If you look at a dollar bill, what do you see?
This is a serious question. Those who understand it, may chuckle and change the channel. Those who do not will chuckle and change the channel. Perhaps, you should read on as you may not know known unknowns.
So, here is Money 101:
Here is a quick explanation:
I go to the Coffee Planet in Glens Falls. Here is a frequent customer card with two cups of value. That is two out of ten. It is 20% backed by a coffee, say a value of $2.50 U.S.
This is better than our U.S. dollar because it has a real backing. Here is a full debt of one coffee:
I could use this card to buy something from someone who likes coffee, say a pen. This is great money! The problem is the Coffee Planet could close. In theory, I should be able to track down the company and demand my two dollars, but its value as money was at an end when it could no longer be redeemed. Also, this money was very local.
The U.S.D. cannot be redeemed! So, what is a dollar? It is a wish and a prayer based upon a holy paper. The government "backs" it, but what does that mean? Nothing. Further, the government is destroying its coffee cards by handing them out all over the place. The Coffee Planet will not honor more cards than coffees in the world. So, narrow-minded people just enjoy collecting pieces of paper, thinking each one buys a coffee: " ...it ain't nessisarily so...."
That is a great way to think about money. Mull it over at the cafe. Here is a more detailed view:
1. I have a banana and trade it for an orange - there is no money, here, move along.
2. I write you an IOU, check, note. At that point - no money exists. However, there is an obligation.
3. Now, it gets interesting. In the past, before we were so smart as to pray to cotton paper, a person could take an IOU, endorse it to a third person as payment for a boatload of bananas. NOW, we have the arrival of money or commercial paper. Understand what just happened: a debt was conveyed in lieu of a boatload of apples. This is important to grok. It is the origin of money.
Our dollars are, in fact, a debt. We pass debt obligations around. They are not endorsed, but that is OK as they are on magic paper that provides authenticity that it is from the federal reserve.
4. The U.S. debt was backed by gold and silver, at the outset. Thus, our dollar had real value and buying power. It was beloved by the world.
5. In the 1960s, even a semblance of backing of our debt was removed as very few people even paid attention. Therefore, the value of the dollar is "floating." On what? Nothing. On opinion. There is a market of speculators who guess. The dollar is the same as tulips during the
tulip mania of the early 17th Century. Indeed, the tulips were better as one could eat them. So, we are pretending tulip leaves are money, now. Back, then, tulip obligations passed through financial circles several times a day. Sound familiar?
6. Following mentally defective logic and/or avarice, our government purposely devalues our currency by creating more tulips. In this way, each leaf is worth less, so the profligate Marxists and oligarchs can pay past debts with well-watered tulips. This is the governmental idea of sound finance: make your money worth less. (Note, in this way your income taxes went up invisibly, as you moved into a higher bracket via inflation.)
7. Gee, lately, things seem to get worse every recession, so the government/Federal Reserve issues more tulip obligations to pay debts, as well as "create" benefits and jobs that produce no tulips. This is called Keynesian logic by Harvard. We used to get away with this because the rest of the world agreed, back when we were a sane country, to use our silver and gold backed debts as "money." Those days are long gone. The world uses U.S.D., for now, to buy and sell oil, so as we devalue the money our gasoline prices rise. However, some of the world remember the tulips.
8. Gee, the world see that the U.S. is the mother of all tulip farms. Government, now, are figuring out how to stop using tulips, so the end of the mania is just down the road. These days, there is no straong, backed currency, so world investors remain in the ponzi game.
On February 3, 1637, the buyers disappeared from the tulip contract market and the music stopped. The ponzi scheme ended. See, the diagram, below, and remember today we communicate in seconds. You will not have a month to prepare for the collapse.
So, if you disagree, send along a rationale. The question is: how does creating trillions of dollars of debt prevent a collapse? Don't tell me you can hire TSA agents and buy GM for the unions. That is a short term political bribe; we are talking about our currency.
I recall hearing a joke when I was banker. I think it was a joke. A lady was cofused when talking to her local banker: I could not have bounced a check; look, I have a whole book of blank checks.
I am going for a coffee, now.
Labels: debt, dollar, Nature of money, tulip mania
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