We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

For decades, often in word but always in deed, politicians have told voters that government debt didn’t matter. We, and many economists, disagree. Yet even if the politicians were right, the absence of available creditors would be an insurmountable problem—were it not for the Federal Reserve. But when the Federal Reserve acts as the lender of last resort, unpleasant realities follow. Because, as everyone should be keenly aware, the Fed simply prints the money it loans.

A century of arguing about how much to increase spending has left us with a debt that dwarfs the annual economic output of the planet.

A Fed loan devalues every dollar already in circulation, from those in people’s savings accounts to those in their pockets. The result is inflation, which is, in essence, a tax on frugal savers to fund a spendthrift government.

Antony Davies & James Harrigan

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20 comments to Samizdata quote of the day

  • Nicholas (Unlicenced Joker) Gray

    Here is all the proof you need that Government monopolies are bad. If only there were some way for libertarians to carry gold or silver charms on themselves as a substitute for money, and use that amongst themselves in place of Fed-papers, and thus gradually undermine the inflationary system from within, then we might be able to improve on what we have, by introducing solid money, and creating a competitive economy. What a shame that nobody has any ideas like that….

  • Stonyground

    OK, so what do we need to do to make it happen?

  • John K

    The thing is, no-one likes “frugal savers” any more. It’s more fun to party in Vegas and spend your money on strippers and blow. That’s what governments have been doing for over a hundred years, since Bismarck came up with the idea of the welfare state.

    Of course, after that great weekend in Vegas, you do tend to wake up broke, hungover, with an unsuitable tattoo and an irritating rash down below. Does anyone think the geniuses who run our governments will do any better?

  • PeterT

    There is nothing fundamentally wrong with borrowing money, even if this was lended by the Fed, as they put it (although the Fed is not necessary, the private banking prints money by itself; the Fed just lowers the rate artificially. The problem is that we are largely using the money for consumption, mostly on the elderly (pensions and healthcare). Those 10-20 years from retirement who have not saved are going to get a surprise when they retire and all the young decamp to jurisdictions where they aren’t forced to pay for the elderly through tax or inflation. Even though my children are young I am definitely thinking maybe I should move somewhere where this won’t affect them as much. Short list though.

  • Kevin B

    Of course, those elderly people who, over the years, have between them provided the resources that the government squanders, not just through taxes and national insurance but through creating the wealth that the whole shaky edifice is built on, might feel that they – we – should get a little bit back from all that hard work.

    The fact that various governments have, over time, spent the money that we paid in on hookers and blow and are now living on our credit card does not diminish the fact that the youth of today owe everything to their parents and grandparents and those kids should not welsh on that debt.

    There might well be a better way to repay what is owed than some government run ponzi scheme, but the debt remains.

  • Paul Marks

    Patrick often asks a difficult question on this area of policy…..

    If deficits and debt are so bad – why is Japan (which has vast debt and has run a large deficit every year for decades) such a nice place? Why has it not collapsed?

    I think part of the answer is that, in spite of the vast debt and the endless deficits, Japan still actually has LOWER government spending than the United Kingdom.

    Also Japan is very picky about its immigrants – unlike China (try and become Chinese if you are outsider) Japan does have immigrants, but they have to be high skill people (NOT people like me). Low skill “masses” who will (in the end) cost the taxpayers more than they pay in taxes are not the Japanese way at all.

    But that is not a full answer to the Patrick question – and the truthful answer is, partly, “I do not know” – I do not know why Japan has not gone into meltdown by just producing more money every year to buy its own government debt (although the Japanese are careful to NOT just throw the money about – the extra money is to buy government debt and prop up the zombie banks, only, it has no other purpose).

    As for the other Western countries (yes I count Japan as Western as to me being Western has nothing to do with biological race) – Germany has a balanced budget, but it is undermining itself in other ways (artificially high energy costs, upon door to Islamists, starting to copy Britain and American in the way against family owned business enterprises – and so on).

    As for why do people use government credit money.

    Partly it is habit – a memory of when the government money actually did represent gold and silver.

    And that is not historically that long ago – there was still a formal link with the Dollar and gold till 1971 (although other governments could claim physical gold from the United States) and American coins actually had quite a lot of silver in them till the 1960s

    But mostly it is two things.

    Legal tender laws and tax demands.

    No currency (including the Swiss Franc) any longer has a link to physical gold or silver.

    What government money now relies on is men with big sticks.

    It really is that brutally simple.

    In the past government “cheated at the margin” and so on – now there are no rules, just naked force, when it comes to money.

  • James g

    How to become a better economist than almost all economists in one minute:

    Tanstaafl

  • rxc

    Legal tender laws and tax demands.
    No currency (including the Swiss Franc) any longer has a link to physical gold or silver.

    This, and the confidence of the population and the government creditors) that the currency is not inflated the way it happened in Germany in the 20s, or in places like Venezuela or Zimbabwe. As long as the populace does not get the “wrong ideas”, the government can inflate as much as it wants. Some people think that China or the Middle Eastern Countries with large $ or euro reserves could cause problems, and to be sure, they could. But where would they go with their money? Even if they converted everything into gold or silver or platinum or whatever, there needs to be some sort of fiat currency to make the world economy work, and right now the $ and the euro serve that purpose.

    Even if the Chinese suddenly demanded that the US redeem all of those treasury bonds that they are holding, the Fed could just add an additional line item to the ledger and ship it all out to China in one electronic transaction, and cancel all those bonds. What are the Chinese going to do with all that “purchasing power”? (I don’t call it cash or currency because it is just an entry in a ledger.) The instability that this would cause would hurt the Chinese much more than they are hurt by just keeping the money where it is.

    The $ is stronger than the euro because the Fed has demonstrated that it is ready, willing, and able to (electronically) print as much money as it needs to meet any demands that any creditor can throw at it, and the creditors can do nothing but accept the electronic “purchasing power”, that the Fed provides. The ECB doesn’t seem to have the heart to behave that way.

  • rxc

    Oh, and this is why bitcoins are never going to be anything other than a quirky collectible. The governments that control the currency will never allow it, because it undermines their control. And governments have many, many ways to ensure that they lose control.

  • Mr Ed

    Another side of fiat money became evident to me the other day from personal experience, rather than theory and journalism. I went into my local Building Society (like a ‘thrift/S&L’ to our American friends) in a small and relatively prosperous English market town. I asked a clerk about their deposit accounts, having a bit of capital (OK, an entry on a ledger) to lodge somewhere. The clerk’s astonished reaction was akin to that one might find asking a Church of England vicar about the XXVI Article. It seems that they don’t really expect people to ask about that sort of thing any more. So long have interest rates been low that they don’t really expect to take deposits, and a hint was given that I might try Premium Bonds (which is actually buying government debt).

    Yet the whole point of the Building Society was that the savers invest their money and it is lent to borrowers, and it is secured as mortgages on the borrowers’ respective properties. The ratio that I have heard used is 8 savers to 1 borrower, but now, with the flow of fiat money at low interest rates coming out of the Bank of England, the saver is superfluous, and is wasting his capital as it is inflated away at a rate below interest rates. Furthermore, the sheer scale of the property bubble is such that a typical property is priced at c. £350,000, and with a 25% deposit (and that is optimistic) that would mean that with an 8:1 ratio, there would be an average deposit balance of over £32,000 per saver but for the fiat tap. That sort of money simply isn’t out there. The Building Society has been taken over by (very polite) fiat Zombies.

    Extrapolate this over the whole country (adjusting for variations in local markets) and the scale of the distortion is vast.

  • Plamus

    Not sure anyone cares, but I had Anthony Davies in my junior and senior year in college – for Public Finance, Game Theory, and something else I forget, probably some elective. The man was prick, and did not teach any of this good Austrian stuff. When it became clear that 80% of Game Theory students could not take a simple derivative, he spent half the course teaching them that (calculus was a prerequisite), instead of flunking their dumb rear ends (most of them never got it anyway), and I had to sit there bored out of my mind and learn this stuff on my own. He would ask you as question, you’d answer, and he would just say “Tell me more.” And finally, just to give you an idea of the air of pretense about him – the dude was born in Georgia and grew up in Pensyltucky, but called himself Ant and sported a British accent. Ah, the good old days…

    None of this is to say that I do not agree with him on this, but he had his chance to change quite a few young impressionable minds, and didn’t.

  • Patrick Crozier

    “Patrick often asks a difficult question on this area of policy…..”

    Nice that someone – Paul no less – remembers. I find the idea that we have become another Japan far more frightening than the idea there might be another crash. Another crash might at least clear out some of the malinvestments.

  • Mr Ed

    Another crash might at least clear out some of the malinvestments.

    Yes, the crash is the good thing, the underlying reality asserting itself, the boom is the bad.

    And can we clear out Scotland malinvestment from the UK whilst we are at it with the independence commencement legislation passing Parliament? (OT, I know!). It just occurred to me that with Scotland set to leave the EU as part of the UK (as things stand), the SNP have at least salvaged something out of the 2014 Scottish independence referendum, since they are set to leave the EU, just as they would have done by 2016 had their ‘Yes’ vote prevailed in 2014. Then all they would have to do is leave the UK, with all the hard work on separation done and a dry run for independence.

    So why does that unkind remark about no one mistaking a Scotsman with a grievance for a ray of sunshine come to mind?

  • Paul Marks

    Japan still has lower government spending than we do in Britain – it is just very high compared to the relatively small government country that Japan used to be in the 1960s.

    Academics (and media types) wrote endlessly about the guidance of the Japanese government (MITI) gave to private industry – without noticing that the Japanese companies, such as Honda, ignored this guidance if it did not suit them (for example Honda was told not to make cars, to stick to motorcycles, and then ignored the guidance).

    The academics (and so on) ignored the real reasons for Japanese success in the 1960s.

    As for the future – bad.

    But not just for Japan – bad for everyone.

  • Shlomo Maistre

    Evil Federal Reserve!

    I’m reminded of that legendary Maistre line:

    People complain of the despotism of princes; they ought to complain of the despotism of man.

    Joke prediction: if we had a more democratic system of governance we’d be able to vote ourselves out of the continuous printing of money and growing of our debt.

    Serious prediction: less than 10% of Americans if stopped randomly on the street would be able to spell the word fiat and accurately define it.

  • Shlomo Maistre

    Democracy is what has led to the most enormous sovereign debt crisis in human history. The pure gall and utter foolishness of those who think as Churchill did that democracy “is the worst form of government except for all the others” astounds me more and more every day.

    99% of modern Westerners are unable to make competent arguments in favor of most sovereign actions in Western history. How many even here can make competent arguments in favor of the Roman Senate in 27 BC granting Octavian the title of Augustus, which was a religious title vesting spiritual authority over humanity? Virtually no modern mind can make competent and compelling arguments in favor of the benefits and overall goodness of the Spanish Inquisition, the Salic Law, the Christian Crusades, Roman lex non scripta, or feudalism. And yet, these are the sovereign actions that literally FORMED the foundation of Western civilization. Thus, since they cannot explain why the actions that created the West were undertaken, it’s logical to conclude that modern Westerners are hardly able to explain why the Western civilization they inhabit was created at all.

    Indeed, when you cannot make competent & compelling arguments in favor of positions with which you disagree even though those arguments do exist in dusty old books printed before Thomas Jefferson whined about equality, you do not understand the issue – and are probably wrong about it or are at least in firm possession of the wrong reasons for happening to be correct on the matter. Modern Westerners thoroughly do not understand the fundamental actions (Crusades, Inquisitions, laws of primogeniture, feudalism, etc) that make up the bulk of the history of their civilization.

    Collective punishment is what happens in reality. No single individual except by extraordinary miracle gets the precise quality of governance he deserves but generally whole peoples, entire nations get more or less the government they deserve over the long run.

    And boy oh boy are people going to fucking get it. Pass the popcorn and a bucket for crocodile tears.

  • Shlomo Maistre

    In all seriousness, I don’t think there are even ten thousand Americans who are capable of writing essays opposing Joseph de Maistre’s defense of the Spanish Inquisition that Joseph de Maistre would if he were alive today find to be comprehensible and competent (to say nothing of persuasive!). Well over 99% of the 300 million essays written by Americans in response to Maistre’s great work would be regarded by Maistre as a mother regards her son a toddler who while TRYING SO VERY HARD to walk trips and falls: genuine sympathy, a bit of pity, and perhaps a pinch of detached amusement.

    Modern Westerners are intellectual toddlers unworthy of the providence of our forebears. We’ll get what we deserve.

  • Paul Marks

    SM

    The people may be to blame for many things – but Central Banking is not one of them.

    The people have never voted for this madness – the educated elite have imposed it. Just as the educated elite created the various government services and introduced them – there were never mass demonstrations with signs saying “We want government education [or whatever] and we want it now!” King Frederick the Great (and a century later) Royal Minister Bismark invented all these government education, poverty, old age and health services and then the people were taught to expect them.

    Frederick the Great did not have elections. And (a century later) Bismark ignored the Prussian Parliament and increased taxation without its consent.

    As for you SM, you have repeatedly said that you do not believe in natural justice (natural law) and support only the will of the ruler. You, essentially, adopt the “philosophy” of Thomas Hobbes.

    Therefore when the King sentences you to death (because the King happens not to like you) you have no grounds upon which to complain. And no one to complain to.

    Even Hobbes (although not Jeremy Bentham – who, in some ways, was even more demented) accepted that an individual would (and should) struggle on the way to their execution. But it never occurred to him that someone else would seek to help the person being executed (executed because they had red hair, or brown eyes – or because the King happened to not like what colour jacket they were wearing) – as one person having a moral duty to help someone unjustly attacked was not part of the philosophy of Mr Hobbes, as Thomas Hobbes had redefied the very words “law” and “justice” to mean nothing more than the will of the ruler (he was like weasel – sucking out the content of traditional concepts and leaving only the empty shells).

    Now be off with you.

    You, by your own repeated statements, reject the traditional concepts of “law” and “justice” (you treat them as Hobbes did).

    You have no grounds upon which to reject the judgement of the ruler (for example his judgement to burn you – because he happens not to like you) – and no one to complain to.

  • Shlomo Maistre

    Paul Marks

    You seem upset. Upset in the sort of way a child is upset when his father points out something about how the world IS that does not correspond to how said child believes the world OUGHT TO BE.

    Do I think there OUGHT to be natural justice, individual rights, personal liberty? Sure. I also think there ought to be chivalry and unicorns.

    If you would kindly reread my statements you would notice that I made predictions about what reality IS (plus predictions for what reality will be in the future) but I made not a single statement about what OUGHT to be.

    You say I’d have no right to complain if the King sentences me to death for not liking me, which reveals just how far your so-called principles extend: happy to extend them to protect those who think, as you do, that unicorns exist but not those who happen to notice an aspect of reality that disrupts your perfectly curated interpretation of reality. Your hypocrisy is nothing if not expected, though: the despotism of man knows no bounds.

    Furthermore, if you presume that based on my analysis of reality I denounce my rights to complain or would expect someone who repeats verbatim my observations to do likewise, then you are mistaken. On top of your hypocrisy, this is a case of projection. You are projecting your clumsy and not exactly nuanced way of thinking onto me.

    And it is human to lash out at those introducing us to aspects of reality we wish not to be acquainted with. Emotional responses to observations of reality indicate intellectual maturation. Buddha is upset at nothing, after all – but you should already know this because, as you surely know:

    les limites de la connaissance sont celles de sa nature

  • Shlomo Maistre

    that I made predictions about what reality IS

    Should say:

    that I made statements about what reality IS