News: I am taking a vacation. It’s nearly the New Year, so I am taking a few weeks to time out. That does not mean that RollingAlpha stops though – it just means that I am writing this post to you from the past (date of writing – Saturday 9 November). The posts might be a bit shorter – but I’m told that might be a good thing (I’ve had some complaints about length…).

Right. So part of my plan for these posts is to:

  1. search out youtube clips* that I’ve found insightful/entertaining/frustrating;
  2. provide you with a brief commentary on what I found insightful/entertaining/frustrating; and
  3. refer you back to some of the articles that I’ve written that I think are relevant.
    *for my email subscribers: I know that the clip doesn’t display in your inbox, so it might be worth visiting the site itself for these posts.

I’m going to start where I first began my blog: with America and her debt.

Here is a libertarian illustration of how the USA got her debt.

The basic summary goes something like this:

  1. America spends more than it collects in taxes, so it borrows and/or prints money to make up the difference;
  2. In order to close the gap, it would need to cut spending (which would cause a recession) or raise taxes (which would cause a recession).
  3. Because that’s not great, it just carries on borrowing.
  4. Or printing money, which causes inflation.
  5. Somehow, all this borrowing allows for a “grand illusion” to take place, where America looks richer than the countries it is borrowing from, so the US dollar is stronger than it should be.
  6. This causes Americans to lose jobs.
  7. And one day, America will default and cause a global economic collapse.

I’ll be honest: I generally quite like simplification. I’m a fan of being approximately right and precisely wrong – mainly because I believe in paradox. But the above is just a bad simplification.

Some points:

  1. “Printing Money” is a phrase that gets thrown around too easily. What that word actually means is that the government is borrowing money from the Federal Reserve – which the US government actually can’t do directly. And when the US government has tried doing it indirectly, the rest of the world has literally swallowed up the dollars (here’s the post: How QE Works).
  2. China, Japan, the Oil-Producing Countries and the rest of the world in general have nowhere to put their money but US Government debt. Well, I mean, they do have a few other places to put it – but no other market has the scale and depth to deal with the bulk of their reserves. So as long as there is no viable alternative, the world practically demands that the US government continue to borrow money (here’s the post: The Petrodollar Collapse).
  3. As reluctant as I am to agree with Paul Krugman, all the threats of inflation have not actually resulted in any inflation taking place. Maybe the inflation is still to hit – but we are many years down the line…
  4. Also, anything could still happen.