DEBT - - Its Misuse
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1930s
In the 1930s Depression, when I was a kid, government debt was used only for such things as cities funding their purchase of such things as roads, sewer systems and bridges. The bonds were for like 20 years, and were thus paid off long before the improvements wore out. There was no consumer debt except for houses and a little for cars (credit cards had not been invented yet). Bankruptcy was a major sin that one had to live with for the rest of one's life - - with fingers pointed at the terrible person.
Money was money. No one had heard of "debt money." A millionaire was like a king.
Today, all "money" is debt-money. Our greenbacks and coins have no intrinsic value whatsoever, only their exchange value. We "create" money by borrowing. The Government and the Fed borrows by bonds against the "full faith and credit" of the people of the United States, and the Fed often also by just waving a magic wand permitting banks to borrow more electronically, and to lend a greater multiple of their assets.
The Old West
Hauling thousands in silver dollars was too bulky, so the "hard money" was deposited, and "bank notes" taken in return. But the private banks began printing first 10 times the assets in the vaults, then 50, then 100. Owners of banks stole parts of the assets. Other bank robbers took some. When hard times hit an area, people wanted their assets, but couldn't withdraw them, and at the same time found out that their bank notes were worthless - - no assets in the vault to cover the notes.
Today, this is much worse - - much, much, much worse - - because despite central and national banking there are no assets whatsoever behind our greenbacks, and even our "electronic" money. But we seem to care only abut what's on TV tonight, and seem to know only about as much as Jay Leno's marvelous "Streetwalking" characters.
Central banking
Morgan was our central bank in 1907. Legend has it that it "saved" the US in 1907 with an infusion to the Government of - - $7 million. What? Yeah, that's an "m," not a "b." Like I said, money was money in those days.
In about 1915, the Federal Reserve was created. It's a private bank or consortium, charged by our Government with certain duties (but it is not a branch of the US Government).
"National banks" and the FDIC later protected citizens from losing all in the runs on the banks serving the population.
1940-1965
For the Federal Government to pay for WWII, it ran up a staggering debt of well under $100 billion (pocket change today). There were no improvements in place to show for the debt, but something had changed. The nation learned that such debt didn't, in fact, kill us, as some had feared it would.
Mid-1960s forward - - eureka!
The "Great Society" of Lyndon Johnson piled up Government debt. The concurrent Vietnam War piled up Government debt. The nation needed money - - and plenty of it. So the nation "printed" it - - created it. Manufactured it. No longer did we have to search for gold or silver, dig it out, refine it. We created it. Eureka!
Along in this period, some notes backed by gold were turned in by foreign nations for our gold, badly depleting the US gold reserves. The US shut the door of the gold vault. And the silver backing was also removed. Even coins which once were silver were replaced by zinc ones - - as we have today. (Our dollar today has no value whatsoever. Our coins have no value whatsoever. The system is held up by "faith.")
(The three quarters I paid for a newspaper recently constituted a fraudulent act, because I gave the company exactly nothing in exchange for their paper. But "law" doesn't call it fraudulent. "Law" calls it legal - - legal tender.)
1980
The Reagan administration, Jim Baker and others, took the position that "debt doesn't matter." Our debt-loving nation loved the easy times of living beyond our means, and approval of this policy, not disapproval and frowns. Let the good times roll!
Somehow, this period is still called one of "fiscal conservancy." Three trillion dollars added to Gov't debt (the most in all history by any party in all time) is being fiscally conservative?
Hamburger helper
The argument advanced was that "some debt" was tolerable - - in fact, a stimulus to the economy. With it, more goods could be purchased, etc., all elements of a growing and better economy.
A Government debt portion of 3% to 6% or so of the Gross National Product was harmless, they said (and the resultant inflation of 3% or so was tolerable, helped create equity above slightly-eroding mortgages, and so on.
Overstimulation of economy gave false figures
But the whole science of stimulation of the economy was being learned - - and learned fast by politicians wanting to stay in office or get into office. And politicians made up the "Government."
So the Government got into "economic stimulation" (and the science of various ways of preventing declines) in a VERY BIG WAY.
On the one hand, businesspeople screamed to get the Government out of governing, end regulation, let the market economy reign, let free enterprise have a free hand.
But on the other hand, these same forces screamed to have the Government act and keep acting in ways to (a) stimulate the economy, and (b) prevent declines.
The booming debt-stimulated economy lifted most of the voting population - - and America liked it. A seam at the bottom was left out, though, and ignored. But, the bottom doesn't vote much, isn't organized. Besides, we heard, "Tough! I've got mine!"
Our 2008 economy would shrink drastically without overstimulation
Today's $14 trillion US economy - - if deprived of the hyper-stimulation of unlimited money and unlimited debt at all levels from consumer on up through business and finance, on up through the Government budget and the Government trade deficit - - would certainly be only half, maybe less.
And those so-called "miracle" economies outside our borders - - which are miracles only because we have borrowed trillions to sustain a ratio of buying 5 times as much from them as they buy from us - - would have to make it on solid, value-for-value balanced trade, and would also shrink and shrink fast.
We are financing (with overborrowing, which we partly hide, and which is going to hit us severely), our own financial destruction and massive reordering of our finances.
And of our financial brains.
All of the overborrowing is loaded onto the public. But the taxpayer neither pays it nor even knows the amounts are being charged to it - - to the "full faith and credit" of the people of the United States. The people are going to have to wake up at some point, and take charge of the country again. However, "spin" analysts are at the ready whenever any alarming news is reported or electrifying book written - - and they appear like magic on TV shows to dampen down the alarm, let things ride along "as is."
One big problem is that the people like debt, use it in huge sums for impermanent personal purchases (in addition to using it for the more traditionally solid home mortgages). People like the easy life the debt-money seems to provide, and alarms have been ignored.
Trade imbalance is the road to going broke - - no other nation does it
Any kid trading baseball cards and frogs knows he must balance his trade, and work to get an advantage, and to keep from being at a disadvantage, OR ELSE GO BROKE.
Other nations don't tolerate imbalances except for relatively small amounts (which may be tolerable because they more than make up for the losses to the nation by side advantages to the nation in exports, etc.), and for short and temporary periods.
But other nations eagerly gobble up our trade imbalance dollars - - and certainly don't warn us. And in any argument, they shift the focus quickly to some side issue, avoiding the main point of imbalance in their favor (paid for by our systematic overborrowing).
1990 forward - - should be inflation, but strangely wasn't. And yet,
it's built in and will surface in time
Foreign trade imbalances were beginning to make people nervous. The overproduction of "money" by us had to be inflationary, but strangely, wasn't. But why?
Inflation was kept down by steadily stepping up the overproduction of money to buy floods of cheap goods.
A paradox
We were - - and are - - increasing the hyper-inflationary practice of radically overproducing money (most of which we throw away with no strings attached in unbelievably unbalanced trade, bleeding not slowly, but rapidly to death).
We are doing this hyper-inflationary practice in order to HOLD DOWN INFLATION. And - - this works temporarily. We're just out of the ability to keep borrowing a trillion per year.
So we've been doubly stupid - - overproducing money to buy cheap goods and services to hold down inflation, then stepping up that overproduction as the means of holding down inflation.
That's like saying, I've got to quit drinking, so I will drink more and more.
Electronic credits have replaced most paper in international trade
We lose $600 to $800 billion a year now in "trade deficits" - - the money charged to the US public. But do we pay in shiploads of greenbacks? No, the settlements are made electronically.
Question: So is overproduction of electronic "money" as inflationary as overproduction of paper money as in Germany's post-WWI Weimar Republic? Once, no one knew for sure - - but today they know. Overproduction of money in any form is inflation itself - - practically a definition of it.
Debt-money binge
Today, the inflationary results of years of being on a debt-money binge are just beginning to show.
The one "paper" we overprint is our colossal amount of bonds. And of course, as in the past, we never paid these off, just "roll them over" into new and ever-increasing debt.
In one aspect of our overall financial insanity, we borrow back the throwaway dollars, creating debt on top of the layer of debt we incurred when we originally borrowed the money which we threw away. And "analysts" justify this as "a good thing" because it "provides the means" for us to continue our imbalanced spending.
Will lenders keep funding our staggering outflow of capital, or demand say 12% instead of 5% (in order to cover a rising inflation rate), and make ever-shorter terms?
2000 forward
By 2000, many could see that the "trade deficit" was out of hand. But any talk of "balancing" trade was and is met my shrieks of "protectionism," "Smoot-Hawley Tariff bill" and the "Depression."
Many want the looting to continue, as long as it is charged to the population, which doesn't see the capital losses, which are hidden from view, not reported in dollars, not reported alongside the much lower "budget deficit" figures which make the evening news.
We've been skinned out of some $5 trillion of trade imbalance dollars. There's the protection we've failed to erect.
We don't need tariffs, just good old "reciprocal trade agreements." "We'll spend about $50 billion with you, and you spend about $50 billion with us. Upon completion, we'll do another 'trade agreement'."
Breaking up the ship for firewood fuel to keep it running
In that great old movie, "Around The World In 80 Days," with David Niven, in his rush on his final leg across the North Atlantic to make his deadline, he broke up much of the wooden steamship for firewood to keep it running.
And that's what we've been doing - - letting the foreign throwaway dollars of ours come back to our stock exchanges and private sales, buying up our corporations by the thousands.
See www. economyincrisis. org for an eye-opener.
Monies that should have been returning - - by firm agreement - - for our goods and services, instead just piled up outside our borders in central banks, sovereign wealth funds, in businesses selling to us (often big transnationals with roots here) and in the general population.
Now these monies are coming back for our means of production of goods and services.
Trade imbalances pressure US workers and benefits and companies
Trade imbalances fund competition from outside our borders, thus put pressure on American labor, its unions, its company benefit packages including heathcare services, its company pensions, and so on.
And this downward pressure is accomplished with money borrowed against the credit of the very workers and companies that are pressured.
If foreign automakers had to compete without huge trade-imbalance money that we borrow and send out no-strings-attached, the tables would even up, and GM and Ford for example, would recover nicely.
Europe and euro poised to take over world financial leadership?
A scenario seen often in recent years says the EU - - which has more people and a greater GDP than America (and solid, not hyper-stimulated) and a solid currency (the euro) - - plans to in time see us reduced, and to assert itself as the dominant world power. (Any move to shift international oil settlements from the dollar - - now the standard - - to the
© 2008 Karl Roebling. All rights reserved.
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