Some of you mentioned the need for an armed revolution. That's a short-term solution. Unless some of the underlying problems inherent in our monetary system are solved, we'll eventually confront the same crisis we're dealing with today.
It's important for citizens to understand how the state manages money. A lot of attention is directed at the Federal Reserve, which people think prints money. The process is a little more complex.
Here's a summary:
When the state needs cash, it doesn't go to Bernanke and say, "Hey, can you give us a warehouse full of $100 bills?" No. It relies on Treasury for funding. The problem is, Treasury is often broke, especially during periods when tax receipts are low. So, how can Treasury come up with cash for state spending when it doesn't have any in its coffers?
Right. It borrows. It issues bonds and other IOUs. These are bought on the market by everyone from China and Madoff to Joe Blow, who wants to buy his kid a $1,000 note as a stocking stuffer. Here's where things get fishy.
A huge portion of IOUs issued by Treasury and bought on the market are sopped up by the Federal Reserve. How? The Federal Reserve essentially write a check.[1] Of course, it is not drawn on cold, hard cash like your checking account. It's written out of thin air. Meanwhile, the IOUs get put on the Federal Reserve's balance sheet (as "assets" lol).
Okay. Let's stop for a moment, and review:
Treasury issues a bunch of debt to raise funds for spending. The public (China, Madoff, Joe Blow) buys and holds the notes. The Federal Reserve writes checks out of thin air to buy a huge chunk of the outstanding notes, thus adding them to its balance sheet. The state goes to Treasury for cash, which Treasury can now offer to fund deficit spending.
And on and on it goes.
If you're thinking to yourself, "This sounds like a sham," then BINGO. You got it. Unfortunately, most people have no idea what's happening right under their noses. Worse, there are a bunch of terrible consequences that occur due to this shell game:
1. the monetary base increases, and eventually the money supply follows suit
2. interest rates are artificially manipulated
3. producer and consumer prices go haywire (usually moving skyward)
4. wealth is literally stolen from those with dollar-denominated assets
At this point, you might ask, "What's stopping Treasury, the Federal Reserve, and the state from keeping this shell game going on in perpetuity?"
The answer is: not much. There are only two major hurdles (and the second one has proven to be minor):
1. people complaining about the price of consumer goods.
2. the debt ceiling imposed by Congress on itself.[2]
I've probably missed a bunch of important details, and I'm glossing over more than a few for the sake of brevity. But the above captures the essence of the problem. Now, imagine it's 1913. Wouldn't you want a Federal Reserve?! How awesome would
that be?
A bloody revolution might help, but only in the short run. To steer this country away from the cliff, the
booboise need to be educated about our monetary system.
[1] Things are handled electronically, of course.
[2] Yes, the same ceiling that Congress has voted to raise dozens of times. lol
