No sooner had Merkel and Sarkozy put the finishing touches on the latest bailout rumors than Standard & Poor’s was threatening to downgrade the debt of 15 of the 17 euroland nations. Recall that as the week began, France and Germany were talking up the latest supposed solution to the debt crisis. Bigger and better than their last supposed solution, it drew a rave from that man of discernment and cunning, Tim Geithner, who pulled out all the stops in making much ado about nothing. “The eyes of the world are very much on Europe now,” he told reporters in Berlin. “[We should be] very encouraged by developments in Europe in the past two weeks, including reform commitments in Italy, Spain and Greece.”
Ahh, yes. Nothing like a little more austerity to resuscitate the economies of Europe’s deadbeats, right? The prospect seems to have swayed no one at Standard & Poor’s, a firm that is out to prove to the world that it matters after having missed a hundred signs a few years ago that the banking system was in imminent danger of collapse. The ratings agency has been doing its vengeful best to atone for the oversight, distancing itself from borrowers with whom it used to sleep around. The threatened downgrade would affect the long-term rating of Europe’s bailout fund, the European Financial Stability Facility. A decision reportedly is pending a review by S&P of the sovereign members’ books, and there’s a possibility that ratings could come down a couple of notches. That would put even more pressure on the ringmasters of Europe’s dog-and-pony show, including the U.S. Federal Reserve, to counterpunch with sufficient easing to offset the increase in borrowing rates that would otherwise occur.
A Mere Formality
While an S&P downgrade would be a mere formality, it would explicitly warn private capital away from public debt. Not that any such warnings are needed, since no one actually believes that there are any sovereign borrowers left, even Germany, whose debt deserves to be rated as nearly riskless. In the meantime, the widening schism between the ratings agencies and sovereign borrowers can only heighten the public’s skepticism toward the latter. In time, this skepticism will harden into cynicism, which in turn will extinguish the last vestige of credibility the central banks may still possess. All of it rests with officialdom at this point, the public having long ago ceased to believe that the bankers can somehow save anything but their own necks.
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Robert,
Digital money is easier to inflate? Yes. But that is not and would never be the reason for Joe Six Pack to trade them for cash. One digital dollar is always equal one paper dollar. Both have zero value and work purely on hype. No matter how much more inflated the digital supply is, one digital dollar will be always equal one paper one. Recall, that this was the whole point of going away from the gold standard, – to be able to inflate without showing up the disbalance in the physical book!
Therefore I decline this reason.
To conduct activities without taxes? Yes. I agree this is a good reason. The only trouble is that it is a marginal one.
There is more money to be made if you work with digital dollar than if you work without one, even though you may be able to lower your taxes.
Thus, while I agree that this one is a valid reason, let me say this: take a look at how many people did withdraw to gold to disallow the feds to steal from their pockets. Precisely next to one in ten thousand. And this is given that gold does actually fix the problem immediately. Now, how many are going to withdraw from digital dollars to cash, because that would allow them to marginally save on taxes while still being robbed on specie dilution? I think people are too stupid, beyond the point of no return now.
Digital dollar is easier to confiscate? Yes. But why? The goal of the game is going to be to insert the money into the people’s pockets, not confiscate! Even the famous bank robbers have had no reason to be afraid, if only the government officials were a bit more honest. Why confiscate something that cost you nothing? It’s like spending energy confiscating junk mail, while you can just get it for free anyway.
I can think of only one reason to confiscate digital dollars, – to make them appear to be more scarce than they are. So, going along with that, let’s say the government decided to revalue the disrespected dollar up, by increasing it’s perceived rarity, by confiscating massive amounts of it. This would result in deflation, exactly the same thing that they all are afraid of. The revaluation of everything, and the removal of TPTB from power. They could achieve deflation today very simply by allowing the forces of nature to take their course, i.e. by simply stopping to inflate, and thus bringing about the deflationary withdrawal effect that Mises had warned us about. Simple. Why complicate things and inflate only to secretly deflate?
Remember, that the whole reason Inflationistas are winning the argument is not because they disagree with deflationistas in mechanics, but because they understand that the whole goal of the game is to steal by inflation, not to give back by deflation, and that TPTB have installed the fiat system precisely because it allows them to be able to inflate at any speed, until the final collapse, which is going to be a hyperinflationary disappearance of money, and a consequent destruction of division of labor, which will immediately act to reduce the population (uh…say 10 to 1?), not a deflation.
So, while I agree that the digital dollar is easier to confiscate, I doubt these confiscations will ever become widespread, and ever cause Joe Six Pack to move to cash.