The Keynsian end game

Print and borrow your way to economic growth - it usually ends like this:

Sri Lankan president Gotabaya Rajapaksa has declared a nationwide public emergency, following violent protests over the country’s worst economic crisis in decades.

Rajapaksa said in a government gazette notification late on Friday that he took the decision in the interests of public security, the protection of public order and the maintenance of supplies and essential services.

Hundreds of protesters clashed with police and military on Thursday outside Rajapaksa’s residence in a suburb of the capital, Colombo.

Police arrested 53 people and imposed a curfew in and around Colombo on Friday to contain sporadic protests that have broken out over shortages of essential items, including fuel and other goods.

https://www.theguardian.com/world/2022/apr/02/sri-lanka-pres…

There is no substitute for sound money backed by assets

4 Likes

The Indian Ocean island nation of 22 million people faces rolling blackouts for up to 13 hours a day as the government scrambles to secure foreign exchange to pay for fuel imports.

From last month:
Fertiliser ban decimates Sri Lankan crops as government popularity ebbs
www.reuters.com/markets/commodities/fertiliser-ban-decimates…
“I cannot recall any time in the past when we had to struggle so much to get a decent harvest,” said Seneviratne, a lean 65-year-old with a shock of silver hair, who has been farming since he was a child. “Last year, we got 60 bags from these two acres. But this time it was just 10,” he added. The dramatic fall in yields follows a decision last April by President Gotabaya Rajapaksa to ban all chemical fertilisers in Sri Lanka - a move that risks undermining support among rural voters who are key to his family’s grip on Sri Lankan politics.

From November 2021:
As farmers protest in Sri Lanka after fertilizer ban, experts warn of food crisis
https://peoplesdispatch.org/2021/11/17/as-farmers-protest-in…
Farmers in Dekatana district in the Western Province of Sri Lanka organized a protest march and burnt effigies of the agriculture minister on Wednesday, November 10, to demand fertilizer aid from the government which adopted a 100% organic farming policy earlier this year.

From May 2021:
Sri Lanka Restricts and Bans the Import of Fertilizers and Agrochemicals
https://apps.fas.usda.gov/newgainapi/api/Report/DownloadRepo…
Sri Lanka President Gotabhaya Rajapakse claims that by limiting and banning the import of fertilizers and agrochemicals, this will help rein in rising health care costs brought about by overuse of chemicals in agricultural production…
The government subsidizes rice production to ensure rice self-sufficiency (a national food security objective). Heretofore, it was providing local rice farmers with free, imported chemical fertilizer. For other field crops, the government provides farmers with fertilizers at deeply discounted cost. Sri Lanka is encountering difficulties financing its costly fertilizer subsidy program. Facing increasing difficulties managing its balance of payments, Sri Lanka may potentially be limiting and banning chemical fertilizer and agrochemicals usage to control hard currency outflows.

In an article from last month, Nordhaus and Shah write about Sri Lanka’s organic farming experience, which they call a “farrago of magical thinking, technocratic hubris, ideological delusion, self-dealing, and sheer shortsightedness”.
https://thebreakthrough.org/issues/food/sri-lankas-experimen…

DB2
farrago, a good word

1 Like

Under supply side econ the US federal debt load has surged massively. I think your ideas are based on false advertising. Certainly your ideas are not based at all on economics.

2 Likes

Let’s see how long this conversation goes on before it is FA’d.

You might want to try reading “Lords of Finance”, about the economic conditions during and that followed World War I. The very obvious conclusion was that the longer a government stayed on the gold standard, the later - and slower - its recovery was. Countries that abandoned the rigid standard and primed their economies were the quickest to rebound, and led Europe out of the miasma that followed the destruction of the war. From the summary:

**The story of that global economic collapse is tried in n9o ska oil part to the gold standard, a big top orfthodoxy that central bankers club to fervently. It linked a currency’s value to a corresponding amount of gold.**
https://www.getabstract.com/en/summary/lords-of-finance/1202…

Or, as it has been otherwise described, the theory is that we dig up metal from the ground in Africa and California and Alaska, then ship it to vaults back underground where it sits forever, and that’s why the economy works.

Right. I keep asking you, and you have yet to provide, a single instance of an economy anywhere which is more robust than that of the economies which use debt, even substantial and rolling debt to foster growth. You have a whole wide world from which to choose. On the other side are the US, China, Japan, Britain, and, well, you know, virtually every advanced economy on the planet.

I know you can pick a couple of outliers where it got out of hand, but show me the ones where “no debt” worked.

16 Likes

You might want to try reading “Lords of Finance”, about the economic conditions during and that followed World War I. The very obvious conclusion was that the longer a government stayed on the gold standard, the later - and slower - its recovery was. Countries that abandoned the rigid standard and primed their economies were the quickest to rebound

A slower recovery, but a more sustainable one.

The USA picked up quite quickly after WW1, right up to The Great Depression and the assets crash at that time.

Bernake did his PhD on business cycles and concluded that The Great Depression could have been stopped or its effects mitigated by the expansion of credit. This probably explains his actions at The Fed. If printing money is such a panacea then the USA should be an economic paradise by now.

It doesn’t work long term IMHO

Bernake did his PhD on business cycles and concluded that The Great Depression could have been stopped or its effects mitigated by the expansion of credit. This probably explains his actions at The Fed. If printing money is such a panacea then the USA should be an economic paradise by now.

Largest GDP in the world should count for something, shouldn’t it?

5 Likes

Largest GDP in the world should count for something, shouldn’t it?

Not if it is not in his living room. LOL

Bernake did his PhD on business cycles and concluded that The Great Depression could have been stopped or its effects mitigated by the expansion of credit.

Keynes’ work that got him influence posited that in times of economic distress government should spend generously, even if it has to borrow money to do so - and then in times of abundance the government should pay off its debts and build up reserves against the next period of economic distress.

(Note: that’s what got him influence. What got him respect was earlier work stemming from the TWO times he had walked off government jobs in disgust at the systemic economic incompetence of politicians and government bureaucrats.)

Keynes’ recommended approach, though, has AFAIK never actually been tried. What has been tried in its name is that in times of economic distress government borrows and spends, and then in times of prosperity they look back and see that all that borrowing and spending didn’t hurt so obviously they can afford to borrow and spend even more.

I am not aware of any political party in any country that has been an exception to this when THEY held the reins of power. (Political parties that object to borrowing and spending when they are OUT of power, are a dime a dozen.)

1 Like

Bernake did his PhD on business cycles and concluded that The Great Depression could have been stopped or its effects mitigated by the expansion of credit. This probably explains his actions at The Fed. If printing money is such a panacea then the USA should be an economic paradise by now.

Largest GDP in the world should count for something, shouldn’t it?

Yes, a pile of debt all stuck on the credit card:

https://www.usdebtclock.org/

Those who don’t learn from history are doomed to repeat it:

What Wall Street Can Learn From The Mongol Empire…

…I was in Karakorum, Mongolia, the ancient capital city of the early Mongol empire. And it was here that some of the great Mongol emperors ruled not just with bows and arrows but paper…

…But it was my trip to Mongolia that brought to life the perils of paper money. A monetary system that is based on fiat currency, money not moored to metal, presents a Faustian bargain. It may create the mirage of short-term riches, but it often results in the long-term demise of a society, like what happened to the Mongol Empire in China. And without learning the lessons of money history, we here in the US risk being destined to repeat it.

https://observer.com/2015/03/what-wall-street-can-learn-from…

Repeated countless times since the Mongal Empire

Mongols on horseback were a fierce military force, and not destroyed by paper money.

It was something more complex… like trying to rule China.

1 Like

Repeated countless times since the Mongal Empire

Money is supposed to be created by the sale of goods and services (IOUs). Money printed without sales is a forgery, a fraud. The Keynesian game has a second part, the raising of taxes to offset the previous fraud but that second part is not as popular as the fraud part so it is avoided. Sooner or later the system collapses.

What Keynes didn’t realize was that the resistance to taxes was stronger than the eagerness for printing. Economic systems that don’t take into account human nature must fail.

The Captain

4 Likes

Money is supposed to be created by the sale of goods and services (IOUs). Money printed without sales is a forgery, a fraud. The Keynesian game has a second part, the raising of taxes to offset the previous fraud but that second part is not as popular as the fraud part so it is avoided. Sooner or later the system collapses.

What Keynes didn’t realize was that the resistance to taxes was stronger than the eagerness for printing. Economic systems that don’t take into account human nature must fail.

I’m not quite understanding you. Fiat money existed long, long, before Keynes. Same with governments and banks creating money out of thin air, even when the country had a metallic standard.

2 Likes

I am not aware of any political party in any country that has been an exception to this when THEY held the reins of power.

Warr,

There is one party that really leads in creating debt. There is one party that definitely has reduced how fast we accumulate a deficit most years they are in office. You have seemingly said high deficits are wrong and then supported those who accumulate the debt the fastest.

1 Like

What Keynes didn’t realize was that the resistance to taxes was stronger than the eagerness for printing.

I guess you did not get the memo, supply side econ has monetary policy lead. Yes that means printing and then printing a lot more rinse and repeat.

What is not taken into account is the advertising for supply side econ is false.

I’m not quite understanding you. Fiat money existed long, long, before Keynes. Same with governments and banks creating money out of thin air, even when the country had a metallic standard.

The problem with money is that it is very difficult to understand without digging deep into the question, “What is money.” At the same time using money is so simple and easy that most people have no interest or need to find out what it is and how it works. To use cars as an example, most drivers don’t have a clue about the Otto Cycle because they can drive just fine without that knowledge.

An Otto cycle is an idealized thermodynamic cycle that describes the functioning of a typical spark ignition piston engine. It is the thermodynamic cycle most commonly found in automobile engines.[1]

https://en.wikipedia.org/wiki/Otto_cycle

What money is not

Currency is not money just as casino chips are not money. We call dollar bills money and we could just as easily call casino chips money but they are not money. What then are dollar bills and casino chips? They are part of an accounting system!

How about gold currency? Gold coins were an attempt to attach value (money) to the accounting chips which was useful before we had instant world wide communications. The gold standard becomes a myth with fractional reserve banking. Say banks have a 10% reserve requirement. You deposit $100 dollars worth of gold and the bank can make loans up to $1,000. But those dollars are not backed by gold, the bank does not have $1,000 worth of gold, only $100. Nixon found that out in 1971. The other problem with gold is that it works like a fisherman’s measuring tape, it grows and shrinks based on supply and demand making it a lousy numbering system to use in accounting.

What is money

Money is an accounting system that keeps track of the wealth you have created and not yet spent. In ancient Babylon they recorded transactions on clay tablets, “John gave Jack ten cows.” That was proof that John was worth ten cows. This kind of accounting gets messy quickly. Somehow, I don’t know how, humanity invented tokens to keep track of wealth. These tokens we call currency which represent the value the owner has accumulated. Money is the value the accounting system tracks, it is immaterial, a meme if you wish.

I promised earlier that money is difficult to understand. I think I just proved it. I have spent over 20 years trying to find out what money really is. Niall Fergusson and John Kenneth Galbraith wrote books about money but never did explain the real meaning of money so I kept digging and the above is the best I can do to explain it.

Currency becomes money when we all agree it is money but it is not money, it is just tokens that represent the value traded by the players.

Have you ever seen the money in your broker’s account? They don’t have the official tokens. And banks can create money just like the Fed can by making loans without printing tokens. It’s as real money as the bills the Fed gives you. Because money has no physical existence we invented terms like the “velocity” of money which all it means is that trades are happening faster or slower. The number of tokens has not changed, they just changed hands faster or slower. When a stock drops in price the number of tokens has not changed, we just all agreed that the stock is now worth this new number.


What printing money means is that the government can make fake accounting entries without creating the value they are supposed to represent. The government prints fresh new tokens and people think they got the Real McCoy but they got forgeries with no value backing them. Taxation then takes these forgeries out of circulation which would complete the Keynes cycle.

If the above sounds strange, the Spanish did it with the silver from Potosi. They flooded Spain with silver creating inflation because no additional goods and services came into existence – no value creation to back the newly mined metal. This shows that the metal in the currency is not the value of the wealth the currency is supposed to account for.

The Captain

15 Likes

Currency is not money just as casino chips are not money.

There is no reason on earth to believe what is being said in that. If you mean it give all your currency to charity. Just kind of sit there with an empty bank account. If you pay your electric bill you can entertain us next month.

What Keynes didn’t realize was that the resistance to taxes was stronger than the eagerness for printing.

Based on Keynes’ previous history, I do NOT believe he didn’t realize that.

Rather, I think he made a PERSONAL economic decision that telling the politicians what they wanted to hear and wrapping it in high-falutin’ economist-talk would be beneficial to HIS OWN economy, and the harmful consequences could be delayed long enough that he wouldn’t suffer them.

(AKA he sold out for money and/or influence.)

What printing money means is that the government can make fake accounting entries without creating the value they are supposed to represent. The government prints fresh new tokens and people think they got the Real McCoy but they got forgeries with no value backing them. Taxation then takes these forgeries out of circulation which would complete the Keynes cycle.

If the above sounds strange, the Spanish did it with the silver from Potosi. They flooded Spain with silver creating inflation because no additional goods and services came into existence – no value creation to back the newly mined metal. This shows that the metal in the currency is not the value of the wealth the currency is supposed to account for.

I agree with almost everything you wrote, the part I don’t grok is what Keynes has to do with it. The founding assets of the oldest central bank, the Bank of England were not physical assets. It was a loan:

To induce subscription to the loan, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. The Bank was given exclusive possession of the government's balances, and was the only limited-liability corporation allowed to issue bank notes.[16] The lenders would give the government cash (bullion) and issue notes against the government bonds, which can be lent again.

https://en.wikipedia.org/wiki/Bank_of_England#Founding

As stated in the article, the money from the loan was then loaned to others. In colloquial terms, the Bank of England began printing money out of thin air. This continued from 1694 until the present day.

6 Likes