Column by Paul Hein.
Exclusive to STR
I can’t stand it any longer. For days--weeks, even--the chatter on the TV news has dealt, almost exclusively, with the debt “crisis.” Despite the thousands of words uttered about it, none have hit the mark. The problem, as any Monetary Realist could tell you, has little or nothing to do with the way money is spent, or saved, or budgeted, and everything to do with what it IS. The nature of the money contains the answer--or impossibility of an answer--to the problem.
The frequently voiced concern that the United States is headed for bankruptcy is an example. It was about 30 years ago that I became acquainted with a Federal Reserve publication that stated that, for any organization that prints money, bankruptcy is impossible, while admitting that the results of such a policy--hyperinflation--could be worse than bankruptcy. But common sense tells you that the counterfeiter is never going to run out of “money”! That the pundits seem oblivious to this obvious fact proves the aptness of The Emperor’s New Clothes!
Even more basic: what can be used to pay the mushrooming national debt? Consider that our present monetary system provides no means for debt payment. Before you rush to your email to denounce me, let me explain. If you owe money, you cannot PAY the debt, but you can SETTLE it, meaning that the person or organization to whom you owed the money cannot come back and claim you still owe the money, once you’ve settled. And how do you settle a debt? By assigning it to Uncle Sam, or the banks. If you tender cash--the familiar Federal Reserve “Notes,” you are settling your debt by offering paper devices which are, under the law, “obligations of the United States.” No one has been paid, but the IOUs of Uncle Sam are legal to tender in lieu of (i.e., “for”) payment. If you tender a check, you are offering your creditor the “liabilities of commercial banks,” as checkbook money is designated by the Fed. When your creditor deposits your check, the bank’s liabilities are transferred from your account to his. If he is not satisfied with that, he can “cash” your check, and get the federal IOUs referenced above. Whatever he does, his bill will not be “paid” with anything but IOUs. The national debt, as I’ve tried to explain before, IS our money! And don’t be foolish and ask the Treasury to redeem its “obligations.” I tried that decades ago, and was told that the Treasury’s only “obligation” was to return my note. I can’t say I was surprised.
Do any of the economic commentators remark upon the truly amazing fact that you can settle your debts with someone else’s debts? Perhaps they are living in the past, when a person’s check, or cash, could be taken to the bank and exchanged for the actual money, for which it was a proxy. That hasn’t been true, however, for over 40 years, when the last money--tangible wealth--was removed from our “monetary” system. With no money available, payment is impossible, but by declaring the tendering of a non-redeemable “note” legal, the rulers are able to settle their debts for nothing--since whatever costs they incur in designing and printing currency can be settled with the currency itself. Just run the presses a few seconds longer, or print a single “note” with a really large number on it.
Of course, you cannot print your own non-redeemable “notes” and tender them, because the rulers will tolerate no competition; but the moral issue is unaltered by the fact that you, as opposed to them, are issuing the bogus notes. “Thou Shalt Not Steal” is the operative principle, and it applies to rulers and ruled alike.
The problem facing the counterfeiter is that sooner or later, he will succumb to greed and issue so many “notes” that their buying power will plummet. (As others have pointed out, compared with the dollar of 1913, when the Federal Reserve was hatched, the “dollar” of today is worth about three or four cents.) When that happens, the counterfeiter will wring his hands and complain of a “debt crisis,” meaning that his victims are becoming suspicious and turning to other, less depreciated, forms of “money.”
Fiat money is what makes Washington’s world go around. Without it, there could be no war, no welfare, no big government at all. Perhaps our noble legislators do see that the present crisis is inherent in the nature of the “money” itself, in which case they will surely do nothing about it. As long as people will trade their lives or property for the paper chits, they’ll keep printing them. And when the bottom falls out entirely, they’ll find someone else to blame. It’s an old game, and it always plays out the same.