Vox Day Gets Caught in the Denninger Quicksand

Karl Denninger confusion can swallow up all kinds of people. Vox Popoli is caught in the quicksand hailing Denninger nonsense.

Vox Day at Vox Popoli writes in support of Denninger:

It should be obvious that credit is a form of money, for the obvious reason that you can exchange it for goods. I further note that it is presently of near-equal value with cash. (This is a reference to the zero-percent interest rate presently maintained by the Federal Reserve.)

The conventional response has been to claim that all credit does is shift demand forward... but that can only be true if the credit is repaid. A credit default is therefore the equivalent of burning paper currency. This is why I have often stated that the inflation/deflation question hangs on the matter of whether the governments can and/or will print faster than they default.

First off, credit is not money. Money in the United States at present is the dollar. The Federal Reserve can create more money by buying credit instruments, but they could buy anything.

As Murray Rothbard notes in The Mystery of Banking:

From the point of view of the money supply it doesn't make any difference what asset the Fed buys; the only thing that matters is the Fed's writing of a check, or someone writing the Fed a check.

It is also true that because of the fractional reserve system, banks create money in Fed orchestrated fashion by issuing credit, but again the banks could buy any asset, including, Salavdor Dali paintings or stock equity,  and expand the money supply. The key factor to understand is that it is not credit creation, but the money creation that is at the heart of an expanding money supply. If the Treasury borrowed money but it was bought by investors, without any involvement by the Fed, the money supply wouldn't expand at all.

Second, the interest rate maintained by the Fed is not "zero-percent...presently" and it never has been during the crisis. The current effective Fed Funds rate is 0.07%.

I have no idea where Denninger or Vox Popoli get the idea that credit "shifts demand forward".  Credit transfers money from one person to another. If someone invests, say, in a newly issued Treasury Bill, he is foregoing consumption but the money ends up with the government which then spends it. Money invested in a capital good creates future consumer goods, but that doesn't mean that there is no current demand. It merely means that the current demand is for the capital goods.

Finally, defaults, in and of themselves, have nothing to do with deflation/inflation in the system. If the Fed buys Treasury bills and creates money to do so, the money is out in the system. If the Treasury defaults on the Bills issued that doesn't mean the amount of money in the system shrinks. A credit default is thus not "the equivalent of burning paper currency."

Denninger nonsense, and apparently Vox Popoli's, is complex, but when pulled apart at any strand, it doesn't hold up. It has taken six paragraphs to refute two Vox Popoli confused paragraphs. Denninger and Vox Popoli make bold statements without the logic to back them up. It takes many statements to refute their bold ones because the foundation has to be  established.

As I said, I am not going to debate these characters on every point. They shift too much without consistency or substance, you could spend decades trying to refute them and they will simply come out with some new statement that doesn't reference their earlier points.

I will only refute them when I see major whoppers or new major characters spouting their nonsense. Just know that their arguments in general are disjointed, tend to ignore reality and tend to use technical terms and/or themes in a manner not used by anyone else on the planet---thus adding even more layers of  complexity and confusion to their arguments.