Rage Against the Fraud

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When I was teaching in secondary school 30 years ago, I explained to my students how the Fed engages in open market operations and how the Fed expands and contracts what we call the monetary base. I had not been pushing gold, silver, or any other commodity, but one of my students was puzzled.

"What backs the money?" he asked. "Debt," I replied. He and the other students looked at me with astonishment, as they understood instinctively that debt had "value" of dubious worth, and that such a system meant the government could expand the monetary base into oblivion. At that moment, they understood that the USA had essentially a fraudulent monetary system. And, yes, they showed anger, lots of it.

Paul Krugman would have thought them to be a bunch of crazies. Money, after all, is nothing more than a tool that aids a "social system" and that governments can and should manipulate its supply and its value over time in order to help achieve certain social "goals." Anyone who thinks differently, according to Krugman, is certifiably crazy, a nut job.

While he does not explicitly endorse the newest rabbit-from-the-hat scheme in his most recent column, nonetheless he says that it might be necessary because "crazies" in Congress (some Republicans) believe that we cannot continue to borrow money forever and want President Obama to put a lid on spending scheme. Now, I am the first to say that many of these Republicans are delusional but for a different reason than what Krugman claims.

Most Republicans are "hawks" when it comes to U.S. military adventures overseas, and that has been painfully apparent in the discussion over the nomination of Chuck Hagel for U.S. Secretary of Defense. While a U.S. Senator, the Nebraska Republican spoke out against the vast expansion of military spending and the wars in Iraq, Afghanistan, and elsewhere. He also denounced the beating of war drums against Iran, something that has incensed many conservatives who apparently are itching to bomb Tehran and expand U.S. Middle East wars.

I cannot denounce the rightist mindset on war enough. The same people who once decried Soviet military spending now are blind to the fact that even though the USA spends more on its military budget than the rest of the governments of the world combined, that isn't enough, and that any cutback, no matter how small, means that "we are not safe."

Yes, I think it is good that the Republicans at least are talking about entitlements, although I wish they would also deal with the agricultural subsidies and all of the other corporate welfare that has their fingerprints all over it. Since the Democrats have "discovered" that a lot of military spending also comes in the form of welfare, they definitely have become less vocal in their historical opposition (at least following the Vietnam War) to Pentagon spending.

In other words, I don't look at the Republicans as the "good guys" seeking to be financially responsible when, in fact, they are a major part of the problem. However, Krugman denounces the Republicans not for their hypocritical stance on military spending, but rather because they are even asking the hard questions on whether or not we can continue this "borrow-from-Peter-to-pay-Paul" finance scheme. As Krugman sees it, the irresponsibility is not in those that seek to spend and borrow as through the future does not exist, but in those that say we have to stop this madness.

So, what does he do? He endorses what essentially is a money-printing scheme to get around the hard choices and hard discussion. Are we borrowing 40 cents for every dollar the federal government spends? No problem. Just strike a coin with an announced "value," and that will take care of everything. Continue the financial shell games as though one day the economy magically will turn around, get "traction," and then prosperity will return.

I'm on a list serve with a number of Austrians, and one person, a writer and editor, had this to say, and I believe his words are spot on:

The really amazing thing to me in all this is how EVERY commenter I'm seeing, savvy political or supposedly serious economist, acts as if the actual real physical economy where real goods and services are produced seemingly doesn't play into this at all---this debate seems to me to be revealing an apparent actual lack of understanding that money is not the same thing as wealth.

The only way it doesn't reveal that is if -- and this is what i'm trying to be sure I understand -- the trillion dollar coin solution is NOT economically significant if we are already in a world of fiat money. That is, a sort of, "Well, if you accept fiat money at all, this coin nonsense is just as good a means to make money from nothing as any other."

Keynesians would denounce this person as being a rube, an ignoramus, someone who does not "understand economics." Yet, the opposite is true. He is not the one who is delusional. People who pretend that we can spend as though we are much wealthier than we really are truly are the people who are deluded.