Dear Rachel, fighting for progressive causes, she tries so hard. And her people come up with some stupid metaphors, like burning down the house. Oi, veysmir! Honey, it’s just wrong – and it hasn’t got a prayer of reaching anyone but your converted. So what’s the point? A better metaphor is the household metaphor that Rand Paul (and that demagogue Cruz) blather.

The household budget metaphor is just as wrong – but at least it seems to make sense. The household budget metaphor says that you live within your means, and pay your top priorities first. So you don’t pay what you don’t have income for.  So, Rachel, you need to explain clearly why that household metaphor is wrong.

But here is the key to it – in the modern world, the total amount of money is equal to the total amount of debt! Rand Paul sort of understands this when he rrants against the Federal Reserve creating new debt to finance things and says we should go back on the gold standard. But why is Rand Paul so wrong?

The reason the world abandoned the gold standard is that there isn’t enough gold to go around to represent the amount of money we need. There are too many people now, and just too much stuff to buy and sell. See, for all practical purposes, we went off the gold standard around 1910. You can see why looking at the graph.

 

Without enough gold to go around, we can’t stay on a gold standard. With all these people, and all this new technology (cars, TV, phones, cell phones, PCs, GPS, plumbing, nice homes, on and on) you have to have enough money to keep up. If you don’t have enough money to keep up, the inevitable result is deflation and depression. All the gold-standard people are looking at is their fantasy of how rich they would be: If we went back on gold; And they had acquired a buttload of gold. They are not looking at what happens when currency appreciates, which is exactly the same error that Bitcoin’s idiots made. And they sure as shit are not fantasizing about themselves getting crushed by a massive depression and reversion to war as the way to gather wealth.

It was the need to expand the monetary gold currency base that drove nations of Europe to seek gold all over the world during the great age of empire-building and expansion. It was the need to shore up one nation’s monetary base at the expense of a neighbor’s money that drove wars and privateering to plunder gold from other nations.

But even back then, very few people used gold money. They used gold and silver certificates, pounds sterling, and such. And banks found that to meet demand for currency, they had to ship it around. Because it didn’t flow in a balanced way from one place to another. So even during the great era of the gold standard, it didn’t really work as advertised. There was little relation in practice between gold and money.

Rand Paul thinks deflation and depression would be good for people that hold gold. That’s right. It would be, for those few. But it would be impossible for everyone else, because in deflation, money is worth more all the time, so regular investing is a waste of time. Investment goes to zero, and the economy dies. Then you have wars.

So, since we can’t have enough gold backed money in the world to run the world’s economy, the world created the Federal Reserve bank, and the rest of the world created Central Banks. To materialize more money, these central banks create debt instruments. So now – every dollar of money in circulation has a dollar of money in debt. Period.

That’s why the deficit is a bogey man, and isn’t the problem it is pretended to be.

What matters is who has access to the money creation system at the Federal Reserve. What matters is what those people who are given access to the discount window at the Federal Reserve do with that money they can get! Do they put it into real enterprises that create real value? Or do they put it into financial flim-flam that destroys or ignores real value and drives a bubble? This is the real question. 

If you are paying attention, that question of what happens with the money the Federal Reserve creates is what both parties have done nothing about. The flim-flam is still going on. No banksters prosecuted. The SEC is still toothless.  This is a national security matter really. It’s the security of the nation at the most basic level.

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