The Instigator
akphidelt
Pro (for)
Losing
0 Points
The Contender
bluesteel
Con (against)
Winning
6 Points

The United States National Debt is the Amount of Money the United States has Created not Borrowed

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Voting Style: Open Point System: 7 Point
Started: 8/8/2011 Category: Economics
Updated: 6 years ago Status: Voting Period
Viewed: 5,324 times Debate No: 17818
Debate Rounds (5)
Comments (16)
Votes (1)

 

akphidelt

Pro

My position is that the United States National Debt is not how much the United States has "borrowed", but it is how much the United States has created.

Reasons why I believe this.

#1) If you look at the Federal Reserves balance sheet
http://www.federalreserve.gov...

You will see that all currency in circulation is a liability to the Federal Reserve and the asset the Federal Reserve uses for this liability is debt (aka securities).

#2) If you look at the balance sheet for all Commercial Banks in America
http://www.federalreserve.gov...

You will notice that all bank credit has a corresponding liability. So all loans and all deposits are accounted for.

#3) In 2010 alone, over $3.8 trillion of the National Debt matured. This figure is not included in Govt expenditures. The only thing that exists on Govt spending is the amount they credit bank accounts (aka create) and interest on the national debt.

If you look at the past 40 years since we officially left the gold standard, the national debt has never decreased. Not once in 40 years. This reasserts my theory that the national debt is the base of money that can not be destroyed.

#4) So if you put all this together, and you realize that every dollar is someones liability whether it's the banks or the Federal Reserve, then paying the principal on maturing national debt with tax dollars would be impossible because this would create a dollar that does not have a corresponding liability. The dollar would be "in float".

My position states that deficit spending needs to be "borrowed" because that money does not exist in our system and the debt instrument that corresponds to this "borrowing" is actually where money/assets are created in America.

Therefore the National Debt is not how much the country has borrowed but how much the country has actually created.

For the perfect analogy, the National Debt is basically the amount of gold we would have in the Gold Standard.

The way this is created is through accounting by various entities within our system, specifically the Treasury, the Federal Reserve, and the Primary Dealers.

In fact 70% of United States debt is purchased by Primary Dealers who are required to participate in every treasury action. The Primary Dealers are using bank money to purchase the treasury's which creates an affect where Govt spending actually occurs before money is debited out of the system.

For those that understanding basic accounting principles, this is how the process looks when a Primary Dealer purchases a treasury security from the United States Treasury.

Bank A (Primary Dealer) Initial Balance Sheet
Assets | Liabilities
Reserves - 10,000 | Deposits - 10,000

The Govt issues $5000 in debt to pay for a widget.
Bank A purchases the $5000 in debt.

The new balance sheet looks like
Assets | Liabilities
Reserves - 10,000 | Deposits - 10,000
Treasury - 5,000 | TTL Note Account - 5,000

You notice how the Primary Dealers bank account now has an additional asset, the Treasury, and it's corresponding liability is an account at the Treasury known as a TTL Note Account.

Now the Govt issues $5,000 to pay for the widget. Bank A's balance sheet now looks like

Assets | Liabilities
Reserves 15,000 | Deposits 15,000
Treasury 5,000 | TTL Note Acct 5,000

As you can see the private sector receives Government spending before the Government has debited our account. So therefore, deficit spending adds money to the system that eventually is used to pay our taxes and invest in Govt securities in the secondary market.

In conclusion, my main theory is that the United States National Debt can not be paid off by current accounting principles and that the National Debt is actually the amount of money that has been created in the United States of America.
bluesteel

Con

Thanks for the debate akphidelt.

If my opponent is correct that national debt = total amount of money created, then the total money supply should exactly equal the national debt. It doesn't.

The money supply in the US is measured by combining M1 (cash) with M2 (checking, savings, etc). M1 is $1.973 trillion and M2 is $9.168 trillion, meaning there is a total of $11.141 trillion total in the US money supply. [1] The current national debt is $14.586 trillion. [2] 11.141 does not equal 14.586. Done – negated.

==Rebuttal==

R1) My opponent says that every Fed liability is backed up by US government debt, as an asset, and this supposedly proves that all our money is created using government debt. This is not true, for a number of reasons.

First, let's ask why the Fed even has so many Treasuries in its holdings at the moment, since this is actually fairly atypical. The reason is because of Ben Bernanke's Quantitative Easing 2 plan to pump liquidity back into the market in order to get people spending again. As Bloomberg reports, QE2 resulted in the purchase of approximately $900 billion of Treasuries during a one-year period. [3] This accounts for 56% of the Fed's holdings of Treasuries, according to my opponent's source. [4]

Although Fed purchases of Treasuries DOES create money, the Fed is not the sole purchaser of Treasuries. Approximately 30% of Treasuries are held by foreign governments and 70% are held domestically. So the Fed only holds around $2 trillion of the $10 trillion in US Treasuries held domestically. My opponent later asserts that domestic banks buy all of these additional Treasuries. However, he asserts this without evidence and in the bid process he is describing, he himself says that the bank TEMPORARILY buys the Treasury, until it is sold at auction to the highest bidder. Most US debt is actually held by private citizens seeking a safe place for their cash. [5]

The second problem with my opponent's first point is that US Treasuries are not the only asset the Fed has. Their other assets include gold holdings, reserve funds from all the 12 regional central banks, and private sector mortgage backed securities that it bought during Quantitative Easing 1, back in 2008. In fact, the typical way that the Fed issues money is by using reserve accounts as an asset, NOT US government debt. [6]

R2) My opponent says that all loans and bank assets are accounted for on balance sheets somewhere. I agree with this point, although it doesn't prove the resolution true. Also, check my opponent's source to see that private assets are always greater than liabilities, meaning the two numbers don't always match perfectly, as he asserted earlier.

R3) My opponent talks about how $3.8 trillion in national debt matured but the government didn't suddenly have to spend $3.8 trillion to pay back these Treasury bonds that had become due. There is an obvious explanation for this – the government issues new Treasury bonds to pay for the ones that become due. In this way, the national debt remains unchanged in spite of some Treasuries having to be paid back.

My opponent next talks about the gold standard, and how debt has never decreased. Not only is this empirically false, since Clinton ran budget surpluses, so it IS possible for debt to decrease, but it is also a point for my side because there WAS a point in US history when the debt was zero yet we were somehow able to still have a money supply.

R4) My opponent argues that you can't pay back debt because the dollars have to be someone's liability. This seems pretty silly since obviously the government can pay back debt whenever it wants to using government surpluses or by printing money if it had to (causing inflation). In fact, it has to start doing so unless it wants to face further S&P downgrades that will destroy the value of the dollar and permanently damage US stock markets.

Also, there would still be a corresponding liability (the dollar) on the Fed's balance sheet and a corresponding asset (Federal reserve funds from the local central bank).

My opponent next cites the perfect analogy, saying, "For the perfect analogy, the National Debt is basically the amount of gold we would have in the Gold Standard." Firstly, I already disproved this by showing that the national debt doesn't match the total money supply. Second, this makes no sense since the Gold Standard itself proves that you can have money being issued against an asset other than US government debt. If US government debt is not the only asset the Fed can use, then the entire resolution fails. And third, there is a limit to how many Treasuries the Fed can buy without causing massive inflation, since this DOES actually increase the money supply and create new money, so we can't have the Fed buying all of our debt, meaning the resolution also fails in this regard as well.

In addition, my opponent says we can't have a "floating" currency, but the entire point of leaving the Gold Standard was to have a floating currency, meaning we wouldn't need to have an asset to back-up the full faith and credit of every dollar issued. The value of the dollar would be based on the reputation of the US government instead of based on the value of an asset.

Lastly, my opponent talks about how a bank would be a temporary purchaser of US government debt, but the bank ultimately auctions this debt off to a private citizen or foreign government. If we owe China $10,000 for a T-bond, we did NOT just create ten thousand additional dollars. If we did, then there would be massive hyper-inflation, and China would not buy our debt because we could just pay them back with the ten thousand dollars we had just created, which wouldn't be worth as much as the dollar was worth when China bought the Treasury bond.

If you don't believe that 11.141 equals 14.586, please vote Con.

[1] (M1) http://www.forecasts.org...; (M2) http://www.forecasts.org...
[2] http://www.usdebtclock.org...
[3] http://www.bloomberg.com...
[4] (Reproduced here) http://www.federalreserve.gov...
[5] http://www.wealthson.com...
[6] http://www.federalreserve.gov...
Debate Round No. 1
akphidelt

Pro

Thank you contender for the challenge. However, I do not agree that you have successfully rebutted my claim.

I will go through each of your statements and sort of use the format you used since it is effective.

1) You say that the money supply = $11.141 trillion. And since the national debt is $14.58 trillion the national debt is not e amount of money that is created.
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Response: There is more money in the world that exists outside of the amount of money that we the public have access to. The m1+m2 money supply that you quoted does not include the following...
- Deposits of the Treasury (including deposits at the Federal Reserve and Deposits at depository institutions)
- Depository of Depository Institutions
- Deposits of Foreign Bank and Official Institutions (this is a large number)
- Vault Cash at Depository Institutions

Only cash and deposits held by the nonbank public are counted in the money supply.

Source: Modern Money Mechanics (Federal Reserve Bank of Chicago) - http://www.rayservers.com...

---------------------------------------------------
2) You state that the "Fed purchases of Treasuries DOES create money"
---------------------------------------------------
Response: The Fed's QE1 and QE2 policies and purchases of Treasuries DOES NOT create money. They create reserves in the banking system. This allows banks to lend more money which can increase the money supply, but unless banks lend money this does not lead to an increase in nonbank public money.

In fact bank lending has not increased significantly since QE1 and QE2.
Source: http://research.stlouisfed.org...

The reserves from QE1 and QE2 are sitting in the Federal Reserve bank as excess reserves. The reasons the money multiplier is not going in to effect is because the Federal Reserve is paying interest on excess reserves for the first time ever. This gives the banks an opportunity to hold on to reserves with out losing value (inflation).

As you an see excess reserves just 2 years ago were $0. Now they are at $1.6 trillion (hence QE1 + QE2), which means the money has not entered the nonbank public
Source: http://research.stlouisfed.org...

Here is an article from the Federal Reserve Bank of New York that shows the balance sheet transactions of the Fed's QE policies. Notice how the Fed does not call these operations quantitative easing as that is not really what they are. As Bernanke calls it... it is "credit easing". The Fed's refer to it as monetary policy action and as you can see from this paper this is specifically a banking operation that leads to increased reserves in the banking system to allow them to lend more money to the nonbank public. None of the Fed's purchases go to the nonbank public.

Source: http://www.newyorkfed.org...
--------------------------------------------------------------

3) You say "most us debt is actually held by private citizens seeking safe place for their cash". And you claim I did not provide evidence of proof that banks purchase majority of treasuries auctioned off.
--------------------------------------------------------------
This is a very important distinction that causes a lot of people problems with the system. When we purchase treasuries we are purchasing them from the secondary market. The key is to figure out what money is used to purchase the securities directly from the Govt. Here is details from the Fed itself detailing who purchases treasury's.

"The bidder category data show that primary dealers alone account for 70.9 percent of Treasury securities sold to the public, on average (Table 1).8 Direct bidders other than primary dealers buy 2.4 percent, and indirect bidders buy 21.6 percent. The average purchase share of noncompetitive bidders is 5.1 percent. The large share of securities bought by primary dealers is notable given that there are only twenty-two of these institutions, whereas more than 800 financial institutions are set up to bid directly in Treasury auctions."

Source: http://www.newyorkfed.org...

Indirect bidders consist of investment banks and foreign accounts with the Fed. None of which comes from the private sector seeking to invest in wealth. So the key distinction here is who is purchasing directly from the Govt not who is purchasing from the secondary market. Because as showed above, the Govt spending is already in the system as the banks purchase these Treasury's with bank money (aka loans).
--------------------------------------------------------

4) My opponent says that the explanation for maturing debt is explained by issuing new securities. While this is obviously true, my point consists of the fact that money still has to be "borrowed" in order to pay off maturing securities just like money has to be "borrowed" to pay off deficit spending. My question is what is the difference between borrowing to pay off maturing debt, then borrowing to pay off new debt? I stand by my theory that we borrow for deficit spending because that money does not exist in our system.
----------------------------------------------------------

5) My opponent says "Lastly, my opponent talks about how a bank would be a temporary purchaser of US government debt, but the bank ultimately auctions this debt off to a private citizen or foreign government.".
-----------------------------------------------------------
This is true but think about what you are saying. If the Bank purchases the debt with bank money and the Govt credits the nonbank public's account. Then we, the nonbank public, now have an increase in money available in which to invest in treasury's in the secondary market. This essentially means that the money purchases treasury's in the secondary market is the actual debt itself. Which reasserts my position that the national debt is the money we have to pay our taxes and to purchase treasury's on the secondary market.
-----------------------------------------------------------

My opponent first started off with a faulty premise that the money supply does not equal the national debt therefore my theory is false. I went on to prove that the money supply of the nonbank public does not include all existing money. He also states that Clinton ran a surplus. This is true in the sense that he taxed more than he spent, but it is false that this caused a reduction in the national debt.

In fact here are the official numbers of US Public Debt outstanding during Clinton's surplus years.
1998- 6761.75
1999- 6974.78
2000- 7080.52
2001- 7323.90
2002- 7879.78

Source: http://www.usgovernmentdebt.us...

This reasserts my position that tax dollars can not be used to pay off the national debt, as even when the country runs a surplus the national debt does not decrease.

This is a very complex system and there are plenty of factors that can affect the money supply and who or what owns money. My opponents claim that the money supply does not equal national debt should not be considered as prof that the National Debt is the amount of money the United States has created.

The fact of the matter is the United States has to spend money in to existence. They do this through debt, and the intermediary, the banks, allow the money to enter the system before money has to be taken out.
bluesteel

Con

Thanks for the quick reply akphidelt.

My opponent loses sight of the big picture in rebutting my arguments; he proves small inconsistencies but ultimately does not prove his own case.

1) Money supply does not equal public debt.

My opponent points out that there are other measures not included in M1 and M2. However, it should be his burden to show that if you add these in, it somehow equals the total national debt.

In addition, his first round said that money issued by the Fed is a liability; all the deposits he just cited are assets, not liabilities, so shouldn't be included. Remember, the resolution is about money that has been "created." The money the Fed holds in reserve is by definition not "created" since the Fed creates new money using the dollars it holds in reserve as assets.

In addition, my opponent never responds to my argument that there was a money supply before there was a public debt. This logically refutes his argument, without having to look to the numbers.

2) Fed purchase of Treasuries creates money

My opponent points out that this does not create money directly but relies on other banks lending more. I agree – what I said was a slight oversimplification. To disprove my point, however, my opponent cites evidence for my side. He cites evidence that in spite of the purchase of nearly $1 trillion in Treasuries by the Fed, the money supply did not increase very much (his source: http://research.stlouisfed.org...). This proves MY SIDE, since it proves that a huge increase in government debt did not increase the money supply.

3) Banks are temporary purchasers

My opponent seems to agree with this, with a few caveats. Ultimately, who cares? It doesn't affect the overall argument. If the bank puts the Treasury on its balance sheet, then sells the Treasury to a third party, this has not resulted in the creation of money, since the bank then wipes the Treasury's asset/liability off its balance sheet. Real money has been used to purchase said Treasury.

4) Maturing Treasuries

My opponent seems to drop this argument and agree with me, only to make a new argument: that we must create money to pay for budget shortfalls. If we created money, we would be printing money. Let's say we have a deficit of $1.5 trillion. We could CREATE money to pay this off by printing 1.5 trillion dollars, which would cause massive inflation, but regardless, we could use the money we printed to pay for our budget shortfall. Or we could BORROW the money, meaning we will, at some point, have to pay it back. No new money has been created. Someone has actually purchased a Treasury bond (using money), and we use the money we got from the Treasury bond purchase to go about our government business.

5) ???

My opponent says this: "If the Bank purchases the debt with bank money and the Govt credits the nonbank public's account. Then we, the nonbank public, now have an increase in money available in which to invest in treasury's in the secondary market. This essentially means that the money purchases treasury's in the secondary market is the actual debt itself."

My response: ??????

The bank purchases a $10,000 Treasury bond with bank money (which is actual money, like deposits). It then sells the bond to someone for $10,000, replacing the actual money it took out of its vault, with more actual money. Nowhere does the government "credit the public account," whatever that means.

6) Clinton

My opponent is just wrong here. The numbers he's citing are for "gross public debt" which is "the total dollar amount of public and private financial liability in a country." [1] This is obviously illegitimate because it includes private debt. Look at the following chart from the CBO: you'll see a dip in the government debt during the Clinton years. http://en.wikipedia.org... Clinton reduced the debt by $363 billion in the latter 3 years of his presidency. [2] So my opponent is wrong that it is impossible for the government to pay down the debt, assuming he uses the right numbers for debt measurement.

Thus, I win if you believe that:

1) 11 does not equal 14. Remember, the money supply is the liability on the Fed's balance sheet and everything my opponent cited (deposits) are assets. He said himself in Round 1 that "money created by the Fed" is all in the liability column.

2) If you believe that you could have a dollar in your pocket still, even if the government had zero dollars in debt.

3) You believe the government can pay off its debt whenever it chooses to.

4) You believe that Treasuries are sold for cash. Cash is traded for Treasuries and we use that cash to deficit spend.

5) If you believe the dropped argument that there are assets other than Treasuries that the Fed can use to create money (like gold).

6) You believe that the Fed doesn't even need to issue debt to print money. It could just use a printing press, which is the whole point of the floating currency.

7) If you believe the examples (that my opponent gives of QE1 and QE2) where the Fed bought Treasuries but the money supply did NOT correspondingly increase.

[1] http://www.ehow.com...
[2] http://clinton5.nara.gov...
Debate Round No. 2
akphidelt

Pro

Thanks for the clean rebuttal...

However, my opponent is taking this argument to a description of the money supply. This debate is for the broad scope of how money is created in a fiat economy such as ours. The money supply is very complicated since there are numerous types of money supply that consider money in a different scope then I am describing. And since I didn't want to get in to this part of the argument, I left it alone in the beginning. But since my opponent is using this as his main basis for his argument I will have to reply.

First off my opponent is not even using the correct money supply that would be represented by the money the Govt has spent. M1+M2 is broad money which includes bank loans. Bank loans of course add to the money supply and would not be represented by Govt spending.

The other key point to note in my opponents misunderstanding of money supply/national debt is a very important part of the National Debt, Intragovernmental Debt. Intragovernmental Debt is money the Govt lends to itself, which accounting-wise means money is double spent. Let me clarify...

When the Govt receives a surplus on it's programs such a Social Security (SS). They take this money, lend it to themselves, replace it with a special non-marketable interest-bearing debt, then go out and spend that money. It's basically a bench mark for how much the Govt can spend on it's Govt programs. Later on you will see how this creates the effect that the public debt is being paid off.

Source: http://www.ssa.gov...

So if you want to establish a basis for where Govt money actually is, the first thing you have to do is eliminate $4.5 trillion of intragovernmental debt. So you are left with approximately, $9.9 trillion.

Now by no means is this an absolute mathematical certainty, but what I deem as Govt money would consist of the following.

(Values in trillions)
$1.1 Currency in Circulation [1]
$1.6 Reserve Balances at Federal Reserve Banks [1]
$1.1 Foreign Holdings of USD [2]
$2.4 Bank Deposits (9.1) - Loans (6.7) [2]
$1.5 Bank Net Equity [2]
$1.9 Cash in bank vaults [2]
------
$9.6 trilion

Now with the money supply situation let me address my opponents comments with the remaining space available.

1) My opponent states "In addition, my opponent never responds to my argument that there was a money supply before there was a public debt."
----------------------------------------
The money supply before public debt is still accounted for on the Federal Reserves balance sheet. The $11 billion of gold still priced at $42 per ounce [3], which is equivalent to $473 billion ($1600 ounce) in present value. There is no original pool of money that is currently circling the system that is not recognized on an entities balance sheet.
----------------------------------------

2) My opponents states "To disprove my point, however, my opponent cites evidence for my side. He cites evidence that in spite of the purchase of nearly $1 trillion in Treasuries by the Fed, the money supply did not increase very much"
---------------------------------------
The Federal Reserve purchases securities on the secondary market from Primary Dealers who purchase treasury's with bank money. The money supply did not increase because the reserves (base money) was shifted on the the Federal Reserves balance sheet. They now have $2.7 trillion. And once again there is no "money supply". You have to clarify what you mean by the Fed's purchase did not increase the money supply. Because it definitely increased the base money supply.

Source: http://research.stlouisfed.org...
---------------------------------------

3) My opponent makes a very important statement but doesn't realize what the impact of the statement he made is... "Ultimately, who cares? It doesn't affect the overall argument. If the bank puts the Treasury on its balance sheet, then sells the Treasury to a third party, this has not resulted in the creation of money, since the bank then wipes the Treasury's asset/liability off its balance sheet. Real money has been used to purchase said Treasury."
------------------------------------------------
This is the most influential part of the money creation process. If the Govt issues $1 trillion in debt and the banks purchase it with bank money, then the Govt credits the nonbank public $1 trillion... then the nonbank public now has $1 trillion more to invest in treasuries. This is crucial because the money is spent in to the nonbank public before the debit occurs. This is exactly how money gets created. And it's important to realize that your money is not required in this process. This is the very basis to my argument on how the national debt is actually what we use to pay taxes and to invest in treasuries.
------------------------------------------------

4) My opponent continues to drill on the very fallacy that most people make. My point is that the Govt borrows by necessity. It is required by law for the Govt to finance it's spending. But what my opponent fails to recognize is my repeated attempts to prove to him that when a bank purchases a treasury it does not take money away from the nonbank public. We do not need your tax dollars or China's money to fund our spending. It is funded behind the scenes with collaboration between the Fed's, Primary Dealers, and the Treasury. There is no private sector involvement in the money creation process. It is very important to understand my point is that the Govt creates money through debt, but the money has to be spent in to existence first before the debt (accounting-wise) can be purchased.
--------------------------------------------------

5) My opponent continue to drive in the fallacy that banks are using deposits to fund their financing of Govt expenditures. "The bank purchases a $10,000 Treasury bond with bank money (which is actual money, like deposits). It then sells the bond to someone for $10,000, replacing the actual money it took out of its vault, with more actual money. Nowhere does the government "credit the public account,"
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It is critical to understand the difference between bank money and nonbank money. Banks DO NOT USE DEPOSITS. Your deposit remains on their balance sheet regardless of what they do. Banks do not lend reserves. Banks purchase Govt debt the same way they lend you money for a house. They have plenty of ways to finance their purchases of securities.

Source: http://69.175.2.130/~finman/Orlando/Papers/Treasury_dealers_manage_positions.pdf
Source: http://neweconomicperspectives.blogspot.com...
-------------------------------------------------

6) Alright, I mentioned above how intragovernmental debt plays a role in the Clinton debt reduction myth. Clinton did in fact reduce the public portion of the national debt. But he didn't do it with your tax dollars. When Clinton received a surplus in Social Security, he invested that money back in to the Govt (which is basically the Govt giving themselves a piece of paper) and then paid off the public portion of the national debt with that money that they lent to themselves. This is why the gross national debt did not decrease. So essentially he swapped public debt with intragovernmental debt.

Source: http://www.craigsteiner.us...

I ask that people please understand the difference between the two types of debt and how clinton used surpluses in Social Security, not Income Taxes in order to pay off the public debt.

[1] http://www.federalreserve.gov...
[2] http://www.federalreserve.gov...
[3] http://www.federalreserve.gov...
bluesteel

Con

Thanks for the quick reply akphidelt.

==What is M1 and M2?==

I actually made a mistake before, which I now realized after looking up the definition of M2. M2 is everything in M1 (cash), PLUS savings (checking and savings accounts). [1] So the total money supply in the US is only $9.168 trillion.

My opponent keeps saying you should reject M2 because it's too complicated. It's really not – M2 is the total amount of money in circulation. We don't count money in central banks (whether in the US or in foreign countries) in M2 because that money is not in circulation; it just sits on a balance sheet.

$9 trillion still doesn't equal $14.6 trillion in government debt.

==Should we exclude intragovernmental debt from debt measurements?==

My opponent contradicts himself so much that it's astounding. We should exclude intragovernmental debt because it makes it easier for my opponent to match it to his measurements of the amount of money circulation, but we should INCLUDE this measure when measuring whether Clinton reduced debt. You can't have it both ways. We should either count this as borrowing or not. We can't do both based on what suits our needs.

==My opponent's calculation of $9.6 trillion==

Firstly, my opponent just cherry picks the numbers that add up to the number he wants. If you look to 1980, for example, national debt was $1.2 trillion [2] but the money supply was $2 trillion. [3] Say what you want about the money supply, but if you believe that all cash is created by debt, you CANNOT believe that there would ever be more money in circulation than debt.

Second, he does a lot of double counting. A bank's net equity is defined as their assets minus their liabilities. However, bank deposits are assets and loans are liabilities, so he counts these twice, for example (the 1.5 number and the 2.4 number). Also, currency in circulation also includes savings accounts, which can easily be converted into usable currency. Cash in bank vaults is also a deposit. If you double count enough and cherry pick the numbers that add up to the one you want, of course you can succeed.

Also, of course my opponent must exclude intragovernment debt because he couldn't find enough numbers, without triple or quadruple counting, to add up to $14 trillion.

==Money supply existed before debt==

My opponent says, "The $11 billion of gold still priced at $42 per ounce [3], which is equivalent to $473 billion ($1600 ounce) in present value." First, how does $11 billion of gold at current value (what the Fed lists on their website) turn into $473 billion in value. I think my opponent changed $11 billion in gold to 11 billion ounces of gold, which is not what the source says. When a bank owns an asset (whether gold or a house), it lists the value of the assets under assets. So $11 billion of gold means they own gold currently valued at $11 billion.

==Fed purchase of Treasuries did not increase the money supply==

Remember, the resolution says that when the government issues debt, it creates money. My opponent's own source said that QE2 bought Treasuries but failed to increase liquidity, meaning banks did not lend out any more money, so this failed to "create" money.

==Temporarily selling to banks who sell the Treasuries==

My opponent says, "If the Govt issues $1 trillion in debt and the banks purchase it with bank money, then the Govt credits the nonbank public $1 trillion... then the nonbank public now has $1 trillion more to invest in treasuries." How does the government credit $1 trillion to the public, and where can I collect my share of that (approximately $500 billion)? This literally makes no sense; the government can't just credit money to us; does it sneak into our bank accounts, like the tooth fairy, and give us money?

The bank temporarily holds onto the Treasury until a real buyer exchanges real cash for it.

==??????==

My opponent says, "We do not need your tax dollars or China's money to fund our spending. It is funded behind the scenes with collaboration between the Fed's, Primary Dealers, and the Treasury." I guess we don't "need" any of those things, but we do use them, since the Primary Dealers don't keep the Treasuries.

In addition, financial markets aren't stupid. If the US pays its debts by simply creating money, this causes massive inflation. We do NEED real purchasers to give us real cash money or inflation occurs.

==Banks don't use deposits==

This still doesn't answer the argument that real cash is exchanged for the Treasury bond, ultimately. 95% of what my opponent responds to is just a red herring, since it's not central to my argument.

==Clinton==

It's undeniable that the government can run huge surpluses if it wanted to. Even if Clinton did this by running surpluses in Social Security, we could ALSO do it by eliminating all military spending, for example, or by privatizing Social Security. This means that it IS possible to pay down the national debt. Nitpicking what Clinton did doesn't disprove the OBVIOUS general argument that I was making, that the government CAN pay down the debt if it wants to, which my opponent completely denied in his Round 1.

Last, let's look to the dropped voters (which it's too late for my opponent to respond to now).

Vote Con if you agree that:

3) You believe the government can pay off its debt whenever it chooses to, without shrinking the money supply.

4) You believe that Treasuries are sold for cash at the END POINT. Cash is traded for Treasuries, ultimately, and we use that cash to deficit spend (example, China buying our debt).

6) You believe that the Fed doesn't even need to issue debt to print money. It could just use a printing press, which is the whole point of the floating currency. The government can OBVIOUSLY create money without issuing debt.

The other voters were already extended internally.

Here's a new voter: remember 1980. Money supply was FAR larger than national debt. That shouldn't be able to happen if my opponent is right.

[1] http://economics.about.com...
[2] http://www.usgovernmentdebt.us...
[3] http://one-simple-idea.com...
Debate Round No. 3
akphidelt

Pro

Thanks for the solid debate...

This is a very confusing subject and my wording may not always be perfect, but my opponent is taking this conversation to a place that I did not want it to go. The money supply, whatever you want to call it, Monetary Base, M1, M2, M3, should not be used in this debate. We are talking about Government created money, M2 uses all deposits in banks including loans. Loans are not created from Government spending, loans are created by banks. So anyone reading this debate should disregard any attempts by the opponent to correlate M2 money supply with the National Debt.

==Should we exclude intragovernmental debt from debt measurements?==
My opponent is misinterpreting the accounting involved that represents our nations debt. Intragovernmental debt is simply a number that records how much surplus the Govt has taken from it's Govt programs + interest paid on the pieces of paper they give themselves. If one understands accounting they can see where I am coming from in saying that intragovernmental does not add to net spending, it adds to net debt by way of accounting.

Here is a simple example of what is going on with intragovernmental debt.

The Govt taxes $1000 for Social Security
The Govt pays $800 for Social Security

The Govt now has a surplus of $200. In accounting terms the Govt has debited $200 from the nonbank publics accounts. The Govt then invests that $200 in themselves. In return they give themselves a piece of paper that says we owe this $200 + interest back. Now those of you who can think outside the box, what is really going on here? The Govt is giving themselves the $200 to spend and replacing it with a piece of paper. There is no "new" money created in this process... only debt.

Clinton used this process (which is mandated by law) to reduce the public portion of the debt. But all he did was replace public debt with intragovernmental debt, which is why the overall debt did not decrease. So the money is still backed by debt, just a new form of debt. And when the intragovernmental debt get's "paid off" it will simply be converted back to public debt.

So I therefore maintain my assertion that the Government still creates money through deficit spending and that your tax dollars can not be used to pay off the National Debt. My opponent is using a situation in which debt was used to replace debt, but he is focusing on just one side of the equation.

Let me go through some points my opponent made and go through my refutation.

1) My opponent says "Say what you want about the money supply, but if you believe that all cash is created by debt, you CANNOT believe that there would ever be more money in circulation than debt."
----------------------------------------------
My opponent is simply missing a HUGE piece of the puzzle. Bank loans are created by banks. And banks can create a lot more loans then there is money created by the Govt. In accounting terms bank loans are a wash and they are not even relevant to this discussion on Govt debt. So if you understand fractional reserve banking, you can understand how there can be more money in the money supply then there is debt (which the reserves are included in). What I like to say is that banks leverage Government money... but the Govt has to spend more money in order for the banks to be able to leverage more.
----------------------------------------------

2) This is very important for those reading this debate to make sure you understand. My opponent erroneously says "First, how does $11 billion of gold at current value (what the Fed lists on their website) turn into $473 billion in value. I think my opponent changed $11 billion in gold to 11 billion ounces of gold, which is not what the source says. When a bank owns an asset (whether gold or a house), it lists the value of the assets under assets."
----------------------------------------------
The Federal Reserve does not count gold at it's current value, it counts it's value that it last represented which is $42.22 an ounce. I simply did simple math and said ($11 billion/$42.22 * $1600) just for an estimate on today's value.

Here is the Fed's explanation for this number
"Gold stock is valued at $42.22 per fine troy ounce. "

Source: http://www.federalreserve.gov...
-----------------------------------------------

3) My opponent continues to focus on individuals like you and I, which is the most common mistake when trying to think about what is going on behind the scenes. My opponent says "Remember, the resolution says that when the government issues debt, it creates money. My opponent's own source said that QE2 bought Treasuries but failed to increase liquidity, meaning banks did not lend out any more money, so this failed to "create" money."
-----------------------------------------------
The resolution did not say that the National Debt is the amount of money the nonbank public has, I said it creates money. In the case of the Fed's QE2 policy, they purchased treasury's that were already purchased. The money in this instance is actually called a "reserve". Banks can not lend these reserves but they can exchange them like they are money, with each other or for more securities. However they can leverage these reserves to create new loans. But in order for the Fed to do QE or Open Market Operations the Government first must deficit spend and create the debt/money before these operations can take place. Everything stems from Government deficit spending.
----------

4) My opponent continues to fail to grasp the concept of a bank being the intermediary between Government borrowing and Government spending. He says "How does the government credit $1 trillion to the public"
----------
Think about it. When the Treasury auctions off debt and a bank (Primary Dealer) purchases it with bank money. The Treasury gets this money in their account at the Fed, in return the Primary Dealer gets a treasury as an assets and has a TTL Note Account as a liability. The Treasury then uses this money to credit bank accounts. If they need to pay for the Iraq war, they go and borrow money from the banks, and then credit nonbank public military bank accounts. My opponent, like many in this subject is still caught up in the fact that the majority of money purchasing Govt debt does not exist just like when you go to get a mortgage from a house. That is a loan.

Then, we the nonbank public, go out to Wal Mart or whatever, buy their products, they ship that money overseas to China and what do you know, China purchases $1 trillion in US debt. The fact is that the money has to be spent in to existence first (on a macro basis) before there can be money that exists to purchase the debt.

--------------
I have given my opponent numerous articles detailing how Primary Dealers finance their security purchasing and how this creates money in the nonbank public before any debits have occurred from the nonbank public.
Sources:
http://neweconomicperspectives.blogspot.com...
http://research.stlouisfed.org...
http://69.175.2.130/~finman/Orlando/Papers/Treasury_dealers_manage_positions.pdf

My opponent is simply using the lack of knowledge on the subject and accusing me of red-herrings with out being able to explain factually what I am wrong about. What money do you think the banks are using Contender?

My opponent continues to talk about Clinton surpluses. I have shown mathematically how this did not reduce the national debt. It replaced public debt with intragovernmental debt. Mathematically and account-wise you can not pay off intragovernmental debt with out incurring public debt. I do not have enough space to show the accounting, but I will in the next response.

Readers, please be aware that my opponent is not using any accounting or math in his rebuttal on my claim.
bluesteel

Con

==Burden of proof==

Best case, my opponent proves that government debt equals the amount of money created, but he fails to prove that it is NOT money borrowed. He must prove both to win.

If we don't owe the money to anyone, why would S&P downgrade our debt? Why would anyone worry we wouldn't pay them back if we're not "borrowing" as the resolution says. Absurd propositions require higher burdens of proof.

==M2==

M2 does not include loans, just savings accounts and checking accounts. I cited a source for this already.

==Clinton==

Another red herring from my opponent. Just because Clinton didn't cut spending to pay off debt with actual dollars, doesn't mean we COULDN'T do so. If we cut all military spending ($800 billion a year), we could obviously start paying off the national debt. I said as much in the previous round, but he keeps harping on Clinton as a distraction.

==The government credits our bank accounts==

My opponent says the government borrows money then credits military bank accounts, assuming that every borrowed dollar ultimately ends up in the pocket of a US government employee. This is just entirely false. Where does government money go to service the debt? Into the Chinese government coffers, among others, proving that we do owe the money to someone and we did "borrow" it.

==Back to burden of proof==

This has been a useless debate. My opponent essentially wanted to debate a truism, that when the government creates money on paper, it creates money on paper. I thought he wanted to debate his "perfect" analogy, that government debt is now like the gold standard: that it is solely responsible for creating money. Vote against him on conduct for morphing the debate. Since he can't prove that we're also not borrowing, he automatically loses.

Dropped Voters.

Vote Con if you agree that:

3) You believe the government can pay off its debt whenever it chooses to, without shrinking the amount of money in circulation.

4) You believe that Treasuries are sold for cash at the END POINT. Cash is traded for Treasuries, ultimately, and we use that cash to deficit spend (example, China buying our debt).

6) You believe that the Fed doesn't even need to issue debt to print money. It could just use a printing press, which is the whole point of the floating currency. The government can OBVIOUSLY create money without issuing debt.

My opponent says that I have done no math in my rebuttal; I admire his accounting abilities, but debate is about logic, not math (especially when the math triple counts everything, which he concedes). No matter what, we can both think of US government debt as money created on a balance sheet (one descriptively accurate way of representing the debt, using archaic accounting jargon) OR as money that is borrowed. Both are equally valid ways of thinking. If the latter is not valid, we're all really silly to worry about countries like Greece not paying off their debt and about the US debt downgrade, since we don't actually owe money to anyone.

It's a really FUN way to debate for my opponent to pick apart the points I make that he can disprove, like Clinton, and completely ignore the major issues in the debate, like the ability of the government to pay down debt if it wants to. Each of his rebuttals pretty much isolate 4 quotes that I made in my previous round and ignore every other issue. This has been a very frustrating and non-responsive debate.

Vote Con.
Debate Round No. 4
akphidelt

Pro

Alright, well my opponent is now relying on you guys not believing me rather than him factually explaining why I am wrong. Let me try to touch on all his points, to show that I am not avoiding any questions.

== Can the Government simply Create Money? ==
My opponent is under the impression that our Govt is allowed to create money. One would think that a sovereign country with control of it's own fiat currency would be able to just simply print money when it wants. Well that is not the case in America, which is why we are having this debate. The Govt has to "borrow" to spend money in this country by law. My case is that the borrowing is a series of accounting that happens outside the nonbank public that allows for money creation. Basically our money is backed by debt.

== Ability for the Government to pay down the debt if it wants to ==
My opponent believes the Government can simply pay down the debt when it wants to and it uses the $112 billion from Clinton surplus as his case. I have proven that even under a surplus that the national debt has not decreased. Clinton merely used new debt (intragovernmental) to replace old debt (public). My position states that the Government can not simply pay down the debt because accounting-wise it is impossible unless current legislation is changed. I think I have proven that money is created through debt whether through banks or the Govt and it all lies on some entities balance sheet.

My position is that taxes can not pay the debt off because that would create dollars that were not backed by debt, therefore the Govt would have to issue new debt to back the floating dollar. They would be "in float". And since we can't have floating dollars, we must constantly issue new debt in order to create new money.

== Greece ==
My opponent likens us to Greece in his closing paragraphs. This should prove to the voters that my opponent is unaware of how the United States economic system works. Greece is part of the Euro, they are constrained by how much Euro they have. They have no sovereignty over their currency... therefore they are "revenue constrained". The United States controls it's own currency and is not bound by any non-human constraint to pay off it's debts or spend more money. This should be a clear sign that my opponent is not a knowledgeable expert on the American economy.

==The government can OBVIOUSLY create money without issuing debt.==
This is not true otherwise they would do it. Which is why all these shenanigans have to take place for them to create money.

==The government credits our bank accounts==
My opponent is unaware that when a public employee spends the money the Government provides them, they no longer own that money, and it is now circling the private sector. Just like someone who found gold under the gold standard.

==Clinton==
You continue to think that Clinton could have paid off the national debt. But he didn't, every year he added to it, even though he ran a surplus. I have shown you why this is the case but you still refuse to believe me. I still remain confident that the national debt can not be paid off with tax dollars unless current legislation is changed. There is no dollar in existence that is not backed by debt and I have shown that by providing balance sheets of the Federal Reserve and the banks in America. There is no such thing as USD "Float". It is all backed by debt, therefore paying off the debt would either have to create "float", or would have to create new debt. Basically what Clinton did.

==M2 Does Include Loans==
M2 includes all accounts on the banks balance sheet, including loans. This is another reason voters should disregard my opponents attempts to prove my theory incorrect. This can simply be proven by a non-academic source

http://en.wikipedia.org...

This is a clear example of my opponent being uninformed on the details of this debate.

==S&P Downgrade==
My opponent now seems to use politics to defend his position. S&P downgrading the nation does not change how the nation works. In fact Warren Buffet came out saying the United States should have a AAAA rating. Warren Buffet also understands that the country can pay off it's own debt whenever it wants since it is debt in it's own currency.

Source: http://www.foxbusiness.com...

-------------
Unfortunately my opponent did not go in to enough detail on how the accounting of America works. This is very important since that is how you can represent money and debt flowing throughout the system. If you don't know the checks and balances of the country, then you can not prove how money is created or how debt can be repaid.

For voters out there the bottom line is understand what money is purchasing the Govt debt when it is auctioned off. The Federal Reserve says 70% is purchased through Primary Dealers, who are mandated to participate in every auction and create a market for securities. Now ask yourself, why do we need special dealers to create a market for treasury's? The answer is simple, the collaboration between the Fed's, Treasury, and the Primary Dealers finance Govt debt through bank money. This leaves the nonbank public money unaffected and essentially puts money in to the economy before any nonbank money is debited out.

This relationship between the Fed, Treasury, and Primary Dealers is the key to the money creation through Government deficit spending.

Ask yourself this simple question, why would a country that has it's own made up currency need to borrow it's own made up currency? And then once you realize we borrow by necessity and that borrowing essentially is spending, then it all makes sense what the national debt actually is.

My opponent, although I appreciate the debate, has shown a lack of basic understanding of accounting, economics, and the United States economic system.

Comparing the United States to Greece
Saying M2 Money Supply does not include loans and is comparable to the National Debt
Clinton surpluses reduced the national debt even though it didn't
Saying banks loan deposits

For a person to be able to debate what I am saying, the above 4 items would be common knowledge and the debate would be more focused on the actually balance sheets of the entities involved in each transaction.

The opponent, like most others, is completely looking at this from the angle of the private sector. He is obviously of the train of thought that thinks the Govt uses our money to borrow to pay for deficits.

There are 5 entities that all play a role in the financial balance sheets of America
1) The Country (represented by the Govt)
2) The Treasury (the Govt's accountant)
3) The Fed (The Country's bank)
4) The Banks
5) The Private Sector

All money creation happens between 1-4. The way Government debt is financed is simply accounting tricks between 2,3,4. The key question you have to ask yourself is, do we the nonbank public receive a net increase in nonbank public money when the Government deficit spends before the Govt debits nonbank public money out of the system.

This is the basis of money creation, does the Govt take money out of our accounts before they credit our accounts or does the Govt credit our accounts before they debit our accounts?

My position is that the funding of Govt deficit spending happens behind the scenes and we, the nonbank public, receive Govt deficit spending, before we, the nonbank public, are asked to fund the Govt deficit spending. Therefore, the nonbank public uses money that increases the national debbt to pay our taxes and to purchase Govt debt from the secondary market.

My opponent made a valiant effort, but I have not learned anything new from this debate and I still believe that the national debt can not be paid off by current accounting standards because that would leave dollars in the system that are not backed by debt.

Vote pro!
bluesteel

Con

Thanks for the debate akphidelt Try not to call your opponent an idiot next time - it's rude.

==Can the government simply create money?==

Yes. My opponent is smart enough to know how they can do this. The Fed can "create" money and increase the money supply by changing the Fed Funds Rate (the interest rate that they lend to banks) or by changing the Reserve Requirement. Both of these increase the money supply and allow banks to "create" more money on their balance sheets, by giving out more loans, without having to accept more deposits. They can also print money (my opponent never says what law requires them not to).

==Can the government pay down the debt==

My opponent has successfully proven that Clinton's entire surplus came from Social Security revenue, which by law, must be invested in Treasuries (because otherwise, if it just sits there, inflation decreases its value, so it needs a safe rate of return). However, Clinton's way of saving money is not the only way. We could privatize Social Security (20% of our budget) or cut military spending and use that money to pay down the debt. This is the core of the Paul Ryan plan - to cut Medicare and Social Security, however the Democrats put huge defense cuts in the debt ceiling bill. This is so obvious it shouldn't need to be proven - that the government can pay off the debt if it wants to. If you believe I won this point, I win the whole debate, since my opponent believes that if we paid off our debts, money would just start randomly vanishing out of the economy. This is not true. The money would leave our economy only if the person owning the Treasury bond lived in another country and the money doesn't just vanish either - it still exists.

==Greece==

My opponent's only real response to this is arrogance. I know that since Greece doesn't control the central bank, it cannot devalue the currency like it would like to in order to pay off its debt, while the US can use inflation to pay off our debts (although it's not a good option because it leads to a death spiral of markets reacting badly, forcing more inflation and ultimately hyperinflation). My point here was merely that investors wouldn't be worrying about either Greece or the United States' ability to pay them back if borrowing money just created new money, rather than creating debts. We do owe the money to people, otherwise the S&P downgrade of our debt wouldn't be a big deal. Once again, my opponent creates a red herring and doesn't respond to the main argument: we "borrowed" because we owe the money to someone.

My opponent says, "==The government can OBVIOUSLY create money without issuing debt.==
This is not true otherwise they would do it. Which is why all these shenanigans have to take place for them to create money." Lol. The government takes on debt because it needs to borrow money to pay its bills (which is why we needed the debt ceiling raised). If it JUST wants to create money, say, to increase the money supply, it changes the Fed Funds Rate. I didn't realize until NOW that my opponent seriously believed there was NO OTHER WAY to create money. He keeps waffling on his advocacy in this debate - backing off extreme statements, then remaking them.

==Clinton==

Lol. He now says, "There is no dollar in existence that is not backed by debt." I thought he was using the billions in gold to show that nearly half our money supply is backed by gold. If there is no dollar in existence not backed by debt, then there must not have been money before debt existed. Look to 1980 - how was the number of dollars in circulation nearly TWICE what the debt was? Answer: because debt is NOT the only mechanism used to create money, it is just the one the government uses when they need it, and they are not really "creating and NOT borrowing" money; they are creating money on a balance sheet, the same way that the bank does when you BORROW money. Creating money, in this sense, should mean printing money, since that is the only way the government can create money without borrowing it and owing it to someone.

==M2 does not include loans==

My opponent is just sketchy. Read wikipedia. M2 includes notes and currency, traveler's check, demand deposits, other deposits, time deposits, and large time deposits. There's even a chart. Nowhere does it say loans. My opponent seems so sure of himself that he probably didn't bother reading his own source. M2 does not include loans, which means that it's pretty telling that the total amount of money in circulation is not even close to our debt number. 9 does not equal 14.5.

==Warren Buffet==

Appeal to authority. And the S&P downgrade was to show that people are worried if we can pay them back, showing that debt is "borrowed." Buffet even says we can pay off our debt, supposedly something my opponent denies.

==Why do we need primary dealers?==

My opponent claims to create money. However, firstly, if this was the case, why do we even allow 30% to directly purchase, since this doesn't create money. Why not require all purchases to go through primary dealers? Because that 30% matches the 30% of debt purchased by foreign central banks. The other 70% is bought by small investors, mostly in the US. When the government needs to sell debt QUICKLY (like right after the debt ceiling raise, when they had less than 24 hours to pay our bills), they need money fast and don't want to wait on small time investors to bid at auction, so they require a bank to purchase the T-bond, and then flip around and sell the T-bond. However, cash is paid for the Treasury bond at the end point, meaning money is TEMPORARILY created by the bank to pay for the T-bond, but that created money is then erased off their balance sheets when someone gives them real money for it, hence the money is borrowed and owed to than investor.

My opponent asks this question: "why would a country that has it's own made up currency need to borrow it's own made up currency?" Simple, same reason they need to tax us. They can make up more of the currency in OTHER ways, but this causes inflation because money markets aren't stupid.

My opponent next lists 4 things I'm supposedly wrong about. This is petty, especially since he was wrong about M2, he was caught with his pants down double and triple counting when he was doing his math (so if there is a real ethical violation here, it's him), 2 of the other points I'm also not wrong about, if you take my arguments back IN context, and the last (Clinton) I'm still right about since my opponent said, during his little sketchy calculation, that intragovernmental debt should be excluded from our debt calculations, since no ones worries about the government's ability to pay ITSELF back, so technically Clinton reduced the debt we do care about.

Dropped Voters.

Vote Con if you agree that:

3) You believe the government can pay off its debt whenever it chooses to, without shrinking the amount of money in circulation.

4) You believe that Treasuries are sold for cash at the END POINT. Cash is traded for Treasuries, ultimately, and we use that cash to deficit spend (example, China buying our debt).

6) You believe that the Fed doesn't even need to issue debt to print money. It could just use a printing press or change the Fed Funds Rate, which is the whole point of the floating currency. The government can OBVIOUSLY create money without issuing debt.

Other voters: money supply doesn't match debt - 9 doesn't equal 14.5; we obviously owe money to China, so we did "borrow"; QE2 did not force banks to lend more money, so debt purchases by the Fed FAILED to increase the money supply, in spite of that actually being the goal of their policy for once (they couldn't change the Fed Funds Rate since it was already near zero).

My opponent says he learned nothing from this debate - probably because he refused to believe I could be right about even something so simple as defining M2, in spite of having a degree in Economics. Arrogance..

Vote Con
Debate Round No. 5
16 comments have been posted on this debate. Showing 1 through 10 records.
Posted by akphidelt 6 years ago
akphidelt
Really CD-Host? 6 Points to the con. He didn't prove any points. His main point was M2 didn't equal the National Debt. He made no attempt to distinguish between bank money and nonbank money and he provided no evidence to how treasury auctions affect balance sheets throughout the system. Amazing!!
Posted by bluesteel 6 years ago
bluesteel
u r a douch
Posted by akphidelt 6 years ago
akphidelt
Lol, obviously I know increase supply of money can cause inflation. My point was that in a recession when the velocity of money decreases the economy can absorb a larger money supply with out causing the hyperinflation that you are talking about. These are simple points that I don't want to discuss, since I'm not here to discuss partisan wet dreams... I'm here to discuss how the checks and balances of the system work, which you seem to not be able to grasp.
Posted by bluesteel 6 years ago
bluesteel
The value of any good is affected by both supply and demand. I'm honestly astounded by your very deep understanding of certain economic concepts and complete unwillingness to even research others. The value of the dollar is affected both by demand (velocity, etc) and by supply. If a government creates a lot more fiat money, that causes inflation. Econ 101
Posted by akphidelt 6 years ago
akphidelt
I don't critique the way the Fed creates money. I want to know HOW it is created. I don't get why you guys are bringing in Austrian economic theory in to this. I could care less about the Austrians. I hate philosophical nonsense. I just want to know how it all works... not whether it is efficient or not.

And even though I don't want to go in to economic theory with you, your point about the restaurant owner is nonsense. Inflation is caused by an increase in demand not an increase in the money supply. The reason we go in to a recession is because the velocity of money decreases (aka people save more), which decreases demand. That is the very reason why they try to increase the money supply during a recession so you can bridge the gap between savers and have a sufficient enough supply of money to grow the economy.
Posted by bluesteel 6 years ago
bluesteel
If you create money to pay your debts, that devalues the money stock... If I was a restaurant owner and the government simply created money to pay all its employees, I'd have to raise my menu prices to compensate for the dollars not being worth as much anymore.

And CD is right, you'd like Austrian economics since it critiques the way the Fed creates fiat money. It deals with a lot of things you've been talking about.
Posted by akphidelt 6 years ago
akphidelt
Oh wow, you couldn't be more wrong about me. I am no where close to an Austrian. I don't understand how you got the impression that I wasn't using data in my analysis of the economy. That is all I was trying to do. Use real life applications of each transaction that takes place in our economic system. There is nothing theoretical in what I am trying to find. I'm trying to deal with real life checks and balances. I could care less about politics or economic theories in this debate.

If the Govt deficit spends $1 trillion, how does that ripple through the systems balance sheets? That's all I care about. And for each Fed action, Treasury action, bank action, etc how do the balance sheets change. It has absolutely nothing to do with Austrian economics. I'm really not trying to get in a theoretical argument on what's right or wrong, I'm literally trying to argue about how our monetary system works from the top all the way down.
Posted by CD-Host 6 years ago
CD-Host
Akphidelt --

I'd be willing to debate this with you but... Your theories sound like Austrian economics. Assuming I'm right, you probably need to read some Austrian Hayak type stuff that's written in the language of normative economics. What happened to you with this debate is what's not infrequently going to happen in most debates. Austrians IMHO tend to be an excellent critique of normative economics. But as an affirmative theory, as an actual guide to policy, it's behind because it doesn't deal in the data. And actual data tends to be far more messy than Austrian models so as long as someone is actually in the data Austrians have problems:

If I'm wrong and you aren't Austrian. Then, wow would you ever love Austrian economics.
Posted by akphidelt 6 years ago
akphidelt
Why would we have hyperinflation?
Posted by bluesteel 6 years ago
bluesteel
If it's 99%, how do we not have hyperinflation?
1 votes has been placed for this debate.
Vote Placed by CD-Host 6 years ago
CD-Host
akphideltbluesteelTied
Agreed with before the debate:-Vote Checkmark-0 points
Agreed with after the debate:-Vote Checkmark-0 points
Who had better conduct:-Vote Checkmark-1 point
Had better spelling and grammar:--Vote Checkmark1 point
Made more convincing arguments:-Vote Checkmark-3 points
Used the most reliable sources:-Vote Checkmark-2 points
Total points awarded:06 
Reasons for voting decision: Well I got to 3 and no one has voted this one out. Score is per comment, I think Pro had an interesting point but needed to rephrase in more standard language and clarify his thinking. Sources is not so much for reliability as views and language consistent with the underlying sources.