[ExI] Deficit spending and never admitting you were wrong

John Clark johnkclark at gmail.com
Wed May 27 17:12:07 UTC 2020

On Wed, May 27, 2020 at 9:18 AM Dylan Distasio via extropy-chat <
extropy-chat at lists.extropy.org> wrote:

> > *You're assuming there will always be buyers at good prices when they
> [bonds] need to unwind.*

I'm assuming inflation won't be a serious problem in the immediate future,
it's a reasonable assumption because bonds have never been more expensive
or yields lower than they are right now, and there has never been a less
appropriate time to worry about inflation than right now. In fact inflation
hasn't been a serious problem in 40 years, but since that time there have
been several recessions and at least one Great Recession; if we're lucky
we're in another Great Recession right now, but if we insist on following
ideological policies that have already been empirically proven not to work
then we're at the start of something much much worse than just a Great

*> The Fed is bound by the rules of its charter.  THEY cannot create
> government bonds.   *

But the Fed can buy bonds and that increases the money supply by
turning bonds into cash.

> *> If you're talking about the US Treasury which you likely are based on
> your response above, that's another story entirely.   The distinction
> however is important. [...]   Brent's question was about the Fed printing
> money and expanding THEIR balance sheet, at least that's the way it was
> worded.   I was pointing out the Fed does not print money to finance US
> deficits.   There is an important distinction there. *

But you never say why the distinction is important. I think the important
thing is that the Fed can credit banks with deposits out of thin air which
is equivalent to printing money, and they have not been shy about doing so
when they judge it's wise. Of course that alone is not enough, you need the
Federal Government to issue bonds and spend that newly created money on
things like unemployment benefits and health care for 40 million Americans
 families. Unfortunately for that to work you need a POTUS who is not an
imbecile and a legislature that is not full rigid ideologues and
presentential flunkies.

>> interest rates are currently low. Ridiculously low! The yield on a 2
>> year treasury bill is only 0.19%, the lowest in history. And the average 30
>> year fixed rate mortgage is 3.23%, also the lowest in history. The deficit
>> hawks are like a doctor refusing to feed a 70 pound starving man because
>> he's worried about the dangers of obesity.
> > *Demand is there until it isn't. *

And rich people's heads are connected to their shoulders until they aren't.

> *Additionally, I'm surprised you continue to lament the death of
> libertarians on this list in the age of Trump when you appear to be far
> from one yourself. *

Unlike Trump supporters I'm still strongly in favor of Free Trade. I see
nothing inherently evil in corporate monopolies especially high tech ones,
but I do see something inherently evil in tariffs. I like bitcoin and
encryption in general. I think women should have the right to do what they
want with their bodies and everybody should have the right to end their
life if they choose to. I think all drugs should be legal and gambling and
prostitution too. And I think the POTUS should be prevented from sueing
people who say things about him he doesn't like, and I think the election
should not be declared invalid by the POTUS because of imagined voter
fraud. Few MAGA Hatters are in favor of any of that.

But however much I love libertarianism I love the scientific method even
more, and some things just won't work. The Federal Government doing nothing
about 40 million unemployed during a global pandemic won't work. Expecting
the huge gap between the rich and the poor to continue to accelerate
forever without bloody consequences won't work either. My core belief is
that no matter how beautiful a theory is if it doesn't fit the facts then
it must be abandoned.

John K Clark
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