"I have no idea how you pay down debt with newly created Treasury notes and then simultaneously destroy a Fed note (one for one)." Wenzel

Uhhhh, really? This pretty much says it all. Not a clue that money is debt, and therefore, not a clue how we can escape the debt money system.

We promise to pay the 15 trillion dollars in debt over the next thirty years just like a foreclosed homeowner; that's only a 500 billion dollar surplus each and every year. Do you see this happening before another wmd war or bailout?

In more important news, when does Barry begin his 17 day vacation in Hawaii? I thought Republicans were for tax cuts before they were against tax cuts.

Who the **** is this DERRINGER fellow he's referring to?

Why even acknowledge a ****ing clown who doesn't even know your name?

**** that guy!

EDIT: You should refer to him as WEASEL, not Wenzel.

..."I have no idea how you pay down debt with newly created Treasury notes and then simultaneously destroy a Fed note (one for one)."

Wenzel just doesn't understand the plan. The above statement confirms this. The plan does not 'simultaneously' destroy Fed notes AND pay down debt. To the best of my knowledge...

1) The plan will destroy existing FED printing presses.
2) The old circulating FED notes will be exchanged for new US notes as they are filter through the banking system.
3) The Federal debt will be paid down gradually over decades with annual budgetary surpluses.
4) In addition to the new US notes that will replace FED notes, the US govt can print new US notes adding to the existing money supply in order to accommodate an expanding economy, as long as this does not result in price inflation. The govt will have zero tolerance for price inflation.

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3) The Federal debt will be paid down gradually over decades with annual budgetary surpluses.

Does anyone else besides me think this is at all possible through budgetary surpluses ALONE?

I ran the numbers in a previous post. Assuming 30 years to pay it off at an average interest rate of 5%, you need an annual budgetary surplus of a TRILLION dollars. That means taking in $1T of tax revenue MORE than you spend and use it all to pay down the debt...every year for 30 years. If you want to pay it down in 50 years, that only reduces the needed surplus to $816B. This is simple mortgage amortization calculations. And can we really assume interest rates can stay under 5% indefinitely?

I think printing to pay off the debt is simply unavoidable. The real question is not whether to do it, but rather how much of the debt should we print. And as I explained in the previous ticker, I'm not at all convinced that swapping a dollar of US debt with a dollar of newly created US Notes is immediately inflationary. The inflation associated with the US debt already occurred the moment the debt was issued.

Jsp, the TYX is 3% right now, and there's nothing preventing the Treasury from managing the curve to keep yield reasonable and low.

IF the market tries to play games there's always the threat of repression and/or outright printing. A "run" on Treasury is a loser for the markets in this sort of situation -- you've got a stable sovereign that's actually paying, so there's no reason to do it other than to try to force their hand, and the government has a nuclear response available it can use.

You're wrong on this; the blended rate will be well under 5% and in fact in the short term the dislocation will allow moving duration out at a very cheap price. That won't last but that's ok; duration matching is a primary function of the Treasury and they do it all the time.

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You're wrong on this; the blended rate will be well under 5%...

You're probably correct on this. But even if we assume that interest rates are at zero, that still means we need a $500B surplus every year for 30 years, or a $300B surplus every year for 50 years. I'm having a hard time imagining reducing our current deficit to $300B, let alone squeaking out any surplus, without causing massive disruptions to our economy and government. Obtaining a $300B or $500B surplus each year for an extended period of time, for me, is simply unimaginable. And remember, these numbers assume interest rates at 0%.

I still think that printing to pay off the debt is simply unavoidable. And I don't think doing so is really that big of a deal. Of course we still need to find a way to balance the budget (because we obviously can't print debt forever), so doing just that will be quite some feat.

There is no solution that doesn't involve cutting the size of the government in half, doubling taxes, or some combination.

That's a fact. If you don't deal with that then the rest doesn't matter. If you do then paying off the debt is possible.

Printing simply destroys people's standard of living. It has NEVER WORKED in the past and won't this time either. I tire of the same thing being spammed all over the forum on a repetitive basis going on FIVE YEARS now and there's a point where patience turns to simply slapping restrictions on those who keep running the same nonsense without any evidence for how their claimed "resolution" will actually work or what it will do, and why it's the choice that will be made (given those realities)

Bankrupting half or more of the nation (which is what that would do) leads to an civil war and/or revolution. Forget it.

While God is in the title, is what Wenzel is suggesting similar to how God created the world - with 10 breaths?
Shalom,
Don Levit

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Printing simply destroys people's standard of living.

I agree that printing is obviously inflationary and destroys people's standard of living, but only if you're not removing credit or currency dollar for dollar. But printing to pay off debt is different because you're substituting one dollar of debt with one dollar of new currency.

My argument is that the moment the US debt was originally issued and the money spent are the actual inflationary events and when people's standard of living gets destroyed. The debt is already out there and the inflation concerning that debt already occurred once the money was spent by the government. By swapping the debt with newly printed US Notes, then you're replacing the credit with currency and it's zero net inflationary.

On the contrary if we pay off the debt with existing FRNs in circulation, then that's actually deflationary. The amount of currency in the system remains unchanged while the debt vanishes.

I'm definitely willing to change my mind if shown why my thinking is wrong. This particular subject has been bugging me for years, and just haven't come across anything (yet) that would falsify my arguments.

The main problem in selling Bill Still’s plan is that those who are opposed, Wall Street, can easily construct false arguments against it. This is because at most 20% of the population has any idea of how money is created, and that 20% has for the most part a false view promulgated by text books that are in effect written by the Federal Reserve System.

It gets worse as most economists believe that reserves come first followed by money creation via lending. That is the few who believe that money is lent into existence believe that reserves come first often in the form of Treasury Bills, Notes, and Bonds.

That Renegade Economist from Australia, Professor Steve Keen, has proven that lending comes first and reserves follow.

So I conclude that less than 1% of the population understands how money is created in our system and thus the 99% can be swayed by the bankers against Bill Still’s solution.

A Federal Reserve Note is backed up by debt and that you can pay your taxes with it. A U.S. Note would be exchangeable in the marketplace for a Federal Reserve Note and could be used to pay your taxes. The only difference is that it would not be loaned into existence via a Treasury Bill, Note, or Bond but rather would be spent into the economy by the Federal Government’s purchases of goods and services. The vast bulk of the supply of money and credit would remain as entries in ledgers.

Although it would take decades to pay off the National Debt this way, it would work and would be no more inflationary than the current system as long as tax revenues remained at the same level and bank leverage remained at the same level.

If bank leverage was reduced and government deficits were reduced, there could be even LESS inflation under Bill Still’s proposal.

The issue Jsp is that the capital hole created by the original debt issuance is being covered by the circulation. You print to cover it and the capital hole becomes realized. This cannot be done en-masse without massively disruptive effects.

Attempting to maintain the overinflated levered state is an error. It both can't work and will trash people once the liquidity bubble drains. We HAVE TO deflate that bubble -- yes, that's deflation from where we are now, but where we are now is massively inflated with circulation holding up the other side of the equation from the consumer's side. When that circulation collapses half the population starves.

Karl, The one thing that I'm trying to completely understand is the gold and silver legal tender thing.

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Further, the prohibition in Article 1 Section 10 applies to The States; it forbids States from issuing anything other than gold and silver coins.

No state shall coin Money but it sounds like they do have the power to make something legal tender.

The Constitution says that no state shall make anything but gold and silver coin a tender in payment of debts.

So wouldn't you have to at least pay your state taxes with gold or silver coins? Are legal tender laws state or national laws? Since the Constitution provided guidance to states about what they can make as legal tender, it would imply that it was recoginized that the states had the jurisdiction of making legal tender laws and they are required by the Constitution to only use gold and silver. Therefore it would be silly for the Federal government to coin anything but gold and silver because no one in the states would be able to use anything but gold and silver as legal tender. Therefore there really isn't a need to put any kind of prohibition on the Federal government about paper money.

Why wouldn't they just say that states shall make legal tender only what the federal government defines as being legal tender. They prohibit states from coining money so why wouldn't they also prohibit states from making legal tender laws in order to keep commerce more coordinated? Why would you use some unwritten implied federal power over words that are actually expressed?

Not being a legal expert, I would say that the actual words say that States are required to use gold and silver as legal tender and the Federal government has the power to make and regulate the value of those coins.

Just trying to make sense out of the words that I read in the Constitution. It's an issue that keeps bugging me.

The States have the right to permit on an intrastate basis other than what the Congress designates as money if they so choose, but it may only be gold or silver in coin.

There's a fascinating set of history surrounding the First and Second Banks of the United States, along with various state-chartered banks. There's also a fair bit of case law too.

This is something that is well beyond a short response here -- do some reading -- lots of it, as there's plenty of material.

KD, to the extent that debt is being destroyed, I can see an opportunity to feed new dollars into the economy without inflation. However, beyond that point, the only other way of removing the debt dollars out of the system, that I can see, is to slowly move from fractional reserve banking to full reserve banking and removing the leverage out of the system. The expansion of the money supply comes from mismatched duration so it would seem that this needs to be removed if the treasury is to control the quantity of money.

If I'm missing something here please enlighten me but I don't see how long duration debt can be paid off with new dollars unless those dollars are taken back out of circulation via the banking system and other financial system reform.

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KD, to the extent that debt is being destroyed, I can see an opportunity to feed new dollars into the economy without inflation.

How do you measure this "inflation"? When debt is destroyed, expectations about the future change, and the prices of 'stuff' in the future don't fall equally. Look at 2008, stocks cut in half, oil cut 75%, but did your food bill go down much?

There's imbalance in value right now, call it the ratio of houses to loaves of bread, and that ratio is going to come back into balance.

Whenever I hear someone say "I can put money in to counter deflation", all I hear is you robbing people of desperately-needed price drops by debasing their less-leveraged savings.

Circulating money and credit must balance against production. Since earned surplus ("money" or "wealth") and credit ("debt-money" or simply "money" if you want as well) are fungible but not identical if you wish to replace indica you can provided you don't change that.

"Default it all" sounds good until you realize that it's a balance sheet and someone has the asset. Zeroing it of course zeros them. For the majority of the Federal Debt this zeros someone you're rather not, never mind that it's Unconstitutional and we probably can't fix that.

So the question is how do you transition without (1) leading to a hyperinflationary crackup) or (2) collapsing everything and starting over.

It's not that tough -- you control quantity and withdraw from those who would otherwise tamper with quantity the ability to do so. For the most part this is a fairly mechanical process, provided your data is good -- the trickiest part is that the government has to stop deficit spending.

The fraudulent debt will go away "the hard way" -- most of the financial credit and a fair bit of household is in fact valueless. Systemic credit will shrink by roughly 1/2 during this adjustment; the bulk of the private portion will happen quickly -- the federal debt will be paid down over time. Realize that as you start to pay it down the interest that has to be paid decreases as well, so the payoff increases in speed as it progresses.

Genesis wrote..

the trickiest part is that the government has to stop deficit spending.

And as has been underlined a few score times on these pages, the longer we wait to do so, the bigger the job becomes, the more painful and lengthy the recession/depression, and the more likely we come to a chaotic blow up.

Will someone please get going on this process? (Bill Still and a few highly-guarded, determined, assts might get us there, but I'm damned pessimistic, these days.)

Mrbill, wage deflation is a problem which in the case of commodities will require a stronger dollar to counteract. Not sure there is any clean way to delever without a lot of pain. Wages will continue to fall until we get back to "full employment" and that won't happen until the government starts cutting the deficit and federal employee wages.

KD, can you expand on your comment about withdraw from those who would otherwise tamper with quantity the ability to do so. How would this be accomplished?

One dollar of capital.

There's no clean way. I'm not asking for one.

But I'm not giving someone (the government) the right to "fill the hole" left by debt defaults spending on their own behalf. Talk about moral hazard!

That's just another tax on those holding less risky assets as savings.

Balancing the budget will give all the strength the dollar needs.

I've determined that I really want to get involved in a campaign for a candidate who I can actually support. I've never been part of a campaign before, but I've watched on the sidelines far too long. Bill Still might just be the one I push for. How is the Libertarian race looking right now?

Moore: Interesting. It looks like Johnson may jump over to the Libertarians. The rumors have been flying around for quite some time.

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Jsp, the TYX is 3% right now, and there's nothing preventing the Treasury from managing the curve to keep yield reasonable and low.

Why should the Treasury "manage" the curve? The market and the market alone should be setting interest rates.

The Federal Reserve should be strictly forbidden from doing this and if does not comply, it should be elimated entirely.

So a debtor who is selling debt shouldn't choose where on the duration curve they wish to sell it?

What sort of crazy crap is that?