We Can Always Print Money to Do That

This piece was originally published on my personal site here.

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." -- Alan Greenspan, August 7, 2011

Is Mr Greenspan the greatest troll alive?  Following this quote, we can only hope that's the case.

It's certainly true that we could just print more and more and MORE money to pay off the government's $14 trillion+ debt.  Actually, we wouldn't even need to physically print anything -- we'd just add a few zeros to some balance sheets here and there and then set up a some wire transfers to our various lenders.  Voila!  Problem solved.  Remind me again why we had that whole debate last week?

The difficulty here -- and presumably the reason why we haven't taken advantage of this ostensibly simple solution already -- is that this would cause massive overnight inflation, probably collapse the dollar, and generally wreak havoc on the world's economy.

See, whenever you just print huge quantities of money based on nothing, this results in devaluation, or inflation, of the unit of currency. The effect of the very policy Mr. Greenspan recommends may be clearly seen in the history of our money's value over the course of the last 100 years of the Federal Reserve's print-happy ways.  The dollar's worth has declined to less than five cents of what it was at the beginning of the 20th Century.

Box Office Inflation

Is anyone surprised at the enormous amount of revenue being generated at the box office by movies recently?  Well, if you are, you shouldn't be.  Simply put: prices are up, the dollar is down, and inflation is evident.

Let's take a look at the list of highest-grossing movies in film history.  In the top 20, there only 3 movies that weren't made after 2000.  And out of the top 100 highest-grossing movies of all time, the most-represented year is 2009 when we look at numbers unadjusted for inflation.  Does this mean we live in the new Golden Age of Cinema?  That's hardly debateable; movies today are packed with bad acting that makes Nicholas Cage's performance in 'Drive Angry' seem Oscar-worthy.

So, what happens when this statistic is adjusted for inflation?  Let's take movie ticket sales and instead of use the amount of revenue generated at the same of each movie's release, we will adjust it for inflation and use the year 2011's average ticket price, which was $7.95.  When we do this, the top 20 list looks completely different.  'Gone With The Wind' is the highest grossing movie in film history.  In fact, only 1 movie was made in the past decade.  But that's not all; over half (12/20) of the movies were made before 1980, or over 30 years ago.

What we should take away from this is simple: Inflation is present in all aspects of life.  Of course, there are other factors at play that distort the figures -- ticket purchasing trends, marketing, population size, etc.  However, with that being said, the discrepancy between the adjusted figures and the non-adjusted figures are too big to be covered by those excuses.  The bottom line is that Hollywood has not been pumping out more high quality work lately (even though 6 of the 9 movies in film history that have grossed over $1 billion have been made in the last 3 years).  Instead, the dollar is being devalued and is simply worth less.

Quit Making Bernanke Look Bad with all Your Inflationary Thoughts

Chairman of the Fed, Ben Bernanke expects us to believe that our mind power controls the way inflation fluctuates. A recent article in the Freeman Online quoted Bernanke saying, “The state of inflation expectations [by the people] greatly influences actual inflation and thus the central bank’s ability to achieve price stability.”

The author of the article has it right when he suggests that Bernanke is...confused, to put it mildly. When the Federal Reserve schedules their FOMC meetings, when they make public statements, and when Bernanke graces us with a press conference it is the Fed that is guiding the path of inflation. They release vague statements about the economy's improvement or lack thereof with an intent to guide Americans down a path of financial trust.  Bernanke's claim deflects responsibility and puts an unnecessary burden on the American people.

Unfortunately, those same American people too often guide their economic choices off the "experts" on TV.  When September 11th happened, people looked to the administration for guidance, and what did they do? Bush II requested that American people keep spending their money and to "Get down to Disney World in Florida...Take your families and enjoy life, the way we want it to be enjoyed." Keep reading at SilverUnderground.com.

Insurance for Liberty

This morning I and a couple other members of YAL's national staff had the honor of meeting Elena Campbell, one of YAL's donors who lives in Colorado.  She shared with us an excellent commentary piece she'd had published in her local paper, and I thought it would be appreciated by readers of the YAL blog.:

We're living on borrowed time, made possible only by the fact that the U.S. dollar has been the reserve currency of the world since the Bretton Woods conference of the 1940s, and when that failed, since the petrodollar arrangements of the 1970s.

Today, that reserve status of the U.S. dollar appears to be coming to an end. Nations such as China are dramatically reducing their purchases of U.S. debt, spending down their stores of U.S. dollars before they become far less valuable, and entering into bilateral agreements so that trade will be conducted in currencies other than the dollar. Demand for the dollar is going down while the supply of dollars is on a near vertical climb, exacerbating inflation trends that already exist.

Meanwhile, member of Congress on both sides of the aisle give us non-solutions to out-of-control spending: They've agreed to $39 billion in “spending cuts.” Let's analyze this.

The federal government spends $10 billion per day. They borrow $4 billion of that per day. So their “cut” represents a mere four days worth of spending or 10 days worth of borrowing by the federal government.

As foreign propensity to hold U.S. debt declines, who is left to buy the debt — that $4 billion per day? Answer: The Federal Reserve (the Fed), erroneously called “the lender of last resort.” Where does the Fed get the money to purchase the debt? Here's the magic: With a couple of keystrokes on a computer, the Fed simply creates the money. In exchange for a little piece of paper called a T-Bill, the money is created and put in the government's bank account where it is spent into the economy. Here's the kicker: The T-Bill gets placed on the Fed's books as an asset. After all, the principal and interest of this new creation are now owed to the Fed by the American public, the true lender of last resort.

Read the whole article here.