Theoryville – Banking on Main Street

Empty pockets. The last thing remaining is a couple of lint balls. I need more cash. A majority of my family and friends are over extended and can no longer lend a fiscal hand.

IN NEED OF A FIX
In order to turn over a new leaf, we’ll need an endless supply of money without suffering any economic consequence. After a bit for self-reflection, I realize that there was too much money going out and not enough coming in. Since the money being spent was at my own discretion, it was spent on services and products of great value yet did not help get my spending in check. I make sound choices and the items purchased were of great necessity to my well-being. I always come first because without my health and welfare others will greatly suffer. What to do?

RAMP UP THE PRESSES
I’ve got it! I’ll print my own local currency, create a demand for it, print more of it whenever needed and borrow against its perceived value without short-term consequence. Over time, I’ll rack up insurmountable amounts of debt while asking the very family and friends whom lent to me to buy back the debt without any consequence. You see, the buyers of my debt won’t mind since I am their biggest customer for a majority of their goods. It’s in their best interest that my currencies perceived value within the community is strong so the price of their goods and services remain low.

It’s a win-win for all! Brilliant!

GIVE AND TAKE
As more and more debt is incurred by my family/friends, the value of my homemade currency begins to increase. Debt holders don’t mind taking on expanding debt since they are selling more goods and services. I’ll also supply guaranteed perks down the road such as certain price guarantees and will hold interest rates artificially low to ensure my debt holders maximize their profits. After all, they’re helping me out.

EXPANSION
With an increasing perceived value of the currency within the local economy, I’m going to print more money and spend it on things that I deem important and necessities. There’s no reason not to since I have consolidated all this power within my very hands and know what’s best for my local economy. This economy I’ve created, one without any consequences, is fantastic and the exception to any and all economic laws. It’s Utopia on Earth!! Everyone wins and no one loses!

TIME TO COLLECT
Ted, a long time trusted friend and my biggest debt holder, one day approaches me and states that he no longer wants to hold onto all of this debt. Why, I ask? He replies that he’s losing faith in my currencies’ value. I try to reassure him that the currency is being circulated in wider circles of influence, and thus, gaining popularity. Ted stands firm; after all he is one of the savviest investors I’ve ever known, is firm in his convictions, and is the biggest suppliers of cheap goods in our local community. To keep him happy, I make a pact with him to discreetly buy back some of the debt to thwart off any public panic.

Now I have to figure out what to do with the debt that I took on from Ted. It has to quickly find a home because, in my hands, it creates large liabilities on my balance sheet. Another serious, complex dilemma that must be immediately solved.

PASS THE BUCK
The light bulbs signaling a solution go off in my head! To solve this debt problem, I’ll have the Smiths take on the debt! Since they’re the ones responsible for creating lending practices around my currency, they can surely hold onto this debt. In addition, this debt wasn’t originally theirs so I’ll give them a break and allow this debt not to be counted against their institution. To clarify, this debt will be off of their books. The Smith’s won’t mind since it’s in their best interest that the currency remains strong. After all, a strong currency means more lending and more money for them to make off of interest charged against their loans.

Another bullet brilliantly dodged! I am the God of wealth mastery!

Or am I simply the God of denial?

CAST AND CREW
The characters in my Main Street fictional analogy are:

Me: The United States of America
Family/Friends: USA allies
Ted: China
The Smiths: Privatized banks

What happens when the Smiths, my family/friends, and Ted lose complete faith in my currency? Will they participate in another short-term fix in order to subsidize my incessant spending? Or will they simply lose faith in me, holding me accountable for the failure of the economic system and move their assets into another currency or, Heaven forbid, hard assets?

Time to step out of the analogy and back into the hellish nightmare we call our current U.S. economy.

BACK TO REALITY

Did you know that privatized banks are now being asked to purchase government debt?

How many more money bullets can the Federal Reserve fire out of their short-term fix magazine? Both the Federal Reserve and the Treasury Department are pulling their last straws when it comes to the inevitable: the influx of foreign U.S. debt from America’s largest debt holders, the U.S. dollar losing its status as the world’s reserve currency, the dollar losing in the subsequent currency wars, and ultimately, the United States losing hegemony over the rest of the world.

As the federal government continues to spend at record-breaking rates while the U.S. economy continues to stutter, what will be the precursor to the crash?

My educated guess will be increasing sell-offs of U.S. foreign debt held by those closest to the BRICS uprising.

 

One Response So Far... Leave a Reply:

  1. James Larning says:

    Great article and I like how you grabbed me with a fiction twist at the beginning of the post. Thanks and I’ll continue to visit!