Quoted from previous post: “My theory relies upon the assumption that the dollar will fall in value from the printing presses and increase in available money supply, so we have to rely on supply and demand to calculate what will continue to be stable or rise in price. In actuality, I think we will have a bifurcated economy in which things that have a somewhat constant demand or can control the supply, ie food, energy, oil, basic first produced resources (like metals, timber, etc), and perhaps medicine will result in staying up or rising with the devaluation of the dollar, and other things that do not have the constant demand, such as housing, discretionary consumer products, capital expenditures, etc. will fall. It would be good to look at the factors behind elasticity of demand in evaluating any asset you wish to hold currently, imho.

Because the US Dollar is a Fiat Currency, the government can do anything they want including the recent bailouts and “quantitative easing”. Basically, they are saying they don’t care about the current deficit they are racking up and skyrocketing national debt, because they are going to print more money to devalue the currency relative to the debt outstanding. This might work for a while until producing countries and resource rich countries have the ability to stop it and force the issue of an international reserve currency to replace the US Dollar as the world’s form of money. Therefore, what the government is trying to do is covertly tax the public and screw all creditors in the process, while keeping the whole game from crashing.

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
John Maynard Keynes (English economist, journalist, and financier, 1883-1946)

“Inflation is the one form of taxation that can be imposed without legislation.”
Milton Friedman quotes (American Economist, b.1912)”

Now onto the solid debate you were soliciting, that those who understand the reality have not yet proferred:
The main problem with your theory is this statement alone: “Backed by the full faith and credit of the United States Government.” Thus, the fiat currency and bonds which we and the rest of the world honor is backed by the taxes and ability to create of the United States in aggregate. The problem in your argument arises when the rest of the world rises up and stops believing in this credit. (see above). As stated, our only saving grace is the past performance of the United States as a producer, our abundant natural resources, including agricultural production, and the entrenched position of the U.S. Dollar as the world reserve currency, and the currency in which Oil is priced(as you have noted). TPTB are walking a tightrope right now to try to get through this ordeal while preserving the world’s faith in the debt instruments we pawn off to the rest of the world. If they just took your stance of devaluation and eliminating taxes to back these instruments, there would be no demand for our pieces of paper. IMHO, the JND of our QE and devaluation is being broached to the point where doubt in the faith of our “full faith and credit” in the worldwide economic marketplace is beginning to set in. See: http://www.bloomberg.com/apps/news?pid=20601087&sid=a5z7pjiZoYpg

Rodger Malcolm Mitchell

http://www.markswatson.com/audio/wheat.mp3

Given in the early 70′s but amazingly inciteful.

Listen: http://www.diametrics.info/audio/Wheat_Receipts_1971.mp3

Populist politicians use this sort of class jealousy to get elected and to pass laws that hurt us all. Just as adding money to the economy stimulates it, taking money from the economy slows it. Tax business or tax the rich and you hurt the poor. They never understand what has happened to them, because they don’t understand the economically damaging effects of taxes.

Rodger Malcolm Mitchell

I think we basically agree that money is actually a fairly abstract concept. Though my father was a PhD economist, I am but a humble builder of robots, and my wife who is an accountant gets frustrated occasionally with my less than intuitive grasp of double entry bookkeeping. That said, the mathematics of economies are interesting and I enjoy a good puzzle. When approaching a puzzle, I generally first try to find a way to bound the solution. So my statement about my house being an entry on the gov’t balance sheet was the exploration of a boundary condition.

I only took a cursory glance the articles that you and Warren Mosler wrote, so I am not 100% confident about my interpretation, but do look forward to exploring this further.

Corporate tax needs some scrutiny 20 years ago.
That we’re still talking about the problem after all this time is emblematic.

Rodger Malcolm Mitchell