We all have Credit now, and that’s Less than Nothing. Why I worry about Deflation and our Kentwood Debt

“Die Moor Soldaten” was a song written during the 1930s by International Socialists imprisoned by German National Nocialists.These political prisoners were worked to death, forced to dig ditches all day and fill them back in at night. The poor wretches would have understood the difference between credit (debt), and money(cash).

Debt, or borrowing, is a negative, a ditch from which one must make a greater back breaking effort to move dirt up and out as the hole becomes deeper and the nearby mountain of dirt becomes higher each day.

Money is a positive, the bulge that a hill of dirt makes above the field from which it’s easy, in the short term at least, to move dirt downhill back into the hole. Too bad that modern economists, who don’t understand the difference, wallow nostalgically in the Keynesian and Hayekian landscape of “money” of “printing money” and of “managing money” as though it were an important commodity in modern economies. It’s not. We use plastic at stores and borrow to buy houses; no one pays with 100 dollar bills.

Money, be it old money, gold, rapidly depreciating Venezuelan Bolivars, a balance in a checking account or savings at a bank is wealth. It is better than nothing. One can dispose of the stuff easily, spend it like a drunken sailor, just like our “Moor Soldaten” found it easier to push the loose soil back into the hole. It flows effortlessly through our hands like dirt followed gravity in those north German moors.
Government historically diluted the gold and silver in their coins or issued fiat currencies and so could cause money inflation, effecting citizens’ economic behaviors in the short term. Keynesianism worked (maybe) before modern economies evolved to borrowing to sustain itself.
Credit, be it on a card, bank loan, mortgage, or an obligation to pay a defined benefit pension is less than nothing; it’s a negative, a hole in the ground from which one it takes increasing effort to dig deeper to move the dirt out of the hole and onto the hill. As debt became better understood by average people during the recent financial unpleasantness, it acquired a reputation as a burden and fewer took on. I’m old and established, one of the few who still carry a credit card; it’s paid off monthly. Young people at the check out counter in stores no longer carry credit cards; they use debit cards (cash in the bank) because they’ve learned to fear digging a hole of debt for themselves. Home ownership in the USA is shrinking.
The Fed no longer prints money but rather asserts that it creates credit, assuming that consumers, businesses and lenders would continue to use the “easy money.” But credit creates money only if it borrowed into existence. Borrowing is no longer fashionable. The Fed’s Keynesian policy pretends that the hole created by citizens taking on more debt wasn’t getting deeper and that lifting the dirt out of the hole wasn’t growing beyond normal human capacity. Trying to stimulate spending by making credit readily available depends on convincing the wretches in the hole that they are on level ground easily pushing dirt around. But those prisoners have been squeezed by the financial unpleasantness of the last few years and see that the field is not level, that moving dirt uphill is harder the more of it that there is. So, personal debt in many advanced countries shrinks as folks pay off their credit cards and rent instead of taking on mortgages. Consumer spending is stable or shrinking, confounding the Nobel prize winning economists who fantasize creating cheap credit to “stimulate” the economy into high drive (and also Ron Paul who has predicted the inflationary blowout for 40 years now.)
The Japanese “stimulated” the economy with low interest rates and high spending in 1990 and have been in deflation have been in deflation for 25 years. Most European countries, following the same formula after the 2008 panic, have negative cost of living indices.

Our Fed in the USA is still trying to get us Americans to shovel the same old dirt denominated in cash and money. It’s not working. It pretends to “stimulate” the economy with cheap credit and worries publicly about deflation as our consumer price inflater hovers around 1.6%. The Fed plays in its own sandbox with an outmoded financial model, stubbornly ignoring today’s economy.
Credit is not money. The US economy is not outside of history

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