The Fed

By whatever name you call it, this massive "pump priming" by the US monetary authorities will engender exactly the same results it always has: malinvestment, dollar debasement, and speculative mania.

Bankers can spend their interest payments on real goods and services, thereby returning that money to the public, which can then use it again for further debt payments.

This is the sense in which our fiat-money, fractional-reserve system uses "debt-based money."

"Under deflation, it is those non–wealth generating activities that end up having the most difficulties in serving their debt, because these activities were never generating any real wealth and were really supported or funded, so to speak, by genuine wealth generators."

Knowing that the Fed now holds the most toxic of the subprime assets the banking system could create during the roaring 2000s should leave us with some concern.

It doesn't make the country richer when politicians spend money they don't have.

"Contrary to Krugman and other commentators, we suggest that the best economic policy for the Fed and the government is to do nothing as soon as possible."

The ensuing debasement of the currency is the economically devastating outcome of central banks' unlimited power to suppress the interest rate. This, in turn, is the result of the government taking full control over money production.

Combine loose money with flawed financial theories and the creation of byzantine financial products, and ultimately modern financial alchemy "has a distinctly statist and paternalist tone, and one which, taken to its logical conclusion, implies the establishment of nothing less than a world government with the power to redistribute most of our income at will," explain the authors.

"It's pointless to try to wade hip-deep into DeLong's calculations, because they are meaningless."