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16 July 2017


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Reconnaissance by fire and a ground probe out of Idlib Province to see how solid Aleppo City's defenses are. pl

Sam Peralta


In a recent thread Publius Tacitus makes a very important observation. “We refuse to come to grips with the reality that we are like the doddering old fool behind the curtain. Yes we have nukes and a global military presence. But we are hanging on to this status by spending with the equivalent of credit cards while refusing to make any substantive investments in human capital and infrastructure at home. In pursuit of our ambition for global dominance our leaders are allowing America to be hollowed out at home.

There is a fallacy promoted by some, that since the US issues a sovereign fiat currency (USD), the federal government can spend to infinity with no deleterious effects. That it does not have to make choices in how it spends, as all federal government spending no matter how wasteful, is good.

To frame this discussion we need to first set up some basics.


1. Most nations today issue sovereign fiat currencies. Examples include Japanese Yen (JPY), British Pound (GBP), Indian Rupee (INR), Argentinian Peso (ARS).
2. A sovereign currency is one that only that nation can create. The US cannot create new GBP. Only Britain can do that.
3. A fiat currency is one that cannot be redeemed for a tangible asset. So, for example, the USD and JPY cannot be redeemed for joules of energy or bushels of wheat or ounces of gold.
4. The US dollar currency (USD) is a Federal Reserve Note. It is a liability on the balance sheet of the Fed. Only the Fed can create it by law, NOT the Treasury. This is important. Keep it in mind. We’ll come back to this point in the Analysis.
5. Take a look at the Fed's balance sheet. Note that Assets include Treasury securities, Federal agency debt securities, Mortgage-backed securities. Liabilities include Federal Reserve Notes (USD) in circulation, Repos (Reverse Repurchase Agreements), Deposits of depositary institutions (e.g: commercial banks), Treasury General Account. And then there is the Equity Capital of the Fed.
6. Now, take a look at the financial statements of the federal government. Outlays (expenditures) are funded by Receipts (taxes, duties, etc) and Borrowing (the issuance of Treasury securities – bills, notes & bonds, federal agency debt securities, etc). There’s no other way the federal government finances its expenditures.
7. There are two types of Treasury securities. A) Marketable securities which are securities that can be traded among investors (Fed, foreign governments, mutual funds, hedge funds, sovereign wealth funds, banks, the general public, etc). B) Intergovernmental – these are the IOUs, for example when the Treasury “borrows” from the Social Security Trust fund. The SS Trust fund can’t sell the Treasury IOU to the Saudi sovereign wealth fund for USD cash. They can only be redeemed by the Treasury (see point 6 above about funding of federal government Outlays).
8. Marketable Treasury securities have an interest & principal payment obligation. These payments are a federal government Outlay. See point 6 above.
9. The Federal Reserve by law cannot directly purchase a Treasury security from the Treasury. It can only purchase it in the secondary market, typically from a primary dealer. A primary dealer (Goldman, Chase, HSBC, Nomura, etc) purchases Treasury securities when offered by the Treasury and then sells it to investors (mutual fund, pension fund, insurance company, commercial banks, federal reserve, etc) and make a spread on the trade.
10. The Fed creates new liabilities (USD) by just a keystroke and updating its balance sheet. This is what is called “money printing” as that is what it did previously. Nowadays, it only prints USD bills for cash circulation. It buys new assets like a Treasury security when it conjures new liabilities. Here’s a simple example – Fidelity Bond Fund buys Treasury bonds from a Primary Dealer (HSBC) (who purchased it at a Treasury auction) and then sells it to the Fed for cash and naturally for a profit on the trade. The Fed created the cash (USD) for the purchase of the bond from Fidelity, from thin air, by tapping a keyboard.


1. Take a look at this chart of federal government debt to GDP since the late 1700s. This is a good chart because it shows federal government deficit financing relative to the size of the economy. Remember the formula for GDP = Consumption + Investments + Government spending + (Xports – iMports). Government spending adds to GDP. When the debt/GDP ratio is rising it implies that debt is growing faster than GDP.
a. Do you notice prior to the 1980s that the big spikes generally happened to fund a big war?
b. Do you notice that after those big spikes the ratio declines quickly? Generally as government spending declines.
c. Do you notice the direction of the data series since the 1980s is basically headed up? Meaning there is more federal government debt per unit of GDP and it is growing, while declining in its effectiveness.
d. Do you notice that at the peak in 1946 the ratio hits 118%? Look at the ratio currently? How far do you think this ratio can go?
e. Do you notice the historical general mean of this ratio?
2. Take a look at this chart of GDP growth rate. Do you notice that GDP grows and declines during periods of both rising & declining federal government debt? Do you see any correlation between the data series of GDP growth rate and federal government debt growth rate, which is an excellent marker of federal government expenditures?
a. Do you notice that the GDP growth rates have declined in recent decades at the same time the national debt has grown? Implying that it is taking more debt to generate a unit of GDP growth, which is essentially declining productivity of debt.
3. From point 6 in Basics, one can derive that the only constraint on federal government spending is its ability to extract taxes and borrow.
a. What are the constraints on borrowing? Interest payments and the willingness of creditors to lend. Naturally, as interest payments become a larger share of federal government Outlays and investors see that the government cannot increase Taxes easily, they will become more reticent to lend, which then necessitates the increase of interest rates to attract investment in Treasury securities. Investor confidence is a significant factor, on their appetite to acquire federal government debt securities.
4. Now, lets consider what happens when a central bank like the Fed or the Bank of Japan (BoJ) or the Swiss National Bank (SNB) buys financial assets like a government bond.
a. See Basics point 10. Since a central bank can create unlimited liabilities with just a keystroke, they can be as uneconomical as they want to be. They can pay any price, no matter how ridiculous, for any asset they purchase.
b. Another factor to keep in mind is that the income the Fed generates from interest received on its securities portfolio as well as gains, less losses on securities sold, are sent back to the Treasury. This adds to the Receipts of the federal government.
c. So, when the Fed buys a 2 year Treasury Note from say the Fidelity Bond Fund, it pays cash to Fidelity for the bond. From then on all the interest & principal payments on that 2-year Treasury Note is paid to the Fed. Since the Fed pays that back to the Treasury, the federal government is essentially borrowing for free!
i. That begs the question, why doesn’t every government do this, as it is the perfect free lunch. There is no constraint on how much a government spends when the central bank monetizes all government borrowing. Politicians can make every promise to voters including crediting their bank accounts each week while every citizen hangs out at the beach. No one need work while living the lifestyle of the Rich & Famous as Uncle Sam sends out a Treasury check to each citizen.
ii. As you can imagine this is not a new idea. During every epoch, government’s have tried this Alchemy of Finance.
iii. Well, as is always the case in such matters, it all comes down to confidence. When people have belief, such schemes can run unabated, when that is lost, people are unwilling to accept the currency that is being created ex nihilo at warp speed.
d. What are the implications as a central bank buys financial assets with fiat “money” created out of thin air? Right now the BoJ owns a third of the JGBs outstanding and buys an unlimited amount of JGBs whenever the price falls below a certain value (yield pegging). What happens when they own it all? They also are the second largest owner of publicly traded Japanese equities, being a Top 10 holder of the 100 stocks in the Nikkei index. If they continue on this path, they could own all the companies in Japan, by just tapping a keyboard. How would people react to this?
e. The Fed is a nominally independent central bank. It can choose to not acquire any Treasury securities. It can also choose to not explode its monetary base as it did post-war, prior to Bernanke’s shock & awe, after his infamous “subprime is contained” moment. In that situation, the Treasury will only get a market price for its securities. A price that investors deem is appropriate, which could mean higher interest rates to attract investors. Of course, Congress can change the law and require the Fed to pay cash (USD) for all Treasury & Agency securities issued.
5. In every past instance in history, a fiat currency reached its ultimate value, which is, practically worthless. Why? Over-issuance. Since the marginal cost of creating a new unit of fiat currency is practically zero, governments throughout history have always spent more, in particular on wars that have gone wrong, than the productivity of their underlying economy could support. Can our post-1930s fiat currencies be the ones that are different and grow to the sky in abundance?
6. Publius Tacitus is correct that instead of investing scarce resources at home to improve the productivity of our economy, the federal government has spent trillions on wasteful military interventions, most of which was borrowed from the future of our children.
7. There are limits to how much the federal government can borrow and how much federal government debt the Fed can monetize. These limits are a function of confidence. No one really knows the tipping point for something having to do with mass psychology. To quote macroeconomist Rudi Dornbusch, who studied currency crises, “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.
8. While we don’t know how far federal government debt/GDP can rise, we know we are closing in on the historical peak of that data series, even when we have not mobilized to fight a massive global world war. The question to ask, as Publius Tacitus asked, do we have the financial ability to fight another World War or a war against a credible adversary considering our weakened position?


Russia believes Syrian opposition no longer wants to topple regime

Alexei Borodavkin, Russia’s ambassador in Geneva told Reuters on Saturday that during the seventh round of peace talks which ended on Friday produced positive results, especially a “correction” in how the main opposition approached the negotiations.

"The essence of this correction is that during this round the opposition never once demanded the immediate resignation of President Bashar al-Assad and the legitimate Syrian government,” Borodavkin stated.

“The High Negotiations Committee (HNC) and its backers in Western and Gulf capitals had realized that peace needed to come first, and then political reforms could be negotiated,” he said.

In previous peace talks the HNC and its backers had repeatedly stated that “Assad must go” However, the request is highly rejected by Russia, Syria’s closest ally and strongest military presence in alliance with Assad.

At the UN talks in Geneva, Syrian negotiators focused primarily on the fight against terrorism within the country, particularly the presence of ISIS, and avoided political discussions.

Remember, after the Putin-Trump meeting, Secretary Tillerson suggested during his press briefing that the Russian approach to resolving the Syrian conflict might be better?

Then suddenly, the whole Trump, Jr. 'story' bursts on the scene, ultimately resulting in calls of collusion and treason, while some Democratic operatives want to start a war with Russia.

Call me crazy, but is it just a co-incidence that we are reaching peak anti-Russian hysteria, after the Putin - Trump meeting?

Oh yes, remember what happened, after the Pres. sent out a tweet talking about a possible cyberspace security unit between Russia and USA as one of the outcomes of the Putin-Trump meeting?

You would have thought the Man had just called for the rounding up and killing of all gays, Jews and Muslims in the US given the response from certain members of Congress.

Despite that, is the Trump administration backing away?

Press Gaggle by Homeland Security Advisor Tom Bossert en route Newark, NJ | July 14, 2017

Q Can you give us any more of the backstory of when President Trump was at the G20, met with Putin, they decided they were going to have this bilateral initiative on cybersecurity, and then President Trump tweeted that that was never going to happen? Can you just give us a better understanding of what that agreement actually was? Is it true that it's not getting off the ground? I mean, what happened there?

MR. BOSSERT: I didn’t attend the G20, so what I will tell you is that President Trump, I believe, is right in his continued assertion that even with countries with whom we have friction or disagreements, we have a responsibility on behalf of the American people to continue to have conversations to the extent that they can yield a positive result.

And as his senior-most cybersecurity advisor, I will help him coordinate the Cabinet with Secretary Tillerson and others, Secretary Kelly, Mattis and Mnuchin and others, as we develop the appropriate level and contours of those conversations. But we'll have to set the rules for that. And I think it's a pretty important reminder that President Trump started that conversation by pointedly and exactingly telling President Putin that we will not have our elections messed with. That's unacceptable.

Moving past that, we have to have a conversation about the rules of the road in cyberspace, norms and expectations. I'd like those same rules, norms and expectations to be part of our conversation as we discuss any potential future dialogue with the Russians in cybersecurity. And I'll help the President coordinate that among the right staff levels at the departments and agencies.

Q But given your expertise and the position you hold, do you feel that Russia is sincere in their efforts to partner on cyber, particularly after everything we've heard in the last year? Do you feel confident that they could actually pull this off in a sincere way?

MR. BOSSERT: So, I'm not nitpicking your question, but I would say we are not discussing a partnership here. That is not what President Putin left the room for. That is certainly not what President Trump suggested. And that's not what I'm suggesting today. A partnership is a much different topic.

What was broached at that G20 conversation, as I understand it, was an opportunity to continue a dialogue -- one that had in the past existed between the two countries, and I think one that we could pursue in the future with the appropriate reservations and the appropriate expectations, that we at least start with what is acceptable behavior in cyberspace and what norms and expectations that we'll have moving forward, long before you get into the enforcement of those rules or anywhere near before we get into a partnership.

But again, the instinct to make some progress on behalf of the American people and their security online is a good instinct on President Trump's part.

Q Why prematurely announce a dialogue if nothing is agreed upon on those subjects?

MR. BOSSERT: I don’t think anything was prematurely announced. I think the President was clear in saying that the conversation was raised and the idea was suggested, and that he was open to it. And I'm going to help him put the contours on that and give him some advice back on how we can frame that in a productive way without giving up any U.S. security and certainly without giving up any election security, which is President Trump's priority.

Q You said you didn’t want to use the word "partnership" because it sounds like you're a little bit worried about the relationship. Can you tell us how you deal with the Russians at the lower -- not the presidential level -- when you're dealing with these delicate issues? How that's changed?

MR. BOSSERT: Well, the point -- the distinction I made was that a partnership suggests that you've reached a place where you believe that you have a trusted relationship and you've come to some common agreement on ideals and goals and behaviors. I don’t believe that the United States and Russia have come to that point yet in cyberspace. And until we do, we wouldn’t have the conversation about partnership. But we had to have a dialogue, and that's where we'll start.

I know, what a crazy idea about having a dialogue with Russia on establishing the rules of the road concerning cyber warfare? Bossert must be some sort of closet Russian spy!

By the way, as to that new Washington Post / ABC News Poll? The sampling is plus 12 in favor of the Democratic respondents, not plus 7 as they are reporting. Washington Post and ABC News pulled the same stunt two weeks before the 2016 election. What agenda? Clearly a fair and accurate poll!

On this whole business of #fakenews, an interesting and informative analysis by Nassim Taleb, posted on March 12 that people may wish to read:

The Facts are True, the News is Fake https://medium.com/incerto/the-facts-are-true-the-news-is-fake-5bf98104cea2

After the publication of the US election documents by WikiLeaks, one would have thought the corporate media giants might have taken a step back, especially after having gone all in for Hillary Clinton and been rejected by the public.

Unfortunately, that has not happened.

Oh yes, according to an email posted by Wikileaks, guess which President candidate opposed the Magnitsky Act, so supporting the Russian lobby effort? The same candidate whose husband gave a speech in Moscow and was paid a cool 1/2 million dollars. The campaign denied any connection and was able to kill a story by Bloomberg making the allegation, but the whole situation sure makes one go, hmm.

Hillary campaign spokesman internally bragged about "killing" story linking $500k Moscow cash to Magnitsky bill

- With the help of the research team, we killed a Bloomberg story trying to link HRC's opposition to the Magnitsky bill to a $500,000 speech that WJC gave in Moscow.

So Fusion GPS, with funding from Republican and Democratic individuals opposed to Mr. Trump, hires a former British spy to use his Russian contacts to dig up dirt on Mr. Trump and is most likely provided with disinformation by the Kremlin to help push the effort along, also is involved in an effort to lobby the Trump campaign to oppose the Magnitsky Act with an offer of inconclusive evidence about dirty dealings by the DNC and Mrs. Clinton. That meeting goes no where. Oh yes, at least one of the people at the meeting on the Russian side is a well known source for many reporters in the world of corporate US media, specializing in "the Smear."

P.S. Trust everyone has a wonderful Sunday.


Netanyahu: Israel Opposes Cease-fire Deal Reached by U.S. and Russia in Southern Syria
read more: http://www.haaretz.com/israel-news/1.801612

1. While aware of Israeli concerns, based on articles in the English Israel press, my first question, is the Haaretz report as framed accurate?

2. If it is, while Israel is going to defend its own interests, how does going public help anyone?

3. Are the Israelis speaking only for themselves, or are they also speaking for one or more factions within the intelligence and defense community within the United States and the Arab world who believe the US is "folding" to Russia over Syria, and are calling for a much stronger stance?

In addition to dramatically cutting down on immigration and refugee flows from that part of the world, once the US reaches the stage where it no longer needs oil and natural gas from the Persian Gulf, the American public is going to ask, why must the United States continue to waste blood and treasure doing the bidding of any of the countries in that region? Time to let them go?


The erasure of history continues:



If you control the symbols, you control the dynamism of a society. We need a statue of Trayvon and Caitlin so we can memorialize the values we are told we should have by those tearing down these symbols of the past.


Both the geometric increase in money supply and Peak Debt are necessary consequences of Debt Money. One can see that Peak Debt has passed here:


For every dollar loaned into existence less than one dollar goes into the economy. Consider also said dollar is created at interest, i.e. a typical mortgage carries a 100% finance charge. So we are paying the banks $2 for $.96

Here is a great exposition on debt money:




The underlying foundation of the financial system is confidence.

True. The problem is that the policies since the Carter Administration are destroying the consent of the governed. The forever wars or saving Wall Street at the expense of American who lost their homes serve to transfer wealth from the middle class to the rich. Americans are dying earlier with the transformation of healthcare system from a public right to money extortion schemes. If wealth was used to make society better, there would not be a crisis. It is the chaos from the oligarchs looting that is splintering the USA apart. We need only to look to Mexico to see our future.

The Porkchop Express

Hassan Hassan wrote a good piece in the Guardian.


Though I really haven't seen much mention from, well, anyone ever that sufficiently explains how to de-sectarianize thoroughly sectarian societies. But the ISIS/AQ fight over transnational jihadi supremacy is going to be ugly.


There are a couple of things left out of that analysis. First most of the western governments have used the long running super low interest rate environment to retire older higher interest debt and finance it with very long bonds with very low yields. Britain for example finally got around to paying off some of it's debts going back the the time of the founding of the East India Trading Company. The EU was selling negative rate bonds. That makes financing the debt cheaper.

Having said that that it just moves the day of reckoning to the right. Interest rates are rising and will likely continue to do so short of some form of economic collapse. Financing large debts in that environment will be much more problematic.

In the case of a major war there is that old classic the War Bond. Buy bonds at super low rates to support the war you probably didn't want and any one that doesn't is a traitor to the country.

The second thing is that markets don't always act rationally. Short term political thinking and planning mean that no sane politician is going to wake up one day and say "hey we should pay off this massive debt,rather than using the money for some thing that will get me re-elected." unless an economic shock hits the country and they are forced to. Most countries around the world have run into this. If that shock comes then that means the economy is going to need some help and they will break out the great tool of deflating the dollar. On the one hand that will stimulate the economy, on the other hand you get to pay down your debt in inflated dollars. The markets don't take that into account, they are looking for short term gains because that is what they get bonused on.


Ah, that description is not quite accurate, but follows is a link to the referenced article.

Israel's Relations With The Syrian Rebels: An Assessment https://goo.gl/fb/j18SQH

People can follow the Rubin Center, formally known as the Gloria Center twitter feed online at https://twitter.com/gloriacenter

The website can be found at http://www.rubincenter.org/


This is pure Israeli boiler plate. Take a look at how the nuclear deal with Iran unfolded. Obama cut a deal. Netanyahu was shocked, shocked to find out the results of the deal. He leaned on Obama to change his mind and when he didn't get results he went around Obaba to Congress. Same thing is and will continue to happen here.

>"once the US reaches the stage where it no longer needs oil and natural gas from the Persian Gulf, the American public is going to ask, why must the United States continue to waste blood and treasure doing the bidding of any of the countries in that region?"

The US will shortly be the worlds largest exporter on LNG. As for oil there is so much in North America that the US is exporting it. It is no longer about needing Gulf oil and hasn't been for quite a while. It was never about importing natural gas. It is about being able to prevent others from having access to that oil in a time of war and about massive short sighted arms sales to the gulf.


Channel 4 News, in the UK, recently did a report featuring the Tiger Forces:


Nothing new to anyone here, but it is interesting that an MSM outlet showed this. The military situation in Syria is mostly unreported, except for "Assad eats babies for breakfast" type stories.


London Transport recently banned the use of the phrase "ladies and gentlemen" in its station announcements.


From the CBC article:

"Cornwallis, a governor of Nova Scotia, was a military officer who founded Halifax for the British in 1749. The same year, he issued the so-called scalping proclamation, offering a cash bounty to anyone who killed a Mi'kmaq person."

They tore down statues of Hitler for similar reasons and I am pretty sure that was American armour I saw pulling down the the Statue of Sadam. You can have those people in books where there is context and they will continue to be taught in schools with out glorifying them in parks.


Also according to @terror_monitor:

Hay’at Tahrir al-Sham (#HTS) Takes Responsibility For Bombing On Minat Bayda Port In Latakia

Hay’at Tahrir al-Sham (#HTS) Releases Photos Showing Bombing On Minat Bayda Port In Latakia

(I understand that the Minat Bayda Port is a Syrian Naval Base.)

The Beaver

As usual the whining:

Israeli official: "Ceasefire deal in southern Syria is a very bad deal & doesn't take Israel's security needs into consideration"

I guess the Israelis must love having AQ and ISIS on their border 1


An excellent post. A few extra remarks from somebody on the other side of the pond.

* the US, UK and Turkey have the largest trade deficits in the world
* Saudi Arabia used to have a trade surplus but their defense expenditure and internal energy use have taken their toll. I also wouldn't be surprised if oil is used to buy US weapons as they've done in the '80's through BP and RD Shell. Stocks, (shale) oil production etc don't add up and look manipulated
* the PRC has a large trade surplus with the US and is selling Treasury-bonds for some time now and are probably using this to finance one-belt-one-road and other infrastructure. The last few months it seems to pick up al little, but the trend is still down. If China will not 'loan' anymore this could be the trigger that ends the trust in the USD. This is huge because the US deficits fuel the rest of the world.
* the EU has major problems because of the Euro. The monetary rules is tearing the society apart (especially the lower incomes) because national poltics only have austerity left as a tool.
The upcoming elections in Italy will break the Euro when the war-pact of populist left and right win. Italy has huge problems with refugees as an earlier law by Wolfgang Schauble dictated that asylum should be asked in the country of arrival. Other European countries are also unwilling to the refugee-migrant burden
* The explosion of central bank balances in the US, Europe and Japan (creating money) is the temporary fix that will create the next crisis (after inflation in the '70s, public debt in the '80s, private debt 90s to 2008) and what is left after that? The last financial depression of 1928 was only solved by WW2.


I agree with most of your description of the mechanics of the Fed, Treasury relationship. As you say, law dictates these relationships. Laws can be changed but the properties of money are inherent to its nature as a credit relationship. These current laws date mostly from the Bretton Woods era or before. There are many other things in you analysis with which I agree, but I feel it is important to accurately understand the system in which we live in order to understand what can and cannot be done.

In order for taxes to be collected, the sovereign must first spend money. As the sovereign is the only legal place money can originate, this is a necessary initial condition. Dollars do not exist to be collected in taxes until the US Govt has spent them. In the post Bretton Woods order, the US Govt via the Fed, has set the interest rate by purchasing bonds in the open market until the interest rate is at the "policy level". There is no limit to the Fed's ability to do this as we have seen with QE.

Because banks like to have the interest that the Treasury pays on bonds rather than have cash stockpiles that earn no return, whenever they have surplus reserves of cash that cannot be used as reserves on new credit due to the lack of private demand for new private debt, banks purchase Treasuries with the cash to get interest payments, free money from the Treasury instead. When the Treasury deficit spends, every dollar it spends ends up on a private bank balance sheet. To the extent those banks have private clients who seek new debt, that balance at the bank is used as reserves for the new private loans/debts created. To the extent, as now, that private borrowers don't want to borrow as much as the Fed and Treasury have loaded onto bank balance sheets, those balances end up as Treasury bond liabilities on the Feds' balance sheet when banks by the bonds to get free cash in interest payments. This demand by banks for free money from the Treasury is the reason that the Fed has since 2008 begun for the first time paying interest to banks for their "surplus reserves": there has been so much of this unwanted money loaded into the system, particularly through QE, that it was driving the Fed Funds Rate below the Policy Rate. The interest paid on surplus reserves was to prevent the Fed Funds Rate from collapsing to zero while the Policy Rate was higher. The surplus reserve rate was set where it had to be for the market to normalize around the policy rate.

This is simply the mechanics of how the actual fiat system works. Here is a link from the BOE: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
And something more general: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2008542&rec=1&srcabs=1658232&alg=1&pos=3

There is a real constraint on Govt spending, however, and that is real resources. The Govt can not purchase anything that's not available. It's attempt to do so, between funding the war in Viet Nam and LBJ's Great Society programs created an incipient "demand pull inflation" where demand was running up against a real resource constraint in the form of not enough productive capacity to support war production and accelerating consumer demand resulting from poor people engaging more deeply in the consumer economy of the time. The OPEC cartel compounded that with a "cost push inflation" when it choked off our cheap oil supply. "Cost push" is when a an outside input to the system has an exogenous cost increase that them must be re-priced as it propagates through the system. This combination created the great inflation of the 70s that Volker is commonly credited with ending but in my opinion was ended by the de-regulation of the natural gas market. Thats another discussion.

Real wealth in an economy consists of its ecological, geological and geographic inheritance, the knowledge, wisdom and skill of its manpower, both labor and management, and that constellation of productive relationships that engage resources, labor, management in the re-organization of material things to make the most of the benefits on offer. There are productive constellations that are entirely private, like industrial production and resource extraction where private arrangements afford the best outcomes. There are other constellations that ought to be public, like defense and government administration where private interests would be incentivized to monetize public goods to yield personal riches. Education, health, housing, food and defense all constitute such public goods to my mind, others obviously differ, but those social units that see to these things best tend to outcompete those that don't.

In the US at present, between un-employment and under employment, there is a huge reserve of potential useful work that the US could afford to purchase simply by productively employing the afflicted. The deficits of the last two decades sit mostly idly on the balance sheets of rich individuals, corporations and other institutions. They have not been inflationary except for the things the rich like to buy, like New York, DC or San Francisco real estate or new, super luxury hospitality and medical facilities. Fortunately there is enough of this to keep me going in my day job as an enabler to the plutocracy.

I make an issue of all of this because change needs to happen and money is the dominant artificial motive driving modern productive constellations, whether public or private. Understanding what can and can't be done with it defines what is and isn't possible through these systems. The origin of money is in the simple, personal credit relationship: as Minsky said, "anyone can make money, the trick is getting it accepted." Large empires tend to run on fiat, ours, Genghis Khan's, ancient and present China because their ability to enforce tax collection drives a demand for the currency and the flexibility of the money system, unconstrained by an external commodity like gold, allows policy decisions that are of public benefit despite not always producing private winners. This policy that strengthens the "public" without making private winners is the glue that cements citizens patriotism at a deeper level than any loyalty a corporation can purchase with a salary or bonus.

The public good of fiat is that a nation can look after itself in spite of more selfish agents internal to it. Liabilities of the issuer are at the discretion of the issuer who has a unique relationship to its money both through its ability to issue and its access to coercive force to ensure tax collection. So long as that force is credible, the money is credible. While fiat money is thus an ambiguous liability for the Govt that issues it, for all other users it is an asset that can be redeemed for anything available within that system: a dollar will purchase a dollars worth of anything within the dollar denominated world economy. The "Deficit", that huge liability on the Fed's balance sheet is simply the inventory of outstanding dollar denominated financial instruments held privately or by other central banks. To want to eliminate the "Deficit" is to want to eliminate privately held or foreign held dollar financial instruments: to want the first is to want the private sector to be dollar poor, to want the second is to want foreign govts to be dollar poor. In the first instance, the private sector would loose all economic power within the US system as it would no longer be able to command purchases, in the second, foreign states would no longer be able to trade with the US as they would have no dollars to pay us with.

To your final point, finance is not what wins wars, it is the mobilization of real resources that wins them and finance is merely the artificial motive used to initiate that mobilization. This: http://www.heritech.com/ymagchy/spaulding/spaulding_01.html is the history of fiat use in the American Civil war. It is a wonderful read in that you will recognize all the political players, the names have changed and rhetorical standards are greatly diminished, but the positions and politicing are evergreen! Hajalmar Sachts "Autobiography of an Old Wizard" on the financing of the Nazi mobilization is also very interesting and to the point of your question. The hollowing out of US manufacturing, the globalization of our supply chains, the dereliction and depression, indeed now self destruction with the opiod epidemic, of the American workforce are the real wealth constraints that will prevent the US, without major re-structuring, from being able to face a real existential adversary.

Linda Lau

I get it about how the media mislead our public about many aspects of the Syria story. But let's not go too far. Assad is a bloody dictator like his father before him and life in Syria was not a piece of cake before the civil war. The Alawites did want to control all of the levers of power and most Syrian women did not run around in bikinis. I remember seeing them in Damascus wearing their long heavy coats in the middle of summer in order to be religiously correct. Glad to be rid of the jihadis I'm sure but Syria will not be a wonderful place to live for a long time.But good on them for trying to reclaim their lives.



There are no good guys in the Middle East. Regime change in Syria is a terrible idea. The only alternatives to this government are jihadi governments. pl

Sam Peralta


I'm not arguing for or against "debt money". I'm just analyzing what is - the cards we've been dealt, within the current lawful structure. I was attempting to address the myth that since the US issues a sovereign fiat currency, there is no limit to federal government spending. My analysis is to show that there is a limit. I don't know what it is but I know it is a function of confidence which is a psychological factor.

I also don't know if we are at Peak Debt or not. But I do know total credit market debt + unfunded liabilities, globally, is at historical highs. And to your point the productivity of that debt is declining as it continues to grow. I am mindful of Rudi Dornbusch's research and have had many fascinating discussions with him while he was alive. Even what is seemingly unsustainable can become even more unsustainable.



We can not continue to oppress the victimized descendants of the oppressors and their victims by exposing them to smaller versions of such images. The very existence of such a thing is abhorrent. Legacy guilt is forever.

Sam Peralta


You are making a similar point to Publius Tacitus, whose observation that America is being hollowed out at home is spot on in my opinion.

There are many indicators that point to that. From income and wealth distribution among the different quintiles, to declining Labor Force Participation rates, to stagnation in real median household incomes to the decline in manufacturing employment. And then all the social factors that you allude to.

Ultimately we are in a political economy and as voters we have a huge responsibility for the decades long slide in the hollowing out the country.


Beaver - The short answer is yes, Israel would rather have AQ and ISIS on their Golan Heights border than Hezballah. Israel understands if Assad stays in power, it is likely to see the same dug in Hezballah and its rockets on the Syrian border as they now have on the border with Lebanon. You have to understand Israel's concern with Hezballah whom the IDF hope to never have to fight again. Israel considers AQ and ISIS to be poorly organized as a fighting unit(unlike Hezballah) and knows that AQ and ISIS would never tolerate the Shia Hezballah anywhere near their men.

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