Debt, Money, and National Prosperity

by Richard Geffken

When changing insurance policies, it's because the competition has a better product. The criteria is one's personal welfare, not the advantage enjoyed by any particular policy provider. This paper shows a superior economic policy, with ending an economic crisis and restoring national prosperity the only criteria involved.

Massive debt, personal and corporate, is the problem. Welfare Bailout Billions relieve none of the debt causing the world economic crisis. On the contrary, new debt additional to existing debt becomes guaranteed through the government's power to use force to collect taxes. To believe that doubling debt will reduce the crisis means slick policy salesmen are again preying upon susceptible minds. Legislators are not immune to marketing techniques.

Trickle down mentality remains firmly in place. Giving billions in bailout welfare checks to those who lost their last billions follows the idea that a few dollars of all this wealth will trickle down to the people. This concept never made rational sense, and Obama was elected to restore prosperity to the American nation, not to revive a propaganda tool used to convince susceptible minds they'd achieve some sort of vague profit from giving other people their money.

The flow of money obeys many of the laws governing electricity. A functioning economy can be compared to a radio purchased to play music. Similarly, an economy is expected to provide prosperity and financial security. Welfare Bailout Billions actually throw a big resistor into the circuitry. This resistor sucks too much current in the form of currency. Place such a resistor into a radio and it no longer plays well. Observe the same phenomenon when billions of dollars flow into a few hands rather than into the circuitry which an economy needs to play its kind of music.

It is also true that with no resistance at all, a short circuit will occur. The kind of resistor which makes an economy play better involves sound managerial skills. The science of electrical engineering would seek to design a part serving that function which draws the least amount of current away from the circuitry needed to produce and amplify the music. It would surely replace a part unable to "manage" its assigned task rather than divert even more current to it.

For thirty years the American public agreed that the bigger the resistor the more music the economy will play. This concept does not agree with electrical science which would strive to make the part more efficient, not a bigger drain upon the current. Stepping up the voltage will compensate for the loss by reducing the current needed, but also reduces the size of the resistor needed! However, we need not grow too technical even though applying equations used for electricity to money works with uncanny accuracy. It suffices that strapping a car battery to one's transistor radio is a difficult burden to place on one's shoulder, and which will soon burn out the circuitry. Nor will increasing the money supply restore an economy when a big resistor remains in place which will suck up all the additional current it finds available.

Consumption of goods and services provides the jobs needed to buy those same goods and services. The flow of money must permit both. A perfect Utopian system would have income equal all purchased every year. This, however, limits profit to the current supply of money. It also limits consumption to available income. Between l972 and 2OO7, average American income steadily declined over $0.7O per hour in real dollars ie: $28.OO per week.

This debit in the power needed to fuel the radio was due to breaking unions, outsourcing factories formerly offering well paying jobs, and shifting the U.S. workforce into low paying service jobs like flipping fast food burgers or stocking shelves for Wal-Mart type operations. All this was done so the big resistor could enjoy even more profit by reducing both its costs and the role the price of labor might play in establishing a more genuine equilibrium price.

To supply the subtracted power, the big resistor drew upon the purchasing power which people were expected to have in future years, using easy payment plans, debt, and financial instruments refinancing debt. Repackaged debts not only ensured continued payments when these grew too large, they created a new commodity for sale and resale. Debt itself. Ceaseless growth in home values could never sustain such an ideology even if that bubble hadn't burst. Deviant economists sold this irrational "policy" so well that this insanity became mainstream thinking.

Debt created another complication. The consumption indexed as a nation's gross domestic product (GDP) was advertised to represent a nation's economic health. It counted debt dollars as real money, ignoring the debit of debt contained in each dollar. Currently, most economists believe the U.S. dollar is over l00% valueless. Dollars represent more unpaid debt than actual income.

In l998 Paul Krugman wrote an article noting the economy was spreading some sort of unknown virus. By 2OO4 the present writer identified Krugman's unknown virus as a negative multiplier generated by paying debts in dollars of more unpaid debt. This discovery included the prediction the financial institutions would collapse in August 2O08. This collapse occurred right on schedule.

Deviant economic thinking caused the disaster. Crazy people, excited by greed, generated a quasi-religious foundation for it. This included the power of positive thinking, keeping faith just a little bit longer, linking success in life to becoming wealthy at any cost in human suffering, and even an "Invisible Hand" as some sort of god which was entitled to rummage around in people's pockets for money.

Since too much debt is the problem, the only solution is debt reduction. If a healthy economy is desired there are no alternate goals. Individual greed is not number one with national prosperity a second rate byproduct no one cares about achieving so long as an Invisible Hand continues to thieve for one's limitless personal greed. When personal greed becomes a secondary byproduct to having a functioning economy this new primary goal can be quickly achieved.

Change the defective parts and the radio plays. Guaranteed. Formulas used in electronics work every time. Changing the flow of money is as easy as installing a new transistor designed to do that. None of this is difficult at all. Rulers simply don't want to do that. They'd rather drive red hot needles in the people's eyes than stop payment on a CEO's bonus check. It is their religion.

American International Group (AIG) lost $61.7 billion in the last quarter of 2OO8. It's the largest quarterly loss of any company in business history. Bailout checks for three times its losses were issued to AIG with the Obama plan allowing AIG executives and all shareholders to enjoy guaranteed bonuses for the next three years.

Government neither guaranteed nor negotiated the original loans which defaulted. Bailout Welfare Billions guaranteed existing debt will be paid rather than extinguishing any part of the indebtedness which is already too large. This was absolutely the worst thing a government could do.

Current rulers do not have the people's prosperity for their goal. If they did, the people would receive the bonus checks, not the defective parts. That's only common sense.

Removing the inept risk management losers extracts the broken resistor from the radio, allowing it to play music again. Rest assured, private enterprise will supply a replacement part in days. Indeed, giving any reader $10 billion they are required to lend will do more to restore lending than sending another $2OO billion to any failed lender.

However, no government funding offers are necessary.

Debt reduction, coupled with increasing income of consumers, provides the only means to restore a functioning economy. Let all the failures, the losers, go belly up. Cancel all their debts. This costs taxpayers nothing, and extinguishes 80% of the world's indebtedness. Not all, because some financial institutions will, regrettably remain solvent. Everyone has money to spend, and restored lines of credit. Consumption returns. Most corporations will love having 8O% of their debt portfolio eliminated, so industry thrives.

The proper functioning of the radio depends upon enough current and voltage. As stated earlier, consumption of goods and services provides the jobs needed to buy those same goods and services. Therefore, average incomes need to return to the level of l972, and exceed that. Labor cost is a valid factor in every marketplace, which means no genuine equilibrium price was obtained when making it as cheap as possible to increase the amount of current the big resistor wished to consume. Trying to ignore labor cost in a free market economy is a blunder which must cease. Outsourcing industry is a very serious felony committed against national recovery. The closer income approaches the price of commodities consumed in any year, the better the radio will play.

Displacing debt into a time warp must be curtailed. In the 195Os, a period of wonderful economic prosperity, debt purchases represented only 4% of the GDP. Some economists claim it became l4O% of GDP in 2OO8, but here the 43% which financial instruments officially occupied that year will be used. It is a low figure since the virus of debt dollars permeated the rest of the pie. In any case, returning to traditional economics resolves the problem: buying on credit puts unearned illusory money from future years into transactions occurring in present time.

The voltage available in future years is needed to power the radio in future years. If any gold falls from the sky in a future year, spend it in the future year. Attach this rule to assurances home values will increase, or any other happy event some slick smiling salesman predicts as certain to occur in the future. Since he believed it, he should be held responsible for his own risk management failure. The safer practice is to drastically reduce credit purchasing to levels classic economics tolerated.

Enforcing the return of all bailout money, and allowing loser companies to collapse will result in the resumption of consumption. Industry will thrive with all that means for reducing unemployment and restoring value to the U.S. dollar.

The only damage extinguishing these debts will cause falls upon foreign investors, especially the governments of China, various Arab states, and Singapore. Losses, however, will be reduced because all these countries hold vast reserves of U.S. dollars. If 8O% of U.S. debt is extinguished, money now worth -$0.4O becomes worth +$0.5O. Many will look at the exchange rate to say the U.S. dollar has a positive value, but that's simply a marketplace driven by public confidence, not reality. It also reflects the weakness of other currencies. Isolating the dollar's real value, a $0.9O profit on money hoarded provides substantial compensation.

Overall, the world's economy will vastly improve by the recommended change in policy. Domestically, billionaire losers have palatial homes and ample retirement funds. If any need honest work or become genuinely entitled to normal welfare benefits, no doubt these can be secured. Some small investors will be "losers", but they are already. If prosperity is not restored they will lose far more.

No other negatives are perceived, so if economists can show how allowing financial institutions to collapse will hurt the economy more than bailing them out, they need to do that now. None have. They can't. Current policy is antithetical to common sense and the traditional view of economics.

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