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George Washington Quote

My ardent desire is, and my aim has been…to keep the United States free from political connections with every other country, to see them independent of all and under the influence of none. In a word, I want an American character, that the power of Europe may be convinced we act for ourselves, and not for others. This, in my judgment, is the only way to be respected abroad and happy at home.

ideas > Simple explanation of current economic crisis

Simple explanation of current economic crisis
"In Gono We Trust", excerpt taken from this online article published on Feb 3 at www.dailyreckoning.com article

“Imagine you are in a small town,” we thought we heard him say. “Imagine that the banker printed up the town’s money in his basement. One day, he went a little crazy and started making huge loans, even to unqualified borrowers, at very low rates of interest. You would soon have a boom on your hands, with everyone paying for everything with IOUs, all derived from the bank’s easy credit policy. But, eventually, when it was discovered that people couldn’t repay their loans, there would be a terrible bust.

“That is where you are now. (I say ‘you,’ because I am no longer among the living…but I have to say, heaven is not a bad place to be… There is almost a total absence of economists, lawyers…and not a politician anywhere.) It is a period of price discovery in the credit market…because no one knows who can pay his bills and who can’t. The IOUs are being marked down. Unemployment is rising, too, as the local economy slows down. Consumer demand has been greatly reduced as every has gotten poorer.

“Now, the banker sees what a mess the place has become. Naturally, he wants to do what he can. He tries to lend more money, but people have been down that road; they are reluctant to borrow. Then, he undertakes to build a new ballpark…you know, for playing baseball. And he decides to upgrade the town hall too…printing up the money to pay for it, as necessary, and to pay for a variety of projects to keep his friends and relatives employed.

“But while he is trying to get the boom going again, the bust is still going on. For every dollar he puts back into the town economy, $2 or $3 is taken out. Instead, of spending money like they used to…citizens stuff it in mattresses and bank accounts (much of it comes back to the bank where it started!)

“This process can go on for much longer than you think. Because the banker is, in effect, standing in the way of what needs to happen. He is blocking the process of price discovery…by lending money to deadbeat debtors and propping up businesses that are no longer profitable. The baker, for example, had built a fancy oven to produce 200 pastries every day. When the boom was in full swing, he sold every one of them. But now that people are cutting back, he sells only half as many. His investment in the new oven is now a losing proposition. But it takes the market a long time to find out; because the banker gives him enough money to carry on…when he should have declared bankruptcy months ago. And so with the tailor and the hat-maker and all the rest.

“Eventually, the banker realizes that his efforts to restart the boom have failed. Instead of spending money, people use it to pay down their debts. They cut their expenses; they reduce their output; and they’ll continue to use their cash surpluses to pay their debts until their they are back down to where they usually are, he reasons. Even then, people are likely to save because they’ve gotten in the habit of saving; this could go on for a long time, he figures.

“And then, he realizes that the only way to prevent people from falling into the ‘propensity to save’ trap is to make them realize that the currency is not worth saving…that it is losing value. That is when he will turn to Gonoism. He will go down into the basement; print up stacks of $100 bills…and begin passing them out on street-corners.”

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