Seriously, I've re-read what you wrote three times now and I think the best I can get out of it is that your looking at the current eco-situation from a semi-Austrian viewpoint? (Not knocking the Austrian school, BTW). It's just hard for me to comprehend the whole turning interest rates or deficits? I mean, I kind of look at that from an Austrian perspective too, in that as interest rates were ratcheted up, the inflation had to go somewhere, which was into a bond bubble of sorts. But, really, I'm kind of lost. Care to flesh this out a little bit more for me?

^{"All men's gains are the fruit of venturing."}

-Herodotus

Inflation comes from loose monetary policies, which were used to fund the Vietnam War, the war on poverty and to paper over the oil prices increases of the seventies. None of which increased productivity proportionally, thus more money chasing the same amount of goods. This was additional money flowing through the economy, through rising prices and wages, rather than additional credit through lower interest rates.

Volcker's recession was deflationary on the effect of rising prices, as Reagan's firing of the air traffic controllers brought unions and wages to heel, but what effect did it have on the actual cause of inflation, excess money?

The Fed tightens money by selling debt it is holding, just as it adds to the money supply by buying the debt in the first place. The problem is that economic growth and thus the necessity for more money in the first place, is dependent on available credit to take advantage of opportunities and higher rates are most constraining to high risk, high reward growth prospects. They are most beneficial to those with more money than they can effectively use and so can lend out. Lenders are the economic fuel tank. Borrowers are the economic engine. Growth is bottom up, not top down.

Now what is the difference between the Fed selling debt it is holding and the Treasury selling fresh debt? The Fed retires the money it gets, while the Treasury pumps it back into the economy. Often government spending isn't as productive as private sector investment, because it doesn't require immediate returns, but often it does support the foundations of the private economy, with everything from roads to education. The spending does go into the economy, even when it doesn't increase productivity, such as unemployment and welfare, or even when the productivity doesn't add to long term growth, such as the military. So basically government deficit spending takes money that isn't immediately necessary to those who possess it and spends it in ways which increase economic activity. This spending then has a multiplier effect on other parts of the economy, which further increases the need for money and thus the excess supply is absorbed. This is not inflationary, if it increases activity, as opposed to raising prices, but the relationship between productivity and wages has to be stable, otherwise the additional value is used to inflate asset prices by those who do reap the gains.

Tax cuts to those who spend them increase activity. Tax cuts to savers increase the supply of credit.

The political motivation is that it avoids admitting those who have surplus wealth are logically not being productive with it, since they don't have a direct need for it. Of course these with surplus wealth are also logically the most politically influential, since they can afford to buy favors. So basically public debt takes this surplus wealth and uses it to increase economic activity, while paying interest on it. The only problem being that the debt eventually has to be paid back and the interest accrues to those who will be loaning it back out.

The fact is that money is not an asset which can be effectively stored. If we were to simply stick it under the proverbial mattress, then more would have to be printed to replace what is taken out of circulation and if it gets introduced back into circulation, the result is inflationary. So it is best saved by loaning it to someone else to use. The problem is the economy can only absorb a finite amount of productive investment.

It's sort of like generating electricity. Only small amounts can be actually be stored in the penny jar/batteries, along with what's being carried in the transmission process. In fact, what derivatives amount to is a way to increase the transmission process, thus increasing the storage capacity of the system, but this is unstable, since it must compound the growth to keep from deflating.

With Social Security there is no lock box. The surplus has to be loaned out as it's collected and the private sector can only absorb so much investment, so it gets borrowed by the government. That is why it works best by funding current use and not invested for future benefits. Privatizing SS is a sick joke. Where would it be invested, other than further inflating asset values. In the old days, we took care of our parents on the hope our children would take care of us. We invested in our old age by investing in our children.

So we have a situation where everyone wants these drawing rights to communal productivity, called money, above and beyond what they directly contribute. So we have developed this illusion of increasing value based on trading some assets around at ever increasing prices and believing that raises the value of all such assets. Those with surplus drawing rights loan them back to the general pot with the promise of increased benefits in the future, on the assumption the pot will grow enough to pay them back, while also supporting those continuing to contribute directly to it. It really is a form of Ponzi scheme to its very core. We have just kept it going by doubling down every time it gets shaky.

The only viable solution is to understand money for what it is, not what we wish it to be. It is a medium of exchange, not a viable store of value. As such it is a public utility, like a road system, not private property. If you exchange your resources for drawing rights to communal productivity, you have to play by the rules of that community and it doesn't remain a community if a small percentage manage to obtain significant amounts of drawing rights far about their actual contributions. If you want to contain whom you exchange drawing rights with, then start another medium of exchange among those whom you select.

I'm going to post this and hope it makes some sense. Bedtime....

often has no insight.

http://mauberly.blogspot.com/

At least I don't waste the space and time of keeping a blog.

http://mauberly.blogspot.com/

but I guess everything is about you.

http://mauberly.blogspot.com/

^{"All men's gains are the fruit of venturing."}

-Herodotus

Though in defense of Sean, he is a compelling read and given the overwhelming quantity and frequent quality of writings on the innertubes, that is saying something.

I must say that I think I make sense, but I find it's not a universal sentiment.

Growing up as fifth of six kids, I learned at a very early age that it definitely wasn't all about me. Of course, I also learned to defend my opinions, if I wanted to have any.

but it really isn't all about me, it's about y'all. It's the community that makes this place special. There are days when the whole blogging thing gets terribly old, after all, I started this place in September 2002. Seven years is a damn long time to do anything. And yet, day after day, it's the quality and tone of the commenters here that keep me coming back as well.

^{"All men's gains are the fruit of venturing."}

-Herodotus

You have developed a sweet spot here. Not too big, not too small. Not too obsessive, not too dysfunctional.

Personally blogging wouldn't work for me, because I do just keep obsessively repeating the same themes over and over. I'm quite jealous of your traveling. It's something I would love to have spent my life doing. I traveled quite a bit as a kid. Probably hitchhiked over ten thousand miles as a teenager. Up and down the west coast a few times, the east coast once and once across the country. Been to South America with some horses in 84 and been to the Caribbean and Europe on vacation a few times. The fact is though, alot of the same problems and attitudes exist everywhere and so I've mostly made it a personal effort to try to make sense of why. That's why I get so repetitive about the few ideas I think might smooth out a few kinks. I don't spend that much effort pursuing it though, because it's become quite obvious the system has to crash before most people will consider changing. The beautiful irony is that it is those currently in charge who are working hardest to destroy it. What do the bankers think they are going to do when the dollar implodes? How are the politicians going to explain why they sold their souls for a few green shoots, when it just turns out to be the final bubble? What is the military going to do when they don't get the money to pay their contractors and suppliers? What are the priests, mullahs and rabbis going to say when the dust settles and the believers are not floating in the clouds?
It might look like anarchy, but people tend to organize themselves and what they need is a good plan. I may not be the one to offer it, but I've a good idea what might work and that's entertaining enough.

under Carter. You could actually short a treasury bill and make money over short horizons in 1979.

" is that it was Reagan running up the deficit, rather than Volcker raising interest rates, which brought inflation under control in the early eighties, since the higher rates caused a recession and this reduced demand for money and credit at least, if not more than it constricted the supply."

http://mauberly.blogspot.com/

To not be incessant, I'll quote myself;

" with inflation, the tendency is to spend money, rather than lend it, so there is a shortage of lending and the cost/rates, go up."

There isn't much of a credit market in Zimbabwean dollars.

ran as high as 18% during the inflationary Carter years.

http://mauberly.blogspot.com/

I was a teenager in the seventies and had been an avid newshound from an early age. The sixties and seventies did leave an indelible impression.