Somebody who's better at math than I am, tell me if this makes sense...
Three Solutions To The Debt Crisis That Don’t Require Raising The Debt Ceiling
October 14, 2013 in Economics
Based on the following premises:
1. The national debt is not an obligation to pay value, it is an obligation to pay money.
2. The government has the authority to create unlimited money out of thin air. The Federal Reserve was created by the government, and derives it’s authority to create unlimited money from the government. If the government does not have the authority to do this itself, then how were they able to delegate that authority to a central bank?
3. The government can make, change or ignore any rule they want as long as they declare national security.
There are at least three ways for congress to “pay their bills on time” and not become “a deadbeat nation” that don’t require borrowing any more money and would spare the American people another crisis over the debt ceiling.
Inflation without negative consequences
Right now you’re saying “inflation is bad because it raises the price of goods and services!” Yes, but the price increase is offset by the fact that there’s more money available to buy these goods and services in the first place. “But inflation is bad because it devalues the money!” but there’s more devalued money than there was before, so the overall value in the economy stays the same. It’s called equilibrium.
Here’s a thought experiment to explain why inflation is bad. Suppose there were only three people in the world, and thay had six dollars between them. The first person has one dollar and therefore controls one sixth of all the wealth, the second person has two dollars and therefore controls a third of all the wealth, and the third person has three dollars and therefore has half of the economic “pie” to himself:
Now suppose you’re the government and you owe the third person a debt of three dollars. You create three dollars out of thin air, and give it to the one who has three dollars. He now has six dollars, while the other two still have one dollar and two dollars. His slice of the economic pie has grown, while the other two slices have shrunk. The other people have become poorer even though they still have the same number of dollars as before. This is how the federal reserve banks use inflation to make you poor.
Now suppose that you don’t want to lower anybody’s standard of living, but you still have to give three dollars to person three. If you did the same thing as before, but at the same time gave $2 to person two and $1 to person one, then person three will be no richer compared to everybody else than he was before, even though he has three more dollars, yet your debt is still paid in full.
Notice that you can slice a pie anyway you want, but no matter how small each individual slice gets there’s still the same amount of pie overall. Inflation cannot destroy real value, it can only move that value from one person to another. It doesn’t matter how much money the government has to pay, there’s a proportional amount of money that can be given to each other person on the planet that would cancel out the new money created to pay the debt, which can be determined by this formula:
a = how much money the creditor will have after being paid the new money
b = how much money the creditor has now, before the debt is paid
m = how much money the person in question has
You say that people will empty out the store shelves with their new money? Not if everyone multiplies their price by a/b. If the government can force companies to pay their employees a minimum wage, then they can also force companies to give everyone a one time raise, multiplying their wage by the same amount as the prices. The companies can afford to pay the higher wage because they’re selling at higher prices, which consumers can afford to pay because of the new money they were just given, and they will be able to afford it later because of the wage increase. The wage to price ratio remains unchanged, the national debt goes to zero, and the government can now afford to drastically cut taxes. It would be a minor inconvenience compared to inevitably defaulting on the national debt.
Inflation with positive effects
It may be difficult to know how much money to send everybody if you don’t have a way of knowing exactly how much they have. But if you have a rough idea of how many dollars there are in existence, then it would be easy to think of everybody as a single sum of money for the purposes of the formula, then divide the result by the number of people and pay everyone that same amount.
Let’s examine what happens when you create money out of thin air and actually divide it up equally among everybody, instead of giving it all to fat cats in smokey rooms. Imagine there were only two people in the world. The first person only has one dollar. The second person has three, and is therefore three times richer than the other person.
Now create two more dollars, increasing the money supply by 50%. But instead of giving both dollars to the richer guy, which creates the type of inflation everybody hates, give one dollar to each person. The first person now has two dollars, and the second person now has four which means he is now only twice as rich as the other guy. The poor person’s slice of the pie has grown at the expense of the richer person, because his net worth has doubled while the rich guy’s only went up by a third.
But won’t getting free money make people lazy? Well first of all which is the bigger problem, lazy people getting stuff for free or honest, hard working people not being able to earn a living for themselves? When someone living off welfare gets money without working for it, that’s still money that you have an opportunity to earn when they spend it at your business, then that money ends up in your pocket to be earned by others. That free money stimulates and grows the economy by rewarding honest hard work even if it’s original owner didn’t work for it. Giving people money one time to compensate for the devaluation of the money they already have doesn’t create anywhere near as much dependence as giving them a fixed amount each month.
Instead of giving that money to people outright, the government could pay everyone’s debt up to that amount of money, then give them whatever is left. That way the national debt could be paid in full, and at the same time people can start spending and earning money again in a more balanced economy without punishing those who were more responsible with their money in the past.
Debt forgiveness via National Security
If the government became insolvent during an ecomonic depression and could no longer pay welfare and social security, the American people might become so poor and hungry that it might cause riots, which would make us vulnerable to terrorism. Therefore, if the government can declare national security to override the Constitution, then the government can also declare national security to forgive their own debt.
So remember the government has other choices. They don’t have to increase the national debt in order to avoid default. They want to raise the national debt and they’re using default as an excuse. Why would you have to borrow something you can create yourself? It is never in anybody’s interest to owe somebody else if it can be helped, because the borrower becomes servent to the lender. Therefore the national debt, and the government’s inevitable default, are both proof of the infiltration.