Tim,

I certainly appreciate the feedback. I guess what seems fairly clear to me isn’t as clear to someone with a different background.

No, the Tea Party was not wrong to try to argue for reduced Federal spending. My point is that it is running up against a much deeper issue than the profligacy of the government.

Much is made about a non-gold backed currency being “fiat,” or that the government can’t go broke if it’s issuing its own currency, etc, yet money functions as a contract. You would not be willing to trade value for it, if there wasn’t some explicit obligation backing it. Given it is created by buying Federal debt, the ultimate basis is a public obligation. Even a gold backed currency would still be an IOU for some amount of gold, unless we actually traded around gold coins.

As such, it makes a very effective medium of exchange. Yet because we individually experience it as quantified hope, given the open ended range of possibilities possessing it affords us, we try saving and storing it.

Econ 101 describes money as a medium of exchange, store of value and price setting mechanism. Though the price setting function is integral to being a medium.

Yet a medium is necessarily dynamic, while a store is static. The examples I used were blood as a medium and fat as a store, or roads as a medium and parking lots as a store. Hopefully that’s somewhat analogously descriptive.

So if we are going to try to store the asset side of a contract, or accounting device, where one side is an asset and the other is a debt, there have to be sufficient debts to back the assets. For example, banks take loans; housing, credit card, student, car, etc., break them up and re-package them as investments. So that the risks and rewards are distributed somewhat equivalently.

So ask yourself: Could the system of saving money work, if there were no debt? At least as much as we do currently try to save.

Given that government is probably the largest single debtor, how could the system work, if it didn’t borrow excessively?

Yet then consider what the government spends much of this borrowed money on, from warfare to welfare. Does that constitute a long term wise investment? Irrespective of the morality or wisdom of either, neither will pay off in the long term and there will come a time when even Uncle Sam can’t just keep putting it on the card.

So what happens when large numbers of people, businesses and governments find they cannot pay off the debts they incurred? Then those counting on these debts as investments are going to be sorely disappointed.

The money was not stored, because it was simply a contract, not a commodity with inherent value.

So money works as a medium, but it doesn’t work as a store.

If we are going to invest our lives storing up promises from other people, most of whom we don’t know and many we don’t trust, maybe we need to find ways to store value in our connections to those people and develop more integrated societies, rather than everyone in their little cocoons, like the movie, The Matrix, peddling away in isolation, to feed the machine.

I realize I’m starting to get a bit poetic here and so I’ll leave it at that and see what you understand and what you don’t. Been a long day.

Regards,

John