Friday, October 11, 2013

The Immorality of Government Deficit Spending and the System that Enables It

Recently a friend of mine took me to task for criticizing the system that enables our government to
continue deficit spending, pointing out that the  a large church with members of differing political persuasions should have a pastor that "stays out of politics" and preaches the gospel. I affirmed his sentiments and apologized for not being clearer in differentiating between moral issues and political issues and promised to do better in the future.

This post is the fulfillment of that promise to my friend.

I am about to criticize deficit spending and the gross national debt of the United States government on moral grounds. My criticism is never aimed at persons, but rather, toward the system that allows the United States government to continue deficit spending to the tune of one trillion dollars a year and a national debt of seventeen trillion dollars.

Many reading this post will be tempted to stop reading at this point and ask,  "Why should I care about the Federal Reserve System?" As long as American people have access to their money, few care how that money comes to them. Likewise, as long as American citizens have a government that takes care of them, few citizens care how that government gets the money needed to do what it does!  We're living in a pragmatic age when people care about results and how they feel and very little about principles of morality.

Americans have forgotten that "We the People" form the government of the United States. Increased government deficit spending leading to an inability to repay national obligations (i.e. default) is morally wrong.  To borrow from lenders and promise to repay them, and then later find oneself unable to repay, is financial and moral bankruptcy. The United States government is on the verge of bankruptcy because the American people have not come to grips with the immorality of a system that allows deficit spending to continue unchecked. Again, our national debt is a moral problem, not a political one.

Currently, the United States government is spending one trillion more dollars a year than it receives in revenue. Our national debt is nearing seventeen trillion dollars. The U.S. government must borrow money in order to pay its bills.  There is a fight between Congress and the President on whether or not we should increase the government's debt limit. This is an important question, but Americans should ponder even more carefully "Who are the lenders to the United States government?"

There are three answers to that question:

(1). Foreign nations
(2). The Federal Reserve
(3). The American people

Let me explain each.

(1). Foreign nations buy U.S. Treasury securities.  When the United States government needs money it doesn't have, it issues financial "securities" which are "we promise to pay you later" instruments (i.e. bills, bonds, and notes). The purchaser of a security expects repayment by the United States government of the principle they loaned plus interest within a designated period of time. To understand how foreign nations buy United States Treasury securities watch this excellent Khan Academy Video.

There is a principle in the Bible regarding debt: "The borrower is slave to the lender" (Proverbs 22:7). This means the one who borrows money is owned by the one who lends money. The average American citizen would be stunned to know how many buildings, banks, corporations, land, and other valuable assets on American soil are being gobbled up by foreign investors with American dollars transferred to those foreign nations through our national debt. Go try to buy an apartment near Central Park in New York City and notice how many Chinese, Russian and foreign nationals own buildings in the Upper West Side. Also, pay attention to the number of corporations in America that are now "foreign owned." The debtor has become the servant to the lender. We owe trillions to foreign governments. Our dollars flow to them through the repaying of government debt. It used to be their dollars flowed to us when they purchased our industrial products (economic production), but no more! Our dollars flow to them because we are repaying them the money they are loaning us.

(2). The Federal Reserve also buys United States Treasury securities. When the Federal Reserve buys government debt, it is called "quantitative easing." That's a fancy name for "creating new money." Currently, the Federal Reserve is buying $85 billion dollars a month in Treasuries to "keep interest rates low, increase the money supply, and restore the economy." Very few Americans understand the process of quantitative easing (or the dangers of it), so let me explain.

The Federal Reserve is not "owned" by the United States government. The Federal Reserve is not Federal. The Federal Reserve is actually twelve regional banks spread out across the nation, with the primary bank being The Federal Reserve Bank of New York. The Federal Reserve issues "stock" to any bank participating in the Federal Reserve System and it serves as the "lender of last resort" for the United States government. It's important to understand that the Federal Reserve is a system of banking owned by banks.  Congress provides oversight and the President appoints the Federal Reserve Chairman, but the United States government does not "own" the Federal Reserve -- banks do.

When the United States government needs to borrow money, the Federal Reserve will buy U.S. Treasury bonds and notes through its Federal Open Market Committee (FOMC), whose office is located at the Federal Reserve Bank of New York. Here is where it gets scary. The Federal Reserve can purchase United States Treasury notes through private dealers authorized to purchase U.S. Treasury bonds and then pay for those government securities by simply crediting the bank accounts of the dealers with a computer keystroke. No cash is involved in the purchase.

For example, this month (October 2013) the Federal Reserve will "purchase" $85 billion of United States Treasury securities from authorized dealers. Currently there are 21 authorized "dealers" of United States Treasury securities, all of them banks, and when the Federal Reserve "buys" the $85 billion in United States government securities from these banks, the Federal Reserve will credit the banks' accounts with new money via a computer keystroke! Again, the Federal Reserve does not pay cash to the banks for these government Treasuries. The Federal Reserve creates new money electronically, money called fiat currency (the word fiat is Latin and means "by decree").

Until 1971 the United States dollar was tied to what was called "the gold standard." If the government wanted to increase the supply of money in circulation, the government had to increase their supply of gold. Not anymore. Through the Federal Reserve, "new money" is created monthly, regardless of the nation's supply of gold.  The power to create fiat money out of thin air distinguishes the Federal Reserve from all other financial institutions and gives to it incredible clout. 

There is a direct correlation between "quantitative easing" (increasing government debt through dthe Federal Reserve creating fiat currency) and American consumer deficit spending (consumer borrowing). When the Federal Reserve creates new money in order that the American government can borrow more money, then the American consumer can also borrow more money because commercial banks are now "flush with new cash" to lend to the consumer.  Increased government debt leads to increase consumer debt because the Federal Reserve increases the nation's money supply through decree (or fiat) in time of deficit spending. Inflation will always be the result.

Read what Alan Greenspan once wrote about deficit spending, the lack of a gold standard, and the insidious nature of inflation:
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
The system that allows government deficit spending through the creation of fiat currency is as morally bankrupt as the government that eventually defaults on its debts.

(3). The American people can purchase T-bills, T-notes, and government bonds. It is generally considered a "safe" investment. However, if those bills, notes and bonds are backed "by the full faith and credit of the American people," what happens when the government defaults on its debts?

Obviously, the American people would lose faith in U.S. currency. Even worse, when the United States government defaults on its debt, the banking system as we know it would collapse. The Federal Reserve System has enabled the government of the United States to continue borrowing beyond its means. We not only have a spending problem in America, we have a systemic lending problem.

J. P. Morgan was once brought to Washington while in ill health to testify before a U.S. Senate subcommittee after the Panic of 1907. Morgan, the infamous financier and banker, was asked by attorney Samuel Untermyer about the psychological nature of banking, specifically about banking being an industry built on trust:

Untermyer: Is not commercial credit based primarily upon money or property? 
Morgan: No, sir. The first thing is character.
Untermyer: Before money or property?
Morgan: Before money or anything else. Money cannot buy it … a man I do not trust could not get
money from me on all the bonds in Christendom.

When the United States loses the trust of foreign nations, banks, and the American people in its ability to pay back her loans, the fiat currency system created to allow continued deficit spending of the United States government (and her people) will collapse. That's not necessarily a bad thing; yes, it will be painful, but not necessarily bad. In fact, I propose moving from fiat currency to a currency  based on a standard (be it gold, silver or platinum) is ultimately good.

Here's why:

It has been frequently stated that the only way for the United States to grow economically is for their to be increased “consumption” by the American people. We are told that American people buying goods and services (i.e. "consumption") accounts for between 65 and 75 percent of economic “growth" in our nation. We have been told that the need for increased public CONSUMPTION is THE REASON we need consumers to have easy access credit. It is the only way the United States can "grow" economically, we are told. The theory goes like this: The more consumer credit available, the more economic growth attainable.

It should seem odd to all of us that nobody is able to explain how a nation that "spends" more than it "produces" can ever grow. There's a good reason nobody can explain it; it's impossible to grow anything by spending more than you produce. In fact, it is an eternal principle, an axiom of human existence if you will, that the fastest way to poverty, bankruptcy and decay is for consumption to be in excess of production. This is true in families, churches, business, nations, and economies, not matter the size. It cannot be otherwise. No attempt to create new money by fiat and elasticize (stretch) the economy will ever overcome the axiom that the only way to prosperity is through production. As the Bible puts it: "If a person will not work, he will not eat" (II Thessalonians 3:10).

For those peoples and countries who have lost their moral way and have neglected to spur one another on to increased work and productivity, there is only one creative way left to give the impression the national economy is improving -- through fiat financing. When the rest of the economy whittles to nothing,  the financial sector - specifically the banking sector and the financial assets markets - can create an illusion that all is well. They can create money from nothing. No product is sold. No service is rendered. They will simply create new money by fiat. When governments resort to the financial sector to "improve the economy" then you can be sure the government is unintentionally affirming that the economy is dead. Money elasticity is never a substitute for worker productivity, regardless of what you've been told.

For a season,  (like 1971 to 2013) Americans may perceive that things are better. The U.S. government (through the Federal Reserve) has flushed the marketplace with fiat currency. Poor people can borrow to buy houses they cannot afford. Consumers may borrow to buy what they otherwise would never be able to afford. Governments give in welfare and handouts what no person has earned. The moral principle of an honest day's work for an honest day's wage is substituted for the immoral principle of something for nothing through easy money.

For a season this works. But then comes the crash.

When there is no standard by which a nation's currency is held, that nation will always be tempted to create new money to enable greater spending by both government and the people. Money becomes the one economic good which must be created out of thin air. Money must be created (by fiat) if the United States economy is to survive. Inflation becomes the by-product.

A nation with a market economy survives by means of voluntary trade between buyers and sellers, and for this trade, an unchanging medium of exchange is vital (i.e. a currency tied to a standard). But in a command or fiat economy welfare economy (as the United States now has), the fiat creation of money is justified on the premise that those being ruled over (the American people) are getting something for nothing. To give Americans all they want requires money to be "elastic" or "stretched," and the American government is hard at work creating new dollars while giving things to citizens they've never worked for or earned.

The system that enables the United States government to continue unchecked deficit spending must  be changed. It is a moral problem. If we don't change the system, America as world power will disappear. I urge you not to be offended with what I've written, but challenged. Not all borrowing is immoral. What is immoral is the expectation of receiving something for nothing. We have a culture and a people, a government and a banking system, that allows--yeah, even encourages-- easy credit and deficit spending of both citizens and government. We can't continue down this path without a collapse.

I agree with Barack Obama when he gave a speech announcing his opposition to increasing the nationals debt limit while serving as a Senator from Illinois. Senator Obama's speech was given when the deficit was ten trillion dollars less than it is today. Senator Obama said:

“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. ... I therefore intend to oppose the effort to increase America’s debt limit.”

True leaders will never silenced until a solution is found.

Ultimately, only when one finds satisfaction in the eternal, and begins to live his life for things other than material possessions, power and pleasure, will there be a solution to the moral problem of spending more than one is producing. Only God brings true contentment to the soul. That's why the system that promotes deficit spending is a moral problem, not a political one. Apart from genuine revival, the political solution seems impossible, and the collapse of the American economy inevitable.


Anonymous said...

I agree, Wade, with the inevitable collapse due to over spending on a fiat system. Kinda exciting, in a way, that radical change is coming.

Have any practical suggestions on some common sense preparation? Thanks, ken

Wade Burleson said...

Common sense tells me Ken to own real assets that are resistant to inflation. I am reminded, however, that Peter said to the lame man, "Silver and gold have I none, but that which I have give I to you. In the name of Jesus Christ, rise up and walk."

Ultimately we have all we need in Christ. The solution is not to look to America for your comfort or your needs.

Anonymous said...

Great article. Basic lessons in the "art" and "science" of economics is sorely needed.

Anonymous said...

Great article, Wade. Any specifics as to what "real assets that are resistant to inflation" are? E.g. a house? land?

Wade Burleson said...

Yep, real assets are gold, silver, land, and other "real" or "hard" assets.

Anonymous said...

Hear it from cute little cartoons...

Aussie John said...


Thought it might interest you:

Aussie John said...


Oops! Anonymous beat me to it!

stevenstarkmusic said...

Hi Wade! There are some misunderstandings here:

One The United States cannot involuntarily default on its debt. It will always be able to pay it, unless Congress decides to willingly default, because it wants to for some reason. Every dollar in the economy, that you and I own outright, had its start with federal spending. And because the US spends currency that it creates out of thin air, and because money ontologically IS debt (an “IOU”), then the federal government must always have a debt for money to exist.

Two The Federal Reserve buys and sells Government bonds in order to control interest rates. That’s it. When it wants more dollars in the bank system, it buys bonds and interest rates go down. When it wants fewer dollars in the system, it sells bonds and interest rates go up. People make a big deal out of quantitative easing, but it is what the Fed does every day. It buys or sells bonds to control interest rates. It is buying a lot of bonds right now in order to keep rates practically at zero.

Three Increased dollars in the system does not necessarily lead to high inflation. The evidence is the last 5 years. There have been unprecedented amounts of reserves put into the banking system, but without increased spending, it does not matter. Imagine a cranky old man with 15 trillion dollars under his mattress....would that create inflation? No.

Four “When the Federal Reserve creates new money in order that the American government can borrow more money, then the American consumer can also borrow more money because commercial banks are now "flush with new cash" to lend to the consumer.”

This is a bit misleading. It’s true that increased government spending can have the tendency to put downward pressure on interest rates. But the Federal Reserves can sell its bonds any time it wants and raise interest rates. The Fed can simply decide what it wants interest rates to be, and then buy and sell bonds on the market until the supply and demand of reserves is where it needs to be to achieve this interest rate. In short, as mentioned before, the Fed could make it much harder for you and I to buy a car anytime that it wants.

stevenstarkmusic said...


Five Moving to the gold standard would be a terrible thing for the working and middle classes. Capitalism, by nature, creates an “upwards gravity” of capital towards the wealthy. Imagine a fixed amount of money in the system. A person achieves wealth by savings, which is choosing to spend less money than one takes in. This creates less overall spending in the economy, which in turn creates less income in the economy - job losses. Basically, wealth creates poverty (speaking in financial terms). Yes, wealthy people then invest their money, usually anyway, but they do this with terms of interest. This means that eventually they are draining even MORE money out of the system. The original amount that was saved plus the added interest.

So wealth creates poverty. It must, because, once again, wealth is the act of decreasing the velocity of money - decreasing trade. Then, if and when the money is spent, through investment, the wealthy draw even more money out of the system of spending by charging interest.

Money gravitates upwards and becomes more and more scarce - it is the nature of capitalism. This results in job losses and deflation. Money becomes more valuable, which means it is spent even less. Why buy the TV today when the price will go down more tomorrow? Anyone who owes a debt, like a mortgage, will see the value of that debt increase, digging the hole even deeper. The deflationary spiral of economic depression.

The working and middle class only have a chance when there is modest inflation. New money must constantly be introduced to accommodate the upwards suction of money into fewer and fewer hands. And a progressive income tax must be in effect to even the playing field as well, lest the system turn into one big welfare system for the wealthy - and we are back to feudalism.

SIX The US is selling a product. It is called the US dollar. Because countries and institutions use the dollar as an instrument of savings, they sell us items and then do not buy our items in return. Because they want our dollars! We must run a large trade deficit when our dollars are in demand. If we didn’t run an overall deficit, the economy would starve for dollars, we would see deflation and more economic depression.

If we want to eventually want to see less deficits for our government, we need the world to use a different instrument for their savings.

There is one idea that will really help anyone reading this to see things more clearly. It helped me to understand the nature of government debt a lot better. Here it is:

The federal government creates money when it spends and destroys money when it taxes.

The federal government does not really borrow money in the way that you and I borrow money. It doesn’t need to. It creates money out of nothing when it spends - every single times that it spends. Taxation does not exist to raise money, but rather to get rid of excess money in the system in order to prevent inflation. Government bonds are created as a means to control interest rates.

Wade, I would suggest that if you are worried about too much money in the system, you should advocate for much higher taxes on the wealthy. That way, the money sitting around in savings can be drained a bit, without eliminating the spending (and therefore the income) of the working and middle class. If the government decreased spending right now, sales in private businesses would decrease, unemployment would rise higher and the confidence of the private sector would drop further.

But inflation is low, and it will remain so in an economy that is so weak. So higher taxes on the wealthy is not necessary - at least not for that reason. But we all know what has happened to the “upper gravity” of money over the last three decades as economic disparity has grown and grown - despite ever-rising productivity from US workers.

Anonymous said...

Yes, the Federal Reserve System was arrived at by mistake, and its secrecy can not be tolerated once a steady debt is maintained. Sen. Paul (Ky.) plans to lecture Ms. Yellen on this point forthwith.

As angry as the West of President Jackson's day grew at Eastern financial shenanigans, it appears that ''The Fed'' was the only solution differing sides could agree on. How ironiv that the persecutor of Native Americans would see mismanagement in other government types.

The development on one political party into a voice for only spending more and more with no regard for arithmetic would make Thos. Jefferson & James Madison cry their way to a port where they'd say goodbye forever to such a terribly managed nation before boarding a vessel for some island somewhere.

Steve in Western Ky.

stevenstarkmusic said...

Another useful tool in thinking about all this is to simply chuck the notion of money. Think in terms of real resources.

As Alan Greenspan said to the Senate Banking Committee in the mid 2000's, in regard to Social Security and the baby boomers, `Our problem with respect to retirement has got nothing to do with finance; it's got to do with real assets, real physical resources, and goods and services that people consume."

The idea that we go bankrupt as a nation is a bit of a non-sequitur. Going bankrupt means you cannot pay your obligations, which the US will always be able to pay. So we should think in terms of real resources.

How will we afford the retirement of the baby boomers, in real terms? We will hire more of the unemployed to provide services to them - which will require more spending. And if we do not have enough workers, because we have achieved full employment (which would be great for workers!), then we would need to divert resources from certain areas - luxury cars, video games, plastic trinkets, etc, etc? to care for the elderly.

Claiming financial bankruptcy in a macroeconomic sense doesn't make sense. Claiming resource bankruptcy would make sense, but luckily we have plenty of resources.

Wade Burleson said...


Thanks for your comment. I always appreciate an articulate liberal, and you definitely are one (a sincere compliment).

I desire to point out just one logical fallacy (though I believe there are many in your position). Here is the big one:

You write, "The US is selling a product. It is called the US dollar."

Then, in your last comment, you write: "Another useful tool in thinking about all this is to simply chuck the notion of money. (You must) Think (of money) in terms of real resources."

You say in your first comment that the dollar is a "product." I supposed you mean a "product" like corn, electronics, textiles, etc... are all "products." Then in your last point you say we must THINK of money in terms of a "product."

That's the problem with funny money. Since it is NOT an actual product, one must THINK of it as an actual product.

However, Steven, thinking does make it so. It takes .7 cents to make a dollar bill, a fifty dollar bill, a hundred dollar bill, and a thousand dollar bill. It takes on average .7 cents to make each denominational bill. Yet, SOME BILLS ARE SUPPOSED TO BE WORTH MORE THAN THE OTHER. That is absolutely contrary to any logical, rational view of a product.

The definition of "product" is "an article or substance that is manufactured or refined for sale."

Bills are not being "manufactured or refined" and then "sold." What is being "sold" in our current system of FIAT CURRENCY is TRUST. "Trust us," says the United States government, "Our product is worth $100!!" (though it costs us .7 cents to make). Steven, you says,"Trust the government, they are making a "product." No, Steven, they are not. FIAT money is no more a "product" like corn than calling an imaginary sheet of paper a million dollar bill. Thinking it is so DOES NOT make it so.

The government is acting like a farming COOP who is telling the local farmer. "Hey, listen, out back there is a one ton truck full of corn, a two ton truck full of corn, a three ton truck full of corn and a five ton truck full of corn. EACH TRUCK WILL COST YOU $100 - We want you to take the ONE TON TRUCK - and DON'T WORRY ABOUT YOUR NEIGHBOR WHO BUYS THE 5 TON TRUCK for the same $100."

What you advocate Steven is liberal socialism, bordering on radical economic communism. I really respect you as a person, but absolutely disagree with your liberal economic views.

I am a capitalist, and in capitalism, MONEY IS NOT A COMMODITY PRODUCED BY THE GOVERNMENT. Those who think this worship the STATE (i.e. "statists"). The government, in their opinion, is the answer for everything (poverty, financial inequity, etc...).

Money is truthfully and actually a "means of exchange" whereby people can easily and quickly exchange goods of equal value.

Viewing FIAT currency as a product (when there is no "product" like gold or silver behind it) means a currency built on TRUST. When trust fails (i.e. people wake up and realize government money is worthless), inflation comes.

Mark it down, Steven, inflation is coming to the U.S., and when it does, those of you who hope the government will rescue the poor through government entitlement programs will find the poor will be poorer than they have ever been.

Socialism always ends in boarded up factories, deteriorating property, and run-down economies. It has too. The socialist economists have worshiped at the altar of money, calling it a product when it is actually a means of exchange.

I am very grateful you have posted and hope that people see the difference between capitalism and socialism in terms of finance.



stevenstarkmusic said...


I think a re-reading of my comments will show that I was presenting two different ways to think of the dollar in two different contexts. I will try to be more focused in my approach next time to prevent more misunderstanding.

One can think of economics without dollars, in terms of real resources - and I meant to completely ignore the existence of dollars - or one can think of the US as offering a savings service to the rest of the world (in terms of dollars at the Federal Reserve). I certainly wasn’t saying that one has to think of things both ways at once.

And obviously the rest of the world does view the dollar as a savings vehicle - as a service. They purchase it everyday, which is why we have a trade deficit.

But let’s all remember that valuing gold is based on trust as well. You can’t eat it.

Also, I am quite confused as to why the views I presented are “socialist”. I said nothing about what the appropriate level of government spending should be. I am just trying to point out how the economy works, because there are misunderstandings. I suppose I did mention that capitalism needs a progressive income tax in order to level the playing field. But that is hardly socialism. The US had much, much higher income tax rates during the 50’s and 60’s, when our economy boomed and the rewards were more evenly spread. But I am very much a capitalist. We should rewards people differently for different levels of creativity, education and hard work. However, unfettered capitalism, by its very nature, leads us back to economic feudalism

I think I made a strong case for this and would appreciate any direct criticisms of what I described. I hope readers can see clearly how the supply of money in capitalism will congregate in fewer and fewer hands, and how easily compound interest can become welfare for the wealthy if it is not balanced.

Here are two questions, if you have a moment:

One Why would the Federal Reserves allow high inflation to happen? They can raise interest rates and dampen economic activity anytime they like, right? Ron Paul has been calling for hyper-inflation for decades. Yet he also believes that the Fed totally controls interest rates - the price of capital. It doesn’t make sense.

Two Do you agree that the federal government can never go involuntarily bankrupt?

Wade Burleson said...

"But let’s all remember that valuing gold is based on trust as well. You can’t eat it."

Excellent point.

What you can do is mine it, produce more of it and possess it in the form of currency - portable, (1) durability, (2) divisibility, (3) transportability, and (4) noncounterfeitability.

The major PROBLEM with FIAT currency not tied to gold is the desire of governments to CREATE IT ad infinitum. You can't create fiat currency without limits without massive inflation, which is the worst regressive tax of all.

Wade Burleson said...

"Why would the Federal Reserves allow high inflation to happen?"

The Federal Reserve is NOT in control of inflation - ever. The Fed can HIDE inflation, DENY inflation, and COVER inflation, but they can never control it.

Wade Burleson said...

"Do you agree that the federal government can never go involuntarily bankrupt?"

Yes. I agree.

The U.S. government will become a banana republic before it goes voluntarily bankrupt.

Other nations will bankrupt us.

It's like the man who has credit card after credit max out, and then keeps paying off each credit card with new credit cards HE MAKES IN HIS BASEMENT - soon the people whom he owes will stop doing business with him.

The fall and decline of American economic prosperity is DIRECTLY tied to the government's fiat currency addiction.

Christiane said...

I appreciate the perspective your comment gives,
"I am reminded, however, that Peter said to the lame man, "Silver and gold have I none, but that which I have give I to you. In the name of Jesus Christ, rise up and walk."

I then thought about this poem:

'The Convert'
By G. K. Chesterton

"After one moment when I bowed my head
And the whole world turned over and came upright,
And I came out where the old road shone white.
I walked the ways and heard what all men said,
Forests of tongues, like autumn leaves unshed,
Being not unlovable but strange and light;
Old riddles and new creeds, not in despite
But softly, as men smile about the dead

The sages have a hundred maps to give
That trace their crawling cosmos like a tree,
They rattle reason out through many a sieve
That stores the sand and lets the gold go free:
And all these things are less than dust to me
Because my name is Lazarus and I live"

WADE, you are right . . . may we all keep our focus on the one needful thing, Our Saving Lord

Have a great Sunday!

dr. james willingham said...

You folks ever hear of conspiracy? Suggest research. Read Carroll Quigley's Tragedy and Hope and his The Anglo American Establishment, Plus many more works. A fellow back in the 1800s, I think it was, I don't care who governs, so long as I control the money" or something to that effect.

stevenstarkmusic said...

So we agree that the US cannot involuntarily go bankrupt. It would therefore be helpful to stop claiming that it can. Inflation is not the same thing as bankruptcy. So let’s focus on inflation, the crux of your essay, since involuntary bankruptcy or “bounced checks” are an impossibility for the US.

“You can't create fiat currency without limits without massive inflation, which is the worst regressive tax of all.”

Once again, inflation is directly tied to spending levels - the velocity of money - rather than the quantity. The last five years show that this is true.

A healthy level of inflation is not a regressive tax. Inflation cannot take hold unless the vast majority of Americans can afford for it to do so. Basically, we won’t pay more for dishwashing liquid unless we can. If prices are nominally rising, incomes are nominally rising too. Inflation devalues the currency of those who save, this is true. But it also devalues debts. So it favors the lower classes and evens the playing field. We could use a healthy level of inflation right now.

Obviously hyper-inflation is terrible - but we have an incredibly productive economy and we owe zero debts in foreign currencies. Weimar Republic, Zimbabwe, etc. had decimated production capacities and debts owed in foreign currency. They printed more and more money and hyperinflation ensued. The US is a different situation.

The Fed can raise interest rates, putting downward pressure on demand and inflation anytime that it likes. And of course, in theory, the US could raise taxes to drain excess liquidity from the economy. This is the only true way to lessen the amount of money in the economy, since federal taxes exist to destroy money. Incidentally, income taxes right now are at historic lows, as percentage of GDP.

The US has far too diverse an economy to become a “banana republic.” If the dollar did weaken, then manufacturing would strengthen at home. I wouldn’t be too afraid of whether we can afford plastic trinkets from China or not.

Question: Why haven’t we seen much inflation over the last five years despite massive amounts of reserves pumped into the banking system?

Thanks for the discussion Wade! I always enjoy re-thinking through these things, hopefully sharpening my positions and gaining insight from others.

Rex Ray said...

Where was Obama?

1. Playing spades when Osama Ben Laden was killed:

2. It seems no one knows during the long hours of Benghazi:

Who bows to Muslim kings?

Who thinks the most beautiful sound on earth is the Muslim call to prayer?

Who apologizes for America?

What one man in history has done the best job of trying to destroy America?

Rex Ray said...

“Train up a child in the way he should go: and when he is old, he will not depart from it.” Proverbs 22:6

Could this statement also apply?

‘Train up a child as a Muslim and when he is President, he will not depart from it.’ (Obama was raised by Muslims.)

Wade Burleson said...

Question: "Why haven’t we seen much inflation over the last five years despite massive amounts of reserves pumped into the banking system?"

The same reason you don't see a dam break until AFTER prolonged periods of rain.

It's coming. The SUPPLY OF MONEY is sitting in banks and in cash reserves, but the moment that dam breaks and the FIAT MONEY makes its way into the market place, Katie bar the door.


Rex Ray said...

I know I’m off topic some, but I promise to stop after this.

Despite the picture the White House released showing President Obama intently watching the raid that killed Osama bin Laden, his former “body man” says the president spent most of the raid playing a card game.
“Most people were like down in the Situation Room and [the president] was like, ‘I’m not going to be down there, I can’t watch this entire thing.’ So he, myself, Pete Souza, the White House photographer, Marvin [Nicholson], we must have played 15 games of spades,” former Obama aide Reggie Love said at an event in Los Angeles sponsored by The Artists & Athletes Alliance in July.

WHY COULDN’T OBAMA WATCH tells who Obama is in a nutshell!

Any American would have rejoiced to have been in the Situation Room to see an ounce of Justus to 9/11.

But NOT Obama-WHY?

I believe he was hurting to see a fellow Muslim die.

Anonymous said...

If you read closely what stevenstarkmusic and others like him say, you will see that the reason the US can't go bankrupt is because they view all of the resources of the nation as being owned by the government--not by individual citizens. Thus, those resources are always and ultimately available to satisfy the government's debts. You also see them using words like "workers", which is always code (like "middle class" with Obama) for collectivist, statist ideas. You put those two ideas together (centrally controlled resources and a worker class system)and what you have is not socialism but communism.

Christiane said...


just a note in Wiki about the grandparents who raised Obama in Hawaii:

Stanley Armour Dunham

"Stanley Dunham is the grandfather of Barack Obama. He was born in 1918 and served as a sergeant in the U.S. Army during World War II, enlisting just after the attacks on Pearl Harbor. Stanley and his wife Madelyn raised Obama in Honolulu, Hawaii. In addition to Obama, Stanley is related to six US presidents: James Madison, Harry Truman, Lyndon Johnson, Jimmy Carter, George H. W. Bush, and George W. Bush. He died in Honolulu, Hawaii, in 1992, and is buried at the Punchbowl National Cemetery."

my addition: Madelyn Dunham, Obama's grandmother, was a bank manager. Both grandparents were responsible for seeing that Obama had an excellent prep school education prior to going to college.

Good to have more info sometimes, REX, especially these days when the country is so divided.

Have a blessed day! L's

stevenstarkmusic said...

“but the moment that dam breaks and the FIAT MONEY makes its way into the market place”

First, we must remember that all money is fiat money in the marketplace.

Second, what does “make its way into the system” mean? It would mean spending, which in turn means income and jobs. Do we want the unemployment rate to fall? Surely we do! Our central economic problem is that there is too much money sitting in the hands of non-spenders. I hope we see more money “make its way into the system.”

And if inflation rises, good. And if it rises too much, the government can raise taxes or the Fed can raise rates to tamp down excess spending above our ability to produce.

The real reason we have not seen inflation is because inflation is directly tied to the relationship between spending and production. And we are spending far less than we can produce right now, hence our long-term depressed economy.

Wade, if you want to see the US’s future, don’t look to “banana republic” countries. Look to Japan. They have a much, much higher debt-to-GDP ratio, rock-bottom interest rates, and years of depressed economic activity. That is what will happen if we don’t spend enough, either publicly or privately, to break ourselves out of this unsatisfactory equilibrium. But the debt is not the cause, it is the result.

We have too much money in too few hands.

Last question: Do you agree that the federal government creates money when it spends and destroys it when it taxes? And that it doesn’t really need to sell bonds to raise revenue, but rather sells them to manage interest rates?

stevenstarkmusic said...

Anonymous, You are projecting previously held thought onto my words. I do not view all resources as being owned by all of us collectively.

Bankruptcy is a financial term. It means that one cannot monetarily repay his obligations. The US will always be able to repay its obligation because we control our currency.

Lawrence Williams said...

Good to see Proverbs 18:17 in action and not just hearing one side only. Thanks to Stevenstarkmusic.

Chris Baumgart said...

"Lust after filthy Lucre...". A statement from the Living Word. Our authority. This is why economics is a moral issue. Explaining the science of it above amounts to at least an education which is neutral concerning motive, it is the aspects of greed that give us imbalance. And to place blame on the only the poor for our economic crisis is not drawing the the last 13 years of politcal decisions, two wars, the great lack of oversite in the unregulated Banking and Wallstreet fiascos, the morgage crisis, corporate tax evation and monsterous natural disasters in to the picture along with the current obstruction by congress. Wade, your focus seems a bit narrow and possibly prejudiced. I would not be surprised if the Lord Himself would place Pastors, and Church leaders on top of the list because the Scriptures tell us that Judgement starts at the House of God. Didn't Jesus drive out "capitalists" from the Temple?

Wade Burleson said...


"Didn't Jesus drive out "capitalists" from the Temple?"

Not unless you think capitalists are thieves, which I do not.

Wade Burleson said...

"Do you agree that the federal government creates money when it spends and destroys it when it taxes? And that it doesn’t really need to sell bonds to raise revenue, but rather sells them to manage interest rates?

No, Steven, I do NOT agree. The Federal Government until 1971 ALWAYS sold bonds to raise revenue. It was the only way to borrow money.

Then, after removing the gold standard from the dollar, the Federal Government began CREATING MONEY by fiat. I do not agree that "the Federal Government creates money WHEN IT SPENDS." It's just the reverse - "The Federal Government SPENDS TOO MUCH (over budget) and therefore it must create money that other nations will not loan.

Finally, interest rates are only controlled by OUTSIDE sources, not the Federal Government. Interest rates reflect what people (or nations) are willing to receive in return for loaning the US money. The more people realize that the government has no ability to repay their debts, the HIGHER THE INTERESTS RATES go in order to entice people to purchase bonds.

Sellers of bonds do NOT establish INTERST RATES. Buyers of bonds do that based on demand.

Nicholas said...

It is not the government's job to "level" the economic "playing field." Ever.

stevenstarkmusic said...

Wade, that is an incorrect understanding of how government bonds work.

Because the United States government creates money out of nothing, fiat money, it is physically necessary for it to spend that money before bonds can be sold - or else there would be no money in existence with which to buy the bonds.

We use shorthand speak that the US is borrowing, that it sells bonds to raise revenue, but this is not functionally how it actually works. How it actually works is that the federal government purchases items from the non-government sector first, which introduces money into the economy. Then it sell bonds to correspond with that money, which creates a net financial asset. Then the Fed buys and sells bonds to control the bond-to-dollar ratio in the economy in order to maintain its target interest rate.

And in terms of interest rates being set by the demand for government bonds, other countries and institutions do not really have much of a choice about purchasing federal bonds if they want a return. Someone, at the end of the day, holds money. And the only choice for a return is a Treasury.

You might say, “But there are lots of other options. They could buy stock or a corporate bond, or anything else!” But then after that exchange someone else would have the money. At the end of the day, someone must hold the money.

And if the non-government sector did not buy bonds, if countries and institutions willingly turned down a return on their money for no reason, then it would have the effect of driving down short-term interest rates, because there would be excess liquidity in the banking system.

So the federal government must spend before it sells bonds. Bonds are not revenue raisers, but are liquidity drainers. And if bonds are made available, they will be bought.

But keep in mind that this is only true for the federal government. State and local governments are more like businesses or households. They do not create money.

I know I said last question earlier, and you are generously writing responses to my question, but can we agree that the federal government must spend before dollars can be in the economy with which to purchase bonds?

Rex Ray said...


Thanks for the reply. It’s always a joy to hear from you.

I guess this is the link you quoted:

That link states: “The young Barack spent four years with his mother and stepfather in Jakarta, Indonesia. He returned to Honolulu at age ten to live with his maternal grandparents.”

So from age 6 to 10 he lived in a country that was 90% Muslim.

Maybe that’s where he learned to believe: “The most beautiful sound on earth is the Muslim call to prayer.” They say the young years are the most important.

I believe Obama declared “workplace violence’ instead of a “terrorist attack” at Fort Hood because he wanted to protect the image of Muslims.

The link below tells Obama’s half brother is connected the Muslim brotherhood.

This half brother and Obama were ‘best man’ at each other’s weddings:

You’ve heard, “Where there’s smoke, there’s fire.” There’s so much smoke around Obama, mosquitoes would need a gas mask. :)

Wade Burleson said...

"We use shorthand speak that the US is borrowing, that it sells bonds to raise revenue, but this is not functionally how it actually works. How it actually works is that the federal government purchases items from the non-government sector first, which introduces money into the economy"

Steven, Steven, Steven, Steven! Sigh....

That, my friend, is THE PROBLEM. You say, "That is how government works!" ONLY SINCE 1971!!!

Have you looked at the value of the dollar since 1971?????

Read this article.

Wade Burleson said...

"I know I said last question earlier, and you are generously writing responses to my question, but can we agree that the federal government must spend before dollars can be in the economy with which to purchase bonds?"

Steven, that is like a father noticing the needs of his son, so he goes out and gets a credit card and charges it TO GIVE DOLLARS TO HIS SON, and then asks his son TO GIVE DAD MONEY TO PAY HIS CREDIT CARD BILL.

Honestly, I so appreciate the dialogue, but I sometimes feel you are on Mars and I'm on Venus when it comes to economics.

I DO NOT DISAGREE THIS IS WHAT THE GOVERNMENT IS DOING - I understand PRECISELY what the government is doing. What I am saying is at some point somebody is going to FORCE DADDY TO STOP charging the credit card, stop daddy from giving his son money, and stop daddy from asking the son back for the money he gave him to PAY HIS CREDIT CARD.

That's absurd.

Chuck Andrews said...

All this reminds me of a quote attributed to Henry Ford. Not an endorsement of Ford or his beliefs or anything. Just a quote that seems appropriate for this article.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

stevenstarkmusic said...


I realize that I am retreading a bit in my comments, making sure we agree on certain premises. However the following statement you made:

“What I am saying is at some point somebody is going to FORCE DADDY TO STOP charging the credit card.”

...shows that you are not accepting the implications of these premises. No outside entity can force the government to spend more or less. Bond purchasers won’t, as I explained. And the government cannot run out of money.

The value of the dollar is of little consequence. Inflation is aggregate. If all things rise then, like adding to both sides of the equation in algebra, what does it matter? It could affect exchange rates with other countries, but everyone complains that China undervalues their currency. We see people advocate for a stronger dollar, but then call on China to raise the value of their currency (making the dollar weaker). It doesn’t make sense. And once again, if imports become more expensive, American manufacturers benefit.

Hyper-inflation is a different story but, as explained, it is incredibly unlikely.

Whey doesn’t Japan have high inflation or high interest rates? Their debt-to-GDP ratio is something like 150% - much higher than ours.

My best guess is that the obsession some have with inflation is psychological in nature - that is symbolizes changing demographics and a perceived loss of value in our society. But that is just a guess.

stevenstarkmusic said...

The last statement in my previous comment, speculating about why people care so much about inflation, doesn't have a place in this conversation. I apologize!

Wade Burleson said...




Thanks! I understand.