Thursday, October 20, 2011

Ron Paul loses his Sh*t in the WSJ


Here is the money quote: "The Fed's quantitative easing programs increased the national debt by trillions of dollars."

Good luck 'splainin' that one away. The article is here.

People, Ron Paul is a gynecologist, not an economist (and it shows).

To crib a phrase from Mungowitz, he's "straight up loony tunes".

Which is why he fits in so well with the rest of the Republican presidential candidates.


Mungowitz said...

Dude! R-Pa's folks genuinely believe that money is debt. Yes, they do. By that definition, since QEII increased money supply... voila! Can't say I have ever understood this argument (well, because it's dumb), but that's what you are going to hear about. Better make sure that Mr. Tooty has had his dog wheaties, 'cause those Paulistas are gonna be coming to your house!

Jon P said...

I look at this statement like a car stuck in a tree. How did it get there? How to get it out?

Is this a second-order argument? Printing more money kept rates low, which facilitated more borrowing, hence more debt?

Anonymous said...

In nominal terms that could be true right? The numbers attached to what is owed get bigger by some amount because of a relative increase in the supply of money.
Maybe I am just making excuses for a bad mistake.

Alex Salter said...

The "money is debt" idea is central to chartalism/modern monetary theory which is embraced by Post-Keynesians, but I think it's safe to say Paul isn't in that camp. I think this is just a gaffe.

kebko said...

I paused for a second at that. I don't know what else he has said along these lines, but I think there are plausible readings of this sentence where it could be reasonable.
But, really, you're calling him out on that op-ed? Can you reference ANY comment from any other presidential candidate that could hold a candle to this op-ed in terms of familiarity with economic concepts?

Peter G. Klein said...

I'm with kebko. This is the most intelligent thing to appear on the WSJ op-ed page in months, and the best you guys can manage is a few snarks?

I'm pretty sure RP knows the difference between money and debt. Presumably he's talking about monetary expansion more generally and monetizing the debt, thus lowering the cost of further debt and increasing the quantity.

More generally, I'm baffled that so many self-described libertarians are hostile to Paul. As Munger pointed out in an earlier post, being more libertarian than the other guys doesn't make you a libertarians. But come on, the other guys are like 4% libertarian, a guy comes along who's 92% libertarian, and all you can do is bitch and moan about the other 8%? It must be a Kochtupus thing.

John D. said...

"To crib a phrase from Mungowitz, he's "straight up loony tunes"."
- Did Mugowitz actually say that about RP? I could not find the reference.

Jon P said...

JD, he said it about Biden, in the previous post.

If I could edit my previous post, I would take out second-order, and put in syllogistic.

Anonymous said...

Like Dr Paul, I'm not an economist; moreover, what little I do know about economics, I learned from the Internet - so go easy on me, please. One YouTube video I watched - about the mechanics of money creation - leads me to believe that Paul's statement is absolutely correct. This video claims the Fed prints money and uses it to purchase US debt; this is how new cash enters the money supply, so there is necessarily a one-to-one ratio between Fed reserve notes and US debt. QE was basically the Fed printing new notes (trillions of dollars, no?), so if this video is correct, then Paul's statement is also correct.

Here is the video which explained it:

Is this video flat out wrong? Is it technically correct but misleading? What am I missing?

--Thanks and regards,
Stephen B.

Richard Stands said...

Would it be more accurate to say: "The Fed's quantitative easing programs enabled the federal government to increas[ed] the national debt by trillions of dollars."?

John said...

And yet we complain when politicians only speak in generalities and soundbites?

I'll be sure to keep my layperson thoughts to myself from now on.

Anonymous said...

Actually, the fed doesn't loan money to the treasury, which would at least make some sense. The fed only loans money to banks, who then loan to the treasury.

If Krugman et al really wanted inflation they would be targeting a higher discount rate and lower government spending, lowering the treasury yields. As of now, no banks will loan money when they can just park it in treasuries for free interest.

Hasdrubal said...

Stephen: The government doesn't issue extra treasuries when the Fed starts printing money, the Fed just buys up what's available. And yes, it usually buys government bonds from banks that are holding them, not directly from the government. So the increase in money supply is independent of the decision to issue more debt.

My guess is that, since money is counted as a liability on the Fed's balance sheet, Ronpaul considers that a debt.

John D. said...

Here is what the Fed says about Federal Reserve Notes:

This part (section 1) is really cool:
"The said notes shall be *obligations of the United States* and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. *They shall be redeemed in lawful money* on demand at the Treasury Department of the United States..." (*emphasis mine*)

So what is lawful money again? Can I get me some o' dat cheese?

kebko said...

I hadn't thought of that, John D. Isn't cash simply a T-bill with instant maturity? Since there is no liquidity premium, the return is simply the rate of deflation or inflation. In this way, couldn't one rightly equate money supply with public debt that just happens to have no rate spread of any kind?