Or admit he was wrong.
The latest is off his blog:
As to the Fed announcing a commitment to a moderate amount of inflation, let me point out that according to many macroeconomic historians, the abandonment of the gold standard was the most useful thing that the federal government did to get the country out of the Great Depression. A commitment to producing a moderate amount of inflation would be the modern equivalent of that act.
Greg simply refuses to face mathematical reality: We have reached and in fact exceeded the limit of debt service .vs. income.
Having reached that limit there is no alternative but for the excessive debt to be paid down when possible, and defaulted when not.
The mathematical reality is that debt taken for other than production (see constrains true economic growth. The reason is as I have noted before - nobody in their right mind will loan you money at a loss - that is, at less than the risk-free rate of return (which can be roughly approximated as the inflation rate plus a small margin, usually represented by Treasuries), with a lower boundary of zero.
Therefore as debt-to-GDP grows the amount of interest paid, which must always be greater than the risk-free rate of return, consumes a greater and greater percentage of GDP. This in turn causes the risk premium to rise since the marginal cash flow available to service debt shrinks, placing further upward pressure on true interest rates.
Machinations intended to avoid this (e.g. central bank "liquidity pumping") are ineffective as nobody will lend money at a rate less than the risk-adjusted price. If the policymakers attempt to force rates below this amount lenders simply withdraw from the marketplace and continued forced lending by the central bank does nothing other than transferring the excess loss (that is, the rate deficiency .vs. the risk-adjusted premium) to the taxpayer.
Anyone with an IQ larger than their shoe size realizes that this sort of game-playing hasn't "enhanced credit availability" at all; the actual available capital to pay interest and principal hasn't changed one iota - you've simply assessed the citizens via a back-door route, but the increasing constraint on their spending remains and in fact goes up since inefficiency increases!
As that constraint (total cash flow available to pay interest and principal) binds tighter and tighter the crooners who claim that we can simply continue to take on more and more debt become more desperate as their "solution" begins to not only fail to work but tightens the death spiral. Once the zero point is crossed deflation sets in and there is nothing you can do about it as further attempts to pump credit simply tighten the spiral further, forcing MORE deflation!
(As an aside, I am fully-aware of the different uses of credit; productive, speculative and ponzi "investment" - see my letter to Congress of July 19th, 2008. However, since credit is fungible it is impossible to prevent loose credit from being used for speculative or ponzi purposes; therefore, the above holds.)
The correct move is to withdraw lending and force the bad debt out into the open where it is defaulted. This is extremely painful but balance must be, and ultimately will be, restored - we are only arguing about how far down the hole we wish to go before we start to climb instead of dig!
If you try to force lending in a deflationary environment by attempting to literally destroy money you not only will fail in your stated purpose (see above) you also instantly remove one of money's purposes - that is, the storage of wealth.
Yes, I know that economists declare that money is simply a medium of exchange and that inflation is a hidden tax that dissipates wealth held as money. Go tell the millions of Americans who have savings accounts that you intend to steal 10% of their balance and see what their reaction is. Hint: Wear a bulletproof vest.
The fact is that all the so-called "economists" over the last 20 years are and have been wrong. Rather than face the fallacy of their claims - that debt cannot be indefinitely added to, that one must not grow debt faster than GDP or you inevitably get burned by the mathematical law of exponents, they are now turning desperate as they increasingly realize exactly what sort of corner they have backed themselves - and our economy - into.
Those who lack the intellectual honesty to admit their idiocy over the previous 20 years should at least consider the other honorable way out of this box.
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