Carleas, if your parable of the $100 was anything like real life then the debt would be going down as we print (or rather, digitize) more money, and yet it is precisely the opposite. As the article I posted mentions, the new made up money isn’t going into the American economy, people aren’t getting it to pay off their debts; rather it is going to purchase more debt, as the invented money is used to buy government treasury bonds and mortgage backed securities. Do you know how QE works? And the money that is entering the economy is mostly pooling in the upper echelons of the largest financial institutions, it isn’t entering the broader economy, certainly isn’t being used so regular people can run around paying off their debts.
Also, your parable is stupid because if it didn’t magically make the $100 come back to the hotel owner in the end, then it wouldn’t have worked, because the hotel owner would have had to cough up his own $100 when the prospective tenant returned and wanted his deposit back.
Money is merely a symbolic stand-in for value created. If you make money without having also made value, then that is irrational.
You didn’t address my comments about the federal reserve. And our comments about how it is literally impossible to pay back $20 trillion of debt, or about how the US is propping up the global economy by being the consumer of last resort which requires an influx of a billion dollars a day into the US from outside (annual trade deficit). These are real problems. They require to be really addressed, beyond quaint parables that obviously aren’t how things work in reality.
A couple take out a $600,000 loan on a house. They were duped. The house is actually worth $300,000. The u.s. middle class has been gutted. Higher wages become scarcer and scarcer. The couple must work more hours, for lower wages, to pay off that $600,000 loan. If they ever hope to retire they can get $300,000 max for the house. Nobody will pay higher, anymore. Meanwhile the couple wastes a lifetime, perhaps, paying off the imaginary, fraudulent $300,000 difference.
Many people, stuck in similar holes, will never climb out of debt. And the national debt does not represent wealth, not when there’s fraud and false values. If the assets are worth half of what the loan was made for, then there is no future. Previously you’ve talked about retaining the value of loans. If a couple cannot pay their loans then the house is repo’d. Bankruptcy becomes the only method of “cancelling” the debt, with many subsequent negative results and consequences.
U.s. wealth is only a fraction of the debt. The real value is less than the perceived value.
Furthermore, using this logic, people are implying that u.s. can or will be, bought and sold to the highest bidders. That when debts default, and they will eventually, that the future of u.s. is at stake. And it is.
Real value is the key. And when you default on loans, cancel debts, then real value can drop even lower when people become desperate.
The banks will reap the leftovers. The u.s. has no future, at this rate. Everything needs to change, and the sooner, the better. I shouldn’t even say “better” because that implies a semblance of hope and positivity. The sooner, the less catastrophic.
What is the value of a $50,000 car…when it can’t drive, when it’s broken?
It’s $0
Values are relative to function and utility. There are so many false values floating around society now, that people believe the u.s. national debt is backed by wealth? What wealth? Child sex slaves? No…
If the u.s. national debt is back by anything, then it is the threat of all out nuclear warfare. Maybe, just maybe, that is worth the trillions dollar price tag. Other than that, can you think of anything worth $1,000,000,000,000.00 ?
The debt problem we are talking about is 73 years old, if the basis is the 1944 starting system of Bretton Woods, or 46 years old, if the basis is the 1971 starting system of the bastard economy, of the reversing the gold backing of the US Dollar, of the dictatorship of the inflationism, of the exponentially increasing debts.
Keynes said in the 1930s that the government should contract debts in order to kick-start, to stimulate economy. When somebody critizised that this would lead to increasing debts and asked Keynes what should be done in the long run, Keynes answered cynically: "In the long run we are all dead“. With that cynical statement he admitted to know the evil consequences of his theory.
By the way: Keynes had no children.
Now, 73 years after 1944 (see above) and 46 years after 1971 (see above) there are generations who had already huge debts when they were born, not to mention the generations of the future who will be born with even huger debts. We all know that if debts will not be paid back by money, they will be paid back by blood, by death. Certain generations will have to pay back the debts in the uncertain future (whenever that will be - perhaps tomorrow).
A lot of major US land and landmarks, including real estate, have already been sold to foreigners as a means of paying down debts. Look it up sometime, which major US landmarks and pieces of land and real estate aren’t owned by Americans.
I think I disagree, although we might just be talking past each other. I’m mostly talking about national debt here, i.e. money owed by the federal government in the form of payouts on treasury securities. Such debt is paid down on an ongoing basis, even as new debt is created as we continue to sell treasury securities. As I understand it, there’s a little less than $20 trillion in this kind of national debt, roughly 105% of GDP.
That doesn’t include personal debt, i.e. debt held by individuals. Personal debt may increase as a result of QE, but not directly: it increases because lower interest rates encourage more borrowing. QE as I understand it is mostly about injecting credit into the market, which lowers interest rates and allows people to borrow. QE functions like the stranger in the parable, injecting ‘made up’ money that keeps the economy moving and thus boosts production. It is my understanding that QE is considered successful, but that may just be looking at the wrong time horizon. But in the near term it benefits people by lowering interest on their mortgages, making it easier to start a business, decreasing the cost of goods and services, etc. The aren’t getting cash, but they are getting value.
That the parable depends on the $100 coming back to the hotel is part of its utility. As you point out, if any link in the chain broke, the stranger would be out $100. Therefore, the stranger took on risk – the liquidity he injected was not free. This again shows that liquidity has value, because there is a price associated with it (here, in the form of risk).
There’s a bit of ambiguity on the words “make money” here, so I will address both meanings, and you can ignore or address either response as you choose.
If it is “make money” meaning “to earn or be paid”, I read you to be talking about bankers who are getting paid without producing anything of value. In that case, I would argue they are producing value: they are producing financial instruments that distribute liquidity provide to them by the Fed down to individuals, businesses, and investors. Since access to liquidity is valuable, and the Fed can’t just hand out digital money to flesh-and-blood individuals, the banks provide the valuable service of distributing that liquidity, and in exchange they get a cut.
If it is “make money” meaning “to print (or create digitally), i.e. to expand the money supply”, then I would say that it is not irrational to create new money without creating new value. It is a form of tax, which decreases the value of all the existing money, and puts it in the hands of whoever is making the money.
Those are a tangent to a tangent, since this thread is about a school exchange program, but I’m doing my best to address the truck-load of related (and, don’t get me wrong, quite good) comments. I’ve addressed some of the Fed points above, if there are additional points on that topic that undermine what I’ve been saying that I’ve missed, can you point them out?
To the impossibility of paying back our debts, I don’t see where this comes from. Our interest on government debt is about 1%, and our tax receipts are about 15% of GDP. We are making ongoing payment on the debt. We could raise taxes or decrease spending if we don’t want to keep borrowing, but if we think we’ll continue producing more value per dollar than our creditors are demanding in interest, we don’t have to do that.
Our trade deficit similarly is not a major problem. We’ve had it for decades, many of those decades extremely prosperous for the US. There’s some talk of a bubble in the price of the dollar, but that seems speculative, and if you want to fix the trade deficit a dollar crash would be a good thing.
I object to the use of the word “actually” here. A house is “actually” worth whatever someone will pay for it (assuming they are reasonably well informed and rational and etc. etc. – suffice it to say that “willing to pay” is a bit loaded). You make a similar point when you say that “value is a function of utility”: value is what something is worth to someone, so the real price is what someone’s willing to pay.
So you have a couple that paid what they thought a house is worth, and no one agrees with them. They’ve invested their money poorly. What’s the issue this scenario is meant to address?
Keep paying our debts? Hell, keep borrowing while the money’s cheap. As I said, we could probably create a sizable sovereign wealth fund and pay down our existing debt with the returns.
What’s the rush to default? That would be disasterous, we’d piss off everyone, wreck the value of our money and property and companies, lose all liquidity. And gain nothing.
Arminius, the gold standard is a nonsensical policy. Gold has no more intrinsic value than a dollar bill.
QE was successful? Well, depends on who you ask. If you’re a bank or large corporation that enriched themselves through the program, yes it was very quite successful. For the rest of the impoverished main street working classes or people not so much.
Borrow money? Yeah, this has been done the last 75 years. Basically the debt owed now there is no way to pay back or off in the next three hundred years into the future. That’s how much money is owed at this point. (Financial debt constantly added daily.) Researchers have done public articles on this for many years now. So basically any lender of money at this point to the United States knows that the money will never be paid back. They would practically be giving the money away for free. This is your solution, really?!
You’re right, it would be disastrous to go through a sovereign national default but simply there is no way around it as it is unavoidable and inevitable. The debt party is over and will come to a quick end soon enough.
The real problem is that we are not actually paying off our debts as much as we are undermining our own country by let’s say, making trade agreements where we promise to buy all of China’s crap products rather than supporting our own products and shipping them out in fair trade deals in exchange for more time to pay back our loans, but we have no real way to pay that all back. WW3 is the only way to wipe all the slates clean unless all the countries simultaneously forgive all owed debts to one another.
Why are you so slightly off-topic? You shirk my arguments. I was not talking about the positive or negative aspects of the gold standard here. I was talking about debts, and debts are bad, evil, especially in the long run. So debts are the nonsensical policy, regardless whether the gold standard is a nonsensical policy too or not.
Here are my posts of this thread again, so that you can read them (again):
Nothing can be found there about positive or negative aspects of the gold standard. I did not say anything about it.
So you are slightly off-topic. You shirk my arguments.
Your debt jubilee is not what I am referring to when I say all international countries erase their ledgers that hold other countries in debt. As to how to best stimulate economies, I have no ideas until some major government reforms/laws occur.
There really is no way to go back on the gold standard because of all the financial debt accumulated. All the gold in the world can’t pay it off. Gold is merely a hedge against an oncoming global economic disastrous calamity. That’s about it. There will not be any functional gold standard in our lifetime. You either own precious metals as a hedge or you own none.
And even those that have precious metals there is still no guarantee of financial security for various reasons.
If rumors are true that the US has over 100 trillion dollars worth of gold, then we could easily pay off the debt. But flooding trillions of dollars of gold into the world economy would also depress the price of gold, so it would have to be done in stages.
And someone took all that gold Gaddafi had accumulated for his pan-African gold dinar, either France or the US probably. There is plenty of gold in existence to pay off the debt, but that was never the intention anyway. The debt is supposed to drown the west, those who know about the gold and could actually sell some of it have no interest in ever paying off the debt.
Well, depends on who you ask. If you’re a bank or large corporation that enriched themselves through the program, yes it was very quite successful. For the rest of the impoverished main street working classes or people not so much.