While I find some of your points to be valid shorter term, I would suggest that you do David Hume no justice. Not sure that your readers realise that one can default in nominal or real terms. Let's have an example: In 1750 Hume sells 2 500 "things" for 10 000 GBP in Sterling notes (or debt obligations, if you like). When Hume's descendants change these Sterling notes/obligations back into the "things", today in 2023, they get back seven (7) instead of 2 500. Or, 0,0028 % of its original value. I would call this a default. Greetings, Jens PS The thing is one ounce of Aurum.
Well, when people speak of debt default they typically mean default in nominal terms. Inflation is obviously real and leads to erosion of purchasing power, etc. so your point is correct. But tit applies to all nominal assets and to call loss of purchasing power a default in real terms is not something that I would agree with. It is simply too strong for my taste.
One pound note is not a debt obligation, it is currency. 275 years worth of rolling Consols (which averaged about 3% over the centuries) would have grown the 10,000 notes to about 34 million, which buys roughly 22,601 "things", a tenfold improvement, if you actually believe these "things" have any utility.
Something that does have actual utility is long johns, and I think the improvement is much more than 900% by that metric.
This is where we just have to get back to basics imho. Perhaps it is too simplistic for more sophisticated minds, but if price levels are to stay constant, then the amount of money/credit needs broadly to match economic activity/productivity. If one prints excess money when productivity is stable (or falling), then ceteris paribus price levels rise. Inflation is a tax on real balances, negating interest, diminishing value, reducing capital. It is a kind of (sneaky) slow-motion default. That is why governments do it. The Dollar is the global reserve currency and the Americans have leeway, which they abuse brazenly. I do not know how the Japanese keep inflation within bounds. Perhaps a huge positive trade balance and exceptional productivity are factors. But there must be an explanation.
Hello Klement, Lyn Alden addressed the difference between the situation of the USA and Japan in an article I believe is highly recommendable to read. It sets out by asking: "If Japan ran massive fiscal deficits, monetized those deficits, printed money to buy equities, and all sorts of other narratives, and got deflation instead of inflation, that must be a killer argument in favor of deflation for the United States, right?" And I would summarise the article by saying that the the quantity of base money vs. broad money makes all the difference between the recent inflation scenario in the USA, and the persistent low inflation in Japan. So what triggered inflation in the USA more so than supply chain bottlenecks were checks in the mailbox.
While I find some of your points to be valid shorter term, I would suggest that you do David Hume no justice. Not sure that your readers realise that one can default in nominal or real terms. Let's have an example: In 1750 Hume sells 2 500 "things" for 10 000 GBP in Sterling notes (or debt obligations, if you like). When Hume's descendants change these Sterling notes/obligations back into the "things", today in 2023, they get back seven (7) instead of 2 500. Or, 0,0028 % of its original value. I would call this a default. Greetings, Jens PS The thing is one ounce of Aurum.
Well, when people speak of debt default they typically mean default in nominal terms. Inflation is obviously real and leads to erosion of purchasing power, etc. so your point is correct. But tit applies to all nominal assets and to call loss of purchasing power a default in real terms is not something that I would agree with. It is simply too strong for my taste.
One pound note is not a debt obligation, it is currency. 275 years worth of rolling Consols (which averaged about 3% over the centuries) would have grown the 10,000 notes to about 34 million, which buys roughly 22,601 "things", a tenfold improvement, if you actually believe these "things" have any utility.
Something that does have actual utility is long johns, and I think the improvement is much more than 900% by that metric.
It used to take 4.2 GBP to buy an ounce of gold. Now it takes 1503.
This is where we just have to get back to basics imho. Perhaps it is too simplistic for more sophisticated minds, but if price levels are to stay constant, then the amount of money/credit needs broadly to match economic activity/productivity. If one prints excess money when productivity is stable (or falling), then ceteris paribus price levels rise. Inflation is a tax on real balances, negating interest, diminishing value, reducing capital. It is a kind of (sneaky) slow-motion default. That is why governments do it. The Dollar is the global reserve currency and the Americans have leeway, which they abuse brazenly. I do not know how the Japanese keep inflation within bounds. Perhaps a huge positive trade balance and exceptional productivity are factors. But there must be an explanation.
Hello Klement, Lyn Alden addressed the difference between the situation of the USA and Japan in an article I believe is highly recommendable to read. It sets out by asking: "If Japan ran massive fiscal deficits, monetized those deficits, printed money to buy equities, and all sorts of other narratives, and got deflation instead of inflation, that must be a killer argument in favor of deflation for the United States, right?" And I would summarise the article by saying that the the quantity of base money vs. broad money makes all the difference between the recent inflation scenario in the USA, and the persistent low inflation in Japan. So what triggered inflation in the USA more so than supply chain bottlenecks were checks in the mailbox.
Here is the article: https://www.lynalden.com/economic-japanification/
I'd be interested in knowing your thoughts on it, if considered sharing them.
Well, maybe you've known that article all along.