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Debt is Not Money
"Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs."
--Thomas Jefferson letter to Thomas Cooper, 1814.
Are we standing at the edge of a Great Inflation (like Weimar Germany), a second Republican Great Depression, or a return to the middle class prosperity of the Roosevelt/Eisenhower New Deal era? Until Americans understand the difference between "money" and "debt," odds are its going to be one of the first two, at least over the next few years.
Money
"Money" is a convenient replacement for barter in an economy. Instead of my giving you five pounds of carrots, so you wash my car, then you trade the carrots for a new shirt, and the clothing store then trades the carrots to a trucker that brings them their inventory, we all just agree to use a ten-dollar bill. Because a nation's money supply represents that nation's "wealth" - the sum total of goods, services, and resources available in an economy/nation - it needs to have a fixed value relative to the number/amount of goods, services, and resources within the nation.
As an economy grows - more factories, more goods, more services - the money supply grows so one dollar always represents the same number of carrots. (And with a fractional reserve banking system like we have, that growth is created mostly by banks lending money and creating it out of thin air in the process.)
If the money supply contracts, or grows slower than the economy, then we experience deflation - the value of money increases, goods and services become less expensive (fewer dollars to buy the carrots), but because the value of money has increased it becomes harder to get. When this happens quickly, because of its economically destabilizing influence (businesses and people can't get current money - cash - or future money - credit - because money is more valuable), it's called a Depression.
On the other hand, if the money supply expands or grows faster than the economy, there are more dollars than there are goods and services so the number needed to buy a pound of carrots increases. This is inflation, and when it happens suddenly and on a large scale, it's called hyperinflation.
Therefore, one of the most important jobs overseen by Congress and executed by a Central Bank (or the Treasury Department if we were to go with the system envisioned by the Founders and Framers of the Constitution) is to "regulate the value" of our money (to quote Article I, Section 8.5 of our Constitution) by making sure the number of dollars in circulation always steadily tracks the size of the overall economy. If the economy grows 2%, then that year there should be 2% more dollars put into circulation. More than that will create inflation; fewer will create deflation.
Debt
"Debt" is not money. Instead, it's a charge against future money. But even though it's a charge against future money, it can still be spent as if it was today's money - except that it must be repaid with interest. And therefore debt must have some sort of a balanced relationship to the total size of the economy - albeit the future economy - for it not to be destabilizing.
In other words, if over the next twenty years (the term of a typical and healthy mortgage) the economy is expected to grow by X percent or X number of dollars, then the total amount of twenty-year debts that can be issued should be limited to X. But if it's greater than X, then when the future arrives there won't be enough circulating money to repay the debt, because the economy (and the money supply) won't have grown as great as the debt repayment demand. The only two options are for debt holders to default (bankruptcies, foreclosures, etc. - Depression), or for the government to suddenly increase the supply of money (inflation).
The same is true of one-year debt (credit cards), four- or five-year debt (car loans, typically), and all other forms of debt. In aggregate, if the amount of debt is allowed to grow faster than the economy will grow over the term of the debt, when the debt is due there will be a problem, and if it's grown hugely, a disaster.
This is what we're experiencing right now. Over the past three decades - largely since Reagan - debt (both private and public/government) has expanded much more rapidly than the economy has grown. "Now" was "the future" when the debt was issued, but the economy hasn't grown to the point where there are enough dollars (in reality, enough value - goods and services) to repay that debt. Thus we are experiencing a "wringing out" of that debt - bankruptcies and foreclosures - relative to the current wealth of the economy.
This is the most critical thing to see clearly - without adhering to this simple concept, a government or central bank will always either create boom/bust cycles (depressions/recessions) or inflation. Without regulating debt, a government will be taken hostage and an economy destroyed by for-profit institutions that are able to create debt without regulation (banks).
Panics
Although Thomas Jefferson and Alexander Hamilton - two opposite sides of the national bank debate - both understood this simple concept, it wasn't brought into the realm of law until the mid-1930s with a series of strict regulations on the abilities of banks to create debt (loan money), and strong political limits on the ability of government to go into debt outside of wartime. That's why from the founding of this nation until 1935, we experienced a "banking panic" at least once every 10 to 15 years from 1776 until 1935.
Then Roosevelt took the banks in hand, by creating a series of regulatory agencies and empowering them with strict laws. The result was that for fifty years in the United States - roughly 1937 to Black Monday of 1987 - we didn't experience a single national "panic" or consequential bank failure. The stock market grew steadily (allowing for the blips surrounding WWII).
It was also hard to get a credit card (short term debt), buy a car (medium-term debt), or get a mortgage (long-term debt) without proving that you would be able to repay the amount in the future - in other words, that there would be future expanded-economy dollars that you could lay claim to because of your particular job and skills. Credit was regulated.
Reagan changed the rules of the game, particularly when he brought in the anti-regulation Libertarian Alan Greenspan as Chairman of the Fed. He ran up a massive federal debt - greater than that of every president from George Washington to Jimmy Carter combined - in just eight years, and began the process of loosening the power of bank regulators.
That process was finished by a Republican Congress (particularly Phil Gramm) and President Bill Clinton (with help from Rubin and Summers) and then booted out the door by George W. Bush, who borrowed even more than Reagan. Bush even used an obscure 19th century law to fight states' attorneys general who wanted to regulate or prosecute fraud among banks and mortgage lenders in their states (see the article by Eliot Spitzer in the Washington Post just before his being outed for sleeping with a hooker).
Green Eyeshades
During the "Great Stability" - that period from the 1935 onset of the New Deal and the beginning of its end with Reagan's massive tax cuts of 1981 and 1986, leading directly to the stock market crash of 1987 and the S&L debacle - banking was, as Paul Krugman noted in a recent column, "boring." Credit and currency were considered part of the commons, not something off which a small elite should profit. Like the utilities in the game Monopoly, banks provided a predictable but relatively low profit. Nobody got rich, but nobody lost anything, either.
Bankers were the safe and predictable guys who wore green eyeshades at work and pocket protectors in their shirts. The nation's main products were goods and services; nobody "made money with money" in any big way.
Since the serial deregulations of the financial services sector brought on by Reagan, Bush, Clinton, and Bush, however, bankers became fabulously rich. They called themselves the "Masters of the Universe." They came to dominate contributions to politicians, and facilitated the takeover of most major US newspapers, all the while using debt as their mail tool to make money (burdening those newspapers with such debt that many are now going out of business because they can't repay it).
By 2005, fully 40 percent of all corporate profits in the US came from the financial services sector - a group of people who didn't produce anything at all of value, nothing edible or usable, nothing that would survive into future generations. They invented fancy derivative "products" that they "sold" at high commission rates around the world so others could "make money with money." In fact, they weren't making money - they were taking money. Behavior that would have been criminal during the Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter administrations became "normal" and was even encouraged: more than half of all the graduates from many of America's top colleges and universities went into finance so they could get in on the very lucrative scam.
They created debt. As Ellen Brown notes at www.webofdebt.com, according to the Bank of International Settlements, they created and sold at a profit over 900 trillion dollars worth of debt- and risk-based "instruments." That's a pretty mind-boggling number when you consider that the GDP of the United States is around 14 trillion and the GDP of the entire planet is around 65 trillion.
All of these "products" were made and sold based on the assurance that when "then" became "now" the economy would have grown fast enough for there to be enough dollars to pay it back. But the reality of a debt bubble that exceeds the world's GDP many times over came crashing in on us in 2007 - and still hasn't fully crested - producing the "crisis" we currently face.
Are we there yet?
Are we recovering from it all now? Will things soon be back to normal?
If by "normal" we mean like life during the "Great Stability," the answer is: "Not a chance." Back then we had in place tariffs and trade policies, first initiated in 1791 by Alexander Hamilton, that protected our domestic manufacturing industries. We still made things - in fact, the USA was the world's largest exporter of manufactured goods, and the world's largest creditor. Like today's China, for over 100 years we'd loaned other countries money so they could buy our stuff!
On the other hand, if by "normal" we mean how things were over the past 28 "Reaganomics" years - a stagnating middle class, disintegrating manufacturing sector, and piles of money being made by bets and debts - then maybe. After just the first decade of Reaganomics, we went from being the world's largest exporter of manufactured goods to being the world's largest importer; we went from being the world's largest creditor to being the world's largest debtor.
None of that has changed. We haven't repealed Reagan's disastrous tax cuts, which have exploded our nation's budget deficits. We haven't repudiated NAFTA and the WTO and gone back to an international trade policy that puts American interests over those of transnational corporations. We have not re-regulated the banks, and have not brought back 6000-year-old laws against usury (excessive interest rates on debt).
The bankers, in fact, are fighting it tooth and nail - the financial services industry in whole has spent over $5 billion lobbying Congress over the past ten years - and their acolytes like Lawrence Summers and Tim Geithner play major and consequential roles in the Obama administration.
It appears that the plan today is not to regulate the amount of debt that banks can create, but instead to both print more money and do everything possible to reinflate the debt bubble. (Lacking a return to Hamilton's national manufacturing and trade policy, as a nation we just continue to slip deeper and deeper into Third World status as an importer and debtor - this may be our only choice if we don't wake up soon.)
If followed, the Summers/Geithner policy can have only one of two outcomes: inflation or another, more serious crash. It's possible we could have both. Apparently the bankers and Summers/Geithner's hope is that neither or both don't happen for at least three and a half years...
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51 Comments so far
Show AllActually, given that this author voiced his support for Obama last year, I'm not surprised he's excluding the ongoing spending Obama's engaging in to bailout Wall $treet and continue the wars/occupations of other countries. And what about that phoney "stimulus" package? Where exactly are we going to get $1 trillion from? Washington is still borrowing from other nations and there are no signs that this administration or Congress regardless of who's in control plan to reverse their spending patterns. The only way it will stop is when the countries we borrow from flip their foreclosure switches and then we'll all be in for a rude as hell awakening.
If followed, the Summers/Geithner policy...
-------------------------
Obama repeatedly and explicitly told progressives not to worry about his appointment of ideologues like Summers and Geithner...they'd be following HIS blueprint now.
So Thom should not refer to it as the Summers/Geithner policy but more correctly as the Obama policy.
Snobama zealously supported the trillion dollar unconditional financial industry bailout last September and has been gunning for the people who caused the problem ever since. He can no longer blame predecssors for economic problems.
There is no question Snobama's financial policies will cause an even bigger crash, AND high inflation.
If Americans wanted another new deal they should have elected Kucinich or Nader in 2008. Hell, Ron Paul would have been a better choice than Snobama.
Here's a remarkable article on this exact subject...
http://www.globalresearch.ca/index.php?context=va&aid=13055
and an answer to the problem............
http://www.monetary.org
http://www.monetary.org/amacolorpamphlet.pdf
Heavy stuff.No wonder it gets no MSM play.
Thanks for the link angryoldman
JENNIFER:
I certainly agree with you! I think the world of Hartmann, but playing "safe" within the political arena is one of his shortcomings. I remember a caller on his program, early last year who asked Tom why he didn't support Dennis Kucinich, whose views are more similar to his than the other candidates, and Tom was slighty uneasy and switched to another caller.
In my opinion, for his San Francisco audience, Hartmann should have supported Cindy Sheehan over Bush's protector, "impeachment's off the table" Pelosi, who wouldn't acknowledge W's war crimes ad violations of the Constitution.
My proudest presidential vote ever (since 68) was for Cynthia McKinney, last November.
It's simple arithmetic. Obama has to pay back the people who promoted his ascendency to the White House. Business as usual. The more things seem to change, the more they don't, except at a snail's pace. But for the swinders and shysters on Wall Street, and the imperialist war-mongers in the Pentagon, it's full speed ahead
Thank you for the further info. San Francisco is one place I can't understand anymore after the way they voted Pelosi over Sheehan despite the obvious. When you and I bring up the points you mentioned, a lot of times we get misunderstood and pelted as rightwingers which we aren't. About Mckinney, I had a hard time choosing between Nader and Mckinney when I voted at the polling booth. I sometimes wished that Nader and Mckinney had run on the same ticket. Maybe that would have strengthened their vote totals. I was in tears when Mckinney's boat was under attack by the US-backed Israeli forces while she was trying to deliver for Gaza. I voted for Kucinich in the Democratic primaries myself. For Hartmann to be this rude to that caller shows what a partisan jerk he really is.
Pelosi is well-established and was once considered a liberal/progressive politician by many in her community. Cindy was on a shoestring budget with a cadre of dedicated volunteers who campaigned vigorously for her, including yours truly, who is not even in that district, but believed she was the best candidate for San Francisco and would have represented We The People, a term Hartmann uses all the time, as a member in the House of Representatives. Sheehan did get more votes than any other candidate who ever ran against Pelosi. If Cindy can get the financial support required to run for elective office, she'll run again next year.
As for McKinney versus Nader, I proudly voted for Ralph in 2000, and in 04, supported Kucinich until he dropped out, and gave Kerry my vote, which now seems like a "wasted" vote. No need to elaborate on his disgraceful campaign and willful yield after the Ohio debacle. After that, I said, "never again," and for the 08 election, I voted for Kucinich in the primaries, and after he dropped out and McKinney received my party's nomination, I voted for her, over Nader, because she took on the Cheney/Bush Crime Family while in Congress as a Representative of her former party. But those of you voting for Nader was okay by me, because they were the two best candidates for the common people which are 90% of the population.
McKinney spoke at a local college about six weeks ago and spoke about her trip to Gaza. She has courage! Everyone in Congress knows not to offend the powerful and influential Israeli lobby, but Cynthia took them on.
Getting back to Hartmann, let me clarify what I said, concerningt the caller. Tom wasn't rude (he never is) to the caller, just uncomfortable when the caller did praise him as a teacher (he is) where we do learn from him, but was persistent in telling Hartmann why he should have endorsed Kucinich to his nationwide audience. Tom admired the caller's passion for Dennis, then went on to the next caller. Jennifer, partisan, maybe, but not a jerk. Hartmann is one of us. I understand your frustration, but each one of us have limits on how far we will go on issues.. I still have high regard for Tom, and he is a progressive, a humanitarian and first-class citizen. I've seen him twice and read several of his books. We need more Thom Hartmanns in this world.
Ok, thanks for clear up on Hartmann. My apologies. Like plenty others, I must be taking it too hard on him. I'm still working on easing up. Hang in there. :)
I understand. Believe me, I'm just as frustrated. But Hartmann is a gentleman, in capital letters.
Hartman is a capitalist, just like Obama, Geithner and Summers. I wish more Americans knew what that means. They should read Karl Marx.
Capitalist or otherwise, Hartmann simply needs to be consistent about it.
He likes to think he's a capitalist, but he's actually just a supporter of capitalism and one of its lackeys.
Magicians don't want the audience to know how they sawed the lady in half because once revealed they'd no longer be able to hold them spellbound and captive.
Likewise, THEY don't want US to know how they've gamed the system of debt to create their vast wealth and fortunes (and therefore power).
If every American read this article Thom, we could save a lot of pain and money from having to be stitched back together every 15 years.
The bankers use debt like the magician uses handcuffs...except he always escapes!
Another excellent essay by Thom Hartmann with one exception, Summers and Geithner are Barack Obama's responsibility. The borrowed buck stops with Obama!
I do agree!
Sioux Rose
To his credit Mr. Hartmann makes the smoke and mirrors act of today's bankers far easier to understand. The callous sorts in the "masters of the universe" club care so little for the nation's health, not to mention the status of its poorer citizens (which is quickly becoming the status of the once middle class). Just as our military now opts for "shock and awe" and takes out a million people with narry a thought, today's US economic model as others have noted, has become a parallel WEAPON of mass destruction of far too many lives.
Now that the same instruments the Chicago School deployed on other nations have come home, less and less crumbs filtering down to the average Jill and Joe will make for new potential political alliances. When people are hungry, jobless and homeless they eventually figure out WHO the appropriate target of this justifiable angst is. The callous disregard on the part of leaders for several decades is hard to fathom. ALL it would seem are at the least guilty of depraved indifference to the lives of the living, at home and abroad.
This was such an excellent article. It is amazing how many Americans simply don't understand these very simple concepts stated in this article. They have been, in Cygnus' words, held "spellbound and captive" by the magicians far too long. To continue that metaphor . . . magicians also succeed by distracting the audience by doing something over there, while the real trick is going on over here. Therein lies the important role of the ridiculous crap we call "entertainment" and "news" in this country. I would even go so far as stating the Madoff scandal and the "gripping drama" of the Somali "pirate attack" were kept very visible in the "news" as effective distractions to keep people away from seeing what is really going on behind the scenes with this whole economic situation. Stay tuned for the next distraction.
As the article implies, the Romans would have executed people for charging a thousand per cent interest as is common now with these payday check cashing outfits.
And no, people don't and never have learned anything until something 'got their attention'.
One would hope that the people who are sufferring the consequences of this downturn just dont jump back ON the "Everything is now ok" bandwagon should their own individual situation change.
The fact is that millions of peoples were suffering from Reagans policies prior to this latest disaster and their plight rarely reported on.
I think most people that post here have "Always got it" but if there truly to be lasting change then those that have recently saw the light due to personal experience have to stay on board.
Too many people suddenly became concerned for the enviroment when gas hit 5 bucks a gallon and rushed out to buy a small fuel efficient car, but as soon as the price plummetted traded it in an an gas hogging SUV.
The experience of the 60s an excellent example of this. There could have been true meaningful change then. Instead the "hippie" is used as a derisive term by some of the very people who once fancied themselves one.
Debt is Not Money
That's right. It's slavery.
the mighty xzorloc will tell you that DEBT IS HISTORY.
The earliest human records are cuniform tablets recovered from the foundations of the old temple in NINEVEH (now Mosul in iraq) these earliest recorded human acts are the first real recorded 'history'. They are all reciepts and payment schedules. ( what so and so owes/has payed the temple and when)
History as we understand it came in to existance at the same time as recorded debt, they are the same thing.
This is our nightmare.
"history is a nightmare from which we are all trying to awaken" Joyce
Please do give "credit" where it is due.
Those ancient cuneiform scores are part of the actual equable beginning of the "rule of law", which has forever been bent toward and subservient to "the rule of man".
The rush of prosperity in contracts validated and promises kept is the actual cornerstone and foundation of capitalism as a force of societal expansion and good.
Although too often perverted, and reversed, it was in these not so vague beginnings of LAW that all of civilization was launched upon.
We would do well to consider how far we have gone beyond the tender rule of LAW, to create today's nightmare, to entrench massive quadrillions of treasonous FRAUD about the necks of our children's children.
The enemy is not debt, but the corruption of our rule of law ( using debt as a tool of fraud )
Namaste
And WHen has debt NOT been the tool of fraud, whether as tribute to some jumped up god/king or the mighty MARDUK himself it has ever been the instrument for organized extortion, and a means to yoke possible competitors and keep them weak.
The end of debt is the end of history. Without credit and her ugly sister we are free to do as we will. I love how adamant about the rule of LAW, like that means anything to the little mafias that have always sucked us dry. That LAW means even less to the ones who have been taken. Soon so many will have lost so much (and legally too) it will mean nothing at all.
Look at what is left of all the glorious civilizations that have fallen before us, a few pretty stones, what will be our archeological contribution? A toxic waste. A dead zone where nothing grows.
It is poetic that the cradle of civilization, may well be it's final resting place. Debt from the cradle to the grave.
We must at least sometime acknowledge the Holy Court of Poetic Justice, it may be the only place we will find it.
Laws are made to keep the weak in line. The truly powerful pay them no mind.
Good point.
It is ironic that Christ was suppose to have laid the LAW (the old covenant given to Moses) to rest, the way you would lay a dead husband to rest. The gospels are clear that the law (external imposition of morality through threat of punishment) justifies no man, "Or Christ died for NOTHING", while the new covenant of grace (wed to Christ as the new husband) was to render the LAW dead. From grace was to spring the fruits of the Spirit (outward expression of internally held morality - i.e. compassion). Paul said "All things are legal, but not all things are profitable". In fact, the origins of the Christian devil can be found in the book of Ezekiel which tells of the story of the king of Tyre who held the office of king/priest, and his breastplate was identical to that of the Hebrew high priest. This tale of the king of Tyre morphs into a tale of a high ranking spiritual being who 'walked between the stones of fire', but whose 'heart was filled with violence' because of the sheer volume of his 'commerce'. The devil was a 'capitalist'.
Irony abounds.
Yes perhaps so, but there is nothing so important as"honor among thieves" to make predictable the year's profits.
Although the cradle of civilization formulated early LAW, to provide structure and predictability to commerce and LIFE -- that is obviously not sufficient to prevent subversion and deceit of the LAW ( by the power crazed ) to cover up larger and larger crimes.
Never be so simplistic to say that what the banksters do ( fraud ) is legal, as if after perverting everything else -- that they can make what is moral and true disappear.
It is the dawning of our new age of CHOICE, where morality is revealed in every action and thought.
We must learn to
[ ____ C H O S E __ B E T T E R _____ ]
Namaste
"Money is a convenient replacement for barter in an economy.”
Not true. Barter is the process by which mutual valuation is achieved. Definition of barter is “to trade by exchanging one commodity for another.” Commodities were the original forms of money. Whether one takes the price as-is or haggles, it is part of the valuation/barter process. Money facilitates this process so one doesn't have to trade carrots directly for a shirt.
"Debt is not money.”
Partially true. Debt – Legal Tender – is not money itself; however, it is a form of money. Though it may be flawed, it is still a form of money. Legal Tender is often confused with the origination of money itself. We can thank Croesus for the creation of Legal Tender and the enduring phrase “Rich as Croesus”. http://theformofmoney.blogharbor.com/blog/_archives/2005/10/3/1277862.html
“must be repaid with interest”
Compounding interest is an exponential growth concept. Once embedded into the economic structure, growth becomes the dominant mantra as evidenced by the recent G20 conference logo. “Stability, growth, and jobs.” Grow to what? Doesn’t matter, just grow.
“Without regulating debt, a government will be taken hostage and an economy destroyed by for-profit institutions that are able to create debt without regulation (banks).”
Not sure if you’re advocating increased regulation for a form of money that you’ve almost, but not quite, deemed as flawed. Is it flawed, or isn’t it? Are you going to dribble on about the need for more/less regulations, or really question the conceptual validity of debt as Legal Tender?
But neither money nor debt are "real" to begin with. They are both legal fictions which have their place, but when their place begins to usurp the place of real people and their livelihoods, why not just write off the debt, pump in some money at the citizen level and let it trickle up as it always does?
Why should these phony debts be given any more legitimacy than poker chips from a bankrupt casino?
Nicely put . . . that money and debt are legal fictions. They may simply be fictions, legal or not. Seems to me that the concept of money was created by sweating, aggressive, cunning angle boys who could possess it by the boatload, thus making themselves both physically and morally superior to the masses who possess little or none at all. In the end, it's like bulding monuments to yourself, thinking this will protect you from Death.
"This is the most critical thing to see clearly - without adhering to this simple concept, a government or central bank will always either create boom/bust cycles (depressions/recessions)"
It is obvious that Mr. Hartmann does not understand what causes the cyclical crises of capitalism. These crises are not created by a government or central bank, nor, as history is showing, are they capable of preventing them from occurring. The economic crises of capitalism are created by capitalism itself. Throughout capitalism's history, capitalist economists have come up with various theories on how these crises can be prevented, ranging from no regulation at all to varying degrees of regulation (acceptable to the capitalist class of course) and none have ever been successful in preventing the cyclical crises of capitalism. The bubbles created within the capitalist economy are the symptoms of the general contradiction of the capitalist mode of production, not the causes of the resultant crises that occur following such bubbles.
If you want to live under an economic system that REQUIRES cyclical crises then capitalism is the system for you! :-) Capitalism requires repeating economic crises to divest itself of the problem of overproduction that arises because although the productive process is socialized, the surplus value is privately appropriated by the capitalist class rather than society as a whole. Why these apologists of capitalism refuse to accept reality as it is and was so well described by Marx 150 years ago is really hard to understand. Either they choose to live in a fairyland of "see no evil" or else they are just plain reactionary enough to try and continue to flog a dead horse back to life.
Let's not forget: people choose to borrow money. Can't afford a new car? Two choices - no new car, or debt. If one chooses the new car, then one has no right to bitch about the interest rates. If the majority chooses to live within their means, the debt problem evaporates. If not, then the consequences of that choice must be suffered.
The fact that so many refuse to live responsibly and, instead, blame "human weakness" or disingenuous lenders or wily advertisers for the choices they made is the problem.
What a simplistic and ill conceived view of how things work.
"If the majority chooses to live within their means, the debt problem evaporates."
Yes, and if the majority chooses to not eat, then there would be no food shortage.
The fact of the matter is that in the capitalist system profits are made by the capitalist class by not paying the workers the full value of their labour. At the same time, when it comes to selling products to the same workers, the price of that product is based on both the wages paid to produce the product PLUS the profits the capitalists make during the production of the product. So, the working class NEVER earns enough money to purchase the products it produces. The only way the working class can afford to purchase the products in their totality is to go into debt and borrow money to supplement the incomes they presently earn. If the "majority chooses to live within their means" and not resort to debt, the system of capitalism would simply collapse. That is why it is so important for the capitalist class today to "get credit rolling again". In short, no credit, no capitalism.
And lets not forget: Some citizens need to use credit to make up for the wages they're not getting from their labor.
Change the scenario from buying a new car to buying groceries or paying a doctor and the argument isn't about personal responsibility, it's about personal survival.
The game is rigged.
Sartre would agree with you. He believed everything was a choice. He never lived in the rural south where sharecropping is a modern form of slavery.
Sharecropping is cheaper than slavery. Owners usually have a care for the condition of their 'property'.
"Boom/Bust" is inherent in capitalism. Tight regulation kept it within manageable levels, but there have always been inflation/deflation swings. But once the regulations were removed, the monetary system became like someone with bipolar disorder off his meds. So now we're in the crash phase.
I think ultimately Summers/Geithner will bring down the Obama administration and his natural caution will be his downfall. Krugman and others say it's time for bold action and that's not Obama's style. It's his nature to seek compromise and consensus. But that doesn't work with a manic/depressive economy.
Too bad, because in some ways, he's the right man in the right place.
When the people fear their government there is tyranny,
when the government fears the people there is liberty.
~ Thomas Jefferson
And may I ask in what ways is he the right man? What we need now is bold, inventive action against the status quo. This does not seem to be within his nature.
I am light years removed from being a Republican. Nevertheless, some Republicans are correct on one issue namely "getting more 'money' (=income) into the hands of the middle class". The problem is that their strategy of tax reductions is the wrong way to go, among others because it gets much of this 'money' into the wrong hands of the already rich. The only correct way is significant salary raises across the board. I have yet to hear President Obama say this loud and clear.
Many Democrats have poo-poohed this strategy by claiming that the middle class will not use this extra money for increased spending but for paying off debts.
Paying off debts thereby decreasing the dangerously large "household debt" is exactly what is needed before our economy can become even halfway sane again.
Capitalism is a pathological disorder of greed and gluttony. A capitalist has an insatiable desire of accumulation for more money and objects than he or she needs or can use. Too much is never enough. The heck with everyone else!
Unfortunately it's catching. Whole societies can become infected with it---like this one for example.
There is still "hope" for "change," in our society. Slowly, more people in other countries are now aware of this pathological disorder and are taking action and preparing remedies for it. We are slow to learn, unfortunately.
There are those for whom every moment is a jewel, and every breath a gift, the poets, artists and visionaries are in a direct conflict with the slave drivers who suggest that your day, week, hour, is not YOURS to spend, but in fact belongs to your masters, the temple the market, the state , whatever... (plus interest)
Do not sign on the dotted line... your day is yours. and every moment is a TRIUMPH, over the dark force of history.
At this time even the Wisest and strongest of us are moment to moment tempted to snatch DEFEAT from the jaws of VICTORY, because there seems to be a consensus that your life is counted in dollars.
It is spring, go out and find some new grass, listen to a bird, look for a glow in some beautiful eyes, a nice ass, a fluffy cloud... this is what life is made of. not debt, not wealth, not belief.
And eat a carnation or two--it'll nourish your soul.
Poet
I remember learning much of what Thom Hartmann wrote of (especially the difference between money and credit) well before I left high school (a public high school I might add).
I remember a math teacher in junior high school telling us that the first responsibility of anyone who considered themselves an adult was to learn to live on less than what they earned. The rest should be saved either to buy what they wanted without having to pay the extra cost of interest or to invest in something tangible like real estate or some stocks or bonds you would hold on to for the long term (thereby avoiding panic or speculative selling when values might become lower).
For 45 years through depression, world war, and the ups and downs of the market it worked. Then along came that amiable dunce Disney animatronic President Ronald Reagan and started to undo what had worked (despite the fact he had lived through the entire era of sucessful economic growth as an adult and should have known better). How dumbed down we have become so quickly--it's sad.
Poet
By the way, despite my reservations on Hart, I didn't realize that I had one of my older books by Hart titled "Walking Your Blues Away" which I got last year on my birthday.
http://www.thomhartmann.com/2007/10/31/walking-your-blues-away/
Maybe if we know something about how these people walk their blues away, then maybe we can get even with them but then again, I guess that's wishful thinking. I'm terribly sorry I got too emotional again.
angryoldman, I think Obama is gifted at bringing people together and forging alliances. But that will only solve some of our problems. There are other very serious problems where that won't work. For that, we need someone with teeth. On the other hand, I believe if the public unites and demands change, he would respond with action. Of course, that remains to be seen. And the U.S. public is spectacularly passive and ignorant of how their wealth has been stolen.
When the people fear their government there is tyranny,
when the government fears the people there is liberty.
~ Thomas Jefferson
"Therefore, one of the most important jobs overseen by Congress and executed by a Central Bank (or the Treasury Department if we were to go with the system envisioned by the Founders and Framers of the Constitution) is to "regulate the value" of our money (to quote Article I, Section 8.5 of our Constitution) by making sure the number of dollars in circulation always steadily tracks the size of the overall economy"
Our Central Bank is the privately owned Federal Reserve. Congress has little oversight over the Fed since they have been denied to right to conduct a complete audit, attend Fed meetings or even see meeting minutes.
"If by "normal" we mean like life during the "Great Stability," the answer is: "Not a chance." Back then we had in place tariffs and trade policies, first initiated in 1791 by Alexander Hamilton, that protected our domestic manufacturing industries. We still made things - in fact, the USA was the world's largest exporter of manufactured goods, and the world's largest creditor. Like today's China, for over 100 years we'd loaned other countries money so they could buy our stuff!"
For much of our history we were a great debtor nation and imported manufactured goods from Britain in return for raw materials and agricultural products. Much of the financing for our railroads and the steel used to produce them in the early days came from Britain, although we developed our steel industry thanks to high tarrifs on British steel, but much of the financing came from London and Europe . It was only during WW I that we began to export credit and manufactured goods in the form of weapons, and thus began a century of war. Our loans during WW I and WW II never got paid back, leaving the tax payers on the hook, while our banksters and industrialists made huge profits. We also lent great sums as part of the reconstruction efforts post WW II via the World Bank and IMF, which then went on to loans developing nations in later years (the US now contributes 18% of IMF funds lent).
""Debt" is not money. Instead, it's a charge against future money. But even though it's a charge against future money, it can still be spent as if it was today's money - except that it must be repaid with interest"
Actually, debt is money. Money gets created when someone takes out a loan, there is no other process for increasing the money supply. Thats the system.
All money today is a claim on wealth you don't have, while goods are wealth you do have. Goods are an asset, money is debt, even anti-wealth. We have sent our manufacturing economy and wealth to China, and produce mostly money=debt now, and have less wealth.
If all debt were wiped out in a Jubilee, there would be no money except for the 11 billion dollars worth of Gold certificates held by the Fed and backed up by whats left of our Gold. This value is based on a price of 42 dollars per oz, so if the Fed redeems the gold it would be worth 250 billion at todays prices (nice return).
In fact, only the only money being created as debt is the principal. This is the kicker, the system does not create money for interest payments. The income tax ensures that interest on government debt can be paid and the government does not have to pay off the principal, but for the private sector, no matter how you manage the growth of money and debt, under the current system, there will never be enough money to pay off all the prinicpal AND the interest. It's an impossible contract, and legally defined, an unlawful contract. The system of course could be changed, but fat chance.
It works very well for the banksters as they profit from asset deflation that they help to create by creating bubbles they burst. They loan money created out of thin air and charge compound interest, which either gets paid off at great profit, or for those who can not pay it back because this money does not exist, they default and lose tangible assets (house, property, company). These get taken over by the banksters or bought up at deflated prices and sold off when they are inflated again.
"Without regulating debt, a government will be taken hostage and an economy destroyed by for-profit institutions that are able to create debt without regulation (banks)."
The frameworks to "nurture & protect" good order have been broken down by these dark and corrupt forces which are turning us into a Third World nation.
Production and industry is the real key to a country’s long term and real prosperity. That's why China expects significant growth this year, despite the global slow down.
As long as the oligarchy/banking cartel is in control, this country is doomed to fail.