Sunday, November 06, 2016

Austria's New 70-year Bond Is Insanity
"The issue of government bonds is actually more insidious and destructive of the market economy than the issue of fiat money for two reasons. First, politically, the issue of long-term bonds and the relentless piling up of government debt perversely bolsters and perpetuates the myth that the State is an eternal entity that somehow is not subject to the disturbances and uncertainties of human affairs. And second, economically, the existence of government debt as a safe haven for wealth and an inexhaustible fount of income diverts capitalists and entrepreneurs from devoting all their attention and resources to their vital function of allocating scarce resources to the most urgent of the anticipated demands of consumers. In fact, in an economic system burdened with fiat money, it would be preferable to ban government borrowing altogether. This would force the government to cover all of its deficits with irredeemable paper fiat money, which does not pay interest. There would be substantial benefits from this course of action. It would demystify the inflationary process for the average citizen. Instead of the Fed camouflaging its creation of money by the hocus pocus of 'setting interest rates' via buying and selling bonds, financing government budget deficits would entail a completely transparent operation in which the Fed prints up money and directly hands it over to the U.S. Treasury. Also the Fed would become a division of the Treasury and would no longer be involved in manipulating interest rates, which is the root cause of business cycles. And lastly, banks and other financial firms, which now hold vast quantities of government bonds and are a powerful constituency in favor of maintaining the political status quo in order to keep their interest payments flowing, would no longer be 'a partner of the government which ruled people and exacted tribute from them.' Keynes infamously called for the 'euthanasia of the rentier'; Mises’s theory of the public debt leads us to call for the euthanasia of the parasitic, government rentier."
- Dr. Joseph Salerno
LINK HERE to the essay

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