DO YOU EVER WONDER?
Ever
wonder about why our economy is in trouble? How can so many people can
be in so much debt
at the same time? Does it seem strange to you no matter how
hard one works, and in spite of all the advances in society, most
hard working people cannot escape the treadmill of perpetual
debt?
Why
are so many families losing their homes to foreclosure? Why are many
households dependent upon credit cards
to supplement their income? Why does it take TWO spouses to
maintain a household when it used to take just one? Why have so
many retirement savings been wiped out? Why do prices always
creep up?
Did
you know that close to 1/3 of all income taxes are consumed just to pay interest on the Federal
Debt? (National Debt currently
16.5 TRILLION DOLLARS , or about $165,000 per household.) Think about it. Every penny that
you pay in income tax from January 1 - April 1 is consumed just to pay interest on Federal debt, much of it to foreign
banking families! And let's not forget the Government's unfunded future liabilities,
estimated at 75 TRILLION. (an additional $750,000+ per household.)
Add those staggering sums to the 11.3
Trillion in total consumer debt (mortgages, car loans debt, credit cards, etc), student loan debt
(1 Trillion more), State debt, County debt, City/Town debt, small business debt, big business debt, and you
will see that the total of these debts actually exceeds (BY FAR) the amount of money supply in circulation.
So, how can such astronomical debt ever be repaid? Well,
if you haven't figured it out yet - IT CAN'T. The only way for society to service just the
interest on these monstrous debts is to constantly inject new debts into the system.
Finally, on top of all your Federal, State, gasoline, and local taxes, (30% - 40% of your gross income) and
on top of your personal debt service burden (another 25%-50%), there's this thing called "inflation",
or "the cost of living." What exactly is "the cost of living?" What causes it? Why does a dollar
buy less and less each year while wages stay flat?
Is the stress of perpetual debt and rising prices keeping
you up at night? How many strokes, heart attacks, and even suicides are induced by financial stress each
year? Money and debt may even have led to your drinking problem, or perhaps even to depression. Debt
may have been the underlying cause of your divorce or that of some couple that you know.
You know in your gut that something isn't right in this country. But
you don't have the "Economics education" to figure it out. It all seems too complicated for
you to put your finger on, so you just keep slaving away to pay interest and taxes as your dollar buys less
and less. All you can do is keep working like a dog and leave the matter to the Wall Street "experts"
and politicians to handle for you.
But it's all
quite simple really. So simple in fact, even a dummy can understand it when it is broken down to basic
elements.
So then, how exactly did
you all become such debt/tax/inflation slaves? Well, I'll let you in on my little secret. You will be amazed
at how easy it is to understand.
My name is Mortimer M. Moneybags III and
this is the true story of how I bankrupted and enslaved my hometown of Tomatoville, USA:
THE SETUP
One
night, Bill, Frank, John, and Mike
came over to my place for a friendly game of poker. My
four neighbors are all prosperous tomato farmers. Tomatoes
actually serve as the currency of Tomatoville, USA.
Before starting, the five of us agree
to each put up 10 tomatoes as our "risk capital." That's a total of 50 tomatoes. (Gross
Domestic Product - GDP)
Play begins and we realize that trading tomatoes during our bets is awkward.
I suggest that we utilize paper notes to represent our tomatoes instead. Because I hold a degree from Harvard,
all agree that I should act as "Central Banker".
We place our tomatoes in the center
of the table and I print 50 paper notes with the face of Tomatoville's founder on them (corresponding
to the 50 total tomatoes, 10 notes for each player). Each paper note therefore represents 1 tomato....simple. (sound
money/hard money/gold standard)
As play resumes, I have an unseen advantage over my guests.
At 30 minute intervals, I repeatedly excuse myself for a "bathroom break." (Fed Meetings) During
this time, I'm actually sneaking into my bedroom and printing up more 1 tomato notes (fiat money).
| The Money Magician creates money out of thin air. |
|
|
Upon returning, I gradually gamble and inject ever increasing amounts of notes (liquidity) into
the game (the economy). By midnight, the original 50 notes has increased to 500 total notes. After
ebbs and flows, the game was remarkably even at midnight. The
five of us, who had each started out with just 10 notes apiece,
now held 100 notes apiece. As you might expect, due our newly found "wealth", the size
of each player's bets increased in direct proportion to the growth in the supply of Tomato Notes. (price
inflation).
But the same 50 tomatoes -the true intrinsic value
of the game - (GDP) remain in the jackpot.
Because
we are getting so "rich"
from the game, I propose that instead of ending the game,
we leave everything as is and resume play the following month.
"Why don't you fellows spend
some of your Tomato Notes, and save some to invest in next
month's play. Tell the shopkeepers that each Tomato Note
represents one tomato that is still sitting on this table. They'll
accept the Notes as if they were actual tomatoes."
"Great idea Mortimer! The
paper is so much more convenient to trade than the tomatoes." replied Mike.
All
agree
to suspend play and resume next month. Before they leave, I
announce that I'm cashing in 20 of my 100 notes in order to make
tomato sauce the following day.
At the original ratio of 1 note to 1 tomato, my 20 notes
trade for 20 tomatoes. I have doubled my original "investment" of 10 tomatoes (profit taking), and still
have 80 paper notes with which to resume the game next month. There are now only 30 total tomatoes remaining
on the table.
As I expected, my friends have no intention of cashing in any of their "winnings" because
the returns from the game are so high. They each hold 100 notes and really believe that their original 10 tomatoes have
yielded a 10 to 1 return from playing the game (Bull Market, irrational exuberance).
When the players explain to the town
merchants that the Tomato Notes represent actual tomatoes that are
stored at my house, the merchants gladly accept the notes as if
they were actual tomatoes. During the ensuing month, the players
spend many of their notes and take out various loans as well.
Bill buys his wife a new sports car by putting down 25 Tomato Notes and taking a loan for the balance. (Detroit
prospers.)
Frank takes out a small business loan to open up that restaurant he's
always dreamed about (job creation).
John puts down a 50 Note down payment and signs a
contract for a new home mortgage (housing boom).
Mike spends 40 of his Tomato
Notes and also goes on a credit card shopping spree (consumer confidence).
The
local bank manager also trusts that the Tomato Note income of
the borrowers represents true wealth, so he honestly
believes that he is not engaged in risky lending when he lends
out his depositors tomatoes to the successful poker winners. (Sub
Prime mortgages, No Money Down Mortgages)
The bank then sells some of the loan notes
to The Tomato Street investment houses. Blinded by greed, and ignorant of "the big picture", Tomato Street portfolio
managers believe that the debts are solid investments for their clients. (secondary market ,mortgage backed securities)
So not only do the four players believe that they are prospering, but the businessmen that are now selling more
goods to the wealthy poker players believe that they are earning more Tomatoes also! They too increase
their personal spending and borrowing accordingly. (multiplier effect)
As
the new "prosperity" makes its way through the town, the prices of goods and services also begin to rise -
exactly like the size of the bets in the poker game had risen, and exactly for the same reason!
Everyone thinks they are getting "richer", but their new wealth is artificial and temporary.
Me? I just rub my hands in glee and laugh at how foolish these people are.
The economy
of Tomatoville is BOOMING......or so it seems.
THE STING
The Poker players and I meet again at my place and pick up where we left off the month before. The mood
is jovial as the players look forward to another round of "earnings". After a few hours of more silent
note injection, 1000 notes now circulate evenly among the players (200 each).
My guests
boast among themselves about all the new toys they have
recently charged. They aren't worried about the debts they are incurring
because, if necessary, they can always cash in their abundant
paper notes for tomatos (equity) and pay everything
off free and clear.
John then mentions that he has noticed that the town
merchants have increased the prices of their goods and services.
"Have
you guys noticed how expensive milk and eggs have gotten lately?" John asks.
"Yes! I noticed that too." said Bill. "And a cup of coffee now costs 2 tomato notes!
Why is that Mort?"
Anticipating that this question would arise,
I launch into my cleverly planned explanation:
"Well
gentlemen,
there are three underlying causes behind the price inflation
you are seeing at the town stores. First, when the town
merchants learned of your new prosperity, they increased their
prices because they knew you could now afford to pay more.
That's typical capitalist price-gouging."
"Those greedy
bastards!" shouted Frank.
I continue:
"Yes.
Greed is a main factor. But our shopkeepers aren't the only greedy
businessmen. The
second reason for this inflation is that the folks over in
Oilville have got us over a barrel. They too have increased their
oil prices. Because all of the goods we buy have to be shipped
by train and truck, the increase in transportation costs gets
passed on to you the consumer."
Mike leaps to his feet and angrily declares:
"I say we bomb Oilville back to the stone age and just take their damn oil!"
"I
don't know about going to war, but we definitely need to develop solar and wind energy here in Tomatoville."
adds Frank.
"What's the third reason for this inflation?" asks John.
To which I reply:
"The
third reason isn't related to greed. It is
due to the prosperity of the people over in Potatoville. As
Potatoville develops its economy, they grow and sell more potatoes.
This increases their own demand for oil. That increased demand
pushes oil prices up. Again, because our economy runs on energy,
Potatoville's prosperity is contributing to the inflation you
are seeing here in Tomatoville."
To my amazement, the men, acting as if they have been enlightened by some deep philosophical discourse, all
nod their heads in agreement at the utter nonsense I have just spewed. We then resume the game.
After
a few more hours of play, I decide to trade in 20 more paper notes for 20 more tomatoes (insider trading). My friends
ridicule me. "Mortimer! Why would you trade in notes for tomatoes when we are all making so much money?"
they ask.
"I just want to lock in some of my winnings now. You never know if fortunes may turn."
I replied.
I have now "earned" a total of 40 of the original 50 tomatoes from the table, quadrupling
my initial investment. Whereas my scam was not obvious before, my victims now clearly see that the true
value of the tomato jackpot has diminished (recession, Bear Market). They each started with 10 tomatoes. So
how come they hold hundreds of notes when there are only 10 tomatoes left for the four of them to divide?
Bill panics. "I'm trading in!" he declares. He dumps all 200 of his notes and attempts to grab
the remaining 10 tomatoes (stock market crash, bank run)."
Not so fast Bill!" declares Frank.
"If you get those remaining tomatoes there will be none left for us!"
"Oh
my God! Mortimer! How am I going to pay off my debts to the town's merchants? What's happened here?" Mike asks.
My expression turns somber as I reply:
"Damn!
I was afraid this might happen. Because we were doing so well,
the game "overheated". The Tomato Note
fell against the tomato. When that happens, the cost of playing
goes up (inflation) and then a contraction occurs (recession).
It's a natural cycle."
"So how do we allocate the remaining tomatoes?"
John asks.
"Simple." I replied. "It's
called currency devaluation.
You four each have 200 notes in hand, and I have 160. That's a
total of 960 notes in circulation (money supply). There
are 10 tomatoes remaining. Divide the 960 notes by the
remaining 10 tomatoes and the new cost of a tomato is therefore 96
notes (hyper-inflation). That means that your 200 notes can buy
back 2 of the remaining 10 tomatoes for each of you."
The paper Tomato Note currency has lost its purchasing power (inflation, bubble bursting) and my 4 neighbors
have each lost 8 of the original 10 tomatoes they had once owned. I walk away with 42 of the original 50 tomatoes.
(real wealth)
***AUTHOR'S
NOTE***
If
the players had added 950 tomatoes to the original 50 (GDP growth), there could be no bubble and the Tomato
Note would have retained its 1-1 value. (1000 notes / 1000 tomatoes) Even in a crooked monetary system, increased
production "props up" a debased currency. But the people will not benefit from the increased production because
the extra wealth is stolen by Mortimer's printing press. Mortimer
can always create new bubbles by printing up even more notes and then being the first one to "cash out." In bubble
economics the first sellers to get out of the game (stock market, real estate market etc), will profit
unfairly by receiving inflated "fake" value for their stocks, homes, currency etc. When the game then adjusts
to the burst bubble value, the remaining sellers get less. (Examples: Investors who sold their stocks when the Dow Jones
was at 14,000. Homeowners who sold in 2006 at the peak of the real estate bubble. Investors who in 2007 exchanged US
dollars for gold or other hard commodities.)
An honest money system keeps the growth of money supply proportionate
to the growth of goods and services (GDP) for a 1-1 ratio. (no inflation / no deflation) But when
money is printed "out of thin air" (as opposed to gold or silver which have intrinsic value due to rarity
and beauty ) Mortimer is always ahead of the players, especially when he starts lending notes to
the Mayor and local bank, at interest. When
that happens, all of Tomatoville becomes Mortimer's poker game.
But the real problem is that the four suckers, believing they were
"wealthy", had charged up a lifestyle that they can no longer sustain.
That car Bill bought for his
wife? Can you say "Repo Man?"
Franks new restaurant? The chefs and some waiters will have to be laid
off (increased unemployment).
Mike's credit card bills? Soon to be delinquent and destroying his credit
rating. (credit crunch, local Bank losses)
John's new home? Foreclosure, followed by divorce (housing
slump).
The
merchants who had sold or loaned
to them will also be negatively affected. Anyone who had
dealings with the free spending Poker players is also holding devalued
notes and possibly carrying bad debts. The artificial debt
& inflation prosperity had spread like viruses, and
now the malinvestment balloon has to painfully deflate.
The bewildered
and frightened town folk don't understand how this happened. Because of my Ivy League credentials, coupled with
the fact that I have accumulated so much wealth, they look to me for expert advice and answers.
I explain to them
that we are in a liquidity crisis:
"Friends! This
is part of the natural business cycle. Sure, you
have suffered a short term loss, but in the long term we all
come out OK as the markets recover. You saw how much wealth
you had earned. If you get out of the game you'll be locking in
your losses."
"The market has hit bottom. Truth be told, you guys helped create this mess
yourselves with your reckless consumer borrowing, and the local bank should have known better than to lend its depositors
tomatoes out so carelessly. (blaming the symptoms, instead of the cause) This is the problem with free market capitalism sometimes."
"I
will advise Mayor Bulshitz to institute new legislation, a huge
stimulus
package, and more regulation over private enterprise (New
Deal). We shall create a social safety net in order to protect you
from future naturally occurring business cycles." (Great Society, War on Poverty)
"Greedy Corporations, town shopkeepers, and employers big &
small created this mess and it must never happen again. (class warfare) We will impose strict price controls to fight
the inflation that the greedy , price-gouging shopkeepers caused."
"We
will tax the rich! (Federal Income Tax, established in
1913) Free health care! Free education! (socialism) Liberty!
Equality! Fraternity! Change we can believe in! Hope! Yes we
can! Workers unite! You have nothing to lose but the chains which
bind you!"
"Don't worry
about the town's Constitution. It's an outdated
document written by a bunch of dead white guys. If we are to
fix this mess, then we must ignore its limitations on progressive
government action."
| "If you give me power, I will take care of you." |
|
|
***AUTHOR'S NOTE***
To feed the insatiable debt monster,
and to maintain confidence in his notes, Mortimer must have a perpetually growing GDP (more tomatoes).
If not, runaway debt and inflation will cause the economy to implode sooner, rather than later. GDP growth
is fueled by "consumer spending"(consumption) and the constant borrowing which enables it.
This is why economists, politicians, and other assorted lunatics are so obsessed with constant GDP growth.
.
.
"The tomato must no longer serve as the backing for our currency. To meet the liquidity needs of our new
system, it is imperative that we get this town off of that antiquated, "barbaric fruit" Standard
(hard money) and transition to my expertly managed paper currency." (fiat money)
"As
far as the poker markets go, now is the time to play even more aggressively (buy low). We'll meet again next month. In
the meantime, work harder and bring more tomatoes to the next game, I'll print more notes to increase liquidity and
induce the banks to loosen up credit once again. (pump priming, quantitative easing)
"If
the local banks need to make more loans, I'll lower their
reserve requirements so that they can lend (create) money
that they don't have. As long as too many depositors don't make
withdrawals all at the same time, like you fellows did in
our poker game, they'll be none the wiser." (fractional reserve
banking)
Even
if there is a bank run, or if the bank's loan demand exceeds it's reserve requirement, I'll act as
the "lender of last resort" (Federal Reserve, established in 1913) and lend (create
money for) to the local bank at interest (Bank takeover, Discount Window).
I
will also lend to (create money for) the Mayor's office (Open Market Operations, purchase of T-Bills, stimulus)
, and bail out (create money for) the Tomato Street Brokerage houses that I deem to be "too big to fail" (Goldman
Sachs, JP Morgan bailout package).
I continue: "Finally, I will organize
an emergency meeting of the Mayors, Finance Ministers, and Note Printers of the European towns (G-20, "world
stage"). Now is not the time for isolationism. (independence, sovereignty) Global problems demand global
solutions! (IMF, World Bank, WTO, UN)."
"We
will recover. So keep spending, secure in the knowledge that the best and the brightest of the world community are on
the job. We have nothing to fear but fear itself!"
.***AUTHOR'S
NOTE***
The
"business cycle" is very simple. When the rate of growth in money supply (debt supply) exceeds the rate
of growth in the general economy (GDP), the excess "money" has to go somewhere. It creates an illusion
of prosperity. Artificial bubbles will form either in housing, stocks, currency, etc. Eventually the market
always corrects for these phony excesses and the bubbles burst. (just like the poker game.)
| We the Central Bankers own it all! |
|
|
THE WRAPUP
The men leave
my place full of hope, grateful that a financial "expert" and a caring leader are in charge of the
recovery plan. Incredibly, I have convinced them that it was free enterprise, tomato currency, and limited government
(the three main pillars of their original prosperity), that caused their problems.
Instead of seeing my inflationary system, my perpetual interest demands,
and the Mayor's out-of-control spending and high taxes as the causes of their lower standard of living, they
actually worship Mayor Bulshitz as a savior. Bulshitz gives them all the socialistic "free" goodies
that our destructive schemes made unaffordable for them in the first place.
First we crush the owners and the workers of the private economy. Then, Bulshitz rides in like a
knight on a white horse, offering welfare schemes to save them.
The simple townfolk
never stop to think that were it not for us, they would have the income and capital to take care of themselves!
When Bulshitz runs short of money (as he always does), I'm there to lend it to his
office...at interest of course.
Damn I love
this job! .
My
European
colleagues and forefathers have been running this scam for
centuries. During this past century, we've been working to
diversify our operations to include control of the world's
natural resources. Whenever some independent-minded foreign mayor
resists our game of Banking & Resource Monopoly, (Iraq, Venezuela, Iran), our friendly mayors (the "free
world") will team up to bring that town back in line (sanctions,UN resolutions, spreading democracy,CIA
coups,wars). Perhaps one day we may even merge our operations under a single global umbrella? (New World Order, G-20,
Global New Deal, Global Warming scare)
I
also play golf with the owners and publishers of the
local "liberal" newspaper as well as with those
from the "conservative" media. Through my close friendship with
them, I am able to influence
the editorial and news content of both. It's sort of a "good
ole boys" networking thing. As long as they don't expose
my operation, I am happy to allow the two parties and their
sheeplike followers to amuse themselves with the daily drama
of those superficial popularity contests known as "political
campaigns." By having the "left" and
the "right" beat each other up, the townfolk are kept divided
and diverted from my actions. In the end, it is I
who wins EVERY election.
| Professor Pointyhead peddles Mortimer's bullshit. |
|
|
| While Mortimer's Media glorifies his paid agents. |
 |
My "philanthropic endowments" to Tomatoville University guarantee that
my twisted version of economics is taught to the students. Awestruck by my immense wealth and prestige, most, but
not all ("Austrian School", Peter Schiff, Ron & Rand Paul), of
the economists at "TU" are eating out of my hands. So,
when the town folk read The Tomato Street Journal, or hear Professor Pointyhead speak on TV, my false theories are
reinforced in their minds.(Keynesian Theory, "Chicago School")
All, except for John - the critical thinker of T-ville. He figures it all
out and embarks upon a one man Internet crusade to expose me, calling me a "counterfeiter", "usurer", "insider
trader", "warmonger", and "The Shadow Mayor."
My
fellow Country Club members from the media convince everyone
that John is "paranoid", and an "extremist" who is a mentally
unstable "conspiracy theorist"
and potential "domestic terrorist." Most of the town folks
defend my intellect and character, and disassociate themselves
from John. The others are too burned out by the hustle of life
to even make the time to study
politics and economics. Eventually, John is denied access to
The Tomato Street Journal and throws his hands
up in frustration.
Tomatoville is deeply
in debt in to me because the massive police force and the "safety net" programs (that my destructive monetary
schemes necessitated) are very expensive! I've got so much dirt on Mayor Bulshitz, that if he dares
to either reintroduce the tomato standard, or if he decides to print interest free currency proportionate to
the amount of real goods and services in the town, my newspaper friends and slick TNN anchormen can ruin him.
***AUTHOR'S NOTE***
A
typical example of the incestuous
old boy's network that exists between the Wall Street,
Washington DC, Central Banking, and corporate media elite, is the case
of international banker, Eugene Meyer.
