Lord Narf-Um-What-Brain-Lumpford-Something-Shire (remjte) wrote,
Lord Narf-Um-What-Brain-Lumpford-Something-Shire

Funny Money Math Time

Let's assume our entire economy is 10 Trillion dollars.

Then, we decide to cover 1.5 Trillion of "debt" (a mess unto itself) by simply printing more dollars. We're going to pay off this "debt" by printing the money to cover it.

This increases the money supply. This devalues the dollar.

What was 1.5 Trillion in "debt" in the old economy of 10 Trillion is now 1.725 Trillion in the new economy of of 11.5 Trillion.

It's the same ratio. It does NOTHING.

At best, if the entire rest of the economy magically covered itself, held constant and immune to the inflation at play, like this whole new money/debt exchange is just some side pot, we'd still be creating 1.5 Trillion dollars to pay off 1.725 Trillion, meaning we're still 225 Billion in the red.

That's our best case scenario. It won't happen. Everything gets its value readjusted (rather, would, if we could accurately monitor and control these things, but we can't, so now it's more like throwing darts and we're making an even bigger mess). So, the 1.5 Trillion we just printed isn't paying off anything. It's merely taking up the same space that 1.3 Trillion used to. Meanwhile, our new "debt" is 1.725 Trillion and yet to be collected.

All we did was devalue our dollar. Our "debt" is the same percentage of the economy it used to be, but it's a higher number because the dollar isn't worth as much.

The only way to pay down a debt is for the debtor to earn money and pay the creditor.

Not even shrinking the money supply will help. That's deflation. The dollar value goes up, there are fewer dollars to go around, but the "debt" still sits there.

We must first acknowledge what "debt" is owed to whom and then decide what to do about it. If government owes money to itself, does it really owe anything? On the balance sheets it does. If government is split into two parts, each has a budget of $100 and an operating cost of $100, we're null-set, but if A borrows $10 from B to help cover $110 of cost, B is still left to cover its own $100 of cost with only $90. In order to actually pay it back, A needs to get another $10 from someplace else, but it needs to be an already existing $10. Creating $10 out of nowhere does nothing.

Government has two options for getting rid of debt: increasing taxes on the producers (in other words, swallowing up more of the economy) or decreasing its own spending. Choice A hurts the rest of the economy. Choice B does not.

Our "debt" is really our government's debt. It's our government printing money until its valueless and still spending it faster than it prints it. It's digging a hole, deeper and deeper. Then they try to dig out of the hole.

We need to stop printing money.
We need to shrink the government.
We need a constant trade value for the dollar.
We need government to fill the hole, not make it deeper.

Once the revenue in to the government is able to cover a lower operating cost and fill the gaping hole, we can keep government at that level and decrease the taxes on the actual workers. Then we'll have a limited, fiscally sound government and a growing economy.

Anything else just keeps us going down the same road we're on.
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