Monday, August 29, 2011

Thinking in red and green

Red means stop. Green means go.

Red is debt. Green is money.

All of it looks green, the money. But for every dollar you borrow, there is a red one, a dollar of debt lurking like a thug in the darkness, waiting for a chance to hurt you.

We're off the gold standard. That's okay. Being "on the gold standard" didn't mean we used gold for money. We still used paper in those days. We still used money created by creating debt. And that was always the problem: debt. Same as today.

We had problems even when we were on gold. The main problem was that there got to be too much debt -- too much money created by borrowing -- compared to the gold behind the paper. In those days, it created frequent crises.

In those days, it was easier to see when there was getting to be more paper and less gold. Today it is not so easy to see when there is a lot of debt, because all the money looks the same. So our crisis was delayed, and the problem got bigger.

The main problem is exactly the same today as it was when we were on gold. There is too much debt. Too much money created by borrowing, relative to the quantity of money issued by (in our case) the Federal Reserve.

The problem is *not* that we use the Federal Reserve now instead of gold. The problem is that there is too much debt compared to the "good" money. It is a very simple problem, really, and it happens over and over and over, all through history.

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