[QUOTE]If you take smaller numbers and create an example of the relationship between deficit spending and credit crises you gain a clear understanding of what the nation is facing and how it came about. It is not at all complicated as the politicians want you to believe because as you will see their role is the problem. The example can be understood by framing it as an individual would experience the issue. Suppose you earned $500 dollars a week and you spent $600 a week. Someone would have to loan you $100 every week that you spent more than you earned. This is the simple relationship between spending more than you earn and the need for credit. You cannot spend more than you earn unless you have a source of credit. This is true for everyone and that includes governments. If a government is taking in $2 Billion and spending $3 Billion someone is loaning the government $1 Billion. This means of course the government owes someone $1 Billion and unless it pays the someone back, the interest on the loan continues to mount.

Now how can a credit crisis arise from this simple act of spending more than you take in. Back to the individual example. If you donīt pay the lender back or pay him back with money that is worth less than the money you borrowed from him he is less likely to loan you more money. Say you borrowed $100 that was worth $100 when you borrowed the money but when you paid him back you paid him back with money that was worth only $90. That means that he would lose money from loaning it to you. If you were a counterfeiter you might slip in a ten dollar bill that would not pass and the lender would only have $90 of the original $100 in purchasing power he loaned you. It would not be long before you would have a credit crisis because the lender would not loan you money and the lender would be in trouble because he was operating at a loss which means he would need credit. All this because you couldnīt live within your means and borrowed money you couldnīt or wouldnīt pay back.

Letīs see how this works with the government. The government borrows some money to cover the amount of spending it wants to do but doesnīt have tax revenue to cover it. When it comes time to pay the loan back it still doesnīt have enough revenue coming in so it says we will borrow more money to pay for the money we borrowed. This goes on until the lender says , "Look I keep loaning you money but you never pay me anything and that makes me have to borrow to pay my bills. I am in the business of loaning money and if you donīt pay me for my service I will have to go out of business." The government says," we will pay you but since we donīt have enough in revenues to pay you and you wonīt loan us more money to pay you, please take this paper money we just printed. It looks just like the money you loaned us so it should satisfy you need for payment. So the lender takes the money and when he tries to spend it he finds out it is not worth as much as the money he loaned the government. This is because there is now more money in circulation than there was when he loaned the money to the government. But what you ask does more money in circulation have to do with the value of the money?

Suppose there are five people living on an island and each has $5. This means there is $25 of purchasing power on the island. But suppose one person decides to print some money and spend it. Soon the other four people find that their five dollars does not buy as much as it used to. With hundreds of dollars on the island a dollar is not worth as much as it used to be. To take the example to the extreme imagine the man with the printing press printed thousands of dollars and they were everywhere. What would be the worth of the original five dollars of each inhabitant? Very little. With abundance the dollars become worth less. They are easier to get and they buy less. The Islanders are experiencing INFLATION. This is what happens whenever money is printed in quantities that exceed its value. You know the more of anything you put on the market the cheaper it becomes. If you inundate the market with corn the price goes down until the market demand for corn increases. If you put enough corn on the market and there is no demand for the corn the corn becomes worthless. The same is true for money. If you print money so that it is plentiful and the credibility that backs the money is weak the money loses value. When it loses value the lenders canīt get as much in payment as they lent out. When they start realizing they are losing money they begin to miss paying their bills and they start to go out of business because they can no longer make a living from lending. This is a lending crisis and therefore a credit crisis.

Today the United States government finds itself facing a credit crisis and is blaming such red herrings as "predator" lenders, mismanaged banks and the greed of lenders. This is all bunk. They are only pointing the finger at others because they want to divert the attention for their part in the creation of the crisis. Just as all politicians point to others when they are accused, this ploy is rampant in this crisis. But the facts cannot be denied. The government has been living off of credit for decades as it spent more than it could take in in revenues. It has gradually and incrementally increased its debt via larger and larger deficits and has covered the extra spending with flooding the market with printed dollars based on their promise to pay. As their promise became more suspect fewer lenders were willing to take dollars that were worth less in purchasing power than those they loaned out. This was compounded by the fact that to make up for the loss in purchasing power, higher interest rates would need to be charged. But interest rates were being lowered so the lenders could not get the compensation they needed to make a profit from their loans. Since the lenders were losing purchasing power they began to make riskier loans that they could get higher interest rates from. But riskier loans are more likely to not be paid back and when the risk gets so high that few are willing to take it, the loans become less valuable as fewer lenders want to take the risk and the value of these loans becomes nil. The lenders left with loans that are worthless have nothing to sell and must necessarily fail or have someone keep them in business. This again requires a lender. But lenders are now being hard to find because lenders must have valuable money to loan and to stay in business he must be repaid with money that is equal in purchasing power to the money he loaned. This cannot happen when inflation is taking place unless interest rates are high enough to cover the loss in value of the currency. But with political pressure on the Fed to lower interest rates this no longer works. Normally interest rates are raised to quell inflation. Credit is tightened when interest rates go up. This means there is less money to loan and therefore the money is higher in value because it is harder to get. But when credit is expanded then money is easy to get and speculation expands. Higher risk investments are approved and more risk is in the credit market. If this risk turns into failed loan payments the credit business is threatened, banks fail and the throes of a depression threaten.



It is important to realize private risk does not create inflation. It is the printing of money by the government that disrupts credit markets. Printing money with no tangible backing is like putting price controls on credit. The free market is the sum of all transactions voluntarily taken to facilitate trade. If any disruption interferes with this activity and someone is forced to compensate for the interference then imbalances occur that must be remedied. Look at the value of the dollar since 1903 and you will see a steady decline with the exception of the period known as the Great Depression. Money was very tight then as a result of the contraction of credit after a period of very loose credit. This drastic contraction was due to the imbalance brought on by the governmentīs attempt to "manage" the economy. For the dollar to regain its value an adjustment will have to take place but with only the governmentīs promise to pay a debt that is beyond its ability this adjustment will require more than just manipulation of the market by printing, borrowing and taxation. The borrowing of the government has been irreparably damaged by its poor credit performance and its willingness to pay back in dollars worth less than were borrowed. The printing of more money will only exacerbate the issue and the taxation of $450,000 per person to put the government on solid footing again is just not even wroth considering.

This leaves us with a very serious issue and only one option to remedy it. Since the government cannot borrow its way out of debt or tax its way out of debt or print its way out of debt ( even though the Democratic candidates are proposing accumulating more debt with promised programs that will have to be financed by printing even more money and creating more inflation), this requires looking at what fundamentally must happen to check this rampaging giant and put us on a stable financial footing. This requires a return to the gold standard where money will be worth a tangible versus the intangible "promise to pay" that deteriorates with deficit spending. Commensurate with this must be the establishment of a limited government that cannot upset the apple cart of business with market disruptions requiring corrections that are alarming and drastic. This is a drastic measure but drastic times call for drastic measures. It is either work toward that which can be shown to be stable and true or keep trying the failures that will only make the corrections more drastic and painful. HIgh inflation and/or the ensuing depression are not pretty consequences for allowing politicians to print our money into worthless paper. Every reader can write to their congressperson and demand the deficit spending stop. Every citizen can speak out against the debasement of our currency. Or one can just hope that the trend can be reversed by simply letting the government print more money and ignoring the consequences. LIfe is full of choices and one of them is to wait until the crisis is beyond repair or attempting to prevent the crisis by addressing it before it reaches catastrophic levels. You wouldnīt let a leaking pipe burst before you decided to correct it. Why let a government run rampant printing bogus money without at least letting out a cry of protest? It is the future of yourself , your family, your country and in the end civilization itself that depends on the minds that rebel against the false theories, disgraceful ignorance and shoddy practices that undermine the promise of America. There is nothing in the political arena to vote for, but there are many places yet for a voice to be heard if one just has the courage to speak.[/QUOTE]

[url]http://www.americanchronicle.com/articles/56871[/url]

This is the root of todays economic problems.