John.
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.
No confusion there, the Oligarchic Elites could not tolerate a movement to weaken the government as the government is actually their enforcement, their puppet.
You would not be willing to trade value for it, if there wasn’t some explicit obligation backing it.
Not true. As long as I can expect to receive value back in exchange for money I am willing to trade value for money. The only backing it really needs is wide spread acceptance as a store of value and medium of exchange. I will accept a hand shake as a store of value if I trust the other party.
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.
What is the “it” of which you speak, gold or debt issued by the treasury or fed. In either cause it is not hope but calculated risk that has us choose to use what ever as a medium of exchange and a store of value. Gold’s value is volatile and it is less liquid than dollars but it has some intrinsic lower bound set by the cost of producing more gold. Some of us feel that real property is a better store of value than dollars in an inflationary environment and again real property has some intrinsic value that sets a lower bound of value. Since every store of value has its own risk, volatility and liquidity it is best to diversify you value stores.
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.
The analogy is to my mind overly simplistic and not really analogous to the complexity of money and currency.
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.
I don’t understand the point of this paragraph. As a finance lesson it is not very informative. You imply that their can be no assets without debt, you say that there have to be sufficient debts to back assets. I don’t think that is correct. I can create assets without debt. I can create value, a store value, without any debt. If I turn a block of wood into a chair I have added value, I have the chair as a store of value. If I exchange a chair for two blocks of wood and make them into chairs, I can retire the debt for the first block of wood and still have a chair of value. The chair is an asset without debt.
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.
What do you mean by “the system of saving money?” If you mean saving dollars then no, dollars are debt, they are a loan to the Federal Reserve, dollars are Federal Reserve Notes even if they are only a value in a record. But if you mean can you save value without debt the answer clearly is yes. If I collect a ton of lead and store it I have a store of saved value (it has a money value) without any associated debt or debt instruments.
Given that government is probably the largest single debtor, how could the system work, if it didn’t borrow excessively?
If the government did no borrow, do you mean did not spend more than it takes in in revenue or do you mean just printed money and did not issue treasury debt. Either way the system would work it would just have implication for inflation and liquidity.
There will come a time when even Uncle Sam can’t just keep putting it on the card.
There is a sustainable level of debt and deficit and there are unsustainable levels of debt and deficit. Uncle Sam can keep putting it on the card as long as the levels of debt and deficit are sustainable. Common rule of thumb is debt to GDP needs to be under 60% to be sustainable. Uncle Sam’s debt to GDP is over 70% so it is proper that the Tea Party would push for spending reductions, the alternative would be tax increases or a mix of both.
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.
That is not how it happens or at least not without warning signs. First the cost of borrowing goes up when you present a greater risk of default. At that point those people counting on you paying back the principal will sell your debt to preserve as much of their asset as possible and the people still holding your debt will jack up interest rates to the point that they are happy collect just the interest and are willing to take a hair cut on the principal.
The money was not stored, because it was simply a contract, not a commodity with inherent value.
This is not true, contracts have value. Contracts are a commodity. I can buy and sell contracts. There is actually a term called “contract value.”
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.
I still think I am not understanding your message. What is your point in trying to establish that money is not a store of value? It has worked as a store of value for me. Money I have saved over a period of 40 years is about to purchase a second home for my family. That money was stored in any number of accounts and has pretty much the value as when I put it in those accounts.
TEK
