by tonytran2015 (Melbourne, Australia).
Click here for a full, up to date ORIGINAL ARTICLE and to help fighting the stealing of readers’ traffic.
#fiat money, #deficit, #sovereign debt, #inflation, #gold, #immigration, #carrying capacity, #environment, #war reparation,
1. Meaning of Fiat Money.
Fiat money is just “Coupons for paying taxes and receive government’s goods and service”. Calling it money is just an attempt by issuers to confuse it with real moneys (like gold or food). Fiat money should not be viewed as any kind of exchangeable natural valuables but as only coupons (with various half-lives) issued by each nation to its citizens to pay to that nation its taxes, services, and state supplied goods.
Once a nation (the taxing authority) ceases to exist, so do its coupons and its fiat money!
Former USSR, Eastern European Communist Countries were with systems of fiat money not unlike current USA is.
With enough reckless printing, “easy to print coupons” may become not appreciated by its citizens and that is when we say hyper-inflation occurs to that fiat money.
There is NO MAGIC in wealth creation with printing fiat money.
2. National Yearly Budget.
Every year a sovereign government collects its taxes and pays its contractors and employees with its own “fiat money” (coupons). This is specified in its budgets. The yearly budget specifies:
Total expense (total coupons handed out during the year) which is the sum of
e1/- yearly expenses on contractors and employees,
e2/- dispense of coupons on “treasury bonds” maturing in the year.
Total income (total coupons collected in the year) which is the sum of
i1/- yearly income from tax collection (total coupons collected during the year from taxes),
i2/- collection of coupons from the issuance (sale) of “treasury bonds” which are redeemable after various specific dates in the future, and
d/- yearly addition of coupons (newly printed coupons issued during the year).
The total payment often exceeds the total income by a wide proportion and is called the deficit for the year. The deficit is equal to the amount of total expense minus the amount of total income.
Total Expense = Total Income + Yearly Deficit.
The deficit may cause uneasiness among citizens. However the deficit is of no real concern as long as the nation can continue to operate.
3. Dealing with deficits.
The sovereign may deal with yearly fluctuation of the deficit by issuing “treasury bonds” (i2) having redeeming dates on years with anticipated surplus (e2).
On the other hand, pertinent deficit is dealt with by one or a combination of the following methods:
d1/- Print new coupons to quitely devalue the existing coupons at some target rate such as 2% per year. In principle, printing an additional 2% of existing amount of coupons per year plus issuing an additional 2% of existing amount of “treasury notes” per year should cause only a loss of 2% per year of values of existing coupons. A nation with high amount of coupons in circulation and large amount of issued “treasury notes” can print large amount of coupons as well as issue large amount of additional “treasury notes”.
For USA, as of June 10, 2020, there was $1.91 trillion worth of Federal Reserve notes in circulation ( https://www.federalreserve.gov/faqs/currency_12773.htm ) and 25.986 trillion in Public Debt (https://treasurydirect.gov/govt/reports/pd/pd_debttothepenny.htm), this 2% inflation target allows the printing of 38 billion worth of additional Federal Reserve notes for that year and the issuance of 520 billion worth of additional Government Debt.
The costs are to be born by holders of Federal Reserve notes and of US Government Debts (including Treasury Bonds, Treasury Notes and Treasury Bills). These holders include other sovereign governments holding US dollars just for international trading and investments. This is called the “exorbitant priviledge” of the issuer of US dollars (https://en.m.wikipedia.org/wiki/Exorbitant_privilege). Foreign sovereign governments would be better off using gold for international trading, and there is now some movement for that.
d2/- Use gold from national treasury to buy (import) most common goods to sell to citizens to stabilize their prices in order to give the feeling that the coupons still hold their own validity. This solution to a pertinent deficit will finally exhaust the gold holding of the nation. This is also known as using gold to support currency.
d3/- Use part of national output to buy (import) most common goods to sell to citizens to stabilize their prices in order to give the feeling that the coupons still hold their own validity.This solution to a pertinent deficit requires the nation to have an ever growing output. Greenies may object against this method of having ever growing outputs.
d4/- Allow massive immigration in the hope that new migrants will contribute to future income from taxation (https://www.cbo.gov/publication/55967).
Immigration increases total economic output, though not necessarily
output per capita. It also affects the federal budget through the taxes
that foreign-born people pay and the government programs in which they
This method may backfire badly if the new migrants don’t want to pay taxes (https://www.theglobeandmail.com/opinion/swedens-ugly-immigration-problem/article26338254/).
Questioning the consensus is regarded as xenophobic and hateful. Now all of Europe is being urged to be as generous as Sweden.
So how are things working out in the most immigration-friendly country on the planet?
Not so well, says Tino Sanandaji. Mr. Sanandaji is himself an immigrant, a
Kurdish-Swedish economist who was born in Iran and moved to Sweden when
he was 10. He has a doctorate in economics from the University of Chicago and specializes in immigration issues. This week I spoke with him by Skype.
“There has been a lack
of integration among non-European refugees,” he told me. Forty-eight per cent of immigrants of working age don’t work, he said. Even after 15 years in Sweden, their employment rates reach only about 60 per cent.
Sweden has the biggest employment gap in Europe between natives and
Even if the new immigrants are willing to work and to pay taxes, this solution to a pertinent deficit may brings to the nation a population replacement or may make the nation exceed its own carrying capacity and ruin its own environment.
d5/- Provoke wars against weaker countries to win over them and force outrageous war reparation on them (https://en.m.wikipedia.org/wiki/War_reparations).
. Your fiat money (Part 2), https://survivaltricks.wordpress.com/2017/01/12/your-fiat-money-part-2/.
Added after 2020 July 11th.
New? Cranks? Reading one of the founders of neoclassical economics, Knut Wicksell, and what he writes in 1898 on ‘pure credit systems’ in Interest and Prices (Geldzins und Güterpreise) soon makes the delusion go away:
… It is possible to go even further. There is no real need for any money at all if a payment between two customers can be accomplished by simply transferring the appropriate sum of money in the books of the bank …
A pure credit system has not yet … been completely developed in this form. But here and there it is to be found in the somewhat different guise of the banknote system …
We intend therefore, as a basis for the following discussion, to imagine a state of affairs in which money does not actually circulate at all, neither in the form of coin … nor in the form of notes, but where all domestic payments are effected by means of the Giro system and bookkeeping transfers.
PREVIOUS MONEY Blogs
Your fiat money (Part 2), Your fiat money, Bankers given outrageous incomes by their boards, Signs pointing to an impending crash for small investors, Bankers earn more than interest margin on secured loans.
Click here for my other blogs.