Why have we taken the past several sessions discussing such concepts as enterprise, production, the history of money, the Federal Reserve System, fractional reserve banking, and inflation? Is all this discussion necessary? Is it important at all? Yes, it is! Oh, yes, it certainly is.
Most people living in our present culture have never been given the basic rudiments of simple economics. We don’t understand what is happening or the rapid changes we are experiencing. We can’t see why the big fuss is made about balanced budgets, debt limits, or deficit spending. Just this week I had a young lady say to me, “I live by one simple motto: go with whatever is free and opt out of participating in the consequences.” I had to have her repeat her motto to me!
Our discussions over the past several weeks regarding some of the basic concepts of our economic system have been very important because intuitively we feel and know that something strange is happening in our economy, but we can’t put our finger on it or articulate what we feel. We all seem to be waiting for the other shoe to fall.
When we go shopping at the supermarket and experience the prices doubling or tripling, and then are reassured that our inflation rate is successfully running at a meager 2.1 percent, we are confused. When we pay $60 thousand for a like-kind automobile that just a couple of years ago we bought for $20 thousand, and the same house that our uncle bought in the ‘80s for $19 thousand just sold for $321 thousand, with three backup contracts waiting in the wings to purchase it, we are confused. But we are shown facts that the Consumer Price Index guarantees that inflation has not increased in any given year over 3.4 percent since 1992.
Born before the U.S. entered into World War II, and living during the latter years of the Great Depression, I grew up with the memories of international economic experiments and their consequences. Following World War I, Germany was demanded to pay for the damages they had caused while blowing up the countries they had invaded. They refused to pay for the war reparations until the pressure of the rest of the world forced them to pay. They paid the debts by simply going to theirFiat printing presses and rolling out newly printed German marks. That seemed to take care of the situation. The world was happy, the individually damaged countries were satisfied, and Germany was off the hook.
They were off the hook and unaffected until the other damaged countries decided tospend the newly created money. They began buying German goods and services with the phony German marks. Suddenly, there were all the new marks buying up all the German goods and services. Since there was nothing to back up the newly created money, all the prices began to double and quadruple because the value of the real marks plummeted.
In the end there were four quintillion marks in existence, and it was not unusual for a German shopper to pay as much as 750,000 marks for a few groceries. That is where we get the stories of the shoppers needing to take a wheelbarrow to the store to transport the necessary marks for the purchase of a few goods . . . and where someone along the route would accost the shopper, dump the currency, and steal the wheelbarrow.
In the very recent past, the U.S. has tallied upward of $17 trillion in debt (refer to our recent article on the amount of a trillion). When I wrote the book, What’cha Gonna Do with What’cha Got?, following the Carter administration we had just topped the incredible amount of $1 trillion dollars in debt. It had taken us well over 200 years to accumulate that amount. Now the debt number is in excess of $17 trillion. Our method of acquiring and assimilating that debt is far more sophisticated than the German’s method that was used after World War I.
Next week we will discuss how the Federal Reserve monetizes the federal debt and transforms it into spendable money.
(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)