Perry Glasser

Two Cheers for the Senate

In Economics, Politics, Wall Street on October 2, 2008 at 1:18 am

Dollar$ believes the Weasels of the US Senate did what they had to do last night by endorsing a bailout plan. Though it is galling to see foolhardiness, duplicity, arrogance, and malfeasance rescued with tax dollars, and while the US taxpayer who would rather see several heads on a gibbet, in the end, even Weasels have to come around to knowing their job right now is to restore confidence and trust.

Revenge on the Buccaneers and Wizards who brought us here would be sweet, no question. But the cost of revenge would be to watch economic ruin circle the globe like a contagion.  Uglier than gawking at a multicar collision on Highway 101 at rush hour–and with far more blood.

For most of us, confidence and trust are about personal relations. When a loved spouse gets well dressed, we are confident and trust that our spouse is not stepping out for some seamy adventure in a sordid motel with a stranger. In Economics, however, confidence and trust are about the future.

A dollar invested or a dollar saved is a dollar voting “Yea” for the future. We don’t deposit our money in banks when we lose faith in the institution’s ability to give us back our money on demand. Remember, too, that for every $1,000 in the bank, there are $10,000 in circulation.

You read that right.

That’s the effect of the reserve clause. Never forget that most money is a ledger entry, not a physical artifact. Currency is one thing; money another. All currency is money, but not all money is currency.  

The Multiplier

When banks accept legal tender, they lend it, but they do not lend money at a rate of $1 in and $1 out. Bank laws require that they keep currency on hand for only 10% of their demand deposits. So when you deposit $10,000 in the Tunaville Savings & Loan, Tunaville S&L can loan me $9,000. Unless I am a drug dealer with a valise, they do this with a ledger entry, not cash. I trot down to Tunaville Dry Goods and spend $9,000 with a credit card or by writing a check, and the owners of Tunaville Dry Goods take their new $9,000 and deposit it in a bank, which now can lend $8,100 dollars based on that deposit, which in someone else’s ledger becomes a deposit, which is loaned again for $7,190…

Work the math, if you need to. For an initial $10,000 into any financial institution compelled to maintain 10% in reserves, ordinary economic activity brings $100,000 into circulation. That money buys vacations, college educations, home improvements, and baby formula.

Now you, too, can work for the Federal Reserve Board! Create monetray policy! Fight inflation! Gaze into crystal balls, consult the Tarot, read tea leaves and memorize obscure financial reports before throwing darts at interest rate charts!

Alas, the multiplier effect also works in reverse. If you withdraw that $10,000 to put it in your socks because you have lost trust and confidence in your bank’s ability to honor your demand for its return, $100,000 less is in circulation.  If the governements of Dubai, China, India, Japan and anywhere else where pockets are deep because more money is coming in than going out no longer want American paper, then an awful lot of ledger entries don’t get made.  

Currency Isn’t Money

Never confuse the paper in your pocket with the stuff that sloshes around world money markets. Money is funny stuff. Drain enough money out of the system, and the dry winds of ruin soon will be blow across the weeds springing through the pavement cracks of Main Street.

Money also knows no ethics. Money to support the Weasel in Chief’s War on Shepherds to Export Democracy while Protecting OIl Profits has cost $1 trillion — and still counting. War dollars behave no differently than baby formula dollars.

Dollar$ would be first to point out that this is not a justification for the linchpin of American policy, which is to wage war against short people with swarthy skin, provided they are  ill-equipped to fight back. But Dollar$ gives two cheers to the Weasels who last night decided to do something about the fact that the roof is caving in. Sometimes, a brick to the head can remind even a Weasel that the job is about more than being re-elected.

What A Trillion Buys

Who knows? Perhaps we’ll see a $1 trillion spent on rotting schools in East St. Louis, pre-natal medical care in Southside Chicago, state-of-the-art flood controls in New Orleans, funding research on malaria, programs to wean the American transportation system off oil and rubber, or programs to make old age in America something other than a terror-fraught nightmare.

It’s not as though we cannot afford these things. Don’t let the Weasels make you believe otherwise. None of those programs are giveaways–every one of them would produce new wealth. Education, health, security and human happiness are not cost centers; they are profit generators. A healthy, well-educated population able to compete in the global economy produces wealth.

At last look, the US was worth $44 trillion. Our wealth ought to be available to us–all that is needed is Weasel Nation Leadership that sees its role to be about more than power.

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