ChrisMartenson.com

[stone]

Gumby, sorry if I was confusing, I think under MMT parlence, deficit spending is deficit spending irrespective of whether it has bond issuance or is just by printing up. I was meaning that I thought in order to have a long term stable situation it was preferable to match dollar for dollar any government spending with an asset tax. The MMT position is that any "net saving desires" of the non-government sector need to be matched by government deficit  spending (ie government spending more than it receives from taxation) otherwise the "leakage to savings" will create unemployment. My point was that it is impossible to accomodate "net saving desires" as that is a bottomless pit that will grow bigger the harder you try to fill it. Instead the only option is to ensure that there is no NET saving across the economy ie that for every person saving for retirement or whatever there is someone else drawing down their retirement savings etc. My understanding was that an asset tax was the only type of tax that would target what needs to be targeted inorder to have a stable sustainable economy. Otherwise "leakage to savings" would either need to be compensated for by ever increasing levels of government debt/"net financial assets" that would financialize the economy and/or cause mass unemployment.


http://bilbo.economicoutlook.net/blog/?p=10384
"As a matter of national accounting, a government budget deficit adds net financial assets (adding to non government savings) available to the private sector and a budget surplus has the opposite effect. The last point requires further explanation as it is crucial to understanding the basis of modern money macroeconomics.
The only entity that can provide the non-government sector with net financial assets (net savings denominated in the currency of issue) and thereby simultaneously accommodate any net desire to save (financial assets) and thus eliminate unemployment is the currency monopolist – the government."
....."In general, if the private sector desires to increase its saving, the role of the government is to match that to ensure that the income adjustment will not occur – with the concomitant employment losses etc. In that sense, fiscal policy has to be reacting to private spending and saving decisions (once a private-public mix is politically determined)."

[moda0306]

So many of the little tiny problems I had with MMT are kind of washing away.  The idea that it's these net financial assets that truly affect our balance sheets, and therefore our purchasing power, savings, consumer confidence, etc, and not whether we hold cash vs treasury bonds, is becoming quite clear.

I share stone's concerns for increased speculation when reserves are high (in spite of technically NOT being "reserve-constrained"), but only to a degree.  

One thing I'd like to hear from them, since they're one-part explanitory and one-part suggestive in terms of policy, what actions would they have taken in the 70's?

[stone]

I share stone's concerns for increased speculation when reserves are high, but only to a degree. 

moda, I'm just trying to understand which part of it elicits the most scepticism. Do you think that the FIRE sector (finance, insurance, real estate) of the economy is now a larger proportion of the total economy than it was before Bretton Woods was abandoned and government debt/net financial assets were ballooned? Do you having a larger FIRE sector is a harmful distortion? Do you think that increasing government debt/net financial assets/non-government wealth inevitably means that that increased stock of net financial assets will command greater resources to manage it?
From what I can see, as the FIRE sector consumes more, the government efforts to cope with the damage only fan the flames further.

[moda0306]

I think deregulation of the FIRE sector is a problem... I think it's an awful industry in the US.

That said, I haven't quite come to 100% buy your solution of an asset tax and citizen's dividend as a solution to too-little money/savings in the economy.  I like your line of thinking but am still trying to work through that.

Further, you DID just get done telling me that it's the M1 and M2, not necessarily M0, that decides the money supply, and that banks aren't truly reserve-constrained... so how then do we get to the argument that QE gives a bunch of fuel to banks with which to speculate?

I think I need to see evidence that after QE those funds work their way into commodity speculation to a great degree.

Also, the internet bubble came after years of excellent fiscal prudence, if you measure that by low deficits or surpluses, so your argument that deficits fuel wild speculation and malinvestment would seem incomplete.

[Lone Wolf]

After:
Treasury has $0T in assets and $0T liabilities.
Long Wolf has $15T in assets (Federal Reserve Notes) and $0 liabilities.
Fed has $15T in assets and $15T in liabilities.

Total: $30T in assets, $15T in liabilities.  Net: +$15T.

^^^ That looks like severe monetary inflation to me.

LW, in this case you are the private sector. Your spending/saving ability is the same at the end of the process as it was at the beginning. Nothing changed in the private sector. Therefore, no inflation.

No.  Something has changed (as you noticed in the accounting identity.)  You just destroyed $15T in Treasury liabilities!  You are asserting that this can happen without any consequence.

What does a Treasury liability mean?  It represents money that must be paid back to lenders via taxation (or further borrowing if you wish to kick the can down the road.)  So that's $15T of taxation or further borrowing that's now just... washed away.  That doesn't matter?

What is our debt?  A bunch of deficit spending performed with promises to pay in the future.

What was Weimar?  A bunch of deficit spending performed via straight-up printing.

All you've done is converted from one type of deficit spending to another.  In short, you've made the $15T national debt have the same effect as if you'd cracked it straight off the printing presses a la Weimar.

I feel that Lone Wolf is about 5 minutes away from having the same eureka moment I experienced a few months ago... He's so close. Wait for it... Wait for it...

LOL.  Sadly, I don't feel anything like that coming on.  I'm still stubbornly wedded to my belief that you can't print up $15T out of thin air without suffering negative consequences.  I guess that I and every mainstream economist walking the Earth will just have to plod along in the darkness of ignorance. 

I look at this coin trick and I see a move that both promises a free lunch and doesn't hold up to basic accounting.

If the dollars are issue out of thin air, then, by definition, so are the bonds that soak them up.

Remember -- the bonds ($15T of them!) just got destroyed in this "coin trick" maneuver.  This isn't QE.  Nobody's soaking anything up anymore.  That's inflation.

Honest question: the accounting identity that I posted has to be bothering you, doesn't it?  That's a net $15T in new financial assets from out of nowhere.  Does it mean something or does it mean nothing?  If it means nothing, why?

[moda0306]

LW,

I believe your concerns existed before the coin trick, didn't it?

So are you now agreeing that QE is exchanging printed dollars for printed bonds, and it's no net affect on the balance sheets of our society, and therefore could very well result in little-to-no change in peoples' spending?

I don't really get why we're even arguing about a coin trick that will never happen... it seems to me that yes, if you print up a bunch of dollars and exchange them for nothing, you have created net-positive financial assets that could very well lead to inflation.  I believe the same affect would happen if the gov't created the same amount of 1 year treasury bonds and opened a treasury direct account for every American and put it there.

People will still have the will to save and deleverage in today's economy, though, so I'm going to go on the record as saying it would take a lot of this to create inflation.  The effect, however, would be almost exactly the same, and peoples' balance-sheets would be affected in very, very similar ways.

This is what deficit spending does, whether or not a bond is issued to offset the dollars just issued... it's liquid financial assets no matter how you cut it.

If you imagine that in Pretend USA we have $1 Trillion in net-savings (offset against debt), made up of cash, bonds, etc.  When the government deficit spends (let's pretend on stimulus checks), it increases that $1 Trillion to, lets say, $1.1 trillion... after having spent $100 Billion.

Then, it immediately issues the bonds because the legislature tells it to, issuing $1 billion in 1-5 year treasury bonds, and sucking $1 Billion in cash out of the system.


Where are we now?

We still have $1.1 trillion in savings, or potential purchasing power.  People spend based on their balance sheets and future employment considerations, not whether the more liquid end of their balance sheet is made up of bonds or cash.  It's wealth at their disposal either way.

Therefore, when the fed comes in and issues new dollars to absorb bonds during QE, it's not changing balance sheets much at all, and that $1.1 trillion hasn't changed.

People do not spend just because they have dollars.  People don't save just because bonds exist that pay interest.  People spend and save based on their balance sheets and future cash flows.

[stone]

moda, as you say, the acumulated government deficits create net financial assets but "horizontal money creation" expands the money supply. The other way to describe horizontal money creation is to call it increasing private sector indebtedness. The thing about increasing private sector indebtedness is that it can't go on for ever (from a given stock of net financial assets) and so gets to a crunch point where the debtors can't service the debts. What I was meaning when I was quibbling with Lone Wolf's assertion that M0 was what mattered for inflation, was that I was thinking that increased net financial assets in the form of bonds were just as able to expand M1 as M0 was able to expand M1. I wasn't doubting that increased net financial assets were needed for endless M1 expansion.
I don't think that it is true that the stock of government debt didn't increase massively from 1972 to 1999. The tech bubble was given a spin by the low interest rates that facilitated horizontal money creation but that was on top of a mountain of net financial asset creation from the Regan and Bush tax cuts not to mention the carry trade from Japan with its massive deficit spending. Nowadays money is global, and net financial assets build up until tax annuls them. Harmful effects in the form of bursting bubbles can occur in a different part of the world than produced the net financial assets and years down the line after they were issued.

[stone]

Lone Wolf, I think the MMT position is that the government "liability" is not real because they can and always will "kick the can down the road" as you put it. The size of budget surpluses since the break down of Bretton Woods have been tiny and infrequent. They have not come anywhere near counteracting the deficits to reverse the growth of government debt. If the size of the debt is never going to shrink, how can you say it is a meaningful liability?

[moda0306]

LW,

I was having trouble following the coin trick so I ignored it, but assuming this platinum currently exists in the real economy, maybe it wouldn't be inflationary... if we're talking a REAL asset that actually has that value but currently exists on Rapper's walls and in precision equipment factories, unless printed money was used to go out and buy it, then maybe THAT would be the inflationary event.... IDK... I'm rambling... no need to pick this apart.

I will agree that QE definitely changes the nature of financial assets (savings) out there, and when you purposefully drive yields negative (real), you are going to see people make opportunity cost decisions with their money if their balance sheets are not too in disrepair.

But those decisions include buying real products and services that (swallowing my bs here for a sec) hopefully are actually adding real value to their lives in the long run, and aren't simply in the form of a 1080P plasma TV. 

That said, we're not in "normal times," and our savings drought in the US is severe enough that I think QE has done all it can do, and we could QE till the cows come home and very well not see a huge change in economic activity, as we aren't in any position as non-savers to get picky about whether we're losing 1-3% to inflation on our savings.  We are so short of savings in the first place that we'll take what we can get.

My last point will be to point out that this is why DEFICIT SPENDING is what truly drives savings, consumption, economic output and inflation in these times, as that's what actually increases the net financial assets that end up on Americans' balance sheets and help them decide whether or not they can consume or not.

It's truly our balance sheets that we're looking at to decide whether or not to send those reserves (savings) flowing out into the real economy... and in times like these we're not splitting hairs over whether our bonds are cash or vice-versa.

[Lone Wolf]

I was having trouble following the coin trick so I ignored it, but assuming this platinum currently exists in the real economy, maybe it wouldn't be inflationary... if we're talking a REAL asset that actually has that value but currently exists on Rapper's walls and in precision equipment factories, unless printed money was used to go out and buy it, then maybe THAT would be the inflationary event.... IDK... I'm rambling... no need to pick this apart.

No, on the contrary, you've nailed it.  In Gumby's plan, the Treasury doesn't use $15T of platinum.  It uses just enough to mint 15 coins and "declares" them to have a total value of $15 trillion.  Then the Fed buys them.  (Hence the crazy accounting identity you saw earlier.)

With numbers that large, you could just as easily deposit 15 rabbit droppings at the Fed, each with $1T carved into them with a safety pin.  The (terrible) effect would be the same.

I think you're seeing why I object to this plan so adamantly.

[stone]

Lone Wolf, lets imagine we are in Australia 1980 and the government there has just spent $1B and there is no arrangement that bonds will be issued other than in unrelated amounts for "liquidity management" purposes. How is that historical example any different from your rabbit droppings at the Fed?

[moda0306]

But hold on here, LW.  I might be disagreeing again... fun while it lasted.

Once again we're talking about trading net financial assets (coins) for net financial assets (bonds) aren't we?

Why is this any different than QE?

Dollars minted are fed "liabilities," while bonds minted are treasury "liabilities."

When... in essence... the only liability involed is the government needing to maintain a military to preserve its clout to enforce tax-collection and legal-tender laws.

I don't think these typical accounting identities matter, LW.

Bonds literally can't be issued until the currency is.  As soon as currency is issued, it exists as savings of inividuals within the economy.  If they wish to collect interest, the gov't can oblige them and issue debt, but it doesn't really have to, but if it does it further increases the savings as cash is printed and old cash is converted to bonds.  The debt it has issued basically is just the gov't expanding net financial assets as they need them to make the real economy work.  Sometimes it DOES matter whether those assets are cash or bonds, but not in today's environment nearly as much.

The savings in cash or bonds exists because of peoples' wish to save and both create the financial assets we look at to decide whether or not we can afford to go buy stuff. 

[Lone Wolf]

Once again we're talking about trading net financial assets (coins) for net financial assets (bonds) aren't we?

Bonds are the bondholder's asset and the bond issuer's liability.  When the bond was created, both an asset and a corresponding liability were created.  The liability implies future taxation.

With the coin or rabbit droppings, a new "asset" was created out of thin air without withdrawing some other asset from the system.  That's special.  That's inflation.

Dollars minted are fed "liabilities," while bonds minted are treasury "liabilities."

The $15T in rabbit droppings is nobody's liability.  Hence all the inflation.

Lone Wolf, lets imagine we are in Australia 1980 and the government there has just spent $1B and there is no arrangement that bonds will be issued other than in unrelated amounts for "liquidity management" purposes. How is that historical example any different from your rabbit droppings at the Fed?

Pre-1980s Australian monetary policy isn't exactly my forte, but wasn't the Aussie dollar pegged to the US dollar at the time?  Wouldn't this make this question somewhat irrelevant?  If the Aussie dollar were to weaken appreciably (irrespective of the cause) wouldn't the Australian Central Bank sell dollars to maintain the peg?

[stone]

Lone Wolf, I can't claim that Australian monetary policy is my forte either. You are quite right about the fixed exchange rate. So although the Australian government issued bonds at a government set interest rate via a "tap system" (rather than by auction) and did not always cover deficit spending with bond issuance, I suppose, as you, say the constraint of the exchange rate peg limited government fiscal policy possibly to an even larger degree.
http://bilbo.economicoutlook.net/blog/?p=1266

I think there are several definitions of inflation. When you say,

With the coin or rabbit droppings, a new "asset" was created out of thin air without withdrawing some other asset from the system.  That's special.  That's inflation.

I suppose you are using the Austrian School definition of inflation but the most usual definition (such as is used for CPI etc) is that of sustained increases in prices. I don't see that you can point blank say that creating monetary base out of thin air IS CPI. You may think that it will create CPI but that is very different from saying that it IS CPI.
Furthermore increasing the stock of government bonds is also creating new assets without withdrawing bank reserves. At the start there was $1 and then there was $1 plus a $1treasury bond. It is crucial to understand that (according to the MMTers) that increase in the government debt of $1 is in reality a permanent condition not a reversible "borrowing" even though it is set up so as to look like a private debt that might be paid down in future.

[moda0306]

LW,

Well then it IS the same as QE... an "asset" printed out of thin air against what you seem to think is a "liability."

But LW, the "liability" you speak of is simply a liability to pay out X% interest for a period then pay $X,XXX back in principal in a fiat currency.

Nowhere does it say that you have to tax or borrow to pay it back.

There is NO true liability there, any more than there's a liability when we print the dollars to issue them to begin with.  This is the difference between buying a bond from a currency USER vs a currency ISSUER.  A currency USER will have to go out and offer real goods & services, or other financial assets, to get those dollars from people.  That's what makes it a true liability to them.  This is what can cause real constraints within governments or economic players that don't control the currency... these constraints can self-fulfill into default.

All the bond is is a different net-financial asset that is backed by the legitimacy of government, and it will affect peoples' finances & balance sheets in near identical ways when rates are low and people are desperate to deleverage.

The only true liability is for the government to continue to be able to give our currency value through legal tender laws and taxation.  That taxation doesn't have to be much, but enough to prime the pump of fiat value.

[Gumby]

Gumby, sorry if I was confusing, I think under MMT parlence, deficit spending is deficit spending irrespective of whether it has bond issuance or is just by printing up. I was meaning that I thought in order to have a long term stable situation it was preferable to match dollar for dollar any government spending with an asset tax. The MMT position is that any "net saving desires" of the non-government sector need to be matched by government deficit  spending (ie government spending more than it receives from taxation) otherwise the "leakage to savings" will create unemployment. My point was that it is impossible to accomodate "net saving desires" as that is a bottomless pit that will grow bigger the harder you try to fill it. Instead the only option is to ensure that there is no NET saving across the economy ie that for every person saving for retirement or whatever there is someone else drawing down their retirement savings etc. My understanding was that an asset tax was the only type of tax that would target what needs to be targeted inorder to have a stable sustainable economy. Otherwise "leakage to savings" would either need to be compensated for by ever increasing levels of government debt/"net financial assets" that would financialize the economy and/or cause mass unemployment.


http://bilbo.economicoutlook.net/blog/?p=10384
"As a matter of national accounting, a government budget deficit adds net financial assets (adding to non government savings) available to the private sector and a budget surplus has the opposite effect. The last point requires further explanation as it is crucial to understanding the basis of modern money macroeconomics.
The only entity that can provide the non-government sector with net financial assets (net savings denominated in the currency of issue) and thereby simultaneously accommodate any net desire to save (financial assets) and thus eliminate unemployment is the currency monopolist – the government."
....."In general, if the private sector desires to increase its saving, the role of the government is to match that to ensure that the income adjustment will not occur – with the concomitant employment losses etc. In that sense, fiscal policy has to be reacting to private spending and saving decisions (once a private-public mix is politically determined)."

But, if your population is growing, wouldn't you need more money in the private sector to accommodate those savers?

[stone]

Gumby, you could I guess either have mild asset price deflation or have limited deficit spending to match population growth. The deficits we have had over the past few decades have massively outstript population growth.

[moda0306]

I think necessary deficits are going to be as a result of 1) economic growth, and 2) trade deficit.  I dont' really think population growth in and of itself is the main factor.

If we have a negative trade deficit of other countries, they'll be absorbing a lot of the net financial assets that normally would have resulted in savings of American families.  This is probably going to cause a need to produce more of them.

That's why I'm not entirely surprised by the ineffectiveness of deficit spending over the last decade to generate full employment and sufficient savings in the US... we're too busy creating full employment and sufficient savings in China.

[stone]

moda, I agree that trade deficits are very distorting. I think there is a real problem when people save in an other countries currency. I sometimes wonder whether things wouldn't work out better if national currencies were only used for internal trade and some seperate pan-global currency was used for international trade. I suppose it would be vital that that international currency was not ever used for saving by anyone. If people never saved in other nations' currency, then trade deficits would not exist. Instead the exchange rates would match all trade flows.
I also think it is vital to distinguish between amounts saved and the distribution of the savings. Apple is saving plenty.

[Gumby]

Something has changed (as you noticed in the accounting identity.)  You just destroyed $15T in Treasury liabilities!  You are asserting that this can happen without any consequence.

What does a Treasury liability mean?  It represents money that must be paid back to lenders via taxation (or further borrowing if you wish to kick the can down the road.)  So that's $15T of taxation or further borrowing that's now just... washed away.  That doesn't matter?

The liabilities no longer exist because they have been extinguished by the Treasury and the Fed.

We are going in circles. In the example you gave, Lone Wolf is no richer at the end of the process than he was at the beginning of the process, correct? So, please explain how Lone Wolf can possibly create inflation if he is no richer from having exchanged his Treasuries for cold hard cash with the government. Please, please, please explain this, because I cannot see how Lone Wolf himself can create inflation once he has pure dollars with the same amount of spending power he had previously in Treasuries.

What is our debt?  A bunch of deficit spending performed with promises to pay in the future.

You do know that the market value of a Treasury already reflects that, right? The government buys your Treasuries with the price of the future payments factored in, and you are no richer at the end of the process.

What was Weimar?  A bunch of deficit spending performed via straight-up printing.

Germany's war reparations caused their deficit spending to rise 50% of GDP annually. Most of their spending was used to sell their currency to buy foreign currency to pay their war reparations. In other words, Germany held foreign-denominated debt, which makes a country extremely vulnerable to (hyper)inflation because it cannot print up more of the foreign currency. That drove their currency down — causing hyperinflation — which didn’t stop until that policy ended. When the policy ended, it stopped inflation stopped dead in its tracks. In one day. Zimbabwe had civil unrest that dropped their productive capacity by about 80% while government spending stayed high and too much spending power with too few goods and services for sale drove prices through the roof.

For the US to replicate Wiemar hyperinflation Congress would have to increase deficit spending to about $8 trillion a year and then sell those dollars continuously in the market place, using them to buy foreign currencies, such as yen, euro, and pounds. And replicating Zimbabwe would mean some kind of disaster that wiped out 80% of our real productive capacity and then continuing to spend federal dollars as if that never happened.

All you've done is converted from one type of deficit spending to another.

Exactly! I've converted Lone Wolf's $15 trillion savings from Treasury Bonds to Cash. Nothing changed in Lone Wolf's world. You are no richer. You can't cause inflation. Clearly you understand this, and yet...

In short, you've made the $15T national debt have the same effect as if you'd cracked it straight off the printing presses a la Weimar.

No, no no. And, you were so close! If Lone Wolf's Treasuries were as liquid as cash in the first place, why should it ever matter if they were actually cash in a savings account in the first place?? Banks and brokerage houses can convert Treasuries into cash and back again in less than a nanosecond. Treasuries are already as spendable as cash in your bank's savings account! The Treasuries were already printed long ago and they have always been a part of our spending (and savings) power.

Honest question: the accounting identity that I posted has to be bothering you, doesn't it?  That's a net $15T in new financial assets from out of nowhere.  Does it mean something or does it mean nothing?  If it means nothing, why?

I do appreciate the question. Here we go...

The accounting doesn't bother me at all because Lone Wolf didn't get any richer at the end of the process. Seriously, that's all there is to it. The Fed takes the Treasuries and buries them in a giant hole because the Treasury instructed them to do so. The government has the power to do this. The liabilities are extinguished and Lone Wolf has the exact same spending power as he did when all this started. You are so close to getting this.

[Gumby]

Gumby, you could I guess either have mild asset price deflation or have limited deficit spending to match population growth. The deficits we have had over the past few decades have massively outstript population growth.

Got it. It seems like large deficit spending would be necessary now to fill the giant hole from the deleveraging of the private sector. Though, destroying that money someday could prove tough. I think I see your point.

[moda0306]

Gumby,

Your points to LW are so valid.  That's why trillions of QE has really not made all that much a difference, and trillions more would likely not do the same... because you haven't changed the balance sheets of Americans.

Deficit spending on the other had, whether printed out of thin air or financed by trading bonds for savers' cash, is what's increasing the net financial assets in the economy that influences peoples' decisions.

If you want to create inflation, and you can either increase deficit spending by $1 trillion or do a $1 trillion QE, and were wondering which one would more reliably move the economy (or create inflation, assuming that's an option), it will absolutely be the deficit spending.

Only deficit spending of $1 Trillion gives people a $1 Trillion improvement in their balance-sheets with which to make purchasing decisions. 

QE would have lowered interest rates a tiny bit more, barely changing a thing for a savings-strapped society like ours.  This literally would have had almost zero affect on your or my willingess to divest ourselves of savings.  Our balance sheets look almost identical and we'd still be fools to go buy plasma TV's.

Gov't bonds exist because of people wanting to save in the domestic currency, not the other way around.  Bonds aren't necessary to do this, but can be a reliable tool for the fed/treasury to make small, quick changes to the money supply without having to petition congress for stimulus.

LW seems to think that people would only invest in bonds if they believed that the payback of those bonds would come at the expense of a taxpayer somewhere.

This is not why we invest in treasury bonds... it's because we want to save in our domestic currency, and collecting a little interest to boot is never a bad thing.  In fact, we wouldn't be so willing to save in domestic treasury bonds if we thought they could possibly default, which would be the world that we'd live in if it took taxation to pay us back.

[stone]

It seems like large deficit spending would be necessary now to fill the giant hole from the deleveraging of the private sector. Though, destroying that money someday could prove tough. I think I see your point.

From what I can see, that idea that private sector deleveraging makes deficits neccessary is exactly the kind of trap that needs to be seen for what it is. To my mind if loans were made that can't be repaid except via government deficit spending, then it is vital that those loans default. It is anti-capitalist to make such loans whole via deficit spending. To my mind it is much much less anti-capitalist to provide material safeguards for the welfare of people caught up in the whole fiasco. Several hypothetical schemes would allow mortgage holders to stay living in their houses after a default. Welfare could generously provide for people's pensions if need be. What is vital is that phoney/crony "capitalism" doesn't take over under the guise of being needed because state welfare (of individuals not of corporations) has been eroded IMO.

[Gumby]

I suppose you are using the Austrian School definition of inflation but the most usual definition (such as is used for CPI etc) is that of sustained increases in prices. I don't see that you can point blank say that creating monetary base out of thin air IS CPI. You may think that it will create CPI but that is very different from saying that it IS CPI.

I believe LW is referring to the Quantity Theory of Money, which Keynes refuted about 80 years ago. Even Harry Browne — who constantly worried about inflation — told us many times on his radio show that the increasing money supply itself does not cause inflation, but rather the demand for that money.

Furthermore increasing the stock of government bonds is also creating new assets without withdrawing bank reserves. At the start there was $1 and then there was $1 plus a $1treasury bond. It is crucial to understand that (according to the MMTers) that increase in the government debt of $1 is in reality a permanent condition not a reversible "borrowing" even though it is set up so as to look like a private debt that might be paid down in future.

Exactly. This is why Lone Wolf, in his own example, probably felt quite rich with $15 trillion in Treasury bonds in his brokerage account.

[Gumby]

It seems like large deficit spending would be necessary now to fill the giant hole from the deleveraging of the private sector. Though, destroying that money someday could prove tough. I think I see your point.

From what I can see, that idea that private sector deleveraging makes deficits neccessary is exactly the kind of trap that needs to be seen for what it is. To my mind if loans were made that can't be repaid except via government deficit spending, then it is vital that those loans default. It is anti-capitalist to make such loans whole via deficit spending. To my mind it is much much less anti-capitalist to provide material safeguards for the welfare of people caught up in the whole fiasco. Several hypothetical schemes would allow mortgage holders to stay living in their houses after a default. Welfare could generously provide for people's pensions if need be. What is vital is that phoney/crony "capitalism" doesn't take over under the guise of being needed because state welfare (of individuals not of corporations) has been eroded IMO.

I see your point. But, if you were running for election, would you tell people to suck it up? Or would you try to ease their pain. I see the problem being born from politicians trying to placate the private sector so that they can maintain their own positions of power. Bread and circuses, if you will.