Great stuff, Gruff ... even though I'll have to read through it more slowly and carefully than I've just had the time to do now.
Do I have your permission to quote some of this (without financial interest and giving you as my source)? Francis On Sep 11, 8:43 pm, gruff <[email protected]> wrote: > I can easily understand the animosity being felt toward debt -- any > kind of debt -- at the moment. It wasn't that long ago that even > being in debt was considered sinful and immoral and interest rates > above a single digit minimum were usury and illegal. There was a > shame attached to being in debt and worse should someone file > bankruptcy. > > But these are different times and different systems and those feelings > are not necessarily valid. To understand our economic system requires > a little history. We set up the Federal Reserve System in the early > 20th century in reaction to the crash of '28 and in anticipation of > putting aside the gold standard of currency and letting its value > float freely, it was designed to be an independent regulatory system > that would be a control over the economy by setting the prime rate and > printing money. > > Other developed nations did the same thing. Then in 1971 we and the > rest of the world left the gold standard and everyone's currency and > investments were valued at the market. Well, being the biggest, > baddest and wealthiest, the U.S. became the standard for the world. > Everyone's currency was valued in dollars and we enjoyed that > status. > > This set the free market economy loose in a way that gold never > could. There was only so much gold and finding more and processing it > was becoming harder and more expensive. It was an anchor on a global > economy that was chomping at the bit, wanting to be set loose. And it > did fine. The wealth of the U.S. and the world, measured in it's > productivity or Gross Domestic Product grew rapidly. > > In 1973, just two years after we left the gold standard, the global > GDP was more than $16 trillion and just last year had more than > quadrupled to $75 trillion. That's more than 400% return in just two > years. > > Of the trillion dollar economies in the world, the U.S. still ranks > first at $14 tn, followed closely by China with $8 tn. Next comes > Japan ($4 tn), India ($3.4 tn), Germany ($2.7 tn) the United Kingdom > ($2.1 tn), Russia ($2.1 tn) and France ($2 tn) followed by the rest of > the nearly two hundred nations which figure prominently in the global > economy. > > But as it is with our species, we tend to go to extremes and have a > larcenous nature. That our new found wealth was based on a fiat > currency, as some sneeringly call it, and it's true to a degree, but > that fictional currency the Fed seems to print so freely, still buys > hard goods and services. > > Banks became so wealthy they started to loan money to anyone at > anytime for anything and threw in credit cards just to make it > easier. And we all followed that unentitled exuberance right into two > wars and the biggest debt we've ever had (dollarwise, that is. > Compared to the GDP we were in deeper after WWII). We now found we'd > mortgaged all our assets many times their real value and overall, we > -- government, business and individuals alike -- were in debt an > average of three times our annual incomes. > > Like all card houses they must eventually fall and Bang! -- in late > 2007 fall it did. Or the bubble popped. However you prefer to look > at it, it's still the same event. All that over-extended debt came > due and the bill couldn't be paid. The first thing to fall were > property values since that was where most value and debt lay. Since > '07 property values have fallen 25% to 40% depending on location. > Then the investments based on those mortgages began to fall because > they'd been leveraged into thin air. But this is not a real fall or > loss of value in that the perceived and actual value didn't exist. It > had been leveraged into thin air. People were losing what they never > really had. > > By mid 2008 the banks and investment houses which had trillions > invested and at risk in these highly leveraged and worthless > investments were coming apart. Lehman Brothers, a 130 year old and > respected investment house went bankrupt overnight. This was when it > became clear that the banks were next to fall since a lot of their > balance sheet assets were tied up in these risky and now worthless > investments. > > This scared the hell out of a lot of the people at the top because if > the banks failed, then we'd really be back in the dark ages. There'd > be no economy, no trade, no business, no goods or services, nothing. > So to save economy it became necessary to save the banks immediately > just to keep the world economy moving. We could not let it stall. An > economy needs momentum to stay alive. Fortunately most of the movers > and shakers of the world recognized this crisis and responded > appropriately -- borrowing money to shore up the banks. > > Unfortunately fear of collapse scared most of the middle and lower > classes in the wrong direction. They railed against saving the banks > and begged the government to give the money to Main St., as it was > euphamized, rather than Wall St. They were not sufficiently educated > to see what had to come first and were reacting emotionally. So the > first TARP funds -- remember? Troubled Asset Relief Program -- helped > the banks stay out of bankruptcy. Unfortunately the lower case fears > kept the recovery and next stimulus too small to do the job properly, > so we've still got falling values and high unemployment. > > Without spending we've taken the slow road to recovery which may last > ten years while increasing the spending -- and yes, that means > increasing the debt as well -- would have brought us out of this hole > in maybe two or three years and back to full employment (4%). > > But the question is about debt. Many people see the growing national > debt -- the amount of money we are borrowing via bond purchases and > printing money -- as an albatross around the necks of the next two or > three generations. This is a common perspective if debt is not seen > in its proper perspective. Remember, we cut loose from gold in 1971, > so there isn't a $10 trillion lump of the metal hanging around our > necks dragging us down. > > Our currency and it's value is based roughly on how much we produce in > goods and services each year. Since we still have 91.5% of our > workforce actively producing and earning and most all the rest of us > still consuming, our annual GDP has not dropped below $14 trillion > during the recession. > > So we're standing here now with at worst a $10 trillion debt and > earning $14 trillion a year. That debt doesn't look so bad now, does > it? Debt is generally meaningless in and of itself. It only takes on > meaning when compared to and balanced with other economic factors. > > Other economic factors that can reduce the value of a debt are the > growth of the economy which reduces the value of the debt > proportionally; an increase in debt owed to us also reduces our own > debt directly; debt can be rolled over numerous times and over time > the principle can actually disappear with growth of the economy; debt > can and is quite frequently forgiven for political purposes; and the > value of a currency can appreciate so much that it takes but a small > amount to retire debt. > > So in a fiat economy such as we have, it can truthfully be said that > the economy is a fiction -- i.e., the value we give our currency is > arbitrary and fluctuates constantly. So if our currency is a fiction, > doesn't it follow that our debt is a fiction as well? > > All of this is then good reason to spend our way out of the recession > and let the debt be serviced over time in the best way possible while > we crank up the economy and go along our merry way creating more > goods, services and wealth for most all of us. > > A free market capitalist system of economics works. What ruins it > each time is human failure -- incompetence, ignorance, greed, envy and > lust. > > One more thing I'd like to say about our economy. We can bitch and > moan and groan about the top 2% and how they control us and want to > rule the world, but the fact is that while the do rule the world -- > when you have most of the money in the world you can pretty much do as > you please -- they are helpless without the rest of us. Any economy > works from the top down and those at the base are the ultimate > consumers -- the ones who work to earn then spend. Without a consumer > base there is nothing to be at the top of. The elite actually need > us more than we need them. Consumer power is just beginning to come > to the fore. > > With all due regard for having to plow through my words, > > /e
