What shall we do as a people?
We can sex up economic talk, and speak of derivatives and electronic trade, but the bottom line of the world’s economy is pretty simple. The sun and the earth are the drivers of economic output. We, as a society, consume and are the economy. We consume the products grown from the earth, or purchase things made from stuff mined from the earth. If we save our money, we save it in banks where it is lent to others to harvest or mine the earth. The transactions that each of us has in the course of our lives is what keeps money circulating and the economy moving. Yet how much of that money is real? The US’s currency, as one of all national currencies, is fiat money—defined as a declared legal tender, state-issued and nonconvertible to a physical thing, and having no intrinsic value. It is only as valuable as others view the money to be. Hence it rises and falls upon public perception and supply and demand. Added to this fiat money is the generation of ghost money/credit using fraction reserve banking.
Fractional Reserve banking is very simple to explain. In a simple example, a gold miner pulls $5,000 worth of gold nuggets from the ground and deposits it in a bank and exchanges it for $5,000 in an account (demand account). The bank is generally required to hold 15% of demand deposits as actual cash reserves, but can make the remainder of the deposited money available for others to borrow. In this example, the bank would then lend $4,250 to credit worthy people. These transactions continue with the amount of money being available for credit reduced by 15% each time. Thus, $5,000 of an actual investment of hard currency (gold) yields a $33,333.33 increase to the total money supply. This system works and works well as long as the public has trust in the bank and makes sound investments that allow the bank to make money with interest. If those investments tank, then the creation of money is shown to be hollow and banks fail. If the depositors pull all of their money out of the bank, it fails as well. It is a system that naturally provides booms and busts as a business and credit cycle. It is how it is designed.
How this matters is that the US federal government has greatly increased the money supply and has quadrupled the national debt. Like normal people, the feds when they are over leveraged have to pay higher interest rates to continue to borrow money. We begin to approach Greece type trouble. But even the sage Warren Buffet does not see this to be the fate of the US government. No, we have the ability to “monetize our debt”. This means that the federal government will just print more money and pay off its debts with that generated currency. In a typical supply and demand way, the value of the money goes way down. Inflation becomes Weimer Republic-like (they did the same thing) and everybody’s savings are made irrelevant. Once we monetize our debt, nobody will lend money but it would be Armageddon for our economy anyway.
What shall we do? At what point will we trade our freedom for security? Aren’t we really doing that already? What is universal healthcare other than this? What happens to a country and its people when they are told exactly how much money they will be allowed to keep, how many resources they will be allowed to consume, how many children will they be allowed to keep, and how they must live? Why work hard if it helps your condition not?
I am a constitutionalist - not a fan of what either party has done with regard to following its preceps. We do not have the discipline to stop this massive federal spending. Even if we increased taxes, we will continue to outspend the increases. Who will really work hard in a country that takes 60% of what you make? Medieval serfs had less of a requirement to their government. I see no other way than to monetize our debt- something that Warren Buffet has spoken of recently.