Pittsburg, Kansas | FalcoFog - 1/20/2017 22:03
Well unlgrad let me explain.
When you use bank credit your loan creates a deposit. The money the bank creates for you (credit) has a corresponding liability to it(the deposit). Loans create deposits in the private banking system. The bank uses base money to pay your loan then you have to pay the loan off with base money plus interest over time. During the time it takes to pay down the loan time you are using credit. So when we take loans they must be paid back because loans create deposits.
When the federal govenment spends it never has money. It creates money from nothing every time. It has no corresponding deposit. So when the government creates money from nothing this new money has no deposit. This is called base money, money brought into reality with no corresponding deposit. this is why the money never needs to be paid back, and why it isn't debt, it has no liability tied to it.
The federal government can create assets without liabilities, private banks cannot.
The bank does not use base money to "pay" your loan. It creates the bank check money new. It is the creator of new money. As the loan principal portion is paid off with other money (most of which is also bank created checking acccount money) the original check money that was created is extinguished.
The government does indeed take in inncome in the form of taxes, fees and penaltys. These are deposited in the government checking account no different than any other business deposits income. The governments bills are paid with this money in circulation (most of which was commercial bank created money). The only newly created money is the money that is deficit spent. The amount spent beyond which was taken in as income. It is borrowed into existance throuh the issuance of governmment debt. This government debt is backed by the ability of the government to tax its citizens.
If you make the assumption that this debt never need be paid back, you make the assumption that the debt has been monetized. If the debt is going to be monetized, there is no need for the government to borrow it. The treasury has the authority under the constitution to issue money directly.
But once you assume the debt will never be repaid, it assumes the people that originally earned that money through their labor or investment will never want to spent that money. They have donated that labor or effort for free.
Bernie Madoff investments worked out great for lots of people till too many wanted some of their money back. It was a Ponzi scheme. To say government debt will never be paid off (which is almost certain at this point) is saying that it also is a Ponzi scheme. If you say that "but government can simply print as much money as they need to pay any bill, they want", while true in a fiat monetary system it is just a different way of defaulting. One type of default is to never pay something off, another type is you devalue the currency by creating more of it spreading the cost of the default across all current holders of said currency. It is a stealth default compared to outright default. But it is still screwing one party (some of the public)
out of value to give to another party (whoever the government paid with money they will never pay back).
John Law must have been a brilliant man to come up with his plan that screwed so many so an inside few could become rich. What you suggest the government do with spending and money is little different than the plan John Law hatched. It will end with what Venezuela is now doing to its currency. By adding zero's as it is debased. The way to prevent that is to balance the budget and quit deficit spending. Then the money supply will only expand and contract at the rate of business expansion according to how commercial bank credit is being created. As long as we deficit spend the money supply will expand at the same rate.
In a 16 trillion dollar economy adding a trillion a year of national debt which is new money into the economy is pretty close to the actual rise in asset prices plus cost of living increases most families are feeling (1/16) rather than the phony gimmicked CPI.
John
Edited by John Burns 1/21/2017 08:19
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huge jump in US national debt
