Quote:
Originally Posted by QuakerBaker
My teacher, she used this to help explain the Modern Monetary Theory....
"The carpenter can't run out of inches
The stadium can't run out of points
The airline can't run out of FF miles
And the USA can't run out of dollars"
I tried to ask my teacher some questions and she kind of shut me down, so I would like someone to explain it to me in better detail of possible.
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She out-right lied to your face.
A lie of omission is still a lie, which makes her a liar and you can tell her I said that and invite her here to discuss.
So long as the US has electricity, trees and oil, it can keep the printing presses running indefinitely. Even without electricity, so long as there's paper and oil (because the special inks and dyes are made from oil) the government can operate some of the manual printing presses in museums and in storage.
She intentionally neglected to tell you there are negative consequences.
There's nothing inherently evil about borrowing or debt. People have engaged in both for 11,000 years that we know, maybe even longer than that.
Like most all things, excess is bad, so excessive borrowing or excessive debt is bad for people, business and governments. Moderation is good. Abstinence can actually cause harm.
Monetary Inflation occurs when you have too many dollars (or any currency) chasing too few goods.
That makes the price of your guitar or TV or crop of soy beans increase in price.
Because it's worth more? No, because the dollar is worth less.
When $10 = $10 and a bushel of soy beans is worth $10 on the market, then the price you charge is $10.
But, when $10 = $7.50 and a bushel of soy beans is worth $10 on the market, you can't charge $10, because $10 is only worth $7.50.
So, you have to increase the price to $12.50 to offset the lower value of the currency and make up the $2.50 difference.
When you have Monetary Inflation, the price of everything rises. Literally. Every thing. As in every single thing. Look around the room you're in: that includes the price of curtains, curtain rods, door hinges, door handles, doors, electrical outlet covers, carpet, furniture, TV & appliances, clothing, food...everything...even wages.
Yes, your wages will rise. Unfortunately, you're behind the curve-ball and you stay behind the entire time.
Employers are reluctant to give large raises during an inflationary cycle, and they wait until the last possible minute, so you get soaked all year, and then your wage increases, but so do prices, so you're still behind, you're always behind, and when the inflationary cycle finally ends, you never get that last pay raise, so you lose your shirt.
Social Security recipients got COLA increases of 9%, 14%, 11% and such because that's how high Monetary Inflation was during the last period.
So, why don't you have Monetary Inflation?
When government spends more than it collects in revenues in a given month, the deficit for that month is packaged by the Treasury Department as marketable securities in the form of treasury bills, notes and bonds and then auctioned off.
Foreign central banks, foreign governments, foreign businesses, foreign banks, US banks, States, counties, cities, townships, public and private pension funds, insurance companies, businesses, non-profits and sometimes people will buy them and hold them to collect the interest.
That's why you don't have Monetary Inflation.
What your teacher omitted to tell you is that US debt is greater than 25% of World GDP and approaching 35% of World GDP.
She forgot to tell you that between 2040 and 2045, US debt will be 50% of World GDP.
Not too long after that, your debt will equal World GDP.
If your debt equals World GDP, who's going to buy your debt?
Does your teacher seriously believe that foreign countries are going to starve their citizens to death in order to be able to buy US debt?
Because not only is your teacher a liar, she is certifiably insane if she believes that will happen.
And, none of that matters, because this problem is going to manifest itself long before your debt equals 100% of World GDP.
Right now, you have maybe 36 countries that can even buy US debt. What about the other 160-odd countries? They don't have the money.
Take a country like Spain. Their GDP is about $1.3 TRILLION. Does that mean Spain can buy $1.3 TRILLION of US debt? No. Best case scenario is Spain can buy maybe $10 Billion a year.
Worse than that, 2 dozen of those countries have incredible problems with unfunded liabilities, meaning the amount the owe in future social security payments and healthcare services.
Italy owes 300% of its current GDP. It doesn't matter how high Italy raises taxes, it can't pay for it. It will have to tax the snot out of people and slash pensions and healthcare benefits and those people are going to be very, very angry.
Spain owes 250% of its GDP, Germany 270%, the Netherlands, too, the Belgians are at 225% and same story for nearly all of them.
Doesn't matter how high they raise taxes, they can't pay for it. They have to slash pensions and deny people healthcare.
The French are still fuming, because France raised the retirement age, forces people to work 7 years longer than Americans and slashed the pension from 50% to 37.5%.
A French worker earning 80,000 Euros/year who thought he'd get a pension of 40,000 Euros/year got screwed. He'll be damn lucky if he gets 20,000 Euros/year.
You think those countries are going to have the money to buy US debt?
No, they aren't.
Your teacher conveniently forgot to tell you that
as soon as the US runs out of other people's money to buy US debt, the party's over.
You'll have rampant, maybe even hyper-Monetary Inflation until your government starts balancing the budget every year.
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