Friday, October 11, 2013

James Grant Throws His Tea Towel In With Boehner - Calls For Cold Turkey US Default to "Stabilize" $US

Commentary by Roger Erickson

With idiot savant advisers like this, who need enemies?

According to Grant, America’s default on its debt is inevitable.

His reasoning is so precious that it's worth reviewing in full. Here's his text. My comments are in [red]

             ***********

By James Grant, Published: October 10

James Grant is the editor of Grant’s Interest Rate Observer.

There is precedent for a government shutdown,” Lloyd Blankfein, the chief executive officer of Goldman Sachs, remarked last week. “There’s no precedent for default.”

How wrong he is. [Or so James Grant says.]

The U.S. government defaulted after the Revolutionary War, and it defaulted at intervals thereafter. 

[Yet NEVER on our current, fiat currency regime, since 1933? He's mixing apples, oranges & pomegranites ... and who knows what else. Vodka?]

Moreover, on the authority of the chairman of the Federal Reserve Board, the government means to keep right on shirking, dodging or trimming, if not legally defaulting.

Default means to not pay as promised, 

[which is, by the way, clearly unconstitutional; & hence illegal]

and politics may interrupt the timely service of the government’s debts. The consequences of such a disruption could — as everyone knows by now — set Wall Street on its ear. But after the various branches of government resume talking and investors have collected themselves, the Treasury will have no trouble finding the necessary billions with which to pay its bills. The Federal Reserve can materialize the scrip on a computer screen.

Things were very different when America owed the kind of dollars that couldn’t just be whistled into existence. 

[Yes. Faux power for gold plutocrats ... and itty bitty Policy Space (and atrophied Policy Agility too).]

By 1790, the new republic was in arrears on $11,710,000 in foreign debt. 

[Did he say "FOREIGN" debt? You heard him? Is he deaf to his own semantic peg?]

These were obligations payable in gold and silver. Alexander Hamilton, the first secretary of the Treasury, duly paid them. In doing so, he cured a default.

Hamilton’s dollar was defined as a little less than 1/20 of an ounce of gold. So were those of his successors, all the way up to the administration of Franklin D. Roosevelt. But in the whirlwind of the “first hundred days” of the New Deal, the dollar came in for redefinition. The country needed a cheaper and more abundant currency, FDR said. By and by, the dollar’s value was reduced to 1/35 of an ounce of gold.

[Yes. So what? The bigger point was that we finally had as much currency as we needed to denominate as much fiat - public initiative - as we could muster, just as fast as we could muster it! James Grant seems to have his head up a dark place confined to his own personhood, where it's difficult for him to see the collective light of 315 million coordinating citizens.]

By any fair definition, this was another default. 

[Per unitary definition of "fair," perhaps. Yet for those members of a social species who CAN see further than the end of their own nose, personal definitions of fair are trumped by collective definitions. Where has James Grant been since the concept of group unity was 1st proposed, say, >200K years ago? Good grief! Where do we find sociopaths like this, and who decides to feature them in the Washington Post?]

Creditors both domestic and foreign had lent dollars weighing just what the Founders had said they should weigh. They expected to be repaid in identical money.

[Ludicrous, Mr. Grant! Creditors lend present social credit denominated in some form of public initiative. They ALWAYS take the chance that the FUTURE amount of public initiative returned remains as or more relevant than the past public initiative did. Yet find ANYTHING from today that isn't obsolete in 50 years, including all the "lenders" and "creditors" themselves.   Worse, you're conflating static commodity value (e.g. a stick) with dynamic value (e.g., the agility of the opponent wielding it). Hint for Mr. Grant, the dynamic value of agility, especially NATIONAL agility, always trumps the static values possessed by any opponent. Just ask any trained unit, from a band to a sports team to the USMC - or the informed electorate of the USA (at least when they stick together).]

Language to this effect — a “gold clause” — was standard in debt contracts of the time, including instruments binding the Treasury. But Congress resolved to abrogate those contracts, and in 1935 the Supreme Court upheld Congress.

The “American default,” as this piece of domestic stimulus was known in foreign parts , provoked condemnation in the City of London. 

[Perhaps, although England and all other countries - before or soon after us - also left the gold std.  Plus, by the end of WWII, they all thanked us for enlarging our Policy Space and Policy Agility beyond anything they had ever done, in order to save their complaining butts! Capiche?]

“One of the most egregious defaults in history,” judged the London Financial News. “For repudiation of the gold clause is nothing less than that. The plea that recent developments have created abnormal circumstances is wholly irrelevant. It was precisely against such circumstances that the gold clause was designed to safeguard bondholders.”

[WTF?  England had already exited the gold std itself, in 1931. France held out only until 1936.]

The lighter Roosevelt dollar did service until 1971, when President Richard M. Nixon lightened it again. In fact, Nixon allowed it to float. No longer was the value of the greenback defined in law as a particular weight of gold or silver. It became what it looked like: a piece of paper.

[Pieces of paper denominating the rapidly growing fiat of the collective citizens of the USA. Liquidity of growing fiat is accomplished precisely by upping the volume and deflating the unitary buying power of a currency unit, while increasing collective buying power of the net currency volume.]

Yet the U.S. government continued to find trusting creditors. Since the Nixon default, the public’s holdings of the federal debt have climbed from $303 billion to $11.9 trillion.

[Good lord! Can someone tell James Grant that this is ENTIRELY a case of his own, broken semantics? An increase in required & issued fiat currency supply is NOMINALLY called "debt," ONLY because there's a change in net volume of fiat. It also happens to be the amount of currency held in private hands, as financial savings. If you know Mr. Grant, please send him some of Wynne Godley's old books?]

If today’s political impasse leads to another default, it will be a kind of technicality. Sooner or later, the Obama Treasury will resume writing checks. The question is what those checks will buy.

“Less and less,” is the Federal Reserve’s announced goal. Under Chairman Ben Bernanke (with the full support of the presumptive chairman-to-be, Janet Yellen), the central bank has redefined price “stability” to mean a rate of inflation of 2 percent per annum. Any smaller rate of depreciation is an unsatisfactory showing to be met with a faster gait of money-printing, policymakers say.

In other words, the [unit] value of [one $US] has become an instrument of public policy, not an honest weight or measure.

[He seems to think that's a bad thing? What's dishonest about maintaining an agile fiat currency supply in order to maintain agile fiat of a growing nation?]

In such a setting, an old-time “default” is impossible. 

[Glad you heard it from the horse's mouth.]

How can a creditor cry foul when the government to which he is lending has repeatedly said that the [unitary] value of the money he lent will shrink?

[AND, that the amount of currency issued will automatically rise to be able to buy whatever NEW products and services become available. As an alternative, is Grant proposing a Luddite Political Party?]

The post-1971 dollar derives its value from the stamp of the government that issues it. 

[That's been true since 1933, Mr. Grant.]

Across the seas, this imprimatur is starting to look a little tenuous. Lend us your dollars for 10 years, the Treasury proposes. We will pay you the lordly interest rate of 2.7 percent per annum. And at the end of those 10 years, we will hand you back your principal, which will almost certainly buy less than the money you lent.

[?? Who, besides counterfeiters, even TRIES to lend us any $US? Nevermind. There's so much wrong there that it's not even worth trashing. It's all completely out-of-paradigm, non-sense.]

This is the unsustainable conceit of the world’s superpower-cum-super debtor. By deed, if not audible word, we Americans say: “The greenback is the world’s great monetary brand. You have no choice but to use it. Like it or lump it.” But the historical record of paper currencies is clear: Governments always over-issue it. The people finally do lump it.

[Wow! Good thing only Luddites constrain themselves to opinion alone.]

What to do? Let us face facts [Note: he means "face my Luddite propaganda"]: We have defaulted in the past. Let us confront the implied message of the Federal Reserve’s pro-inflation policy: We will default in the future, though no lawyer will call it “default.” And let us preempt the world’s flight from our intangible money by taking steps to fashion a 21st-century improvement. We have the gold and the brains to find the solution.



[Doubt we have the gold, but - based on what James Grant says - we CERTAINLY haven't the brains! At least we won't if anyone remotely like him ever gets anywhere near enough to our policy offices to be taken seriously.]





















6 comments:

Tom Hickey said...

Another nut case.

Ryan Harris said...

The Debt ceiling debacle illustrated to the public that balancing the budget would fix the 'problem' in the same way that TPC illustrated money creation to millions.
A default solution or TPC means that Dems and Repubs have given up on making laws and regs. serve the public and have resorted to working around the laws (that they created). It really means that the constitution has failed.
Don't forget the April/May 1979 default along with The Congress' refusal to pay interest while in default.

Matt Franko said...

Not much to "observe" about the "interest rate" when it is stuck at zero for 5 years...

I guess now he has to come up with a new schtick and is jumping on the metal-love bandwagon.

The Just Gatekeeper said...

Never trust a grown man wearing a bow-tie...unless its Bill Nye the science guy.

Unknown said...

And let us preempt the world’s flight from our intangible money by taking steps to fashion a 21st-century improvement. We have the gold and the brains to find the solution.
James Grant [bold added]

Justice is intangible too, Mr. Grant.

Your position is therefore akin to idolatry in that you value what was created over what the Creator desires from us.

Brains you say? What is lacking is wisdom and from you too. I suggest you pray for it and seek it by reading God's Word, the Bible.

Hint: If what a conservative conserves is not justice then what is he conserving if not injustice?

Matt Franko said...

F.,

I dont think that is 'idolatry' you are 'reasoning' there with that jump...

Paul in Romans: "offering divine service to the creation rather than the Creator..."

These people are NOT offering divine service to gold...

What I observe is that either they:

1. become "fond" of it, Paul used the term 'philarguron' or 'fond-silver-ones' or 'love-silver-ones' using the Greek word 'philos' which was a form of what we in English today may term 'love'...

or

2. They want us to surrender our (I'm talking as a human being here when I say 'our') God-given authority to autonomously conduct our economic affairs over to these metals (or what is behind them...) ie they do not want us to be able to take righteous economic action without having our institution of civil government first being able to obtain mass measures of these elements from column 11 of the PTE...

So either they are caught up in some sort of perverted type fetish for this stuff or they are traitors to the human race... either way no good for us.

This is an excerpt from Isaiah where Isaiah reveals how God would take down the Babylonians via these same 2 'mistakes?' that they made back then:

17 Behold Me rousing against them the Medes, who are not accounting silver, And gold - they are not delighting in it. (Isaiah 13:17)

So the Babylonians were caught up in both of these traps. They were using mass measures of silver as their currency system/unit of account and they were caught up in gold-love or 'delight'... double whammy.

So this does not look like 'idolatry'. Rather it looks like it comes down to some form of stupidity (to me).

rsp,