2. stillthinking said...

Good post. I never really heard of him before. But, he keeps making the point that savings allow productive investment, or that savings allow debt, but I don't see this is true outside of gold currency. He states savings are a precondition to debt a couple of times, but it seems to me that debt is what creates savings. If somebody doesn't take out a debt then there is nothing to save. Debt comes first.
Also his point about China and Hilary Clinton going out and saying (paraphrased) "you lend us money, and we buy your stuff and you keep your workers in jobs" is criticised by him on the grounds that China should keep their own savings and allow their own workers to buy their own stuff, which he regards as superior because then China has the stuff -and- the jobs.
But China isn't lending the US money. China is accepting dollar IOUs, it -is- different, certainly its true that the US gets the stuff but the Chinese get to hold US debt (and US debt -is- US money).
And there is a reason for that, although maybe China isn't so weak anymore. When the Chinese started to industrialise they lived in a world full of commodities they could not afford and Chinese debt wasn't acceptable for oil or anything else. Even the Chinese didn't want their own currency, and regarded the dollar as the "golden" dollar. They were forced into producing cheap goods for the US as the only way to get their hands on internationally acceptable currency for trade. Maybe they are not in that situation now but they were.
He seems to be arguing that accepting dollar IOUs from the US is a mistake because they are worthless. Of course, if they are deliberately monetised then they are worthless. But if they aren't, then they are not worthless. If the dollar suffers from extreme inflation/hyperinflation, then it will be because the government prints money and gives that money to debtors, or because the US government continues with currency controls to restrict Chinese spending within the UK, rendering their IOUs worthless, or because they pure and simple default. Not because of the fact that they are IOUs. Does anybody think Obama would have a problem if the Chinese started buying American production with these IOUs? No of course not.
I found what he said didn't tally with my understanding of "debt is money" and savings/debt are the opposite side of the same coin. But he is up there with a following, and I am not. I think the original reason why the Chinese were given debt, IOUs (which is money), was to bootstrap a dirt poor country into some kind of modern economy, an attempt which has been quite successful, and avoid the alternative which was a potentially strong dangerous communist country similar to Russia, with all the problems and wars of an ideology clash.