Serious Implications

What’s Wrong with “Musgrave’s Law?”

Ralph has a simple and elegant solution to solving our national debt problem, which seems to make some people nervous.

The problem. Deficits and / or national debts allegedly need reducing. The conventional wisdom is that they are reduced by raising taxes and / or cutting government spending, which in turn produces the money with which to repay the debt. But raised taxes or spending cuts destroy jobs: exactly what we don’t want. A quandary.

The solution. The national debt can be reduced at any speed and without austerity as follows. Buy the debt back, obtaining the necessary funds from two sources: A, printing money, and B, increasing tax and/or reduced government spending. A is inflationary and B is deflationary. A and B can be altered to give almost any outcome desired. For example for a faster rate of buy back, apply more of A than B. Or for more deflation while buying back, apply more of B relative to A.

The original post contains several questions raising concerns about printing lots of money. For example, doesn’t printing money cause hyperinflation? Not necessarily. The U.S. has recently increased its money supply enormously without inflation. Despite the massive fiscal stimulus, money supply actually shrank over the first part of 2010.