Is government allowed to spend money it doesn't have?

[Nate13]

That’s because people were ignorant enough to believe that gold had intrinsic value.

In all but a rock bottom economy it does. In a rock bottom economy I would rather have food, water, and medicine.

 

[Monte_RCMS]

That’s because people were ignorant enough to believe that gold had intrinsic value.

Gold is a metal. Excellent conductor of electricity; used to plate certain electrical contacts. Useful for certain industrial processes.

You could also use platinum or paladium or silver.

What makes gold useful as a medium of exchange is that it is scarce … not much of it around … and cannot be counterfeited.

You can make anything into a medium of exchange.

Basically, every transaction is merely a barter.

If you use gold, then I can give over a piece of gold and exchange that for a suit of clothes or a barrel of oil or an airline ticket or a car.

The “value” of the gold is more or less “fixed”. So, I can exchange my goods and services for a piece of gold … [not specifying, for this example, how many ounces of gold] … and save up my little pieces and then if I need to buy something, I can exchange some of my gold for that other thing.

The nice thing about gold is that it is easily portable. If I had an oil well, I could offer to exchange two barrels of oil for a suit of clothes. But two barrels of oil is 84 gallons which weigh six pounds per gallon … 504 pounds … 23 kg. Heavy and messy.

If I paid in gold, I might offer a 1/10 ounce of gold for a suit.

Or, I could pay in green or in Euros. Or a truck load of gravel.

 

[tqualey]

Hi, ProVobis,

Forget about printing the stuff (let’s hope those presses do not break down!) but the Fed also holds it after they print it! Here is a link: finance.yahoo.com/news/biggest-holders-of-us-gov-t-debt.html

Essentially, the US government is the biggest holder of US debt, with China coming in a distant second … and the rest falling way behind after that.

What is of note is that Japan placed 4th on this list. It would seem that after the earthquake/nuclear meltdown/flood disaster they would have needed to put their hands on real money to pay for repairs. If they sold any of these bonds - they didn’t sell many.

God bless

This is true. However, before Nixon, the credit of the United States, at least to some extent, was collateralized by the gold it was holding. Now the Fed is free to “print” as much money as it deems fit. And money is debt. See this.

 

[Filippo_Bruno]

Gold is a metal.

What makes gold useful as a medium of exchange is that it is scarce … not much of it around … and cannot be counterfeited.

You can make anything into a medium of exchange.

Or nothing – nothing physical, anyway. Most transactions in the US just involve flipping some bits in computers somewhere.

Basically, every transaction is merely a barter.

So I’m bartering having my bank flip some bits in exchange for lunch? Seems pretty tenuous.

If I paid in gold, I might offer a 1/10 ounce of gold for a suit.

Or do what normal people do, swipe a card or sign a paper and carry home the suit. Gold can’t possibly be more portable than a card or a pen and paper.

 

[tqualey]

Hi, Filippo Bruno,

I would not be so quick to dismiss gold as having no intrinsic value. Nothing comes with a universal ‘price tag’ on it to say here is what I am really ‘worth’. In fact, the entire concept of ‘worth’ and ‘value’ and ‘trade’ are really very sophisticated concepts.

As far back as recorded history, while some groups may have used sea shells, or rocks or beads - most that could get their hands on it wanted gold. It could be because it is shiny, heavy, and has a special feel to it that made it not only very popular but the basis for most monetary systems (not by itself … silver got into the act, too - but silver will tarnish and gold will not!)

In my opinion, I would not call these people ‘ignorant’.

God bless

That’s because people were ignorant enough to believe that gold had intrinsic value.

 

[Monte_RCMS]

In all but a rock bottom economy it does. In a rock bottom economy I would rather have food, water, and medicine.

But food will spoil. And water is bulky and difficult to store. And medicine … depends on what kind of medicine and how much and not everybody needs medicine all the time.

But some people might need shelter … not in your list. But some people, depending on the weather need more shelter than others.

What you need as a medium of exchange is something you can swap your labor [or your brain power] for … and that you can use to “buy” what you specifically need.

Some fellows I worked with used to spend all their hard earned money on getting drunk every pay day. The boss provided food. The weather was very comfortable. One day one of the fellows “wized up”. He traveled a lot for work [they drilled water wells] … so one day after he got paid, he went out and bought a gold chain. Because it would hold its value and was compact and easy to carry and some day he could swap it for something in the future. He would have to guard it against theft and loss. But he wasn’t “into” bank accounts and checking accounts and stocks.

 

[Filippo_Bruno]

Hi, ProVobis,

Forget about printing the stuff (let’s hope those presses do not break down!) but the Fed also holds it after they print it! Here is a link: finance.yahoo.com/news/biggest-holders-of-us-gov-t-debt.html
That article is deceptive.

The difference among “Other Investors/Savings Bonds,” “Pension Funds,” “Mutual Funds,” “Depository Institutions,” and “Insurance Companies” in terms of debt ownership is negligible. They are all U.S. financial institutions.

The reason the article lies about this is because if you add those together you get over 3 trillion dollars, three times as much as China owns, and this article clearly has an ax to grind about China.

The recent financial sector crisis and bailout is the only reason that the federal reserve owns so much of the debt.

 

[Monte_RCMS]

Or nothing – nothing physical, anyway. Most transactions in the US just involve flipping some bits in computers somewhere.

So I’m bartering having my bank flip some bits in exchange for lunch? Seems pretty tenuous.

Or do what normal people do, swipe a card or sign a paper and carry home the suit. Gold can’t possibly be more portable than a card or a pen and paper.

The problem with using “nothing” is the problem of inflation.

Most hamburger joints will take a credit card.

But how much is a computer “dollar” worth?

At one time, you could buy a burger for a dollar. Now it’s up around $5.

But there is competition for your money. So, right now drive-by’s are offering a meal with the trimmings for $5. They have a lot of overhead and they need the $5. The material cost to them of the meal is small, but they have to pay their electricity bill and real estate taxes and rent, so they want you to walk in and for you to give them your $5.

The cost of a suit has increased dramatically over the years. Due solely to inflation.

The cost went so high, that you could not afford to buy one made in the United States. So, the clothing makers went out of business because “you” preferred to buy cheaper clothing made in Guatemala or Canada or China or Vietnam.

In some cultures, you actually could bring them a 1/10 ounce gold coin and exchange it for a suit. OR, in many cultures, you would take your gold to a coin store and exchange the gold for whatever the local currency is and buy your suit with that. OR, if gold transactions are taxed, your tailor might call his brother-in-law over and they would test your gold and negotiate with you over a barter deal. Happens all the time.

Credit cards are merely a convenience. There are transaction fees associated with using a credit card.

Nothing is free.

If you want to buy a jet airliner, the “deal” is the same as if you were buying a suit.

If you have an oil well, you work with the seller of the airliner and a “broker” or a finance whiz-bang and work out a deal.

These deals are how the biggie finance institutions make their money. They help you convert your oil and gold into an airliner.

 

[ProVobis]

Forget about printing the stuff (let’s hope those presses do not break down!) but the Fed also holds it after they print it! Here is a link: finance.yahoo.com/news/biggest-holders-of-us-gov-t-debt.html

Essentially, the US government is the biggest holder of US debt, with China coming in a distant second … and the rest falling way behind after that.

What is of note is that Japan placed 4th on this list. It would seem that after the earthquake/nuclear meltdown/flood disaster they would have needed to put their hands on real money to pay for repairs. If they sold any of these bonds - they didn’t sell many.

God bless

Yes, I read that on Yahoo this morning as well. Good reference.

And the taxpayer is on the hook for all of it.

 

[ProVobis]

That’s because people were ignorant enough to believe that gold had intrinsic value.

Doesn’t take too much of it to get you a decent meal.

 

[ProVobis]

Or nothing – nothing physical, anyway. Most transactions in the US just involve flipping some bits in computers somewhere.

Just goes to show the power of the government to tell you what constitutes legal tender.

 

[BobCatholic]

Personal debt enslaves the individual, says the Bible.

Government debt enslaves the nation.

So government should not spend more than it takes in.

 

[JimG]

Personal debt enslaves the individual, says the Bible.

Government debt enslaves the nation.

So government should not spend more than it takes in.

I think you’ve got it right. People may be starting to get the message about personal debt. Although she doesn’t state it in exactly that way, I’ve seen financial guru Suze Orman pretty much say that debt equals slavery.

With the nation, it’s harder to get anyone to notice, because we just keep raising the debt ceiling. The question is, when do we default? It’s nearly inevitable. But default can take a variety of forms, not just failure to pay the interest or principal on government bonds.

Bernanke thinks he can essentially keep interest rates low forever and keep refinancing the national debt at a low rate, but he may find out otherwise.

Monetary crisis in Europe could trigger monetary crisis in the U.S. If the U.S. monetizes the debt–an alternative to outright default but equally destructive–inflation ensues, which devalues the currency.

Eventually, the government finds it cannot continue to spend because bond buyers won’t take the risk. That leads to involuntary austerity with less money to states which have come to depend on federal money. Involuntary austerity leads to civil unrest because people have been told that the government can solve anything. But it can’t.

 

[Monte_RCMS]

I think you’ve got it right. People may be starting to get the message about personal debt. Although she doesn’t state it in exactly that way, I’ve seen financial guru Suze Orman pretty much say that debt equals slavery.

With the nation, it’s harder to get anyone to notice, because we just keep raising the debt ceiling. The question is, when do we default? It’s nearly inevitable. But default can take a variety of forms, not just failure to pay the interest or principal on government bonds.

Bernanke thinks he can essentially keep interest rates low forever and keep refinancing the national debt at a low rate, but he may find out otherwise.

Monetary crisis in Europe could trigger monetary crisis in the U.S. If the U.S. monetizes the debt–an alternative to outright default but equally destructive–inflation ensues, which devalues the currency.

Eventually, the government finds it cannot continue to spend because bond buyers won’t take the risk. That leads to involuntary austerity with less money to states which have come to depend on federal money. Involuntary austerity leads to civil unrest because people have been told that the government can solve anything. But it can’t.

The “only” way for the United States to successfully monetize its debt would be if the rest of the world became sooo unstable … by comparison … that the United States became the rock of stability … by comparison … and the “refuge of choice” against the chaos in other countries.

War in the Middle East? Head for the United States.

Religious persecutions in the Netherlands? Head for the United States.

Property confiscated in Africa? Head for the United States.

Sectarian violence in China? Head for the United States.

Narco-terrorism in Central America? Head for the United States.

So people from other countries who have the means to do so, -]will /-] are emigrating to the United States [and to New Zealand and to Costa Rica and to Australia and to Chile] and transferring their money here as well. Sometimes, they send their money on ahead … in the hope that if things go bad at home, they will have a welcoming presence here. They are buying houses and condos to have a place to live. And buying rental properties and farms and ranches to avoid having to learn the ins and outs of or to avoid the instabilities of the stock market.

People without the means are moving to the United States as well. Both legally and illegally. They learn English, get an education, work extremely hard, pay our taxes, obey the law, and often make out extremely well. No guarantees. But better than the chaos where the came from. And to come here, they run terrible risks … predation by smugglers … human trafficking … storms at sea … thrown into communities of non-English-speaking refugees … forced repatriation …

One of my friends is the sole surviving member of his family. The rest were killed by violence in his country of origin.

 

[Filippo_Bruno]

Just goes to show the power of the government to tell you what constitutes legal tender.

The government doesn’t run the computers.

 

[tqualey]

Hi, BobCatholic,

Hey, who could argue with that …? Apparently, a lot of people! While we have obviously been on a debt binge to reach $15 trillion dollars in the red - maybe a little debt is not like ‘a little pregnant’ and it could be manageable. I am not talking about our current mess - and the way we are going, financial collapse is inevitable - and no one in government has the courage to vote to stop this on-going train wreck.

As I see it, this ultimately comes down to the way that we back our money. At one time, gold was the only accepted way to do this … then silver was drafted into service … but, we have had financial panics and crises before and since. I am reminded of William Bryan’s ‘Cross of God’ speech: en.wikipedia.org/wiki/Cross_of_Gold_speech. My guess is that there is such a thing as reasonable debt - maybe not more then 20% financial-library.com/debtlimits.html but based on individual circumstances. Right now, the US has a debt that 100% of GNP - we are making Greece look frugal!

God bless

Personal debt enslaves the individual, says the Bible.

Government debt enslaves the nation.

So government should not spend more than it takes in.

 

[ProVobis]

The government doesn’t run the computers.

If that’s the case, then we have illegal counterfeiting of mass proportions.

 

[Filippo_Bruno]

If that’s the case, then we have illegal counterfeiting of mass proportions.

I make a transaction with my debit card. At no point is a government computer involved. There’s no counterfeiting going on.