Ward Williams

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Why would the world or even the US economy crash if we stopped paying back the Federal Reserve?

I need help understanding what I think is basic economics. I'm a simple man so if someone could help me understand in simple language what I'm missing, maybe I could have an intelligent thought about how all this works.

The Federal Reserve (non government entity) creates money out of thin air (fiat money). If that's true, it's really just imaginary money. They loan this money to banks, and governments at interest. This interest is paid to them through interest paid by the end user, if borrowed at a bank, or in the form of taxes when used by the gov?

If the money is imaginary the debt must be too? This seems like a scheme to create a steady income stream for the principles of the Federal Reserve. Why would it cause a crash is we decide to not pay back the interest or even the debt itself? It seems to me that the only people who lose are the people who imagined the money into existence, and the interest with it. Might be a crash for them, but why for the rest of us?

My understanding flawed, or my logic is flawed, or something. I need help with this.

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    Feb 21 2013: The definition of money is a symbol that people will accept as exchange.

    Since a lot of people world wide have confidence in the dollar and will accept it is a lot how the U.S. can get away with spending so much.

    The more that they print the more it dilutes the value of the dollar.

    If they default the credit rating gets changed (admittedly dubious) which means the U.S. has to pay more interest on bonds. This means that the current rate of 250 billion a year to pay interest on debt (bonds) could easily balloon up to 750 billion or 1/3 of the annual revenue

    Since at least a modicum of this money is borrowed from investors the interest rates have to be high enough to get them to invest.

    If you think this scenario is unlikely consider Argentina, USSR, Germany before WW2, Hungary, and about 20 other countries and you will see what happens when the debt is paid by printing money.
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      Feb 21 2013: If we imagine our money into existence, why are we borrowing from someone else? Why don't we just imagine whatever we need, (want)?

      Why do care about credit ratings if we imagine our own money? See above Q. If I could just decide how much money I have, credit ratings are moot.

      Why do we care about investors if we imagine our own money?

      I understand and really have no problem with the whole fiat money thing. What I'm not getting at all is why we are paying a middle man (Federal Reserve) the interest. Money in my world is exchanged for something of value, whatever that means to me. Where's value in what the Fed does?
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        Feb 21 2013: I answered your question look up hyperinflation as that is what WILL happen under your thinking.
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          Feb 21 2013: I'm certainly not advocating anything, nor do I have any "thinking". I'm asking questions. I don't doubt you're right in all respects. Just trying to understand why. Thanks.
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        Feb 22 2013: Let me try this, reality is what people decide/agree reality is. If they decide a certain style is cool that style is cool, if they decide a smart phone is the best then a smart phone is the best, if they agree that gold is valuable than gold is valuable.

        Much of this is determined by supply and demand as illustrated by the aluminum example where it sold for $1200 per kilo in the 1800's but when an inventor came up with a way to make it cheaply the price went down to 18 cents per pound.

        When too much money is printed the value of the dollar goes down and can buy less goods. Gold is now selling for $1600 per ounce 10 years ago it was $400 or so. It is not that gold has gone up that much in value it is that the dollar has gone down that much in value.

        People determine what commodity they have the most confidence in. If the economy collapses they will have more confidence in guns and food.

        Clear as mud?
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    Feb 21 2013: A Parable:
    Man to hotel owner:
    Here is $100 cash. Hold a room for me. I will be back later.

    The hotel owner takes the $100 next door to the Bakery and pays-off an IOU of equal value held by the baker.

    The baker takes the $100 across the street to pay-off an IOU of equal value held by the tailor.

    The tailor takes the cash next door to pay-off an IOU for $100 held by the doctor.

    The doctor goes to the hotel to pay-off a $100 IOU he owes the owner of the hotel. The lobby is empty so he leaves it on the counter.

    The owner returns and puts the money in the register. He then issues a key and change to the guest who has now returned.

    A total of $400 in debts have been paid-off, and a room has been rented, all with a single $100 bill.
    • Feb 22 2013: If I understand your parable (I'm none too smart, so fair warning),
      each still owes phantom money to the bank and there is not enough to pay it off.
      If one were able to, or all were able to pay off their loans (that created the debt in the first place),
      there would be no money in circulation to pay off the phantom interest, which would continue to grow.

      Also, I suppose this might be how a free-market system is supposed to work but doesn't, because of the unfair, malicious manipulation of the money system and the value of money, that only increases for the Banks (Fed) and not those who try and fail at keeping it vital and free. It isn't.

      There is no hidden, phantom interest in your parable example.
      It is a just system, not an unjust one and is functioning on honesty, decency and other good qualities that only a truly free market can function on when it is for the masses.
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        Feb 22 2013: BINGO! There is no no interest charged in the parable and THAT is the moral of the story!Avoid debt by not borrowing to buy what you cannot afford. It is the interest on that borrowed money which fuels the virtually limitless wealth available to the lending institutions. With commodity-based money (vs. fiat money) the $100 bill would have ACTUAL value, not just promissory value. At some point the baker, or the tailor, or anyone in the chain of exchange could turn-in the bill for $100 worth of gold. As long as everyone continues using the paper money which is not redeemable for gold, debts can be paid by simply handing over the cash. Looking back we see that the baker gave the hotel guy something of REAL value in exchange for the IOU. The tailor gave the baker something, the doctor gave the tailor something,etc. In the end, when all the IOU's are torn-up no one has been paid for the goods or services of REAL value they exchanged for a promise to pay. Real value exchanged for real value is the only economy that will endure successfully. That is called Commodity Money. We had it in America once upon a time before the Federal Reserve System was established. We should return to such a system.
        • Feb 23 2013: Hi Edward.
          "We should return to such a system."
          I understand that Congress has been asked to return to such a system whereby Congress prints the money that they were and are set up to do, without debt to the nation's citizens.
          They have refused to do so, yet they (yeah, right), represent the People and not the other way around; their own interests.
          Some have demanded they do so. They refuse to.
          Some have pleaded with them. They refuse to.
          This is a reality that can only be overcome by throwing them out, with force if necessary.
          If one continues to think, believe and opine that we should continue pleading with them, with an expectation they will finally "wake up", it will never happen.
          They already are awake and know exactly what they are doing.
          They need to go, thus this system needs to go.
          It only attracts those who will use it in the methods and ways in which it is used,
          which is to abused, not used.
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        Feb 23 2013: RE: "We should return to such a system"
        We have the system in-place to see our will done but most of us (the American people) are not using it. It is called voting. The average American is apathetic and therefore ignorant about matters of politics. If people would wake-up and exercise their rights as citizens of a free nation things could change.Politicians have one goal. . . election/re-election. Whatever they believe will acheive that goal they will do. If enough of their constituents (you and me) contacted them and said"Balance the budget!", or "Return to the gold standard!" they would vote accordingly. But there is another formidable obstacle to the exercise of rule by the people. That obstacle is Socialism represented in America by the Federal Reserve System, the Council on Foreign Relations (which most elected officials support), the United Nations, the International Monetary Fund, the World Bank, and others. Those two problems have just about destroyed our nation, but not quite. There is hope if people will get concerned and involved things can get better, but time is short.
        • Feb 24 2013: Sorry Edward.
          Voting doesn't work.
          That was proven in 2000.
          Plus, whomever we vote for doesn't do the job, either what they promised and have reneged on, or are continually blocked by opposing forces, and neither side really considers the will and needs of the people.
          We have let too much slide and be taken over by those in power. Like the media.
          Ralph Nader used to run for President. He was always belittled by the media and other candidates, so much so that it would always overflow into the public mind and the kinds of conversations one would over-hear would just be repeats of what had been broadcast, printed up or televised. He was quickly marginalized and dismissed as a viable candidate.
          One thing I always noticed about these past elections was this: each candidate talked at length about what they could do, would do, and what they had done, as means of qualifying themselves. Ralph tried to also, but one thing was not only for sure, it was something everyone in the country knew to be fact.
          That was exactly what Mr. Nader had been doing for the last 25, 35, or 40 years of his life, and successfully achieving. He worked for the people. He lived in a tiny, one room apartment for over 25 years, eluding the money promised and tossed his way, if he would stop what he was doing and join the forces of evil.(what else should they be called?)
          But he didn't. If anything, when he said what he had done, what he could do and what he would do, the entire country knew he was telling the truth. Not so with any other candidate. Was he perfect? No. But he worked "for the people" as public servants have always vowed to do. He is a millionaire, true but so what. It wasn't stolen money, skimmed money or paid-off money but what he earned, honestly.
          Did we put him in office? No. Voting doesn't work. It can't work Edward. The game is completely rigged against it and you should fess up to that truth and not hold to the lie, which they want you to keep holding to.
          "Did'cha vote?"
          Well vote!
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        Feb 24 2013: RE: "Voting doesn't work".I hear you. There is nothing more pathetic than an old optimist, but I am what I am. I also think you have oversimplified the picture here. Just because something does not work does not mean it cannot work. Maybe it's a good system but we are not using it correctly.Politics is like medicine in that you must complete medical school to be a doctor, so you must be a politician to be an elected representataive of the People. The entire system functions on party backing without which any campaign is doomed (Mr. Nader). To get party backing you must demonstrate political aptitude (white teeth, decent stage presence, ability to work a room, and "moral flexibility", etc.). I don't recall any non-politician who has been elected to Congress who lasted beyond their Freshman year (they always quit because politics is too slimy for them). We must vote for politicians who say they will support our personal beliefs. Of course they may end up not doing what they promised, but that's an inherent risk in the system. The real problem is the large percentage of people who have either given up their civic duty, or have never exercised their right to vote. That's how we get liars and compromisers in office. I tell you the problem is voter ignorance and apathy. If everyone would take the time to get informed about the candidates, vote accordingly, and then hold their elected representatives feet to the fire by constant feedback as to their performance in office, our system would work. Our Constitution is not a lie. It has worked before and despite your urgings to abandon it I pledge allegiance to the flag . . . etc. Thanks for the spirited exchange and I'll see you at the polls for a 96% voter turnout in the 2014 election!
        • Feb 24 2013: Edward.
          Your system works on corruption, not honesty, integrity, ethics, decency or compassion.
          It works on pitting people against one another not working together. The only things that work that way are corporations, the military and those limited number of powerful people who are dedicated in controlling everything at the expense of everything.
          It isn't a system that has been working for a long time. It is a system that has been failing and falling apart for a long time, revealing its innards to be rotten to the core with corruption and evil.
          When things are this evil and this bad and this monstrous of a hill to climb or sort out, it is always better to simplify it rather than complicate it more by giving credence to its entangled netting of deceit. Doing so always plays into the hand of those who are corrupt and benefit from this system. In fact, when you do so, you are playing their cards, for them, against you!
          You said it's a good system but we aren't using it correctly. How true. Your Declaration of Independence tells you, compels you, commands you and beseeches you in what to do when it has come to where it is now at. And that same document tells you what a successful culmination of that action it authorizes you to carry out, will produce.
          "Ya damned right you're not using it correctly. You're still trying to use the broken tools that once were for the job, but won't work now. They're broken and the bolts and nuts they once fitted, are broken too. Non-fixable, irreparable and non-refundable. And you cannot continue to fool yourself about this and wish it away with a simple, "old optimist".
          Perhaps you and many others of your nation should say, "blind."
          No personal offense meant to you by the way. I am just sickened by what is happening. I hate seeing poverty, homelessness, starving, in need and want and all while trying to walk upright.
          It bothers me day and night. I would rather it does than it not doing so.
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    Feb 21 2013: You and I are on the same page here. I don't get it, but I admit that I might not get it because I'm not smart enough, or I don't have all the info, or my reasoning is flawed.
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      Feb 21 2013: Hi, Ward. When you reply to someone, it is best to use the reply button that is off to the right of their names on their posts. For example, your post here that starts "You and I are on the same page..." doesn't show itself as a reply to anyone in particular. So whoever you are on the same page with doesn't know you mean him/her and doesn't get an alert that you replied to him.
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        Feb 21 2013: Thought I had been doing that. Have all of my replies been done incorrectly? I'll pay more attention to that. Thanks for catching that.
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          Feb 21 2013: Some are as I think you intended and some not.

          You can check by seeing if your comment is indented under the person's to whom you replied.
  • Feb 21 2013: Hi Ward.

    I believe this is one of the threats they like to terrorize the people with so they will continue to believe they need money and the Fed. They will collapse but we will not. Our great illusion we love so much will die too and that may affect many of us/US with feelings of panic, terror and impending doom.
    But, we will still be here, the factories and companies will still be here, the resources we need, use and create from, will still be here and so on, right on down the line.
    We will still have our wants, needs, desires and problems we need to take care of and without money and the slavery it survives on, humans can then go about solving their problems, see to their desires, and so on. We will not lose motivation simply because the Fed and money die. That is another lie. There are many and they are worshipped, like, like, well, like the truth!
    They have been using fiat thoughts, ideas and beliefs to fool us/US, and that game is about to crash.
    So the fiat threats are just that: fiat threats. Imaginary

    But, I am as interested as you to see what those much smarter than I come up with here.
    Each one will more than likely be joined at the psyche with the idea of money, the Fed, inflation, and all those other terms that validate the lies the people worship.
  • Feb 21 2013: I believe that everything is so much more complicated. Inflation and deflation can have interesting consequences too.