Wednesday, 6 September 2017

How to deal with debt ceiling numpties.

First, the Fed carries on doing QE: i.e. printing money and buying up government debt (Treasuries).

That will probably raise inflation too much, so the Fed announces that taxes need to be raised or public spending cut so as to deal with that inflation. That would be music to the ears of right wingers (Republicans) seeing as they’re always keen to cut the deficit.

If that process goes on for long enough, there’d be little or no debt left: it will be turned into base money paying a zero rate of interest.

Debt ceiling numpties (Republicans) would then be hit in the face with the realization that the debt had been replaced with base money: i.e. that debt and money are virtually the same thing. That would be a big improvement in Republican’s grasp of economics.

A further benefit would be that the US would no longer be paying interest to China, Japan and other foreign countries.

What’s not to like?

As for how to regulate demand, just continue with the above idea: i.e. the Fed suggests to numpties (I mean “Congress”) that the deficit needs raising or reducing a bit – and possibly, given a serious outbreak of irrational exuberance, that a surplus is in order.

The only slight drawback with that idea is that the reduction in interest yielding investments in the US would induce some investor / savers to take their money elsewhere in the world, and that would cause the dollar to decline relative to other currencies, which in turn would reduce US living standards for a while. But that’s a purely temporary effect.

I really deserve a nobel prize for that idea, but I’m far too modest to nominate myself.

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