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View Diary: How to Knock Two-Trillion Dollars Off the National Debt, Ending the Debt-Limit Crisis (40 comments)

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  •  asdf (2+ / 0-)
    Recommended by:
    bwintx, shaggies2009

    Shaggies2009 above did a pretty good job of explaining it above.

    Basically the reason is that writing off our debts with accounting tricks will cause investors in the American currency (thus the financers of our debt) to no longer offer to lend to us.  You would wind up in a never ending cycle of 'printing' more money, thus driving up inflation.  Eventually, we're Wymar.

    I can't say that I was completely for QE1/2, but at least both of those created money that was able to be removed from circulation, thus it did not spook the financers of our debt nearly as much as your plan would.

    "It has been said that politics is the second oldest profession. I have learned that it bears a striking resemblance to the first." - Ronald Reagan

    by erush1345 on Tue Jun 28, 2011 at 04:44:00 AM PDT

    [ Parent ]

    •  This is a one-time transaction between agencies .. (0+ / 0-)

      ... a branch of the government, the Treasury, and a quasi-governmental agency, the Fed.  I'm explicitly not proposing "a never ending  cycle."

      Secondly, QE1 and QE2 exchanged credit in accounts at the Fed, the most liquid asset there is, for Treasury bonds.  That credit has not been revoked and cannot be revoked.

      By contrast, this coin would sit in a vault at the Fed or wherever.  It would not get circulated because the Fed has no motive to put it into circulation.  Their mission after all is to keep inflation down.   And, when they want to increase the amount of money in circulation, they have easier ways of doing so, e.g., QE1 and QE2.

    •  What makes you think that (1+ / 0-)
      Recommended by:
      wigwam

      deficit spending without debt issuance is any more inflationary than deficit spending with issuance. In fact, it's less inflationary because bond have more leverage in the market than bank reserves. See here on this point.

      In addition, if the bond market doesn't want any more bonds because they lack confidence, then the Treasury can use more coin seigniorage to back Congressional appropriations. That will be deflationary because less interest income will need to be paid to bond holders. In fact, if we ceased issuing debt altogether the debt would eventually be paid down to zero and all interest costs would be saved. Why would that be inflationary? What is the mechanism of inflation, provided the deficit spending involved doesn't drive the economy beyond full productive utilization?

      It's not enough to say that this or that will cause inflation and then mention Weimar and Zimbabwe. You also have to show why the US's situation is like the situation of those nations. See this one for an analysis of why our situation is not like theirs. See also this one on the "printing money" thing.

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