-->Why the above is so can be gleaned by looking at a few figures. Total US debt (private + public) is presently about US$32 trillion, but the total supply of US dollars is only about $9 trillion. This means that if every US dollar in existence was put towards the repayment of debt the average creditor would only receive about 28c on the dollar. Also, if we assume an average interest rate of 6% on the $32T of debt then the annual interest bill is about US$1,900 billion. However, the increase in the total US money supply over the past 12 months was 'only' $420 billion. In a nutshell: there is nowhere near enough money in existence to pay-off the current debt and there is nowhere near enough new money created each year to even pay the interest on the debt.

But isn't the above an argument for massive deflation?

-->>Why the above is so can be gleaned by looking at a few figures. Total US debt (private + public) is presently about US$32 trillion, but the total supply of US dollars is only about $9 trillion. This means that if every US dollar in existence was put towards the repayment of debt the average creditor would only receive about 28c on the dollar. Also, if we assume an average interest rate of 6% on the $32T of debt then the annual interest bill is about US$1,900 billion. However, the increase in the total US money supply over the past 12 months was 'only' $420 billion. In a nutshell: there is nowhere near enough money in existence to pay-off the current debt and there is nowhere near enough new money created each year to even pay the interest on the debt.
>But isn't the above an argument for massive deflation?

Hallo, @CG,
Kredit und Zinsen (wenn fällig) können nur aus laufendem Einkommen (Zinsen vor Steuern [nur bei Unternehmen] Tilgung nach Steueren) bzw. Cash Flow nach Steuern (zurück)gezahlt werden. Cash Flow (individueller) kann auch durch Verkauf von assets oder der Belastung von assets generiert werden.

Umlaufende USD (M1, M2) im Verhältnis zu bestehenden Schulden sind Zeitpunktgrößen und sagen nichts darüber aus, ob diese (bei Fälligkeit) bedient werden können.

Du hast einen USD in der Tasche. USD 10m Schulden - nicht fällig. Kein Problem.

Du hast einen USD in der Tasche: USD 10m Schulden - fällig eine m. Nun hast Du ein Problem, falls Dein laufendes Einkommen (nach Steuern) diesen Betrag nicht generiert oder Du die fälligen USD 1m nicht durch Verkauf oder zusätzliche Belastung Deines in SA beschaffen kannst.

Auf dem Sprung -
Grüße

Wie sagt @dottore immer so schön: Money is Credit - but not all Credit is Money. Ich bin zwar immer noch nicht ganz bei ihm, aber hier hilfts beim Nachdenken.

-->>>Why the above is so can be gleaned by looking at a few figures. Total US debt (private + public) is presently about US$32 trillion, but the total supply of US dollars is only about $9 trillion. This means that if every US dollar in existence was put towards the repayment of debt the average creditor would only receive about 28c on the dollar. Also, if we assume an average interest rate of 6% on the $32T of debt then the annual interest bill is about US$1,900 billion. However, the increase in the total US money supply over the past 12 months was 'only' $420 billion. In a nutshell: there is nowhere near enough money in existence to pay-off the current debt and there is nowhere near enough new money created each year to even pay the interest on the debt.
>>But isn't the above an argument for massive deflation?
>Hallo, @CG,
>Kredit und Zinsen (wenn fällig) können nur aus laufendem Einkommen (Zinsen vor Steuern [nur bei Unternehmen] Tilgung nach Steueren) bzw. Cash Flow nach Steuern (zurück)gezahlt werden. Cash Flow (individueller) kann auch durch Verkauf von assets oder der Belastung von assets generiert werden.
>Umlaufende USD (M1, M2) im Verhältnis zu bestehenden Schulden sind Zeitpunktgrößen und sagen nichts darüber aus, ob diese (bei Fälligkeit) bedient werden können.
>Du hast einen USD in der Tasche. USD 10m Schulden - nicht fällig. Kein Problem.
>Du hast einen USD in der Tasche: USD 10m Schulden - fällig eine m. Nun hast Du ein Problem, falls Dein laufendes Einkommen (nach Steuern) diesen Betrag nicht generiert oder Du die fälligen USD 1m nicht durch Verkauf oder zusätzliche Belastung Deines in SA beschaffen kannst.
>Auf dem Sprung -
>Grüße
>Wie sagt @dottore immer so schön: Money is Credit - but not all Credit is Money. Ich bin zwar immer noch nicht ganz bei ihm, aber hier hilfts beim Nachdenken.

Hallo Popeye,

danke für Deine Antwort hier ist die Antwort des Authors:
No, in a world in which there are no constraints on the amount of new money that can be created 'out of thin air' it's an argument for inflation as far as the eye can see. The crux of the matter is this: when you create a"Ponzi scheme" -- any scheme where money coming in from new investors is needed in order to meet the commitments made to current investors -- the scheme can't continue to function unless the new money keeps coming in at a fast enough rate. Once the rate of in-flow slows the scheme doesn't just experience a hiccup, it collapses. This is because the first failure to fulfill a promised return exposes the true nature of the scheme.

The current monetary system is effectively a Ponzi scheme whose survival relies on the total supply of credit and money -- the so-called US$ short position -- continuing to expand (the way the system is designed there can never be enough money to pay-off existing debts). So, don't expect that the major stakeholders in the system (the US Government, the Fed, the commercial banks, the GSEs, the money-market funds, the Wall St financial houses) will decide to just hunker down and weather a brief period of deflation. That's really not an option for them.

But if US consumers decide to stop increasing their debt loads or, heaven forbid, decide to start REDUCING their debt loads, what could be done to prevent a contraction in the total supply of credit?

At this stage there is no evidence that the credit expansion is about to go into reverse, but if a slowdown in credit growth did begin to become an issue then the Fed could follow through on its promise to push down long-term interest rates via the large-scale buying of bonds. The Fed would not necessarily limit itself to US Government bonds but might, if it perceived that the situation warranted more drastic action, also buy large quantities of agency debt and asset-backed securities. The likely SHORT-term effects of such action on the part of the Fed would be a) a reduction in the interest burden of US consumers, b) another mortgage re-financing binge, c) a monetary injection into the economy, d) higher inflation expectations, and e) a weaker dollar.

There are other ways to ensure a continuation of the inflation trend in the event that genuine deflation becomes a real threat, but the Fed's ability to monetise unlimited quantities of debt is by far the most potent inflationary weapon in the arsenal. A central bank that takes the 'printing press route' never has any trouble devaluing the currency. Instead, the problem they always end up having is figuring out how to prevent inflation expectations from spiraling out of control.

Something else that needs to be considered is that there is no precedent throughout history of a country at war experiencing deflation. The US is presently at war, the only difference being that this war is not being fought against a specific enemy. Rather, it is being fought against a methodology (terrorism). The nature of this war most likely prevents it from being won by military means, but this detail isn't stopping the US from TRYING to win it by military means.

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