for those that think we can just print our way out of debt...

The amount of U.S. Treasury debt right now is about 20 times the amount of money currently on the U.S. Reserve Bank's balance sheet. If, completely hypothetically, the U.S. tried to print its way out of debt, guess how high the inflation rate would be. Do the math.

I'm guessing a 2000% inflation rate.

And it better be all at once, because otherwise, when it comes time to start reservicing part of the debt, lenders are going to demand higher interest rates to compensate them for the expected inflation. You can't print your way out of debt when you're having to pay interest rates higher than the inflation.

I'm sure this would all ruin the country's credit rating, once and for all. But hey, this is entirely hypothetical. Also a bunch of old people would suddenly find they had no retirement savings after the Treasury bonds in their investment portfolios became worthless. So yes, the country would never be able to borrow money again (except at exorbitant interest rates) and old people would lose their pensions.

 

Why do you say 2000%? If GDP is 20 trillion and debt is 20 trillion and you printed 20 trillion that would only double prices-right?

 

No. The value of money results from 2 fundamental factors: The amount of money in circulation and the value of assets backing it. In the case of the U.S. dollar there are 2 different forces indirectly backing it: The assets on the U.S. Reserve Bank's balance sheets (pretty much mostly debt, primarily U.S. Treasury bonds and residential mortgage equity) and the power of taxation (since all taxes have to be paid in the form of U.S. dollars).

So it is true, very indirectly, that GDP change has some effect on the amount of inflation, but that's only part of the story.
If you double the amount of money outstanding issued by the Reserve Bank without a corresponding increase in the value of reserve assets held on the Reserve Bank's balance sheet, that would result in 100% inflation, at least theoretically, with each monetary note now being worth half as much.

Of course, buying Treasury debt is more complicated, but we're assuming the Reserve bank is paying higher than natural market rates for them, since this thread is about "government printing its way out of debt", hence the inflation. Basically the Reserve Bank is subsidizing government borrowing, but that cost falls in the form of inflation.

Another little fact, the reserve assets held by the Reserve Bank have to achieve a "natural market return rate" (going rate of return on capital in general) otherwise that will result in inflation too. It's not enough that the bank's assets backing the dollar simply increase in value, they have to keep pace with the going interest rates in the economy, if you want to avoid inflation. Otherwise, if you want to look at it this way, why would any rational investor hand over their assets in temporary exchange for dollars to the Reserve Bank? They'd be forfeiting a return on their money. The Reserve Bank can't make them do so willingly, in such a situation, without paying a surplus of more than those assets are worth, which ends up causing inflation. So basically, what I'm saying, is the Reserve Bank can't enjoy free money from the interest accrued on the assets they hold. This should be naturally intuitive on a basic level.

I know an element of this can seem a little paradoxical, but look at it this way: The surplus that the Reserve Bank has to pay when buying assets correlates to the amount of interest return which will be accrued on those assets, if the value of the dollar is to remain unchanged.

 

We can just print our way out of debt, correct.

There is no sense in making the working poor and middle class pay the rich for these transfer payments.

Just give the rich back greenbacks for their T-bills and T-bonds and let them go on a buying spree with them. They can buy whatever they want. They can buy in the USA or in Canada or in Europe.

It is more relevant to stop the bloodletting first by capping Federal expenditures and eliminating waste like the HUD etc.

Then once the budget deficits are plugged, then the debt can be repaid with freshly printed greenbacks.

 

Inflation assumes that the rich would take their greenbacks and buy up things that the working poor and middle class need or want.

The rich never do that. They hoard their cash instead.

 

Another question that could be asked, is what has more of an effect on the value of the dollar, the size of the economy or the reserve assets backing it? The Fed's balance sheet is about $4.5 trillion, while the annual U.S. budget is $3.3 trillion (not including the additional amount that constitutes the budget deficit, which I didn't count because that's pretty much being bought up by the Fed).

 

Theoretically that shouldn't matter. Rational investors would account for all money outstanding when making decisions. Reality is that what you are saying has some truth to it, since people in a market do not behave rationally. So if there were huge hoards of cash, the value of the dollar could be drastically overvalued (from an investment perspective).

 

We basically did print our way out of the massive debt from WWII until Reagan screwed it all up:

 

Investors especially on Wall Street are not "rational".

They follow fads.

 

Yup -- just as I thought -- if you look closely at the graph data this is all Reagan's fault.

Reagan was the American Adolf Hitler who remobilized the US military with deficit spending just like Adolf had in Germany in the 1930's.

 

1) if you look at graph you see debt turned up starting in 1965 or so. Reagan was not until 1980
2) Republicans have always wanted to make debt illegal but Democrats have killed each and every effort.

do you understand 1 and 2 above?

 

The US dollar is not backed by assets. It is backed by the full faith and credit of the US Government. Where did you get the idea that we have assets behind each dollar? Do you know what fiat money is?

 

The US dollar is not backed by assets. It is backed by the full faith and credit of the US Government. Where did you get the idea that we have assets behind each dollar? Do you know what fiat money is? I have a task for you. Take a 100 dollar bill to the US Treasury and ask for that same value in whatever assets you think they have backing it. You will get another 100$ bill.

 

We defaulted on our debt in 197, then Nixon closed the gold window.
Next

 

Actually it is, sort of. Most people are not aware what a bank note is, nor that the U.S. dollar is actually a bank note (or form of bank note).

Basically, commercial banks are forced by law to hand over a share of their assets in exchange for Federal Reserve Bank notes (i.e. dollars). To get their assets back, they need dollars. So even if banks started using, say, Bitcoins with their customers instead of dollars, theoretically they would still need U.S. dollars to be able to operate commercially in the United States.

Now, reality is the vast majority of these assets are actually just other forms of debt, but in a very indirect sort of way this debt does actually represent tangible assets. When we're talking about Treasury debt, that really can seem like a circular logic argument (Federal Reserve notes backed by Treasury debt, Treasury debt backed by future promises to pay more Federal Reserve notes) but the picture does become a little more clear when we talk about mortgage equity. Ultimately people don't pay their mortgages, a portion of those houses could be seized by the Federal Reserve Bank, even though the mortgages were made through another large bank, and that bank will need to get ahold of some actual U.S. dollars to reclaim its mortgage equity it put up for collateral. So theoretically, the U.S. dollar is backed by something (at least part of the U.S. dollar).

Well that's sort of true, but you have to know what "full faith and credit" actually means in this context. It means the government will accept dollars to settle debts, be that a monetary penalty in a lawsuit or taxation.

 

Debt as a percent of the GDP which is what is most important it didn't begin to really rise until 1982 not 1965.

 

I think the point is that Republicans want to make debt illegal and Democrats kill every effort to do so because they always need to make more welfare available in order to buy more votes Do you understand

 

Can't be too horrible since 200 million of us now have smart phone supercomputers in our pockets at $140 a month

 

The magic of exponential growth made possible by a 100% fiat currency that started with Nixon closing of the gold window in 71

 

With a mean income of $50k, an average car price of $33k, and average home prices over $250k, screaming that government needs to provide our healthcare

 

What?? We spend $600 billion on our pets a year?

 

LOL, the debt has grown faster under every Republican president with the exception of Obama partially because of the recession. Now you guys are planning increasing military spending, 1 trillion of infrastructure spending, and big tax cuts mostly for the rich. I mostly hear about Republicans complaining about the debt when a democrat is in office.

 

Paper money is all crap.

The Feds can print more paper money and give it all back to the rich bastards who are receiving transfer payments called interest.

Then the rich fat bastards can think of something else to do with their printed crap.

And they can get off their lazy fat coupon clipping azzes and get a job.

 

I think you miss the ultimate source of value for the dollar. You correctly explain that an asset at the Fed is either a note, real estate or some other form of debt instrument. However, every single one of those assets is a form of the US dollar one way or the other. The real estate you mentioned is really just the collateral for debt instruments taken on by the FED to rid banks of unworthy assets. They bought back lousy loans to clean up banks liquidity. The FED is not going to give you land in exchange for your dollar. In order to understand this concept you must understand the old gold era where a federal note (dollar) was redeemable on demand for its gold value. Some notes were backed by silver but in that era, all US dollars were exchangeable for a hard asset. That is not true today therefore the only thing you will get in return is another note or dollar.

 

of course if true you would give me yours. See how easy it is to defeat you?