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Tag Archives: National Bankruptcy

Fiat Money Fools


Fool3One of my readers sent the following question.  It touches on some of the irrationality and outright foolishness that follows when a nation gives up it gold- or silver-based money and replaces it with a fiat (paper or digital) currency:

“I’m having a hard time understanding how Detroit or anyone can have a debt; if there is no real money, how can there be a debt?

“Without real money, how could there even be a bankruptcy court, or bankruptcy protection?  If all we have is debt paper for currency, that debt paper is lent into existence, backed by nothing, how can there be a debt? I’m not trained in finance/accounting but this whole system is insane and makes no sense to dummies like me.”

 

My Answer(s):

First, your premise that our “debt paper for currency” is “backed by nothing” isn’t quite true.

It’s true that our fiat dollars aren’t back by anything tangible, like gold or silver.  However, since A.D. 1971, paper dollars have been backed by the American peoples’ “full faith and credit”.    “Full faith and credit” is fancy language for asserting that the American people will make good on the debts created and denominated in fiat dollars.

Thus, the national debt and the value of the fiat dollar are backed by your signature; by your presumed or implied promises to pay that debt.

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Posted by on December 14, 2013 in Banking, Debt, Fiat Currency, Money, Values, What Can't be Paid

 

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Detroit Files for Bankruptcy


Today, Detroit.  Tomorrow, the U.S.?  (courtesy Google Images)

Today, Detroit. Tomorrow, the U.S.? (courtesy Google Images)

Detroit has been mismanaged and allowed its industrial based to wither over the past 2 or 3 decades.  As a result, we could see Detroit’s financial collapse coming for many years.  Although insolvency was resisted for several years, the inevitable arrived on Thursday when the City of Detroit filed for bankruptcy.

The amount of money Detroit actually owes is unclear but is believed to be between $18 and $20 billion.

The population of Detroit is now about 700,000.

If we divide the Detroit’s debt ($20 billion) by Detroit’s population (700,000) the result is a “fair share” of roughly $25,000 in city debt for every man, woman and child in Detroit.

This suggests that when a government’s debt reaches a “fair share” level of $25,000 per person, that government may be in trouble.

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Government Debt Bankrupting America


The national debt clock outside the IRS office...

Image via Wikipedia

Within 10 years, the interest on the national debt will cost $1.1 trillion per year.

The nation is being destroyed by its government and, especially, by its government’s addiction to debt.

Why do we need the debt?  To “stimulate” the economy.

Why does the economy need artificial “stimulation”?  Because We the People don’t have enough jobs to be sufficiently productive to independently maintain the economy and our standard of living.

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The Year of the Rats


Rat

Image by Sergey Yeliseev via Flickr

Austin Goolsbee was President Obama’s chief economist.  I saw him interviewed on one of last Sunday’s TV-news talk shows.  He looked anxious and defensive.  But he gamely argued that the previous month’s bad job and manufacturing reports were only one-month aberrations and did not compromise the ongoing “recovery”.

So, I was surprised when it was announced the next day that Mr. Goolsbee had resigned from his White House post.  I don’t know if he actually resigned, or was fired.  But his departure can’t be viewed as evidence of an economic recovery.

The “rats” are leaving—or being driven from—what increasingly appears to be a sinking ship.

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National Debt = National Death


20090113 bankruptcy-01

Image via Wikipedia

When the federal government first entered into significant borrowing, the debt was excused under the pretext that “we owe it to ourselves”.  I.e., the feds borrowed money from the American people and would have to repay the debt (and interest) to the American people.  America would not be significantly hurt by these debts.

The idea that “we owe it to ourselves” is a fairly reasonable argument because it presupposes that the American people could control the magnitude of the federal government’s debt by their willingness or reluctance to lend to the federal government.

So long as the feds borrowed only from Americans, If Americans didn’t consent to lend more money to the feds, the feds would have to operate “hand to mouth” based strictly on its annual revenues.  Americans could compel the gov-co to “balance the budget” by simply refusing to lend it more money.

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Posted by on April 9, 2011 in Bankruptcy, Debt, Economy, What Can't be Paid

 

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