I am still traveling, but caught up on some light reading in the RSS feed that now looks like an atomic bomb went off in it (ie, there are thousands of unread articles). This from Paul Krugman:
“We’re not at all like Greece; we have our own currency, and our debts are in that currency. So we can’t run out of cash, even if the bond vigilantes turn out to be real and lose faith in America.”
Where have we seen that before (besides the near verbatim here, I’ve written those words over 100 times in 100 differnt articles on this site). Maybe Paul Krugman is starting to catch the Monetary Realism bug? Of course, the next step is understanding that, even though bond vigilantes aren’t going to wreck the economy, it is indeed the bankers who rule the monetary system via the government’s outsourcing of money creation to them.
So yes, bond vigilantes might not be able to wreck the monetary system (as rates are a function of economic conditions leaving the Fed to guesstimate future proper rate conditions and for bond traders to try to front-run the Fed), but understanding the way our system works is primarily about understanding endogenous money and how banks “rule the monetary roost” and issue almost all of the money almost entirely independent of government controls. The government plays an important facilitating role here, but as is designed, the system is built by the banks and for the banks. And understanding that system means mainstream economists need to start better understanding that money is issued by banks as debt. Any model that doesn’t start with this foundation is likely to be flawed….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.