The Federal Budget Mess

Watching CSPAN, the discussion was between various (ex?) congress critters and some reporters (from the Wall Street Journal, and others). One of the senators said that if you took ALL the income to the Feds last year it was roughly the same as Mandatory Spending. That every dollar spent on ‘discretionary spending’ was borrowed (and with something like 1/2 of that borrowed from overseas).

Two names I caught were:
Erskin Bowles
Alan Simpson

And one of the reporters was:

Alan Murray WSJ Deputy Managing Editor

That was a very nice compact way to say “what’s wrong with the budget”. That caused me to wonder if the numbers could be made more specific.

Well, the wiki gives ‘estimates’ instead of the actual numbers, but I’m going to run with it. ( I may compare with some other sources later, if time and pain meds permit).

The Budget:

Federal Budget 2010

Federal Budget 2010

This chart says that revenues were a little more than mandatory spending, but not a whole lot. It would be really interesting to find out if the actual expenditures were greater…

Of particular interest is the line marked “potential disaster”. We are flirting with that. That’s the point where if we don’t get a bigger credit card, stuff hits the fan big time.

So what IS that mandatory spending? And what is discretionary?

http://en.wikipedia.org/wiki/2010_United_States_federal_budget

Mandatory spending: $2.173 trillion (+14.9%)
$695 billion (+4.9%) – Social Security
$571 billion (+58.6%) – Unemployment/Welfare/Other mandatory spending
$453 billion (+6.6%) – Medicare
$290 billion (+12.0%) – Medicaid
$164 billion (+18.0%) – Interest on National Debt

Not the military. Not the postal service. Not a damn thing that is required by the constitution.

ALL of it social welfare programs, other than the interest on the credit card to pay for it…

It is mandatory to have Medicaid? Unemployment and welfare?

The part in parenthesis is the percentage change from 2009. What is ballooning?

Oddly, NOT Social Security. As folks bleat and fuss over raising the retirement age and threaten social security benefits, that’s not where the growth is. What bounced up the most? Welfare and Unemployment. (Yeah, in depressions that happens… especially when they keep extending the time to expiration indefinitely).

The other big one is the interest on the national debt. 18% rise in one year

So clearly one quick thing to do is just stop extending unemployment benefits. (I’d also assert that there is NO constitutional justification for Federal Welfare payments.) Don’t know how much of that number is “other mandatory spending”, but I suspect cutting these two would have a big impact.

Now, the interest on the debt. Right now we’re getting money Dirt Cheap due to everyone running away from the Euro Zone. WHEN that changes, the interest rate we must pay will bounce up. From 2% or so to the Italian or Greek levels of 7% (once folks realize it’s impossible for us to even keep running without more money, and forget any hope of repayment of the debt. It’s Ponzi Rollover or Bust…) So what happens when that $164 Billion turns into $328 Billion? As we’re NOT paying down the debt, it will compound. That’s exponential growth even without the inevitable interest rate bump.

That’s gonna be a problem…

Now, take that Medicaid and Medicare and add to it Obama care. $743 Billion and growing fast with untold billions more when Obamacare kicks in. How to “fix” it? IMHO, Tell the states they can have Medicaid programs if they want them (no, no ‘block grant’ bribery, just “if you want it you can make one”) and shut down Medicaid. Put Obamacare in the dumper along with Baby Bush’s Medicare Drug Plan while you are at it.

Cold? Cruel? Heartless? Nope. Just recognizing that when the money runs out it will happen anyway, so may as well do it now and in an orderly fashion so you can dump some of those interest payments to China as deficit spending gets reduced.

Keep Medicare and Social Security, but put a ‘means test’ on them. We don’t need to be giving Donald Trump a social security check. I’d set the cut off at the 90th Percentile of national income (and perhaps ratchet it DOWN over time… )

How about that discretionary spending? What is in it?

Discretionary spending: $1.378 trillion (+13.8%)
$663.7 billion (+12.7%) – Department of Defense (including Overseas Contingency Operations)
$78.7 billion (−1.7%) – Department of Health and Human Services
$72.5 billion (+2.8%) – Department of Transportation
$52.5 billion (+10.3%) – Department of Veterans Affairs
$51.7 billion (+40.9%) – Department of State and Other International Programs
$47.5 billion (+18.5%) – Department of Housing and Urban Development
$46.7 billion (+12.8%) – Department of Education
$42.7 billion (+1.2%) – Department of Homeland Security
$26.3 billion (−0.4%) – Department of Energy
$26.0 billion (+8.8%) – Department of Agriculture
$23.9 billion (−6.3%) – Department of Justice
$18.7 billion (+5.1%) – National Aeronautics and Space Administration
$13.8 billion (+48.4%) – Department of Commerce
$13.3 billion (+4.7%) – Department of Labor
$13.3 billion (+4.7%) – Department of the Treasury
$12.0 billion (+6.2%) – Department of the Interior
$10.5 billion (+34.6%) – Environmental Protection Agency
$9.7 billion (+10.2%) – Social Security Administration
$7.0 billion (+1.4%) – National Science Foundation
$5.1 billion (−3.8%) – Corps of Engineers
$5.0 billion (+100%-NA) – National Infrastructure Bank
$1.1 billion (+22.2%) – Corporation for National and Community Service
$0.7 billion (0.0%) – Small Business Administration
$0.6 billion (−14.3%) – General Services Administration
$0 billion (−100%-NA) – Troubled Asset Relief Program (TARP)
$0 billion (−100%-NA) – Financial stabilization efforts
$11 billion (+275%-NA) – Potential disaster costs
$19.8 billion (+3.7%) – Other Agencies
$105 billion – Other

Notice that the last 3 items are NOT in descending size. We’ve got $124 Billion of “Other” hiding down there.

So what is “discretionary”? Things like Defense and Veterans Affairs. Department of Justice and courts. Social Security ADMINISTRATION (how you can have mandatory SS spending and a discretionary agency to make it happen is an interesting question…)

OK, the “Lion’s Share” in this bucket is Defense. $663.7 Billion. What to do with it? IMHO, it’s pretty simple. Close foreign bases in almost all the world. Keep a few but ask the host country to pony up some cash for our helping protect them. I’d keep places like Guam, Ramstein, ONE in Japan. Other than that, if someone like the UK wants us there, they can give us a place to park airplanes.

Second thing I’d do is stop trying to be the world cop. Tell the EU they can deal with their neighborhood.

Oh, and about defending Taiwan from an attack by China: Exactly how are we going to do that when we need to borrow the money from China to do it? Hmmm? So it’s not like we would be pulling back from defending other folks, we’re just recognizing that it’s a fantasy to think we can do it. If they want some defense from us, as Rent-A-Army, they can provide a base and consumables.

Finally, I’d just pack up and leave Iraq, Afghanistan, etc. If Europe wants to be protected from them, Europe can put up the money, kids, and machines to do it. If nobody else wants to stop them, well, then maybe the folks in Saudi and Teheran can ask themselves just how much they want to control their neighbors and how much they want “random” spots turned into smoking holes in the ground if anyone attacks us again. Declare victory, come home, and smoke ‘em with bombs if they poke their head up again. Tell the Saudis they can either be the Cop On The Block, or we’re putting a $Trillion into Coal To Oil facilities… (Won’t need to spend it on the military, so… )

Now, notice that Department Of State is up 40% IN ONE YEAR. That’s bribe money, pure and simple. Fund the department of state sufficient to have ONE ambassador to each country on the plant. Nothing more. Shit-Can the bribery “aid” money. Empty the slush funds. I’d bet that pretty soon we’d need a lot less military spending as our meddling dropped off and stopped irritating folks around the world. $51 Billion? There are about 200 countries in the world. I make that $255 MILLION dollars PER COUNTRY. I think $1 Million per country ought to be more than enough for a nice office, secretary, and some folks to listen to tourists complaints. Remember, that’s Each Year… So whack that puppy back to about a $1 Billion total budget.

A load of those departments are clearly ‘discretionary’ and you can simply say “not a federal problem”. If the states want to do something, they can. Otherwise, just toss it. At a minimum, force them to rejustify why any particular function is needed and re-pass the enabling legislation one function at a time. Zero Based Budgeting. Which ones would be on my ‘reset to zero and restart’ list?

Transportation – maybe with a ‘pass’ for some of the FAA.

Housing and Urban Development – Cities can develop themselves and it’s not like the Feds have done a very good job on that housing side of things…

Education – Education was fine before the department was created (IIRC under Jimmy Carter) and has just gone down hill since it was created. Can it and let the local governments be free to run their own show.

Homeland Security – Stuff it. Just hand it over to the Department Of Defense. It’s their job anyway. I might actually want to fly again if I don’t have the mandatory grope…

Energy – And exactly what have they managed to do to gain us energy independence? Toss it. If states want one, they can make one (and fund it…)

Agriculture – Dump the subsidy for Farm States program. Don’t need vote buying with federal programs. Not sure what else they do that might be of value (other than some crop research) but frankly, I think Ag States can do their own crop research on their own nickle.

Justice – Keep it, but eliminate the whole “War on drugs” fiasco. It doesn’t work, never has worked, and never will work. Release the folks jailed for ‘victimless crimes’ and shrink the Federal crimes to about 1/10th of what’s on the books today. Does it really need to be a Federal Crime to copy a video tape?…

NASA – At one time I was a great supporter of NASA. Now they have become a Global Warming Propaganda Machine. As private companies are basically ready to provide space trucking, I see little reason to keep it around. Turn the important historical sites over the the Park Service as monuments, and fund the Space Station for the rest of it’s life. Other than that, sell the programs to anyone who wants it. Nobody wants to buy a Hubble? Let it reenter. (They seem to toss $1 Billion assets away anyway, so really just ‘business as usual’ a bit sooner). The military has shown they can make their own Space Toys, so it’s not a big loss. Yes, a lot of future science papers will have Japanese and Chinese names on them instead of US names. So what?

Commerce – Stopped doing the only jobs it ought to do a long time ago (tariffs and preventing monopolies). At this point largely doing promotion of industrial goals on the tax payer dime. IF any states want to regulate something, let them do it.

Labor – Again, something for the states to do. Not a Federal issue at all, really.

Treasury and Interior – Those we need. We have the lands and there is a need for the money management. Hand the indians title to their reservations and get out of the “Indian Affairs” business though… Oh, and if a chunk of forest isn’t a park, but is leased for logging, then sell it to a timber company. It’s just a tree farm on the tax payers dime. Better to just admit that and let a more motivated owner manage the tree farm.

EPA – Needed to some extent, but I’d give it about a 75% haircut. We have things pretty much done in terms of things like auto pollution levels, so just put it into ‘caretaker’ roles.

SS Admin – If you have Social Security, you need to administer it.

National Science Foundation – Sell it. If there are no buyers, close it. Folks who want to do science can beg money from someone other than the tax payer.

Corp of Engineers – a “keeper” as we need them to keep things working, but cut programs like dikes around New Orleans. If N.O. wants dikes, they can build them… Management of Federal Properties only.

National Infrastructure Bank – Tosser…

Corporation for National and Community Service – Tosser… folks can find their own way to ‘serve’.

SBA – I’d keep it. Somebody need to represent the Small Businesses of America at the Federal level.

GSA – Another keeper. They tend to keep the money more focused. WIll likely shrink as the government does.

TARP – Let it wrap up as loans are repaid. Forbid all future activity other than ‘going out of business’ support processes. Make it a sub-section of the GSA.

Financial Stabilization Efforts – A waste of time and treasure. Just stop it…

Potential Disaster Costs – Keep it for a few years, but each year hand another type of ‘Federal Disaster’ back to the states. Start with foods and coastal erosion. Add tornadoes and hurricanes next. Then earthquakes and fires. Finish with ‘else’. Uncle Sugar doesn’t need to be paying for local disasters.

“Other” – can likely use a good pruning, but would take detailed investigation.

In Conclusion

At the end of that process, we would have a very lean government with a sharp focus. It would likely cost about 1/4 or less of the present government. IMHO, that would be about right… At that point, have a balanced budget amendment and a mandate that the Federal Government can spend no more than 5% of the Gross National Product.

At that point, I think my budget work would be done…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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48 Responses to The Federal Budget Mess

  1. I’d split NASA out — the “space trucking” aspects need to be commercialized and outsourced properly,. but let NASA still do research and explore where it is not (yet) financially feasible.

    Some other quibbles here and there, but I find myself in fairly large agreement with much of this.

    But there’s a bigger, underlying issue: The US needs to get back into a competitive position, in order to grow and attract business. Those changes will be dramatic, and will automatically incorporate some of these as well.

    ===|==============/ Keith DeHavelle

  2. H.R. says:

    E.M., you just flunked “How to get elected and stay elected.”

  3. P.G. Sharrow says:

    The government that governs least , governs best.

    The federal government is supposed to be the hand maiden of the states, not the master! The sovereign states created the federal government. They are not subdivisions created by the national government.

    The Constitution is a valid contract and must be enforced to the letter of the agreement. Allowing federal people to interpret the contract to suit their needs does not work. They have no honor. There needs to be an independent body to enforce the contract with real teeth. pg

  4. Gary P Smith says:

    I like these recommendations. So, which current ‘electable’ candidate most closely approaches this viewpoint?

  5. John F. Hultquist says:

    A few others have recognized the problem you outline. The operative word here being ‘few’. When enough voters understand, then office seekers who realize the issue may become electable. We are not there yet, and not close. The on-going mess in Europe is a teachable moment, as some folks like to say. Let’s have a cheer for keeping it in the news.

    I live in the state of Washington, so consider: Maria Cantwell’s web site is promoting the Carbon Limits and Energy for America’s Renewal (CLEAR) Act. Patty Murray is co-chair of the Joint Select Committee on Deficit Reduction but on her web site needs a survey to have Washingtonians submit “serious ideas to help reduce the deficit.” She hasn’t a clue! Listen to them and read their statements. Then from California you give us Barbara Boxer and Dianne Feinstein. Thanks a lot.

    “well, ya got trouble, my friends
    right here, i say trouble . . . ”

    In this case the rhyming ‘P’ stands for Ponzi.

  6. Nick says:

    Other than that, if someone like the UK wants us there, they can give us a place to park airplanes.

    ==========

    Hell, as someone from the UK, I’ve come up with a great wheeze. We have a budget problem too. We can charge you for parking aircraft, and solve our budget problem in the process.

    That is, if you are right about the UK wanting/needing the US here.

    Or is it perhaps that the US wants/needs to be in the UK?

  7. CoRev says:

    EM, I agree with your issue, but my approach would be different. Your approach appeared to start with a “department/agency” core function review, and then canning those considered unnecessary. Politically, that is a non-starter.

    My approach starts with a review each agency and department for processes that adhere to their core function. Those functions outside the core should be eliminated. In that process some will be identified as needed and a home for it will be identified. Many more will be identified as redundant, and they should be consolidated.

    The purpose of this approach is to keep the squealing to a controllable/workable level. For each function there is a constituency. The loudest constituency usually, the one losing something, will more often than not prevail. Let’s keep that o a minimum by dividing and minimizing their size and noise volume.

  8. Beth Cooper says:

    I’d vote for you Chiefio, if I lived in the US instead of Australia, home of the Gillard Carbon Tax :-(

  9. adolfogiurfa says:

    Kingdoms were by far more efficient, as they were small, a few noble men not a gigantic amount of employees who , in any case, should be replaced by a very small central computer. :-)
    You have enough room for taxes: Say a VAT of 15 to 18% and a Fuel tax of 50%, like in any decent country (not because of any “Golbal Warming” or “Climate Change” but just to raise money).
    Anyway, what has happened is that you have spent more money than the cash you had, without increasing GDP, without increasing the production of goods- all production has gone abroad- so you have face reality and either devaluate (the worst indirect tax) and live according to your means or to pay more taxes….but what for?, for feeding who´s hunger?,…. what take us to the start again: Big governments are a bad thing, so perhaps we have to rewind way back before the ideas of the French Revolution . From an economy centered and based on speculation to an economy based on the production of real goods, of real “stocks” with its real and intrinsic value, societies based on moral and ethical values of healthy and sane working people.

  10. Nick says:

    The problem is that we now have countries based on servicing government debt to the exclusion of other things.

    It takes a state to f’up to that extent.

  11. Oliver k. Manuel says:

    Thanks, EM.

    Others are awakening to reality: Government science, world politics and world economics have been secretly entangled since 1971 [1].

    Citizens have lost control over political leaders worldwide [2-4].

    1. “Deep Roots of the global Climate Scandal (1971-2011)”

    http://dl.dropbox.com/u/10640850/20110722_Climategate_Roots.pdf

    2. http://judithcurry.com/2011/11/16/capitalism-vs-the-climate

    3. http://www.theepochtimes.com/n2/china-news/chinese-tv-host-says-regime-nearly-bankrupt-141214.html

    4. http://barnabyisright.com/2011/11/17/china-nearly-bankrupt-every-province-in-china-is-greece-says-chinese-economist/

    Regretfully, that seems to be reality today.

    Oliver K. Manuel
    Former NASA Principal
    Investigator for Apollo

    http://myprofile.cos.com/manuelo09

  12. Jason Calley says:

    E.M., blessings on your sainted head, and there is nothing substantive about your ideas for budgetary sanity that I would quibble with.

    However…

    The problem is not that there is not a rational (if difficult) path available if we choose it. You laid out a good path above. As I am sure most people would agree, smart folk have been saying similar things to what you post for some years now. We know what needs to be done, at least anyone who has been paying attention knows, and yes, it is pretty much what you say.

    However…

    You and I know that there is effectively nothing we can do to get those ideas implemented, not with things as they stand now. The Powers That Be have gotten enormously, fabulously, wealthy by running our nation as a Ponzi scheme. The present US role as world-policeman, candy-man, back-alley mugger, and circus geek, has worked well — not to make our nation safe, free or loved, but it has worked well to empower and enrich the people who run the government. Those would be a consortium of bureaucrats, elected representatives, corporate CEOs, big bankers and traders, and various quasi-governmental groups and spooks. It is not a conspiracy; it is a consensus. They do not care much about the United States or even Western Civilization as a whole, because they are prospering. Their battle cry is “Yeah, sure, the schmoes in Iowa are losing their homes, but we’re getting ours!”

    Those same people control who gets on the mainstream media and how the media portrays them. They control who gets in the primaries. They control how the elections take place and they are the people who count and verify the votes. They are the people who control which laws are passed and which laws are enforced. They control how the laws are interpreted. They control whether trillions go to big banks. They control whether people in some obscure corner of the globe get foreign aid or get cluster bombs. They are not interested in promoting a solution, because THEY are the problem.

    I could rant on, and while it would be temporarily cathartic, it would be a waste of valuable time.

    Our system will not be fixed anytime soon, because it is working exactly as desired by the people who put the system in place. Our system will be fixed, eventually, but not until it breaks so badly that everyone, (and not just the ones as bright as you, E.M., and the people who frequent your blog) but everyone, realizes that it is time for a national re-boot.

    i am optimistic about that re-boot, by the way. :)

  13. R. de Haan says:

    Thanks E.M, nice homework.

    Obama is now planning to occupy Australia sending 250 US Marines to curb the Chinese march to power.

    http://www.bbc.co.uk/news/world-asia-15739995

    We now have boots on the ground in Nigeria, Kenya cooperating with dubious warlords and criminals and helped Al Qaida to take over Libya.
    In the mean time Exxon Mobile is kicked out of Iraq while the US is hiring mercenary air force for Iraq rescues after the US army retreated.

    http://www.wired.com/dangerroom/2011/11/iraq-diplomats-search-rescue/

    The US really needs another President ASAP and stop screwing up the world and squandering money.

    The time for revolutionaries is long passed.

  14. adolfogiurfa says:

    @Jason Calley: It is not a conspiracy; it is a consensus
    You have just found the key to all conspiracies: consensus, but consensus of the innoble ones, the ones chosen to be easily bribed or bought.
    Now I understand that real noble men could have never conspired against themselves, against their principles, not because any principle or law or whatever; it went against its own noble nature. So it was the time to “initiate” those who came from the sewage, omnivorous rats attracted by the magic spell of a golden flute, to obediently make prey out the human race and kill it by a new dark age bubonic plague.

  15. E.M.Smith says:

    @Those who say it’s not possible:

    But I can dream, can’t I ???

  16. GregO says:

    Chiefio,

    Excellent. Ax them all. While we are at it, let’s also send Obama’s 30+ “Czars” packing.

    http://www.nola.com/politics/index.ssf/2011/06/sen_david_vitter_goes_after_pr.html

    America, and we have Czars and are funding “shovel-ready” projects. Hmmm?

  17. E.M.Smith says:

    BTW, the Federal Deficit has, as of today, just rolled over:

    $15,000,000,000,000.00

    Yes, we’re now $15 Trillion in debt. And it seems like only last year we were at $14 Trillion… and just a couple of years ago we were stressing over the crossover from $9 Trillion to $10 Trillion…

    Hey, China! Load up another $Trillion, will ya? Christmas is coming…

  18. Dennis says:

    Just for information: Interior has the park service, monuments, etc. plus the BLM which sells some timber (It’s not leased as in Canada. Sales are prepared by government foresters, contracted to private loggers and the contracts are administered by the federal foresters). The BLM share of the federal timber program is quite small. Most federal timber is sold (as above described) through the U.S. Forest Service which is an agency under the Department of Agriculture (it makes up about $3 billion of Agriculture’s budget). Timber land in the Forest Service make up about 1/3 of a total of 192 million acres and are currently cutting about 10% of their potential as determined by the Forest Planning process of the 80’s. Three times as much timber is lost to insects, disease and forest fires as is harvested annually. Since harvest on Forest Service lands began in earnest about 1945, less than 25% of the total acres designated for harvest have been cut and only a little over 30% that has been clearcut.

    A suggestion that occassionally gathers some support is to give the federal timber lands to the states to manage under their trust laws. These lands are managed to produce money for state programs, especially education and roads. I could support it as well as long as it was limited to the lands from Productivity Class III and above (these produce 50+ cubic feet of wood per acre per year (about 10 2×4’s) and would involve 60 million acres.

  19. Harry Costas says:

    We know that 80% of the funds are wasted and 20% are productive. Saying that, thats life in all aspects.

    Whats wrong with the budget?

    The question that needs to be asked is:

    Why do the people lack confidence in their governments?

    For example: Money spending on opinion.

    Why is Gobal warming handled by opinion and media opinion rather than science evidence?

    Opinion of the mob state that man has caused Global wraming, but! science tells us that the Sun’s cycle is the cause backed by Earths cycles.

  20. Wes says:

    Chief,

    We’re not on the gold standard, anymore. The U.S. does not get it’s money by borrowing it, we print it. We allow people to invest risk free by buying our bonds.

    Saying the U.S. will run out of money is akin to saying a scoreboard will run out of points. Won’t ever happen.

  21. Nick says:

    Saying the U.S. will run out of money is akin to saying a scoreboard will run out of points. Won’t ever happen.

    ===================

    Rock and Roll.

    Look at what happened to Hungary when it tried the printing route.

    http://en.wikipedia.org/wiki/Hungarian_peng%C5%91_hyperinflation#Hyperinflation

    1 USD = 460,000,000,000,000,000,000,000,000,000 Pengo

    Five years prior to this it was

    1 USD = 5.06 Pengo

    Printing – great solution.

    What was the problem again?

  22. Wes says:

    Nick,

    I haven’t said printing doesn’t have consequences. I take your response to mean you agree that the U.S. creates it’s money by printing rather than borrowing and thus the above article is mostly meaningless.

  23. The problem is that the head of the US Federal Reserve acts as though he does not understand the concept of money, supply, and demand. The one person who would be expected to explain to a national television audience that governments cannot just “print money” is the one who suggested it.

    I don’t think Bernanke’s an idiot, thus this must be driven by a political equation.

    ===|==============/ Keith DeHavelle

  24. E.M.Smith says:

    @Wes:

    We both print and borrow. Sometimes we borrow, then print to repay it (and evaporate the real value of the debt in the process of printing).

    Yes, you are correct that we will never ‘run out’ of currency. But we will run out of ‘real wealth’ – the stuff of money as opposed to currency…

    Currency does not have the ‘store of value’ aspect of money. So, to be painfully pedantic, I’m actually correct to say that we ‘run out of money’ as the ‘store of value’ aspect of our currency is eroded to zero. (as inflation gets so bad folks take wheelbarrows of the stuff to buy a loaf of bread). We will still have lots of currency, but our money will be long gone…

    But you are correct that we can print all the currency we want. It just won’t be money…

    (Most folks use the term ‘money’ to mean ‘currency’. Even the folks at The Fed and in government are starting to do that. I suspect it’s just another example of ‘cheapening the words to hide the truth’. Historically, money included ‘store of value’ so excluded paper currency… bur ‘words change’, especially when politically expedient to hide the truth.)

    That point, BTW, illustrates both why the Hungary article is not meaningless and why your point is a bit vapid. But don’t worry. In about another 30 years those of us who cling to the original (and, IMHO, correct) definitions will be dead and then you will be, by consensus, ‘right’…

  25. Scarlet Pumpernickel says:

    Interesting the Chinese think that man started in their country not Africa. Where there 3 humans origins? Africa, China and Europe?

  26. Wes says:

    Both print and borrow ?

    Please explain why a country that can print all the money it needs (up to the superficial debt limit) ever need to borrow as much as one thin dime ?

  27. Nick says:

    I haven’t said printing doesn’t have consequences.

    ==========

    I still contend printing is a default.

    Money is a means of exchange, either at one point in time, or over time.

    Let me explain. Money facilitates transfers. A buys from B and pays with money. B accepts the money because they believe that when they buy from C, money will be accepted, and that value is preserved.

    Likewise over time. A is prepared to lend to B, so long as they get the same value back in the future. Interest rates cover the default part, and inflation. ie. Deprevation of value.It’s this that is stealing from people.

  28. Jason Calley says:

    @ Wes
    “Both print and borrow ? Please explain why a country that can print all the money it needs (up to the superficial debt limit) ever need to borrow as much as one thin dime ?”

    Yes, it may seem odd, but it really is done that way. Here’s why. If the money was just printed up to pay all expenses (either physically on paper or virtually in ones and zeroes) then yes, you could pay the national bills, but we would see more and higher price inflation as the ratio of dollars to wealth became larger. (In fact, up until maybe fifty or sixty years ago, the word “inflation” did not refer to a general rise in prices, but rather to an increase in the supply of money. Linguistic creep changes how we think about things!) In order to delay this very unpopular inflation, the dollars need to be somehow kept off the market. So, the problem is, how do you spend newly created dollars and yet still keep them out of the market at the same time? In our case, what we do is get the Chinese, and the Japanese to “loan” us the money. They give us an equivalent amount of credit, and they accumulate the dollars as capital. What we are doing is exporting our inflation (both the price inflation and the monetary inflation) to other countries. Their citizens work harder and accumulate excess wealth, but we here in the US are doing the consumption of that excess wealth. As you can imagine, this can’t last forever, First, money has a value in time. Money NOW is more valuable than money LATER; we call this time differential “interest”. Interest is just the payment due for the effort of delaying consumption of accumulated wealth. So yes, we do in fact, both print and borrow at the same time, and the borrowing is done to delay the effects of the printing. One could say the same thing about taxation. You can look at taxes as a way of raising revenue, or equally as a way of offsetting inflation due to printing. Since dollars are fungible, either way works. Of course the BIGGEST reason for taxation is as a form of social engineering, a way to punish enemies and reward friends.

    By the way, one of the most destructive things due to the fiat creation of money, is not just the inflation, but the simultaneous distortion of the time value of money. The interest rate of borrowing is part of the pricing structure of the market. The interest rate is a reflection of how desirous people are to consume goods NOW rather than to use their accumulated wealth as capital for production of future goods. Low interest rates signal that people who are producing excess wealth are satisfied to delay consumption for future goals. High rates signal that people want or need to use their goods now. When the Fed keeps interest rates artificially low, businessmen take that cheap money and invest it in ways that will not produce immediate wealth. At the same time, consumers get the signal that they do not need to save; interest rates are low, what is the need or use of putting money into savings? These false market signals induce people to spend and invest in ways that would not seem prudent if interest rates accurately reflected the current time value of capital.

    Hypothetically, if the printing of fiat money were done in a way that tracks the increase in national wealth creation (due to advances in technology, for instance) you could have a fiat currency with no price inflation. Granted you would still get interest rate distortion, but no price inflation. Unfortunately, no nation (or rather no politicians) in history has ever been able to resist the urge to increase money supply faster than productivity.

  29. adolfogiurfa says:

    @Jason Calley: Unfortunately, no nation (or rather no politicians) in history has ever been able to resist the urge to increase money supply faster than productivity.
    Every nation with the exception of the USA whensoever increases money supply faster than productivity it produces inflation, however if you travel abroad you will realize that your currency does not “buy the world” any more, with the exception of such paradises as Cuba, Venezuela or Argentina.

  30. E.M.Smith says:

    @Wes:

    There is an existence proof of borrowing. All those Federal Bonds….

    As to “why”:

    It’s pretty simple, really. I’m going to continue to use currency to denote printed paper and money to denote things that have ‘storage of value’, so be sure you understand that a Reich Mark was not a store of value at the end of W.W.II, so NOT money…

    I’m a sovereign country. I need $1 B “Mikys” to build a castle (as I like them). My choices are:

    1) Tax my people and take their currency.
    2) Borrow the money / currency from someone else.
    3) Just print the currency and spend it.

    In #1, the people don’t like it and I may find all kinds of consequences. From being voted out of office to being lynched.

    In #2, the lender expects to get a full measure of value back, plus some. That is, they expect the money value, plus a gain. IF my currency is inflating a lot, I’ll need to pay a very high interest rate to assure some ‘preservation of value’ so they will accept a loan in “Mikys” or I will need to pay them in some real money (gold, silver, a ‘sound reserve currency’, etc.)

    As the whole reason I’m doing this is to get that real value moved into a castle for me to live in, I’m not real interested in the idea of needing to give back that full real value plus some, but if I can make the loan long term enough, then the taxes to make the payments may not be noticed by the people.

    Which leads us to your favored #3. I’ll just print up a pile of Mikys and spend them. VERY tempting, and countries all over the world in both time and space regularly take this option. But it has consequences.

    The most direct consequence is inflation. Pretty soon a Miky doesn’t buy as much as it used to. EVERYONE in the kingdom needs to take a load of them just to buy a loaf of bread. Folks who loaned out $1 Million of them are not getting back the same amount of purchasing power. The “store of value” function has been lost and I’m “cheapening the Miky”.

    The folks who lend money notice this. They ratchet up the interest rate I have to pay to borrow Mikys to cover the rate of inflation. When I go to build my ‘summer castle’ I find I need to pay 20% interest to borrow them… As does every other borrower in the country.

    Pretty soon we’re in “hyperinflation” land and the economy collapses as a sound currency is pretty much needed to have exchange work (the basic function of currency) and a non-inflating or very low level of inflating currency has some function as a shorter term ‘store of value’ so can function as a poor form of money too. BUT a currency with significant inflation is pretty poor as a store of value so…

    Folks begin to dump the Miky for exchange and for store of value. They buy and hoard gold, silver, diamonds. They start to conduct exchange in Euro or Yen instead. Some folks change their stock accounts to hold any cash in Swiss Francs…. Suddenly the Miky is ‘not worth the paper it is printed on’ and I find that my government can’t pay for all the goodies I want with Mikys, folks are demanding other currency instead… Oh, and that goes for all the citizens too, so they have formed the “Off With His Head Committee” to ‘explore solutions’ ;-)

    This is NOT a hypothetical. We’ve seen it many many times. The Zimbabwe Dollar, the Reich Mark, the Confederate Dollar, the old US Greenback and Continental (thus the phrase “not worth a Continental”). It’s a VERY long list.

    In particular: Right now the US Feds are spending 25% of the GDP each year. If they got all that currency by just printing it (setting tax rates to zero and borrowing to zero) then every year we would have 25% more currency to deal with. That means a 25% inflation rate that compounds each year.

    So lets take a hypothetical world where there are 12 beers and 12 Mikys. Every citizen can buy a beer. Now I, as sovereign, print up 3 Mikys as I want 1/4 of the economy for me. I spend my 3 Mikys and get my 3 beers. Now the other citizens go to buy their beers, but there are only 9 left. A bidding war starts (as everyone wants a beer). Eventually the price settles at 12/9 or 1. 33 Mikys per beer. We have inflation in spades…

    ( in reality, the bidding war starts while I’m still buying mine and the price we ALL pay is 15/12 or 1.25 each, but I’m illustrating the case where the folks are second in line and slow to catch on… in either case, 12 beers are sold for 15 total Mikys and the average price is now 1.25)

    When next year comes, folks are not so dumb, and insist that they be paid enough to buy a beer. They now want 1.33 Mikys in wages instead of just 1 Miky. (Especially the ones who loaned their Mikys to their neighbor expecting to get back a beers worth of Mikys and only got 1 lousy Miky back that won’t even buy a beer anymore…) Now this adds wage inflation to the mix… BUT, I as government also want my 25% of the beer, so…

    This year I print up 4 Mikys and spend them (just to get my 3 beers…) and the process continues… There are now 19 Mikys in circulation, and only 9 beers left to buy… (the original 12 Mikys, the 3 printed last year, and the 4 printed this year). The 15 in the hands of the public get spread over 9 beers and the price is now 1 2/3 Miky per beer. In only 2 years the price of a beer has nearly doubled. I’ll leave it for you to work out what it will cost next year…

    So, what do you think would happen to the US Economy if the price of EVERYTHING (and not just beer) was 1 2/3 higher than what it was when Obama took office? How about double when this year ends? Gasoline at $8 a gallon. Movie tickets $20. Bread $4 to $8 a loaf. How about when that pension you got was worth 1/2 as much? AND would be worth 1/2 of that in 3 or 4 more years?

    So yes, you are absolutely correct that sovereign governments CAN just print all the currency they want or need. However it has dire consequences in very short order. Dire enough that they don’t like to print more than about 4% or so of the ‘money supply’ (that ought to be called the currency supply) each year.

    The entire European ‘debt crisis’ can be seen as a fight between the PIIGS who want to print about 8% to 10% per year (and ‘keep taxes lower’ while spending 10% more) and Germany who want to print less than 2% (and ‘have a balanced budget’ while spending ‘within your means’).

    It is largely a clash of cultures between Germans who lived through hyperinflation and teach their kids the above described problems, and the PIIGS who have ignorant populations who think printing money is a free ride.

    In short: You get an inflation rate roughly equal to the degree to which you print currency. If you can live with that, go ahead and do it. Most folks have pretty much figured out that at any inflation rate over about 2% “Dire Things Happen” and so they choose not to do that.

    Why 2%? That’s about the natural growth rate of economies from technological advance. Folks don’t notice the ‘advance’ being gone quite as much as they notice the pension not covering the house payment anymore…

    BTW, I think you will find that the “beer and Mikys” game is an easy way to demonstrate inflation even to some of your less interested friends. Buy a few cases of beer and a bunch of poker chips. Each “year” (round of the game), the ‘beer maker’ pays each person for his ‘labor’ one chip or a higher negotiated rate. You, the government, get to buy your beers first, then everyone else gets to bid on what is left on the table. You then tax any chips left (net of ‘labor payments’) from the beer maker. Repeat.

    In pretty short order the guys not getting beers will be wanting to negotiate higher wages with the beer ‘maker’ and everyone will be getting annoyed at your free ride and first dibs on beer. The same thing happens in the real world, except folks get baffled a bit by how many goods and prices are involved…

  31. adolfogiurfa says:

    @E.M. The trouble is that the Euro is inflated, the Dollar is inflated and Stock exchanges are also inflated, then when all these bubbles will explode?
    Does anyone has the magic pin to do it?

    @E.M. And…have you noticed that everytime this happens the disappearence of democracy follows?

  32. E.M.Smith says:

    @Adofo:

    Yes, we’re in a ‘race to the bottom’. When? Well… I’d give it about 5 years. But as it’s an exponential, people, including me, are poor at ‘guessing’ where we are on the curve. It is also possible that folks could choose to fix it. Highly unlikely, but possible.

    No pin needed, BTW, all bubbles explode, all on their own… But the usual pin used in a war. Helps shift the blame to ‘the other’, the enemy. “Things would be great but for the Evil Hun… buy war bonds now and turn in all your gold”…

    A cynic would ponder if folks who don’t like free democratic republics use it as a tool to that end. A historian would look at the books written by communists and socialists and see where they specifically stated the need to attack the U.S. Dollar and it’s basis in gold as a sound currency… “Never let a crisis go to waste” implies that creating a monetary crisis ‘has benefits’… So various kinds of despots like “A Crisis with benefits” as they get the ‘benefits’ parts and you get the crisis…

    IMHO, we’ll see a significant war in The Levant with wide involvement of Europe as the end game. (Though it may start over toward Pakistan / India or maybe even with N. Korea – though that one is fading as time passes.) We’ve got the pre-game show already what with Kaddafi being done in and the Egyptian Government getting the heave ho. Care to guess how many $Billions in European banks will be “forgotten” as the holder of the secret numbers are now dead? POOF! money evaporated…

    And if an “unacceptable” government came to power in, oh, Iraq (wait, we already did Saddam…) better make it Bahrain… how long would it take for THEIR money in European banks to go POOF! too? So expect a big ‘pot stir’ from time to time to evaporate the currency sent to them for all that oil we’ve used. Saudi isn’t “ripe” yet as they are still willing to play ball with the west and have not yet run low on reserves… Yes, I’m cynical…

    So we get a ‘two-fer’ out of a major war there. Evaporation of ‘petro dollar overhang’ along with distraction of the people from inflation… “When” is the hard part. Europe ‘hit the fan’ sooner than I’d expected. Looks like we may get a ‘short extension’ though, so the USA can catch up in the ‘race to ruin’. THEN we will be ripe for the war too…

    While I’d hope our politicians were smart enough to avoid that: They can’t even agree on cutting $1 T out of a $2T budget hole… and the Dimocrats want to spend even more on ‘entitlements’ when it already consumes the entire tax take…

    In the end, I think it all hinges on China. How long will they be willing to fund the game. If it is in their interest to give us more rope for another decade while they build a military large enough to take the Pacific, then they will. If their internal economic stresses are so great (and our ability to buy their stuff so poor) that they can’t play out another decade before internal decline… well then, watch for a N. Korean war to break out and for a China play for Kashmir to test the waters in Asian mainland expansion… My guess is that they can’t go another decade without something ‘giving’…

  33. Nick says:

    Of course the BIGGEST reason for taxation is as a form of social engineering, a way to punish enemies and reward friends.

    =============

    Except that in many cases it punishes the prudent and rewards the feckless, as well as reducing the overall size of the pot. Governments aren’t efficient and do not bring things to the party.

  34. Nick says:

    we call this time differential “interest”. Interest is just the payment due for the effort of delaying consumption of accumulated wealth

    =========

    Minor error, it also includes the payment to cover the risk that you don’t get your money back. It’s more than just delayed consumption.

  35. Nick says:

    we call this time differential “interest”. Interest is just the payment due for the effort of delaying consumption of accumulated wealth

    Hardly. The Greeks, the Italians, etc have all been through hyperinflations, as have other countries such as Hungary. It’s not just the Germans.

    The real problem in Europe is that politicians have been running accountancy scams on a level well above Bernie Maddoff. If they had to report their liabilities in a true and accurate way, they wouldn’t have been able to get in the mess. Particularly if personal statements as to the share were sent out. Fraudulent accounting is the route cause, and also the solution. With a personal statement, you owe X, there will be a democratic way to default on the debts.

  36. Jason Calley says:

    @ E.M. There is a matter of some interest (pun intended) in that process of allowing newly created money to diffuse through the market. Right here in River City, we have seen the Federal Reserve inject literally trillions of dollars (the recently released papers indicate a total of perhaps $16T) into the market in a combination of loans and purchase of bad assets at over valued prices. Why have we not seen massive (50%?) inflation (instead of the real world 10%)? Well, it is the usual suspects again… Normally, the Federal Reserve, as all central banks do, requires subsidiary banks to put a fraction of their deposits “in reserve.” The fraction varies, but let’s say it is 10%. The Fed pays the banks a small interest rate for the funds held in reserve, but when the banks choose to deposit excess reserves (say 20%) then the excess does not pay interest. Normally. But these are not normal times, and the Fed is currently paying interest on excess reserve deposits. It is not much, but it is as close to a sure thing as a bank can get.

    Consequently, the banks are (prudently) leaving much of that bail-out money on deposit with the Fed and they are receiving an almost guaranteed return. After all, with the economy so mixed up and confused right now, why take a chance on loaning to a business or on a home mortgage, when things could get considerably worse and the money could be lost completely? So what do we see? Much of that money — supposedly given to unfreeze the market, to supply liquidity — is sitting at the Fed…. but what can the Fed do? If they return to the old policy of no interest paid on excess reserves, then the banks pull the money out. We get market liquidity, but at the politically high cost of inflation. They can leave current policy in place and let small businesses and individuals suffer the tight credit market — and suffer the politically high cost of that. Neither route is painless, and in the long run, neither route is sustainable.

    Here is the simple truth. A highly controlled market becomes increasingly inefficient. The beauty of the free market is that the millions of player and consumers provide constant “voting” on how much things should cost, what goods are wanted and how valuable time is. When you have a recession or depression, there is no pain free way to fix things. TANSTAAFL. You cannot cure a recession, because the recession IS the cure. Let the bad businesses go broke and have their equipment purchased by businesses that were more prudent. Re-boot.

    When you have eaten poison, you do not want a cure for vomiting. Vomiting IS the cure.

  37. Jason Calley says:

    @ Nick “Minor error, it also includes the payment to cover the risk that you don’t get your money back. It’s more than just delayed consumption.”

    Yes, I agree. It is difficult to say what fraction of it is the risk payment, but you are correct, it should be included.

    “Hardly. The Greeks, the Italians, etc have all been through hyperinflations, as have other countries such as Hungary. It’s not just the Germans. ”

    I am a bit confused as to your point here, but in hyperinflationary times, interest rates rise to hyper-rates to compensate for the time related loss in consumption due to decreased purchase power.

    “The real problem in Europe is that politicians have been running accountancy scams on a level well above Bernie Maddoff. If they had to report their liabilities in a true and accurate way, they wouldn’t have been able to get in the mess. Particularly if personal statements as to the share were sent out. Fraudulent accounting is the route cause, and also the solution. With a personal statement, you owe X, there will be a democratic way to default on the debts. ”

    You make a really good point, and the outright fraud is a factor. I think that I am even more critical than maybe you are. Yes, some of the book keeping was simply criminal. I would say that the entire system is criminal, especially here in the US. Here in the US, it a matter of Constitutional law that money should be gold and silver — but we have been on a mostly unbacked system since Roosevelt, and on a completely unbacked system since Nixon. To me, any currency which presents itself as a store of value, but is not, is fraudulent. I am not familiar enough with the European fraud to speak about it, but it sounds like something very similar to what we have in the US. I personally saw interoffice emails for a major banking concern during the housing bubble, which instructed employees of the accepted way to push through mortgages for illegal immigrants who did not have the legally required paperwork. We are all aware of how known bad mortgages were bundled with good mortgages and then sold as all good. If you or I mixed one pound of manure with nine pounds of sugar and then sold the mixture as ten pounds of sugar, we would go to jail. Rightly so. On the other hand, if you are a well connected bank or trading firm, you will be bailed out at tax payer expense and never see a day in jail.

    The banking system itself is not honest, and many of the people who work within it are equally dishonest. Fraud deserves jail time.

  38. Jason Calley says:

    @ Nick “Except that in many cases it punishes the prudent and rewards the feckless, as well as reducing the overall size of the pot. Governments aren’t efficient and do not bring things to the party.”

    Ain’t that the truth!

    I remember a tax change pushed through by Senator Patrick Moynahan some decades back. It provided a substantial tax savings for corporations, IF the corporation were created in a particular state, in a particular county on a particular date within certain hours. Strangely enough, only ONE corporation managed to fit those rather stringent guidelines, a corporation controlled by a large donor to the Senator. Wow! What’s the chance of THAT!?

  39. @Jason Calley

    The history of “greenbacks” — and the origin of the term in Lincoln’s administration — is quite interesting. What struck me was the tremendous effect on our currency and coin issuance that a particular foreign country had: China. If China wouldn’t accept our money, we had to change the laws! And in fact, for some time we were prevented from changing the appearance of our “trade dollar” coins because China was likely to reject any changes.

    The backing of money by gold (specie, standard, et cetera) or by silver has been a contentious issue for this country’s history, and backing up this country’s debt was the thorn that had Thomas Jefferson secretly trying to impeach Alexander Hamilton. The city of Washington, DC exists today because of a debt deal between the two men brokered by President Washington. (Hamilton had the right idea, which was to honor our Revolutionary War debt; it’s a pity that Jefferson had to be “bought” to go along with it.)

    Later, the money-backing issue drove the 1896 election, as documented metaphorically in the book The Wizard of Oz. That election was unusual in that it was the only time a man ran against himself for president of the US, and lost. Bryan had two different VPs, one for Bryan the Democrat Candidate and one for Bryan the US People’s Party (Populist) Candidate. But William Jennings Bryan, the Cowardly Lion of the Senate, lost the confidence of the people (helped by McKinley’s political wizard Hanna pulling strings behind the scenes).

    I’ve written a bit about the Oz metaphoric history. It was well known a century ago, but was “rediscovered” in the 1960s.

    ===|==============/ Keith DeHavelle

  40. Jason Calley says:

    @ Keith DeHavelle Thanks for the link to your site. I have read some (though not extensively) on the metaphorical meaning behind The Wizard of Oz, but will gladly read some more on it. Also, I did not know about the Washington DC deal brokered by Washington.

    Me personally, I am not an enthusiastic backer of “greenbacks”, but I will certainly concede that having the government print and spend its own money into circulation is at least an improvement over the current borrow-it-into-existence-via-the-Fed route. Best (in my opinion — idiosyncratic though it may be) would be some form of commodity backed money. Certainly gold has been most common through history, with silver a close second (as debated in the 1896 election), but I am not hung up on either. If plutonium or Swiss Cheese works, then so be it, but the essential plus is that commodity backed money holds value better than fiat, and cannot be so easily counterfeited, at least not without detection. “Aha! I’ve made the perfect undetectable counterfeit gold coin! You just duplicate the dies, and then take a one ounce gold slug, and…” Anyway, in the case of commodity backed money — especially money that is MADE from a commodity, the store of value cannot be separated from the actual coin. No counter party risk. If you could make super capacitors shaped like coins, maybe electricity could be money. As things now stand, the fact that currency and money (the actual store of value) are two different things (as E.M. points out) allows any number of ways for the dishonest to scam the public. Especially when combined with the coercive power of mandatory legal tender laws, that separation of currency from value allows a unique form of scam — the self harvesting debt slave. In the past, brigands and tax collectors had to face their victims and demand the loot. Now they can sit in an office, and by entering in figures into a computer, they can skim value from the holdings of millions and hundreds of millions of debt slaves. The best part is that not only is the system of collection almost automatic, it is nearly invisible. Millions of people lose a tiny bit of their assets, and not one in a thousand even realizes what has happened to them. What a sweet scam!

    By the way, one definition of “money” is “the most liquid commodity.” In whatever culture you may find yourself, that item which is most easily traded IS money. In a prison, cigarettes are money. In a famine, perhaps food is money.

  41. Nick says:

    Consequently, the banks are (prudently) leaving much of that bail-out money on deposit with the Fed and they are receiving an almost guaranteed return.

    ===========

    Jason, that’s correct. The money isn’t going into the economy, its going to the government. Now why not just print and cut out the middle man, the banks

  42. Nick says:

    I am a bit confused as to your point here, but in hyperinflationary times, interest rates rise to hyper-rates to compensate for the time related loss in consumption due to decreased purchase power.

    ==========

    It was that the Germans are clearly hyper inflation adverse. I think the population of the other countries have experienced the same, and are also adverse. It’s just that their politicians aren’t.

    If we take Greece, the interesting bit is that here the citizens are creating an economy that cuts out the Government. The black market is getting to be large. Why not go the whole hog and cut it out completely? I suspect it will move even more that way.

    Now earlier you raised the bit about controlling inflation using taxes. Quite rare for someone to bring that up. There is another condition. So long as the money is used to pay down government debts. If it spends it, its inflationary.

    I agree on gold, until its gets very very tough. However, there is one problem with gold that even the gold bugs don’t discuss.

    The Eurozone periphery are in trouble because they can’t devalue. Gold’s advantage is that you can’t devalue. A point missing on those advocating gold. Now the real solution is fiscally continent governments and a fixed gold currency or fiat that adjusts with GDP.

  43. adolfogiurfa says:

    BTW Italy won´t need any other thing to solve their problems but to tax all their well known brands (from shoes to automobiles) and the millionaires of all the world will compete for bragging they can buy them :-)
    You know the tale about..How to get $1,000?:..A Japanese makes a thousand neckties and sell them at $1 a piece…An italian.simply buys one of those neckties, signs it, and sells it at $1,000! :-)

  44. Jason Calley says:

    Looks like China is monetizing precious metals.

    http://presstv.com/detail/211132.html

    Interesting times! By the way, I raised my eyebrows at this bit in the link above.

    “Basically, Hangzhou, a city here from about two hours away from where I’m at, a very Madoff-type scenario – a typical ponzi scheme – they paid off the old investors with the new money. Long story short, they lost about one billion US dollars, defrauded around 15,000 investors. But it only consisted of a father and two sons, at this fund. The only difference between these guys and [Bernie] Madoff is that they were quickly all sentenced to death. ”

    Wow. Tough love, I guess. :)

  45. Nick says:

    You have to wonder how much of Chinese growth is built on debt. I suspect a lot, because you can’t get that sort of growth without it.

  46. E.M.Smith says:

    @Nick:

    The don’t need debt, at the national level. Their mercantilist policies mean they run massive trade surpluses. That funds the growth.

    (Looked at another way, WE are going in debt, then spending that money on their stuff and funding their growth…)

  47. Nick says:

    Their mercantilist policies mean they run massive trade surpluses. That funds the growth.

    ===========

    At the moment. They have lent the US the money to buy their goods. What happens when that stops? What happens when the US doesn’t honour its debts, because it can’t afford too?

    15 tn and rising rapidly.

  48. Jason Calley says:

    @ Keith DeHavelle

    I just spent an hour watching this rather fascinating speech by Edwin Vieira about the history of US money, its Constitutional basis, and a possible way out of the current fiscal mess, by state sanctioned use of electronically transferred gold or silver in the market.

    I recommend it for any who have an interest in the subject. The correlation between our monetary system and our current budgetary problems are pretty obvious.

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