> What a liar! "By definition, the unsustainable trajectories of
> deficits and debt that the CBO outlines cannot actually happen,
> because creditors would never be willing to lend to a
> government with debt, relative to national income, that is rising
> without limit." As the head of the Central Bank of a sovereign,
> Bernanke knows perfectly well that he has both the power and
> the legal responsibility to lend to the government every dollar
> needed to finance public expenditures irrespective of the ratio
> of government debt to national income, no matter how high.
Shane,
Suppose the central bank monetizes all additional public debt, since (allegedly) there's no legal obstacle to do such a thing, while leaving the existing distribution of wealth ownership pretty much intact, etc. Doesn't that just shift the problem from the credibility of public debt (the price of government bonds, which is to say their "yield") to the credibility of the currency (the "purchasing power" of this particular type of money, say, USD) as a store of value? Just because you call something "money" doesn't necessarily make it so, even if you are the state. Fiat money is (credit) money (at zero nominal interest) *only if* it acts as money! Despite the Chartalists, one thing is the legal figure of money and quite another thing is its economic existence. The economic existence of money is premised on (roughly speaking) the entirety of M-C-M' flowing, while we know that there are all sorts of disruptions along the way. The laws of legal ownership (vs. effective economic ownership) still apply. I think that the Keynesians delude themselves if they think that you have to be at full (or near full) employment for an inflationary cycle to set in. I can easily envision scenarios with rampant inflation in the face of high unemployment. Actually, there are relatively recent historical precedents. IMO, people are not thinking carefully about the concrete "mechanisms" involved here. The reason, again IMO, is that they are not thinking radically and make all sorts of unwarranted assumptions along the way. FWIW.