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View Diary: Brinksmanship On the Debt Ceiling (54 comments)

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  •  Sure (2+ / 0-)
    Recommended by:
    psyched, Letsgetitdone

    I plan on doing a full post on 70s stagflation  in the future, so I hope you'll follow our group Money and Public Purpose so you can get the full analysis.

    Anyways, the 70s inflation was almost all about oil.  It was a "supply-shock".  Thanks to the St. Louis Fed, you can graph the rise in energy costs vs general inflation.  What you'll see is that energy costs lead the ups and downs of general inflation.  If the rise in oil was due to general inflation, you would expect the price to rise and fall with other products and not lead them.

    A more complete analysis will come in diary form.

    Our Dime Understanding the U.S. Budget

    by maddogg on Thu May 12, 2011 at 08:24:52 AM PDT

    [ Parent ]

    •  Bill Mitchell's posts (1+ / 0-)
      Recommended by:
      psyched

      Bill Mitchell is one of MMT's current big three, along with Warren Mosler, and Randy Wray, all three good friends. Here are Bill's posts on inflation and hyperinflation

    •  I look forward to it. I have been reading Review (0+ / 0-)

      from the St Louis Fed since the 1960's but I think they believe Inflation is a Monetary Phenomenon - just like Milton Friedman.

      •  Money is debt (1+ / 0-)
        Recommended by:
        Letsgetitdone

        Public Debt and private debt. The following picture from Arthur Shipman is instructive

        Click on the image to expand.

        So Public Debt has been fairly flat, while it is the private debt that has been expanding, and since the Financial crisis, debt has been flat. So if inflation was not a problem for the last 20 years, it is not a problem today, and government deficits can safely expand. It is also clear, that Government spending (Public Debt) was not responsible for the inflation of the 70's

        See also Shadow money, still contracting

        What the figure makes clear is that, from the peak of the crisis to the present, this measure of shadow money has collapsed, by at least $5 trillion. This dwarfs the expansion of base money, and commercial bank liabilities are stagnant, not making up the difference.

        All this is to say that when someone argues that post-crisis money creation will lead to inflation, we can challenge not only the effect, but also whether there has even been post-crisis money creation.

        •  Of course (1+ / 0-)
          Recommended by:
          psyched

          Thanks, great chart. What is doesn't speak to is the relationship between public deficits and private sector surpluses. Neglecting the external sector. the relationship is inverse. If people really want to heal their balance sheets, the best thing is for them to have the government run deficits. Adding in the external sector and noting our perpetual trade deficit; it's even more clear that Government must deficit spend even more to overcome the leakage to the foreign sector and to accommodate the desire of Americans to reduce their debt. See here.

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