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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: JF Quinnelly who wrote (7754)8/15/1999 9:16:00 AM
From: Oblomov  Read Replies (2) of 15132
 
Interesting points... but if the debt were paid off, wouldn't there
simply be less money in the system? That is, M3 would shrink even
though M1 grew. Although some of the new M1 money would be spent,
at least some (if not most) of it would go into other financial
instruments. Why would a temporary increase in M1 necessarily
generate an increase in demand for goods? In any case, this would
be a short-term effect. The new M1 would be redistributed by the
economy to more efficient holders (savers). A new equilibrium
M1 would be found, and it would probably be smaller than before.

I claim that paying off the debt would be deflationary rather than
inflationary. The short term effect may be mildly inflationary,
but once the quantities of money re-established equilibrium, the
fact that less money exists in the system would have its effect on
prices - a deflationary effect.

On monetizing the debt: I remember a few years ago, one of the
third party Presidential candidates suggested a novel method of
paying off the debt. He said that he would order the Treasury to
mint a $5.5 trillion coin, and would then have it delivered to the
Fed as payment in full of the debt.

Once I stopped laughing, I thought it provided an excellent example
of why Treasuries are not "risk-free" securities.

AA
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