buggy whips and more cars, there is temporary unemployment associated with the loss of jobs in the buggy whip industry, but that is offset by the increase in employment in the automotive industry. You could argue that the velocity of money could increase, but I would say that is really just changing the relative demand for present goods vs. future goods. There will be temporary unemployment associated with the decline in jobs in industries producing goods for future consumption, but that will be offset by the increase in jobs in industries producing goods for prompt consumption. This is not some semantic end around; in the absence of monetary expansion these relative price shifts between present and future goods will be manifested in ways such as rising prices for consumer goods and rising interest rates but falling prices for capital goods and long term investments. It will show up in the stock prices for these various sectors.