Paging Phil... ("Japan Is Writing Off Nearly Half Its National Debt Without Creating Inflation. We Could Do It, Too.")

I know the notion that a government can solve its debt problem by having its own central bank buy up that debt is deeply misguided, but that's what this piece is advocating:

  Does our resident economic curmudgeon or anybody else feel like countering with a convincing (to those to whom it may not be as obvious that this is a bad idea) explanation of why the Japanese government's approach would not be a wise one to follow?

Love & Liberty,
                               ((( starchild )))

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It's very simple actually.

A government creates debt by borrowing. A government borrows by issuing government bonds or treasury bills. Usually those are sold to the people. A citizen "buys" government debt by delivering cash (or electronic credits) in exchange for the evidence of debt (e.g. T-bill). The evidence of debt is held by the citizen purchaser until it matures, at which time the government is expected to redeem (pay off) the debt for cash.
Enter the central bank to "save" the day. The central bank goes to the marketplace and buys the government debt (bonds, T-bills, whatever you want to call them). Here's where the flaw in thinking is exposed. What do you suppose the central bank uses to buy those government debts from the people that hold them? "Money" of course. Legal tender. Fiat currency. In other words, slips of paper printed out of thin air or, more likely, electronic credits created by the push of a button.
The very definition of "inflation" is an increase in the money supply. (Price increases are merely a symptom of inflation.) That is why we have price increases - because the US central bank keeps printing money.

That is why Japan will have price increases (commonly but erroneously referred to as inflation). It is the inevitable result of the creation of money out of thin air. It is a simple matter of supply and demand. If you increase the supply of anything, the "price" of it goes down. If you increase the supply of money, the "price" of each unit goes down, i.e. it loses its value. Devaluation of currency is reflected in higher prices; it takes more of it to buy any given thing.
Ellen Brown is an economic fool.
Nina Ortega Whitehurst
Don’t threaten or initiate force, or ask politicians to do it for you.

Resident economic curmudgeon? I wonder who that can be???

Maybe I will try my hand at unraveling this mystery.

First off, let’s notice that the article contains a glaring contradiction. The author says (1) Japan has been CANCELING its debt at the rate of $720 billion yen per year and (2) An interest free debt that is ROLLED OVER from year to year is effectively void.

Not even the best government economic idiot can cancel debt and roll it over at the same time. It has to be one or the other. I don't know enough about Japan to know which it is doing. If canceling, then no inflation would result because money is being removed from the economy. If rolling over, then no inflation would result because no new money is being created.

Additionally money creation usually results in inflation, but not always immediately. It depends on what people do with the money. The Japanese have always been great savers. If people bank the money instead of spending it, then money creation will not cause inflation. But of course, people do not bank money for ever; eventually they will want to spend it and it is at that point that inflation takes off.

If the BofJ is buying government debt, then it must be creating money. Apparently this new money is being parked in banks and not spent and that is why inflation is so low.

Les Mangus