Where Have They Been?

By Paul Hein.
 
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It would be difficult to watch television news for more than five minutes without some mention of the debt “crisis.” Economists are interviewed, and express deep concern about the fact that Uncle Sam is printing money at an unprecedented rate. And, yes, they are very worried about this mountain of debt, and how it can be paid.
 
Did they just arrive from Mars? Or perhaps their problem is that they have been educated into ignorance, being so advanced in their discipline that they disdain the basics. But the failure of our economy is not the result of some highly technical glitches, but follows inexorably from fundamental defects.
 
Consider, for example, debt. Most people would consider debt as whatever was owed in return for some good or service. How does one pay this debt that is owed? The possibilities are relatively few. One could tender coins. This happens so rarely that it can be disregarded—especially as a means of paying massive, national, debts. But some basic thoughts about coins are worth considering. The “dollar” coin, for instance, contains only a few cents worth of base metals. A creditor is entitled to ask (even if he never does!) how a debt for 100 cents can be paid with a few cents worth of zinc, copper, or nickel. The last time I checked, the 25 cent coin weighed about 66% as much as the dollar coin, and was made of the same material, which would make it worth 66 cents, if logic had anything to do with the system. Or, conversely, the dollar coin would be worth 37 cents, by the same reasoning.
 
There are coins being produced at the U.S. Mint as we speak of gold, silver, and platinum. A One Dollar silver coin costs about $20. A creditor is entitled to wonder why he should repay the debt of one dollar with a “dollar” coin containing 20 dollars worth of silver. Just what is a dollar, anyway? Is it 37 cents, 100 cents, or 2,000 cents?
 
More, but by no means most, debts are paid with bills, rather than coins. The bills are labeled “note,” but are not redeemable, making the term “note” misleading—an example, I suppose of false advertising. A note is universally regarded as a promise of payment, yet the Federal Reserve Notes used in this country promise nothing to anybody. Despite this, they are regarded as money. Now if money is the stuff that pays debts, the Fed notes are a peculiar money indeed, because the $100 bill contains no more stuff than the $1 bill. The expression “paper money” is an oxymoron, in other words. There’s no more paper in the “big” bills than the singles.
 
Almost all debts today are settled (I didn’t say paid!) with checks. A check is simply an order to your bank to “pay” the bearer the amount on the check. What will the bearer receive if he “cashes” the check? He’ll get the above-mentioned coins or bills; neither of which are money, by any rational definition. If he simply deposits the check, he’ll receive nothing more than a bookkeeping entry; the number on the check will be added to his account, and subtracted from the check writer’s account. Bank accounts are liabilities of the bank in which the account is held. For what is the bank liable, should you choose to close your account? It’s the same old story: you’ll get coins, or bills, or a check. So where is the money? And if there’s no money, how are bills to be paid? The simple, if disagreeable, answer is: They can’t. They can be settled, by tendering something that is designated “legal,” but never paid. The debt accumulates. In truth, the debt can be thought of as the money! It’s called “monetized” debt, which, when you think about it, is similar to “nourishing starvation.”
 
To return to the original question: Where have they been? Don’t the economists who wring their hands about the government’s printing of money realize that it has been going on for decades? Bank notes were last redeemable for money in 1968. But the presses didn’t stop 42 years ago! Were the financial gurus concerned? Silver was taken out of our coins beginning in 1964. Was the alarm sounded?
 
And bank deposits? They are created when banks loan “ money.” The loan is never of anything already on deposit. Were that the case, the “money” supply would not be growing at an astronomical rate. No, when a loan is made, the amount (of what?) of that loan is simply brought out of thin air as a deposit to the borrower’s account (a bank liability), being balanced on the bank’s books by his IOU (a bank asset). Here’s the rub: The amount borrowed is the principal, but the amount demanded in return is more than that: It is principal PLUS interest. When you consider that the creation of “money” by the bank, as a loan, is the only source of our “money,” the inevitable collapse of the system becomes obvious. There isn’t enough “money” in existence to pay the national debt, because principal was loaned, but more than that is required for repayment. The shortfall is made up for by--borrowing! (Even if it’s called a “stimulus”!) Sooner or later--and now it’s sooner--the system must collapse, when the burden of debt becomes intolerable. This was predictable decades ago. Where were the financial experts then?
 
Yes, I realize that there are those who insist that it doesn’t matter what we use for money. They are entitled to that opinion; I won’t argue with them. I would only ask them to consider two things: granted it doesn’t matter what is used for money, but what, exactly, IS money today, in this country? (If you can’t weigh, measure, smell, or taste it, how do you know you’ve got it?) And secondly, putting aside all theoretical considerations, answer this: If I owed you a dollar, and offered you a Federal Reserve Note labeled One Dollar, or a 1935 silver Dollar coin, which would you take?
 
Truth beats fiction, every time!

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