China and Our Debt: Can We Pay China Back With Counterfeit (Printed) Money? What If an Individual Acted Like the Federal Reserve?

Yes, I can explain what the Fed is doing more concisely (see previous verbose entry, with "clever" digressions).


Let us say you are an individual with your own personal Fed (represented by your left pocket). You issue a personal IOU, and with it you get money you can spend for goods and services. You put the money in your RIGHT pocket. Then, out of your LEFT pocket (the Fed pocket), you redeem the IOU with money you have printed on your own printing press.


Now, if you do this, you go to jail (for counterfeiting money, even if you use "plates" identical to those used by the government. That is because it is illegal for an individual to print money, and exchanging a new IOU (commercial paper) for your old one wold do ou no real good, even if a fool would let you do it. Notice what you have done, however, if you have the power of the Fed to print money. You have paid off your IOU, from your LEFT (Fed) pocket. Your IOU no longer exists. It is paid. Meanwhile, you have the "real" money in your RIGHT pocket that you got in exchange for your IOU. Notice it works the same if you simply take the money from your LEFT (Fed) pocket, which you have printed, and transfer an IOU taken from your right pocket (sell your own IOU to yourself, paying for it with printed money). But if that printed money can be used as currency, you can spend it (which our government is now merrily doing).


Notice what you have done when you do this. You have CREATED MONEY out of thin air. You have not really "borrowed" it, even though that is what your IOU suggests you have done. You have merely PRINTED MONEY from nothing (other than the cost of the printing, which you can pay for with the printed money).


Notice the advantages of printing money. If you actually borrow the money, from a third person, that person will want you to pay it back. Further, you will be taking the money from that person (if you are a government), and depriving that person of the money to loan the money to private individuals whao can't print their own money. This has a distressing tendency to drive up interest rates. Further, the person lending you the money may not trust you, because he knows your power to print money, and realizes that you may pay him back with "inflated" (printed) currency.


Still. Isn't this neat. Why don't all governments simply print more money rather than either raise taxes or borrow it. In other words, to go back to the individual analogy, if you borrow the money and have to actually pay it back (instead of printing it), how do you do it if you do not have the resources? Well, you can go bankrupt or flee in the night. Short of that, however, you can take a gun and hold up some hapless "rich" person or business (collect taxes). That tends to make people mad, although if you are good at propaganda you might describe yourself as taking from the "rich" and giving to the "poor" (Robin Hood). Why go through all of these compications? If you have the power to print the money, as all governments now do, why not simply print it and pay your debts that way?


Ah, the problem is that the left, AND the economic fascists on Wall Street and in the financial community, have decided that they like this idea. Why not make up a "theory" that printing money is fine so long as the economy is not near fulll capacity, and then simply print the money (which these people want to do anyway).


The kings of England could have used this phiosophy--along with all other kings. How do you think the Magna Carta came about, and all of the other beginnings of modern liberty and democracy? Do you think kings LIKED having a Parliament, or having to deal with barons. Sure, the barons were often necessary fror military support. But Parliament was necessary for FINANCING. Kings always needed money for their wars, Argentinian mistresses (Sanford joke), and things. This was, of course, mainly before paper money. Now we not only have paper money, but this new "philosophy" that it is harmless to simply print the stuff--so long as the economy is in bad shape.


Hogwash. What happens if everyone realizes you are simply printing money? Right. You are on the road to the Wiemar Republic, totally worthless currency, and Hitler. It is sophistry to argue that it is okay, so long as you stop when the economy is "recovering". First, as with all central planning, it is inconceivable that this will all be timed exactly right. And not timing it exactly right is absolute, total disaster. But it goest beyond that. Doubt me? Don't. Let us take a trip to CHINA.


To the extent the Fed has not been financing our current debt, CHINA has pretty much been doing it. However, China has figured something out . What is to prevent us from simply printing enough money to pay off China, and all of our other foreign creditors? Why not just ask for a payoff, print the required amount of money, and carry it in duffel bags to pay off all of our creditors (as a nation)?


You know why. Our currency immediately becomes WORTHLESS. No one will accept it---including our own people who can avoid it. Does it matter if we are still in a recession? Nope. The currency STILL becomes worthless, and inflation occurs without economic growth (Carter's "stagflaton"). Yes, this is exactly what the Fed is now doing--just in slow motion instead of in one massive devaluation of the currency. So don't give me this HOGWASH about how deficits do not matter in a recession. They may not matter AS MUCH, but they matter. Either interest rate rise, even without inflation, as credit is sucked out of the private economy, or we print money (making our currency ultimately worthless. OR BOTH. We are far down that road.


Okay, so the above is not "concise" I have determined that I am not capable of "concise". It is, however, at least a different way of explaining the earlier entry. We really have gone insane, as a country, and this whole health care debacle (at the exact time we can least afford it, even if it were otherwise a good idea--which it is not) is merely more evidence of our advancing insanity.