Denninger Serves Up a Monetary Policy Whopper

I said I would only respond to Karl Denninger and Bill Still, when they come out with real whoppers. Denninger is out with a whopper.

Apparently he likes to see his name in the headlines at EPJ, he has responded to my earlier post, where I wrote:

I have no idea how you pay down debt with newly created Treasury notes and then simultaneously destroy a Fed note (one for one).

The first question that comes to mind is whose Fed notes are going to be destroyed first? I nominate that they be the Fed notes of Still and Denniger and any other "libertarians" that follow them.(Remember the new US notes won't go to them but to the holder of the Treasury securities that will be retired as a result of the purchase with newly created US notes.)

I wrote this after I noted that Denninger said this:

So how can you pay down Treasuries with US Notes and not have inflation? That's simple -- right now there are credit Federal Reserve Notes that exist and were created to purchase those Treasuries (most of them electronic, not physical, incidentally.) Those go away and are exchanged. So for each emitted dollar of a US Note one debt-backed dollar disappears.

So long as the total amount of money and credit -- remember, they're fungible but not identical -- does not change in relationship to economic output there is no monetary inflation! It doesn't matter whether you withdraw a dollar of credit or one of money when you issue a dollar of US Notes, provided one of them is destroyed at the same time -- that is, provided it's an even exchange.

Keep in mind that Denninger-Still want to pay down the debt (or part of it)  with newly created "US notes". Here's Still, in his press release, announcing his candidacy for nomination as the Libertarian presidential candidate:

Pay off the existing bonds -- which is our National Debt -- as they come due, but pay them off with debt free U.S. Notes (or their electronic equivalents) instead of Federal Reserve Notes, which are all borrowed into existence.

Denninger replied to me:

If I withdraw a Federal Reserve Note (say, when you deposit it into your bank or when you spend it at a local store?) and when you get change or make a withdrawal you obtain a United States Note, over time circulation slowly dwindles on the FRNs to zero and is replaced.

So if you are paying off Treasury debt with US notes and simultaneously, as Denninger states would occur under their plan, exchange Federal reserve notes for US notes, you have serious inflation because of the US notes created to pay off the debt.

That's simple arithmetic. It screws the average Federal reserve note/US note holder for the benefit of US Treasury debt holders.

He also seems to want to use tax money to sop up some of the Federal Reserve notes:

Why the ones that are taxed away, silly. You aren't really going to suggest that Treasury has no authority to receive payment of a tax and then burn (literally or by pushing "delete") the money paid in, are you? Of course Congress has this right; how do you fix the value of something except by controlling the quantity of it?

Which is what I suspected, when I asked whose Federal Reserve notes were to be retired. His answer: yours via taxation.

Bottom line the Denninger-Still plan is a nutty combination of inflation and taxes (taxes not to be used for debt retirement, but to simply retire Fed notes). It's all pretty insane. And such a tax to retire notes shell game is as far from a libertarian position as you can get. It would boggle my mind if there are any votes for Bill Still as the Libertarian presidential candidate, beyond the votes of Still and Denninger. But the vote total for Still, beyond still and his sidekick Denninger, will be a good indication of how far off the deep end the Libertarian Party has travelled.