More Madness from Bill Still and His Sidekick

I really don't want to spend too much time on the thinking of Bill Still and Karl Denniger, but I am continuing to get a few emails from those who don't really understand how off course Still and Denninger are.

One emailer writes:

FYI - I've had a chat ()via email) with Karl and he pointed me to a more complete articulation of Bill Still's proposals (below). I agree with your assessment of the original video (on your website) but I would suggest that it may have been oversimplified deliberately.
R

"Monetary reform – I’ve heard some complaints that I want to consolidate the money power into the hands of Congress instead of letting the so-called “free market” make its choices. This is just wrong in several ways. First of all, the so-called “free market” has been COMPLETELY in charge of the quantity of American money since repeal of the Glass-Steagall Act in 1999 – 12 years ago. So how’s that free-market thing been working out for us? Not so well.

Any one that thinks we have had free market money since 1999, is really looking at the world in a much different way than I am. If I recall correctly, Federal Reserve notes were exchanged as money in 1999 and continue to be exchanged as money today in the U.S. And as far as I know, the only organization that can increase the size of the Federal Reserve note money supply (paper and electronic) is the Federal Reserve.

It really doesn't make sense to debate this any further with someone who will quote the Constitution, the Federal Reserve charter and so on, in ways that distort both the original meaning and current interpretation AND thinks we are operating under a free market money system and have been since 1999.

As for Still's sidekick Karl Denninger, he tells us in a post:

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.

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.)

What makes Denninger's non-inflationary proposal even more fascinating is that he plans to pay off 15 trillion dollars in US debt by using Federal Reserve notes (and retiring the notes as they are used to pay off a Treasury security) BUT the current money supply stands at only $9.6 trillion. So even assuming there is some way to pull off his madcap scheme, what does Derringer do when he has reached $9.6 trillion in Federal Reserve note payments and has retired them all, but still has $5.4 trillion in debt to pay off?

There are many twists and turns to the madcap theories and proposals of Still and Denninger, and, as I have said, I really don't want to spend time debunking them all (afterall I have Krugman to deal with also), so I have put Still and Denninger on Whopper Watch, unless they come out with real whoppers, such as the two comments above, I am going to leave them alone. But when they come out with the Whoppers, rest assured, I will be whale hunting.