Thursday, March 15, 2012

Engage to support Obama?

CBS This Morning ‏ @CBSThisMorning

President's re-election team wants to make sure supporters are "engaged," says top campaign adviser Robert Gibbs
Retweeted by CBS News

Certainly a wise idea but the trouble begins when the attempt is made to engage liberal ideals with what is essentially a Republican (light) president.

I for one do not think highly of the expertise shown in our present banking hierarchy. Nor am I encouraged by the minds of financial advisors seemingly unaware that the commodity currency system was left behind in 1971, forty years ago. We still muddle a long as if taxes actually financed anything and as if we must borrow to bolster our supply of gold, silver, or radishes.

A company is deemed in financial trouble when is liabilities due over the next year exceed its available capital funds. This impels the question, how much liquid capital does the US government have? It would also be interesting to try and understand where this "capital" might be stored. Doing this, however, leads to a not unreasonable conclusion, there really is no place for the government to store money and, in fact, the government hasn't any in storage. Or, since it has the sovereign power of the currency printing press, it has all it needs.

If some of us are to feel engaged, we might have to see a push to restore many of the programs of the New Deal. They worked and worked well; at least until 1937 when the Republicans forced a foolish restraint to "balance the budget". Without a clear understanding of how a "fiat" currency system works, such an action was doomed to result in a falling economy, which is exactly what happened.

The "Third Way" touted by some Democrats, is simply a way to provide cheaper labor to corporations and to allow the "experts" in such organizations run the country. It accepts as an axiom that most of us are too dumb to actually know what is good for us. Not at all sure that this might be true but I believe that we, taken collectively, even as "dumb" as we are, may just be better than any of the experts.

Sunday, January 8, 2012

Bonds do not finance government.

Positing a hypothesis that the sale of bonds by a sovereign state, which has a monopoly on the creation of its own currency, does not serve to finance any government functions. It is assumed that all bonds are sold and redeemed only in the sovereign currency, a necessary condition if the sovereign is to retain the monopoly control of its money supply.

A moment's reflection might make it clear that for a bond to be purchased, it was necessary for the sovereign to have previously issued the money. The sale of the bond then becomes an exchange of one form of liability for another. This exchange does not result in any increase in the money holdings of the sovereign state. In a fiat currency system the state cannot accumulate wealth outside of capital goods it may acquire. Rather like a wizard that can control the weather who doesn't have storms stored away nor is there a place to put them when they are no longer desired, the state neither has nor doesn't have money.

The sovereign would easily issue the necessary currency for its own expenses. When an appropriation is authorized, there is no " bank account" whose balance must be checked. There is a simple entry made on the sovereign's spreadsheet that places the necessary funds in the reserve account of the appropriate bank.

There is no burden placed on the state by the redemption of bonds. Such redemption's, as noted above, are only paid in the sovereign's currency and there is an unlimited supply of that.

Bonds do serve the state as a means of controlling interest rates, if it desires, but the intent to raise operating funds loses its meaning when a country leaves a commodity base currency, such as the Gold Standard.

In the United States there is an artificial constraint placed on the government's operation, the Debt limit. This has served no useful purpose except to allow for political theater and posturing. I suggest that it is a useless appendage and probably unconstitutional.