my connection with the tea party

[Jester]

Can I borrow $10000 from you then. I promise to pay you back in fertilizer eventually. The good news is that people will think twice about buying our debt, making it harder for us to deficit spend.

I will always lend you money, provided you pay me an interest rate commensurate with my risk, including sovereign risk. So, if you want to pay me back in fertilizer, I'm going to want a hell of a lot of fertilizer. But once I *have* lent you money, I have accepted the risks.

If investors think twice about buying your debt, that just raises the price of debt - the interest rate. It won't stop you from borrowing, it will only make it more crippling to service. There is no plausible scenario where literally nobody buys US debt at any price. People still traded old Tsarist debt into the 1930s, just at a very high premium. Bondholders are weird.

It is odd that you would be adamantly against the US returning, at least partially to a standard, since the EU, and many other nations still have a standard or a partial standard.

No. The Euro floats freely. To what is it pegged? Nothing. They hold reserves, some of which are in gold, but that is not the same thing at all. A gold standard fixes the *price* of a currency to gold, come what may. Gold reserves just mean that, if necessary, gold is one of the commodities than can be sold to cover obligations. Also, it would not be odd for me to oppose EU policy, or the policy of many nations. Why would it be?

I stand with the vast majority of economists and especially economic historians - a return to the gold standard would make the world once again vulnerable to a great depression, and that this should be avoided at almost any cost.

I'm not sure we're out of the woods yet. It feels like the tension from 2008 has been coiled up and needs to be relieved or something will snap again. The mathematician in me wants the equations to balance, and I don't sense that it's happened. By printing money, the US is relieving some of that pressure, to the detriment of bond holders, and especially onerous for our relationships with our foreign bond holders with $4.5 billion (China, OPEC, Japan, UK, Canada, Brazil, Taiwan, Russia, Switzerland, etc).

The "detriment to your bondholders" is entirely expressed in inflation - which has been notably absent from the current situation. The US dollar has weakened some internationally, but not critically, and probably not as much as it should, given the trade deficit.

Bondholders take their chances when they buy treasuries. And so far, they're still buying, and at amazing prices. Neither inflation risk nor sovereign default risk have lowered the price of US debt recently. Quite the contrary, the US can still borrow at historically low rates.

I suspect at some point when and if the economy turns around, that we will see an unprecedented period of inflation to account for the rapid increase in dollars flooded into the market. If inflation is the result of too many dollars chasing too few goods, then we have half that equation covered. All we need is a return to 2008 demand. Currently, if you look at manufacturing inventory and sales charts, you'll see they are at <50% of 2008 levels.

Manufacturing inventories *should* be lower than 2008. That's the whole naive model of a demand-side crash - sales drop while purchases do not, leading to an increase in inventories, a decline in profitability, and an end to new orders. Recovery happens when inventories are finally sold, and new orders start to go out again.

We'll see what happens in the future with inflation. But at present, and ever since the crisis, it has been shockingly mild, by historical standards. Not only are we (across almost all first world countries) not in an inflation crisis, we are in a period of abnormally low inflation.

Here is a good chart on M3, and linkage to inflation. http://nowandfutures.com/key_stats.html

I can't speak to their methodology, but the site itself is pretty nutty. Why on earth is a site about economic indicators telling me that chemotherapy doesn't work? These people sound like cranks.

Since 2008, the total money supply has increased from $3.5 trillion to over $11 trillion. You must expect the price of goods and services to quadruple in response.

First, read the chart, any chart. Even in your own link, M3 has only gone from about 12 trillion to about 14 trillion in the period you describe - nothing even close to tripling. From wikipedia, looking at M1, it's hardly moved the needle, and M2, while increasing constantly, has not tripled, unless you're measuring from Ronald Reagan's first term. QE and QE2 were big, but not THAT big.

Second, even if you're right (and the data say otherwise), it would be a little over triple (314%). Even then, no, because the whole point of "quantitative easing" is not just to change the denominator, but also the numerator - the economy grows, because a shortage of secure substitutes for cash is being fixed, freeing up liquid assets for new investment.

But, accordingly, wages will follow as people cannot afford goods and services. It all depends on how much money they print though. They've screwed debt holders out of 2/3rds of their money, that must have repercussions for the lenders (perhaps bankruptcy) and their willingness to lend more money in the face of such an eroding value.

Where are you getting this? Bondholders can still buy just about the same amount of US goods and services as they could buy at the beginning of the crisis - core inflation is low to very low. Their value in international currencies has dropped somewhat, but not critically, and not against its major competitors, the Euro or Renminbi. They *certainly* haven't lost 2/3 of their value, or else, why the hell are people still buying them at sky-high prices? (Unless, of course, you measure everything exclusively by the value of gold, in which case, the global economy itself shrunk about 2/3 in the same period!)

-Jester