Need some Help debating sound money

[archangel689]

His scenario is THEFT. Don't even bother with it, he's arguing liquidity trap. Do you want it now, or do you want it later? I'm willing to pay more for my gum now then later! Additionally, hoarding, what does he think people are doing, shoving dollar bills under their mattresses? No, they put it in a bank and that bank invests it, cancelling out any exponential deflationary fears.


Just pound him on federal bankruptcy.

I'm cut and pasting Antony Davies' research as well as all the comments he and I have had over facebook. It usually shuts up people like the one you're talking about because it's empirical evidence (and adds strength to Austrian arguments against the mainstream), even Keynesians can't ignore it.

He's right on some points, China just can't simply sell all their dollars. I mean, they can, but it would just be really stupid of them to do so.

"Toppling the debt [by china] isn't the concern. The concern is the fact that the debt has reached a size such that the only way out is either (a) defaulting, (b) monetizing ["money printing"] (which is different from defaulting in name only), or (c) balancing the budget and waiting for the economy to outgrow the debt. Federal spending is now so great that, even if we cut everything except Social Security, Medicare, and the interest on the debt, we still wouldn't balance the budget. This makes option (c) appear unlikely. Raising taxes not only is politically charged but, historically, federal revenue has been a rather constant 18% of GDP regardless of tax rates. That leaves options (a) and (b). The numbers just don't work."

Additionally, a world currency isn't going to save us, that's the Keynesian dream (everyone inflates together, yay!). That won't save us either.

"A world currency won't help. That would be like trying to reduce the distance between New York and Chicago by measuring in kilometers instead of miles. Changing the unit of measure doesn't change the thing you are measuring. Taking Europe as an example, a world currency would likely make the problem worse. When government is the source of financial difficulties, replacing it with more government usually just makes the problem worse."

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http://www.antolin-davies.com/presen...s/spending.pdf

Here we show:

1. A one percentage point increase in both government spending and the average marginal tax rate is associated with a 0.85 percentage point decline in real GDP growth.

2. Even if the evidence had suggested that government spending stimulates the economy, the data seem to indicate that, as a practical matter, the government cannot get its timing right.


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http://www.antolin-davies.com/conven...sdom/spend.pdf

This is another stimulus spending power point.

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https://docs.google.com/open?id=1kSt...C6EZceTfoI7VmS

Here is a PDF showing the following:

"Projecting government spending (using the CBO's numbers), yields Federal bankruptcy in 35 years and operational bankruptcy is 25 years. The numbers assume that the approaching bankruptcy does not affect interest rates. It will cause interest rates to rise, so the actual timeline will be shorter. Bankruptcy occurs when interest on the debt equals annual tax revenue (IOW, all the government's revenue is spent just paying interest). Operational bankruptcy occurs when interest on the debt plus mandatory spending equals tax revenue. At this point, all the government's revenue goes to interest, welfare, Social Security, and Medicare. IOW, the government is reduced to an assisted living facility."

"I believe that the fear of deflation is a mythical monster created by a government to justify expanding the money supply for its benefit. Consider: Technological growth causes prices to fall. The government increases the money supply to counteract this deflation. In effect, the government is stealing the gains of technological growth for itself. The fear of spiraling deflation doesn't hold water empirically. Look at the computer industry. Prices (adjusted for quality) have been in massive free fall for decades, yet people continue to buy."


I'm also attaching videos:

[Acala]

Find a chart of the declining return per dollar borrowed. Once upon a time, GDP grew at a rate of several dollars per dollar borrowed. That rate has declined steadily until it has reached a point of where now (or soon) it will be less than a dollar's growth per dollar borrowed. I can't find the chart right now, but I have seen it.

[Black Flag]

Me:

Do you think borrowing is sustainable forever?

No.

One day the bond holders will say "not at that price", and interest rates will start moving up significantly.
The government will either have to pay or say "Help us FED Reserve!!"

If the FED Reserve says "no way or we destroy the money", the government will default on its debts.

What happens if China wants us to pay up?

They are doing this by simply not rolling over their bonds. Slow and steady is the Chinese way.

This is going to change. The United Nations are already proposing a new world currency... IMF and such organizations already exist to take over if US collapse happens...

Why will this change?

Do not get yourself confused between MONEY and DEBT - the US can default on its debts and this impacts nothing of the use of money.

China already makes us "pay up". They hold treasury notes, which pay the holder interest over the course of the bond (1, 5, 10, 30 year etc). China may hold 1.2 trillion in US debt, but it will never be paid out all at once, nor is their a legal recourse for them to demand such.

Not true.
The Chinese can sell their T-bills on the market like anyone else.
Now, what would happen if they started to so with greater velocity?

Him:
Let me use an example on why borrowing money isn't such a terrible deal for the US govt right now:

His reply misses your question.
You asked if it was sustainable.

He answered that right now it was a good deal for the government.

He is right, it is a good deal - but it is not sustainable.

Eventually the recession will end

How will it end? By magic?

, spending will drop,

When has government spending ever dropped since 1946?

income will rise, and yes - maybe even taxes will rise. The top US rate on income was 90% back in the 50's when US growth skyrocketed - so clearly its not an issue.

No, it was not - it was 90% during the war and it was radically reduced in the 50's so it was clearly the issue!

Be careful when idiots make factual errors and use these errors to justify their crackpot theories.

[Black Flag]

"I believe that the fear of deflation is a mythical monster created by a government to justify expanding the money supply for its benefit.

Absolutely correct.

[fisharmor]

How about:
A pack of gum cost 25 cents when I was a kid in the 1980s.
A pack of gum now costs a dollar.
He says a pack of gum will cost $1.05 next year.

Why does everyone in America just accept this?!

It doesn't matter if inflation is minor. It's still inflation, it's still theft, and it still requires the entire country to plan their futures using parasite industries that exist for no other reason than to make it so middle class Americans can survive their savings getting slowly eaten away.
Those millions of people could be doing something productive - bettering our lives.
Instead, they're only helping us overcome an intentionally inflicted deficiency in our money.

[Black Flag]

Why does everyone in America just accept this?!

Inflation or deflation or neither is neither "bad" or "good" - it is an effect, and can be used by humans like a tool.

Inflation erodes debt at a cost to lenders.

Deflation increases the value of capital at a cost to debtors.

The natural state of a productive, true free market economy is deflation.

[RabbitMan]

I was just crunching some numbers the other day as I wanted to show some of my Facebook friends why I'm so obsessed with politics while they talk about the hunger games, etc.. I decided to show why only looking at the size and growth of the national debt isn't what they should be worrying about. It is the interest rates on the constantly maturing T-bills.

We paid $454 Billion dollars in interest in 2011 for a debt of $15 Trillion, amounting to an average interest rate of 3%. *This is really, really good! *Interest rates are at historical lows! *To put it in context, we paid $359 Billion for our 2001 debt of $6 trillion, for an avg interest rate of 6%. *That's right, we increased our debt load about 150% and our interest payments have only increased about 25%! *That's weird....How about for the year 1991? *$286 Billion interest for $3.8 Trillion, for an avg 7.5% interest rate. *And 1981? *$95 Billion interest for $1 Trillion, an avg 9.5% interest rate.

The optimistic CBO estimates that we will hit 5% again in 2015, and it will only go higher from there. They also estimate that it could go higher FASTER if certain factors come up, like the Federal Gov't not giving a crap about deficit spending and balancing the budget. But back to reality. What would 5% avg interest rates make our 2011 payments look like? $750 Billion dollars, or more then the Department of Defense budget, which itself is larger than the Military budgets of the rest of the world COMBINED.

Our Federal Reserve will have two options then. Try and keep interest rates low by adding more to the reserves of banks so that they can buy up our debt, which will cause hyper-inflation before long, or suck it up and let the country go bankrupt. Sound money mitigates and makes this whole complex area of monetary policy much more transparent. People like transparency right?

[enoch150]

Find a chart of the declining return per dollar borrowed. Once upon a time, GDP grew at a rate of several dollars per dollar borrowed. That rate has declined steadily until it has reached a point of where now (or soon) it will be less than a dollar's growth per dollar borrowed. I can't find the chart right now, but I have seen it.