"A Lot Goofy, That's No Good."

This is the conclusion to a series of articles that I have written about government finance, the Federal Reserve and our debt. I am writing it because I do not want to give the impression that because our government basically borrows money interest free because of the wonderful Federal Reserve System we have (if it returns to its original mandate and gets out of full employment), and our money is a debt currency so that much of what appears to be a debt problem is not that this means we are in just great shape financially. We are not, though we can be if Congress and the White House grow up.

The reason we are not is that the government, when it issues currency, is not creating money. Money is something we accept for work that represents our productivity. Currency is something that is issued for the purpose of becoming money by giving our productivity a home. When currency production out paces works productivity we have problems, sometimes deadly.

Now the monetary problems that occur are several. General inflation is one that can arise, though this is not the biggest problem; the biggest problem is bubbles in certain sectors of the economy. The recession/depression we have experienced is a bubble bursting in the banking system. Before this we had a dot com bubble bust and a real estate bubble bust.

When financial bubbles occur, they are currency looking for a productive IE profitable home. The currency, too much issued is not money though. The holders of the currency wouldn’t know it though. It looks like money and acts like money. So it mingles with the productive money causing inflation in a certain sector prone at the time for speculation causing sky rocketing prices in that sector.

To the general population, though, it is not inflation. Bread and gas are the same basic price. Automobiles are at a stable price, so it must be good times. The people making the money in the bubble think they are geniuses, but in reality all it is is an ocean of currency too large to become real money. At a point when prices get too high, people start taking profits by cashing out of the bubble. The bubble breaks and chaos ensues for the economy. You see, it is just like a bank run, except it is in a different industry. But what is the difference? Whether you have worthless notes or a worthless house, worthless because even if it has value it has a mortgage twice that, it is the same.

The Fed was designed to stop this sort of thing, but it has failed. Failed because the Congress and the Executive behave as a group of children who have no concept that you have to choose what you spend resources on.

No problem, we will choose everything says the two branches of government as if they were a group of three year olds. It is a head shaking thing to behold. They think it is free money. If it is done right as I wrote earlier, it is only extra currency that either becomes productive money or builds roads and sewage plants and does more good than any general inflation causes harm.

Again as my wonderful friend, Mr. Josephic, who was in World War II used to say, “A little bit goofy, that’s OK. A lot goofy, that’s no good.” If we solve spending now, we can go back to a little bit goofy. If we don't, it will be worse than a lot goofy, and a lot worse than no good.

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