Suzu
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If Ron would explain inflation the way John Armstrong did in a recent article, he'd instantly win the hearts and minds of the whole country. Below is a slightly edited version of the segment I'm referring to.
Monetary Policy and Consequences For Dummies
Let's assume that everyone in America could print their own money. Or to make it easier, they could just go online to their personal checking account, type in whatever dollar amount they wanted, and that would be how much money had in the bank. How much would a dollar then be worth? This is easy. It would be worth next to nothing because what $1 once bought, it would now take millions to purchase the same good or service because there would be so many dollars.
But let's change the scenario a little. Let's say that this creating of money out of thin air was introduced state by state in alphabetical order. In other words, only residents of Alabama could print money for the first month, then Alaskans could join in a month later, then Arizona residents and so forth. Who would benefit the most? The Alabamans would. By the time Wyoming got into the mix, it probably wouldn't even be worth the bother. In other words, the people who benefit under a system like this are the people who get to use the newly created money first.
Individuals in our country can't print their own money, but there is a private bank that can. It's called the Federal Reserve. And they do. And then they lend it to our government with interest. There are nearly 26 dollars in circulation now for every 1 dollar in circulation in 1959. And the rate of printing this money is increasing. Just this year we printed more dollars than the total amount that existed in 1963. While the number of dollars has increased 26 fold, the population hasn't even doubled over that same period.
Of course this works out fine for the government. They get to spend the money first. And it works out well for the special interest contractors who receive the money. They are like Alaskans in our example. The people are Wyoming.
To bring this down to simpler terms which also illustrates the long term consequences of this issue, when many families receive a new credit card in the mail, they feel as if they have "free money." So they spend it. And then get another credit. Then they max out that card too. And so it goes until they can no longer meet the minimum payments or get a new card. When the creditors come calling, there are three ways they can pay off the debt.
One is to raise income. But that is very difficult for an individual to do.
Another is to borrow money from grandma.
The third is to cut spending on things that the kids really loved and that may have seemed "necessary" when the "free money" was rolling in, but suddenly doesn't seem as much so when the family is facing losing its car or home.
If they can't get more money, get it from grandma, or cut enough spending to pay the debt, they are forced to go bankrupt and then lose everything that really was important to them.
What is the connection here?
The government has a never ending stream of "free money" printed by the Federal Reserve. As you hopefully now understand, this "free money" hurts the individual citizen by devaluing his dollar.
Eventually this debt has to be repaid. How can this happen?
Unlike the individual citizen, the government can raise its income rather easily. This is accomplished by raising taxes.
The second is to borrow from Granny. The name of the Federal Government's most benevolent Grandmother is China. Although Granny may claim she expects the money back, China actually does--with interest. What happens when Granny cuts us off and wants her money back? Well, the individual's granny doesn't have nukes to help her collect like our Government's Granny does.
The third is to cut spending on things we just can't afford. No matter how much the "kids" may like things like supporting foreign countries, propping up dictators to make us "safe from terrorists", testing children annually to make sure they aren't left behind, providing Federal grants to send people to college, or the idea of free health care; if we don't give those things up we won't even be able to afford the things we really need--like Nukes to shoot when Grandma comes calling.
Here's the solution to this problem.
The first step is to stop activating all of those new credit cards. This is why he would end the Federal Reserve and offers radical ideas like making sure our dollar is actually worth something.
The second is to cut out spending no matter how unpopular it is or how much the kids may cry about it.
The "leading" GOP candidates are like the dads who earn 60,000 (fiat pre-tax) dollars who live in a house with an interest only ARM and "own" two SUV's while mom stays at home because it's "best for the kids." There is nothing that they can't afford for their family as long as the credit cards keep rolling in. They just smile and nod and keep promising more... until the cards are all maxed; the collection agencies start calling; their credit score goes down; the interest rate gets adjusted upward; they can't afford the mortgage; the bank forecloses; and mom leaves with the kids to go live with grandma and grandpa in the house they paid off in 7 years because they didn't believe in being a mooch and borrowing money.
When you grow up and understand this issue, it kinda makes national health care and terrorism seem about as significant as that pimple you had on prom night doesn't it?
Full article
Monetary Policy and Consequences For Dummies
Let's assume that everyone in America could print their own money. Or to make it easier, they could just go online to their personal checking account, type in whatever dollar amount they wanted, and that would be how much money had in the bank. How much would a dollar then be worth? This is easy. It would be worth next to nothing because what $1 once bought, it would now take millions to purchase the same good or service because there would be so many dollars.
But let's change the scenario a little. Let's say that this creating of money out of thin air was introduced state by state in alphabetical order. In other words, only residents of Alabama could print money for the first month, then Alaskans could join in a month later, then Arizona residents and so forth. Who would benefit the most? The Alabamans would. By the time Wyoming got into the mix, it probably wouldn't even be worth the bother. In other words, the people who benefit under a system like this are the people who get to use the newly created money first.
Individuals in our country can't print their own money, but there is a private bank that can. It's called the Federal Reserve. And they do. And then they lend it to our government with interest. There are nearly 26 dollars in circulation now for every 1 dollar in circulation in 1959. And the rate of printing this money is increasing. Just this year we printed more dollars than the total amount that existed in 1963. While the number of dollars has increased 26 fold, the population hasn't even doubled over that same period.
Of course this works out fine for the government. They get to spend the money first. And it works out well for the special interest contractors who receive the money. They are like Alaskans in our example. The people are Wyoming.
To bring this down to simpler terms which also illustrates the long term consequences of this issue, when many families receive a new credit card in the mail, they feel as if they have "free money." So they spend it. And then get another credit. Then they max out that card too. And so it goes until they can no longer meet the minimum payments or get a new card. When the creditors come calling, there are three ways they can pay off the debt.
One is to raise income. But that is very difficult for an individual to do.
Another is to borrow money from grandma.
The third is to cut spending on things that the kids really loved and that may have seemed "necessary" when the "free money" was rolling in, but suddenly doesn't seem as much so when the family is facing losing its car or home.
If they can't get more money, get it from grandma, or cut enough spending to pay the debt, they are forced to go bankrupt and then lose everything that really was important to them.
What is the connection here?
The government has a never ending stream of "free money" printed by the Federal Reserve. As you hopefully now understand, this "free money" hurts the individual citizen by devaluing his dollar.
Eventually this debt has to be repaid. How can this happen?
Unlike the individual citizen, the government can raise its income rather easily. This is accomplished by raising taxes.
The second is to borrow from Granny. The name of the Federal Government's most benevolent Grandmother is China. Although Granny may claim she expects the money back, China actually does--with interest. What happens when Granny cuts us off and wants her money back? Well, the individual's granny doesn't have nukes to help her collect like our Government's Granny does.
The third is to cut spending on things we just can't afford. No matter how much the "kids" may like things like supporting foreign countries, propping up dictators to make us "safe from terrorists", testing children annually to make sure they aren't left behind, providing Federal grants to send people to college, or the idea of free health care; if we don't give those things up we won't even be able to afford the things we really need--like Nukes to shoot when Grandma comes calling.
Here's the solution to this problem.
The first step is to stop activating all of those new credit cards. This is why he would end the Federal Reserve and offers radical ideas like making sure our dollar is actually worth something.
The second is to cut out spending no matter how unpopular it is or how much the kids may cry about it.
The "leading" GOP candidates are like the dads who earn 60,000 (fiat pre-tax) dollars who live in a house with an interest only ARM and "own" two SUV's while mom stays at home because it's "best for the kids." There is nothing that they can't afford for their family as long as the credit cards keep rolling in. They just smile and nod and keep promising more... until the cards are all maxed; the collection agencies start calling; their credit score goes down; the interest rate gets adjusted upward; they can't afford the mortgage; the bank forecloses; and mom leaves with the kids to go live with grandma and grandpa in the house they paid off in 7 years because they didn't believe in being a mooch and borrowing money.
When you grow up and understand this issue, it kinda makes national health care and terrorism seem about as significant as that pimple you had on prom night doesn't it?
Full article