Talking with someone today about the US deficit and they said “the federal deficit is a scare tactic to get votes for republicans, it is imposable for the government to be in debit. They make the money, if they need more they just make more.” WOW!! I didn’t know if I should laugh or cry. This person must have seen the distress on my face and then got very defensive about his comment. Not to get in an argument I tried and explain how it really works in a funny way. That is one way of thinking about it, and you are right, the government does make the money, but we must look at as a tool that the government makes for its citizens to trade for goods and services for. Say you are a farmer and you needed a builder to build you a barn. Without money you would give food in trade for him to build the barn. But what if he didn’t need food, he needed shoes. Rather than you trying to find someone to trading food for shoes to give to the builder, the government has created a tool for all of us to use in trade. You trade your food for money. Then you trade the money for a barn. It has no value but the value that we and others but on it. The government must remember the law of supply and demand, and remember the more of something there is, the less valuable it becomes. So, the more money the government prints the less valuable it is. He seemed to understand, but asked the question of why there is a deficit. I explained it this way. Say you were the best baker in the world, so much so that your bakery had cornered the market on all baked goods. To help you to buy supplies, you creates vouchers that the suppliers could use later in exchange for your finished bread and cakes. You and your family have the only baked goods in the world that people want, your suppliers started trading your vouchers for other stuff, like shoes and barns. Then people like the cobbler and the builder believe that at anytime they needed bread they can use the vouchers to get bread from you. There is a small problem with this, you can’t and shouldn’t print out more vouchers then the amount of goods in your shop. What if everyone in the world came in at once wanting to trade in their vouchers in for bread? Now, this is very unlikely to happen, so you print out as much as you think you can get away with, buying things you want rather then things you need. Soon people realize that they can’t get bread when they want it with the vouchers they have. Then the day comes where they all run to the shop to get some bread before it’s all gone. This is exactly what happed in 1929 with the US banks. They loaned out more then they had on hand to give out. Let’s keep it on the small scale. Now you’re a smart guy and realize that a run on your bakery could happen. So you go to a bank that uses your vouchers for trading, loaning and saving. You tell the bank that there are more vouchers in circulation then goods in your shop on any given day. The banker knows this could be a real problem for you and him. He comes up with a plan that would be beneficial to you, him and the people using your vouchers in trade for other stuff. The plan is, the banker will take control of the printing and distribution of the vouchers. Being the banker, he has a very good idea of how many vouchers are being traded for other goods in the market, because of the amount of loans used in vouchers he has issued. He can calculate the right amount of vouchers needed to be placed in circulation with out creating a panic resulting in a run for baked goods. In turn he will give you a percentage of the interest on the loans. With his good name as a banker and the reliability and value of your goods, both of you will be able to live very well. As I was explaining this to him his eyes started to glaze over and he asked what did my story have to do with the federal deficit? I asked him if he understood what I was saying and if he could summarize it for me. He did by saying that he and the banker created money by backing it with the baked goods that he produced and without the goods there was no value to the money. He still didn’t understand why there was a deficit, so I continued. Now that we have established the foundation of money let’s look at the product behind it. You are baking way and start buying things you don’t really need. Even buy two or three of the same things just to show off. To pay for all these extravagancies, you start taking out loans from your banker friend on your potential earnings, cause why not, every one else is doing it. Besides you created the vouchers, in reality you own them all anyway, right?! (I got a “HELL yeah, My money” as a response) Well as you are living the good life, your product starts to suffer. It’s going stale fast and no one wants to buy it anymore. On top of that, Mr Chan in the other county has stated up his own bakery selling his own baked goods cheaper price than you, and selling these new things call cookies, using and collecting your vouchers!! Your banker friend has been loaning you, your own vouchers with Mr Chan’s deposits. Along with deposits form Mr English, Mr India, Mr Australia and countless others. YOU ARE THE FEDERAL GOVERNMENT!! GET IT NOW!! I think it is time we get a handle on the over spending before Mr Chan and his buddies come kocking on our door. I am Matthew C. Oliphant saying "NO MORE!" and asking for your vote for President of the United States of America.
Posted on: Fri, 23 Aug 2013 08:06:09 +0000
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