Debt Curve Balls

I’m at it again with Michael Hudson (here) .

I guess he is doing a good job opening people’s eyes and ears. But I wish he’d not continue being so coarse. It’s ok to talk in nuanced terms, and not jar your audience all the time. But maybe it’s just my sensitive ears.

Exponential Growth

He got me started about 10 minutes in to the interview

This is one annoying thing, it always irritates. Whenever anyone outside of mathematics class starts talking about exponentials. There are no such functions in nature except for abstract fall off in quantum and/or gravitational field amplitudes.

So monetary debt never grows exponentially. If the payments are not made, and interest is charged, then your debt (or net households debt) will grow roughly exponentially, for a while, until there is government fiscal injection to repay, or recycling from firm profits back into the households, or rich bastards extract bank credit and distribute to the poor bastards, the workers and unemployed (one might vainly hope).

So what is the actual debt growth curve?

Growth Curve Balls

Firstly, (a) it is not always growing, and (b) it is irregular. One can only say the household debt will grow when the government debt shrinks, and/or foreign net spending and transfers decline. Accounting identities.

But it is true that the general trend that causes recessions is a weal sort of growth in debt. It can be linear, power law, or sub-exponential, or for brief periods, when no payments are being made, it can grow exponentially. One cannot really ever tell though, since the economic data is not fine enough for an exact curve fit.

Thus, even when it is exponential growth for a short run, we cannot tell. Not to worry though, the key idea from Hudson is still correct, which is that left in supported by government fiscal spending, households cannot simply work harder producing real goods for sale and pay off their debt. The debt growth will out-pace the real economic growth.

Unless there is a massive one-off price adjustment upwards (some may falsely call this inflation) so that the nominal value of past debt becomes overnight insignificant compared to tomorrows income. That’s damn, right, inflation is not necessarily a bad thing, if it is purely in nominal terms, and purely effected just by increasing the minimum wage only or the public sector workers wage rate.

The economic justice issue

Exponential increase in private debt is the problem, not government debt. But it does not truly grow exponentially, due to fairly regular predictable debt default and bankruptcy (in the olden times, debtors prison). The problem with that (with the mechanism by which nominal debt reduces) is that it is utterly unjust, it is screwing the lower income and working class, while feeding the rentiers (the parasites). The general solution is what even that toff Keynes knew — governments are monopoly issuers of their own currency, so can always choose to cancel debts that the poor cannot hope to repay (it was imposed upon them by fraud or “banksters”, though some households are also simply idiots who succumb to the fraud, sadly). Being run by-in-large by the oligarchy (the supreme rentiers) governments choose not to help the poor. It’s a political choice, it’s always about willingness to issue currency, not capacity to — since governments cannot run out of their own scorepoints, aka. “dollars”, or yen, euro, pounds, peso, whatever. All are scorepoints on balance sheets as far as governments are concerned, it’s not backed by gold, it is backed by power to enforce tax liabilities.

Thus you see the guts of almost all economic injustice is the government is not providing the necessary incomes which are the only way households can pay the imposed tax liabilities and still satisfy savings desires. For that, the government has to issue more net currency (preferably by hiring people do do public good work, and that is limitless, you cannot ever run out of public good work, not even with a billion ai bots), and they always can without causing inflation. (Governments do not get their own currency originally off taxpayers, that’d be counterfeit by the taxpayer, nor do they borrow their own currency, bond sales are interest rate maintenance operations, not borrowing operations.)

The tax return is the automatic stabiliser — tax return automatically rises when the government deficit (accumulating to historical debt) rises. Over time, a growing population must have a growing money supply, so the government issue has to grow, not balance. (The debt ceiling in the USA will always rise. Or you’ll has severe deflation, which hurts the poor the most so is profoundly regressive (their past debt grows nominally compared to income under deflation, while savings of the rich grow nominally compared to their costs.))