"when the debt is unsustainable a lot of ppl are too"

[Dad]

This is pretty much an exact quote from Stefans recent public speech. I wanted to make sure I understand what this means. I think what he is saying is that because we can go into ridiculous debt we are able to consume more than we produce which allows an increase in births. To maintain the surplus births we have to maintain the surplus consumption. The debt has to fail eventually and when it does consumption will also drop radically and a lot of people will die. I think the amount that die will correlate roughly to (amount we consume) - (amount we produce) = amount of ppl who die off when debt creation ends. 

 

Am I making this more complicated than it is? Or maybe it is even more complicated or I am just completely off base? Would greatly appreciate some clarification 

[Dylan Lawrence Moore]

Why does the debt have to fail eventually?

[Goldenages]

Hi Dad,

 

I guess you are right with your points.  Lets break it down to small scale to see the  problem: Lets assume you work and deliver me goods such as food, electricity etc.  I give you papers with numbers written on them, I can make an infinite quantity, and assure you that, at some point in the future, you can buy goods from me whenever you need some. So you hoard those papers for the time when you retire.

Now you knock on my door and want to exchange some of those papers into food. Unfortunately, all I can give you is paper with numbers written on them.

regards

Andi

[grithin]

[disparaging remark]

The reason the debt can't maintain was illustrated for decades by a guy who came out with "the mathematically perfected economy".  It's based on the obvious nature of paying debt back with more debt (fed system) leads to an ever increasing interest portion, which eventually stifles out business activities.  This, however, is naive - not taking into consideration negative interest rates or QEs or etc.

The notion debt unsustainability is equivalent to human unsustainability is similarly principally wrong.  It would require that production capacity were optimal, that unknowable and/or long term  factors were priced in (land degradation from farming), and that debt backed payments were rationally priced.  If the IMF creates a giant debt by manipulating the government in Jamaica into debt terms, does that giant debt reflect unsustainability of humans? 

PS: These damned public schools do such horrible jobs with economic, and to top it off we keep importing idiots - it's almost as if a widening high/low class disparity were intended.

[Dylan Lawrence Moore]

Yes, but when a country is the sovereign issuer of its own currency, it doesn't need to pay the debt back in order to issue more currency.

In the US system, the government does not collect taxes and does not issue future bonds in order to pay for spending and interest on current bonds. Taxation extinguishes dollars into oblivion, and spending/paying out interest creates them out of nothing. The "debt" is sustainable because it isn't debt. It's just money floating around out there. There is no economic Armageddon around the corner. Peter Schiff doesn't know what the hell he's talking about when he says that interest rates on US bonds going up are a sign that the system is about to collapse. The interest rates are 100% arbitrary and the government could make them 10% or 0% and not affect its spending one iota.

And before someone says something about a downward spiral into hyperinflation, answer me this: if the government doesn't create the money, then where does money come from?

[vandoren]

On 3/10/2018 at 7:01 PM, Dylan Lawrence Moore said:

And before someone says something about a downward spiral into hyperinflation, answer me this: if the government doesn't create the money, then where does money come from?

In a free market money is created when interest is payed back. Credit is nothing more than balance sheet expansion, when it is payed back - the expansion disappear. What is left behind is the interest. The interest is created by the borrower through his economic activity. So, we the people do create money.

However, when government coerces central bank into zero interest rate, then the system is led to the point of absurdity. When money is free, then market instruments do not work. Why inflation didn't happen until now? Because inflation is equal change in money supply plus change in velocity of money minus product output. In the current situation increase in money supply is counterbalanced by lower velocity, which is simply weak market. Weak market was created because FED/GOV put market laws to rest.

[Dylan Lawrence Moore]

16 hours ago, vandoren said:

In a free market money is created when interest is payed back. Credit is nothing more than balance sheet expansion, when it is payed back - the expansion disappear. What is left behind is the interest. The interest is created by the borrower through his economic activity. So, we the people do create money.

Seeing as we're not in free market, I'm not sure why you're bringing this up. Banks have money-issuing power via government license per the Federal Reserve Act. Yes the principal disappears when a loan is paid back and the bank keeps the interest as profit, but where did that money come from to pay the bank its interest that it gets to keep? It cannot be from another bank(s), because the asset and liability aspects of the principal are a zero sum game; they cancel each other out. All that would be left over is interest owed. The way the system works now, is this "extra money" (technical term: net private sector savings) comes from the government, because the money they create only gets canceled out when they collect it as taxes.

16 hours ago, vandoren said:

However, when government coerces central bank into zero interest rate, then the system is led to the point of absurdity. 

The central bank is a government institution. It has the ability to choose interest rates, but only within the confines of policy dictated to it by Congress.

Furthermore, any interest rate chosen by the central bank other than 0% is absurd. Interbank lending markets naturally fall to the federal interest rate. That is to say, if the Fed has rates set at 3%, then that acts as a floor rate for banks to lend reserves to each other, because there would be no point in lending under 3% to another bank when you can just get it risk-free at the Fed for 3%. What this means is that anything other than 0% is a manipulation by the government.

16 hours ago, vandoren said:

When money is free, then market instruments do not work. Why inflation didn't happen until now? Because inflation is equal change in money supply plus change in velocity of money minus product output. In the current situation increase in money supply is counterbalanced by lower velocity, which is simply weak market. Weak market was created because FED/GOV put market laws to rest.

Talking about whether "Money is free" regarding banks doesn't make any sense. What limits banks abilities to make loans isn't the interest rate, it's underwriting standards. This whole thing about the money supply increasing when the Fed lowers interest rates is a myth. What limits it is ready and able borrowers who come to the bank asking for money, the "able" part there being the important point. If banks are unwilling to extend credit to people, it doesn't matter if the interest rates are low, no one gets any credit (like right after 2008).

For example, me and my business partner just applied for a credit card for our business. We really didn't give a rip about what the interest rate is, because we need a credit line for our business in case we need to pay for expenses up front and wait for a paycheck. We just wanted the card. What determined whether we got it was whether the bank was willing to give it to us, not what the interest rate was.

Inflation hasn't really happened because QE doesn't increase the money supply. It just swaps bonds for reserves, both of which are money. It's the equivalent of the bank moving its money at the Fed from a savings account to a checking account.