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alstry (35.96)

The Most Convulsive Question In Human History

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May 24, 2010 – Comments (7)

Who gets to borrow money and how much?

First you must ask what is money.  Origninally money was meant to represent the product of productivity.  You would produce something and get money in exchange for what you produced.  It could have been anything, a product or service.

But sometime after 9/11, money became essentially the product of a loan.  We were loaning homeless people $300K to buy the productivity of building a home.  We lent private equity funds trillons to buy commercial real estate...regardless of income/productivity being generated.

In the end, the concept of money became morally corrupted...but few of us noticed the change as most of us benefitted from that corruption.  Just like Madoff's clients benefitted from his corruption.  And the biggest beneficiary was government, which saw a flood of money come in from such corruption.

But around 2006/07 we started to cut off the private sector from borrowing and lending slowed which precipitated the real estate crash.  Banks crashed and so did the economy as the lending and spending came to an end........but the most dramatic effect was the decline in tax receipts to a government that needed over $6 trillion dollars per year to maintain its footprint....and that need is growing rapidly as the private sector continues to contract.

The problem was the citizens no longer were productive enough to support their government.....a government which provided them with massive benefits.  So what did the bankers do....they started loaning trillions of dollars to governments....and not just the American governments, but governments around the world.

As a result, government spending no longer became a product of the productivity of its people, but rather the function the amount of credit extended.  The more a government was able to borrow, the more its people prospered....and no nation prospered as much as America because no nation borrowed anywhere close to America.

But now we are seeing tensions rise around the world.....there is anger developing over the issue of who gets to borrow and how much?  Since prosperity is no longer a function of productivity(evidenced by the bankers getting billions in bonuses even though they were insolvent), there really is no reason to limit any nations borrowing capacity under the current system.

If the bankers could lend hundreds of thousands to a homeless person to buy a house so they could generate a commission and make even more syndicating the loan...why not lend to all nations so all people could live to higher standard?

Since we have corrupted the nature of money and now lending regardless of productivity.....what is to limit any nations borrowing capacity?  The answer is essentially nothing.

Here is where the tension rise......

Should American civil service workers be able to retire at 40 just because our government can borrow?

What about the Greeks at 53?

Or the Germans at 60?

Now you are going to start to see anger developing over which nations get to borrow and how much....since most economies have morphed into simply welfare states of one sort or another(government spending driving the economy)....those countries that can borrow will prosper....those that can will get really really mad.

Maybe its time to change the nature of money?

Any thinking person can see where this is going.......Welcome to the Digital Age.

7 Comments – Post Your Own

#1) On May 24, 2010 at 9:45 AM, alstry (35.96) wrote:

As an aside...the funny thing about raising taxes is we don't generate enough production now the cover the deficit...if government taxed 100% of what we produced it would not cover the gap....

and raising taxes will only curb production even more......

Any thinking person can see where this is going...welcome to the Digital Age.

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#2) On May 24, 2010 at 12:04 PM, chk999 (99.97) wrote:

So how much money do you actually owe?

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#3) On May 24, 2010 at 12:08 PM, leohaas (31.12) wrote:

Convulsive? Why does borrowing money lead to convulsions?

I just got a new mortgage. No convulsions involved. While I was writing this, our government probably borrowed more money than my mortgage. No, no convulsions involved either...

"First you must ask what is money.  Origninally money was meant to represent the product of productivity."

Huh? I always thought that money originally was meant as a replacement of the bartering system...

 

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#4) On May 24, 2010 at 12:27 PM, alstry (35.96) wrote:

Bartering is a productivity exchange that is mutually accepted between two parties..unless of course one has a gun.

When we cut off real estate from easy borrowing....real estate crashed in a manner never seen before in American history.....

IMAGINE WHAT IS ABOUT TO HAPPEN WHEN WE CUT OFF GOVERNENT AND EVERYONE IS DEPENDENT ON GOVERNMENT SPENDING TO SURVIVE.

Welcome to the Digital Age....it will be exciting.

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#5) On May 24, 2010 at 1:17 PM, freunddoggy (96.32) wrote:

Now it's the digital age? You really want to be known for "calling" stuff, don't you?

On a lighter note, I do like the point of this post. It's true that money is simply a store of productivity.

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#6) On May 24, 2010 at 1:46 PM, nzsvz9 (< 20) wrote:

alstry

Somehow money as a store of productivity seems inadequate to describe its role in business and finance. Let me try to explain.

The value of the money has a significant impact on the store of productivity you say it represents. Consider, if a piece of paper that says $100 USD is what you were paid for your good or service, then you hold that scrap. You can use the paper (or digital ledger entry) to trade for another good or service - gold, roof repair, a good dinner etc. and that is the true value of "productivity" or better productive outcome (goods and services) that the paper holds.

But the paper is only paper. At least USD are just printed and ledger entries by the trillions. Inflation eats away at its value - and the productivity you mentioned it represented before has lost value? But how? Did you work effort in the service you provided actually do a poorer job? Did the good you produced fail or degrade? No, the money did.

So money, the flawed fiat paper kind, is NOT a repository of value, in the longer term, but it is a medium of exchange in the shorter term. Inflation (built into fiat money) eats away at the longer term - so it can NOT be a store of productivity. Not for any significant period of time anyway.

Remember - as you go into an inflationary period you want to spend every penny as it comes in - even borrow at fixed rates - because the money of tomorrow will easily pay off the debts of today through inflation.

Maybe the government is counting on this to pay off our debts. I don't know.

Known as financier nzsvz9

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#7) On May 24, 2010 at 2:59 PM, alstry (35.96) wrote:

There is no doubt that is what government is counting on.....so was every real estate investor.....and many current ones.

The problem comes in with a wage contrained society such ours in a global economy......inflation in prices but not in wages could create uncontrollable chaos.

My guess is the parties at be are well aware of the consequences.

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