Great Analogy of the US National Debt

Two points.

First of all Ron Paul is not a Libertarian. He's a Republican that holds many libertarian beliefs but he's still a Republican. In reality many Republicans and Democrats hold many libertarian beliefs but they also hold many anti-libertarian beliefs. Ron Paul is no exception to this rule although he holds more libertarian beliefs than any other member of Congress. That does not make him a libertarian but merely a Republican with libertarian leanings.

Next is that while "sacrifices" will be necessary it doesn't imply that "austerity" is the result. Yes, we need higher taxes to increase revenue but we don't need to impose tax increases that exceed previous historical levels. We also need to cut federal expendatures but not to the point of limited expendatures that have existed previously.

What I see is as more important is correcting the errors of Congress in the past.

Ending our foreign military imperialism does not create austerity in the United States. This foreign military imperialism is completely unnecessary and it costs us hundreds of billions of dollars that we simply don't have. This foreign military interventionism is not about defending the United States from foreign invasion and has actually resulted in creating a greater threat to America than that which would exist had we not been intervening in the sovereign affairs of other nations.

We also need to address the fact that Congress in addressing the "welfare" of Americans has focused on the "symptoms" as opposed to the problems. Social Security is the poster child for this reform because it addressed a symptom of a problem identified in the 1930's where roughly 1/2 of all individuals had not invested during their working lifetime and therefore didn't have the personal wealth with which to support themselves in their old age. Instead of addressing the accumulation of personal wealth so that individuals could support themselves during retirement Congress created a welfare program to provide that income based upon taxing future Americans. It addressed the symptom and not the problem which was a lack of personal wealth accumulation when a person is working. Privatization of Social Security based upon a 401K type model (with a safety net) is how this needed to be addressed because it creates personal wealth. Every day Congress waits it becomes more costly to address the problem as opposed to the symptom.

Yes, there are many other measures that need to be addressed but it doesn't imply austerity. It can and must be done but many Americans believe that the sacrifices will be "too much" but in reality they need not be. The problem is that neither Republicans or Democrats are proposing any resolution to the problem.

 

Thinking more about the debt issue, seems to me the ONLY way to resolve debt is 1) when we have a prosperous economy, 2) when we have the appropriate income stream, and 3) when we have spending reductions and constraints.

The USA does not have a prosperous economy right now. It has a reasonable economy but it is burdened with many long-term issues.

The federal government does not have the political willpower, nor will the weak economy allow, significant increases in tax revenues.

The federal government is reluctant to pigeonhole itself with spending reductions or budget constraints.

Unless someone can argue the impetus that will develop items 1, 2, and 3 above, it is basically impossible, both financially and emotionally, and certainly politically, to take any action whatsoever towards the mounting US debt...

 

All the math and scenarios are trumped by the political fact that politicians are scared to death to increase taxes prior to or around election time and the electorate continues to refuse tax increases. It is not clear to me the fragility of our economy and what will happen if we remove $500 billion per year from the private economy and transfer it to the government? I also don't believe we should increase taxes on anyone until we better define government's role and have spending constraints in place. So...although you question my wisdom, we're right back to the idea that in order to attack deficits and debt, we must have a strong economy, must be willing to increase the tax revenues, and must have some spending limits in place...all of which IMO we do not and will not have in place in the near future.

I'm not full of BS on this topic but I don't see us balancing any budget in the next 10 years! Once again here are Obama's budget numbers; the year, the receipts, the outlays, and surplus or deficit(-)

2008 2,523,991 2,982,544 -458,553
2009 2,104,989 3,517,677 -1,412,688
2010 2,162,724 3,456,213 -1,293,489
2011 2,303,466 3,603,061 -1,299,595
2012 estimate 2,468,599 3,795,547 -1,326,948
2013 estimate 2,901,956 3,803,364 -901,408
2014 estimate 3,215,293 3,883,095 -667,802
2015 estimate 3,450,153 4,059,866 -609,713
2016 estimate 3,680,085 4,328,840 -648,755
2017 estimate 3,919,275 4,531,723 -612,448

IMO the first question to answer is defining government's role and the cost for this. Are Americans pleased today with how our government is structured and it's cost? Should we be spending more or less on government? When we know this answer then we can understand how much tax revenue is required. I don't want to give the louses another dime until they stop their out of control spending! I am sick and tired of the US spending trillion$ outside of the US while at home we are rotting! Now Panetta is threatening Pakistan so is this going to escalate? Iran?

IMO Bush and now Obama have bankrupted the USA by focusing more outside the USA than at home. IMO it's past time to stop this nonsense and focus on our domestic needs...

 

Current economic experts I've read in the Wall Steet Journal are citing the problems in Europe and China as being the factors responsible for the slowdown in the US recovery. It isn't an "internal" problem.

Congress doesn't have to vote to raise any taxes. It can simply allow the Bush cuts and FICA/Payroll cuts to expire at the end of December to achieve the $500 billion in additional revenues. It will actually have to vote for $500 billion tax cuts for this not to happen.

Of note the deficits cited are based upon the Bush era cuts and FICA/Payroll cuts expiring. If Congress extends them then the revenues are much less than projected. The CBO, which I believe made those projections, basis it's projections on the existing laws which have the Bush cuts and FICA/Payroll cuts expiring in December.

I have never intended to imply that anyone pointing out the political problems with obtaining a balanced budget is full of BS as my intended position is that only those that say "it can't be done" are full of BS as it can be done without being draconian in the process. It can be done relatively easily but that doesn't mean that Congress is fiscally responsible enough to do it.

 

Sounds reasonable.

Mine were:
#226
#228
#229
#230
#231
#233
#237

And certainly include what you said in #238: "First of all in the US Constitution when referring to the United States it is referring to the States and not to the federal government..."


Just be sure to link to to the new topic here so I can find it.

 

Moved noted posts as well as other relevant posts to this thread for further discussion:

http://www.politicalforum.com/united-states/251242-constitutional-issues-moved-posts.html

It's great to be a moderator. LOL Of course members can request this of the moderators as well when they find that they're moving a thread off topic but involved in an interesting discussion.

Shiva_TD
Site Moderator

 

There was an excellent article in the news that highlights a serious problem with the debt and it's impact on the economy.

http://finance.yahoo.com/news/u-deb...RzZWMDbWl0X3NoYXJlBHNsawNtYWlsBHRlc3QD;_ylv=3

A couple of facts related to this that need to be pointed out. While total debt, personal, corportate and public debt, all contribute to whether the economy expands or contracts, any one of them individually can cause a contraction (recession) in GDP growth if they become excessive. It is a condition of "or" and not "and" which was significant 2007-8 when the recession hit. Predominately it was driven by personal debt had soared to an all-time high and the people were over-extended with an average debt to income level above 130%.

Borrowing prior to 2008 had fueled an economic bubble but that bubble could not be sustained because the borrowing could not continue. This became starkly evident related to home purchases and auto purchases which are overwhelmingly paid for with borrowed money. Both the real estate market and the automotive markets collapsed because people couldn't afford to borrow any more money for these purchases. Corporate borrowing was also excessive and contibuted but predominately the recession was a result of personal borrowing that had soared way beyond what the people could afford.

As the story notes since 2008 there has been a significant reduction in both personal and corporate debt but government borrowing has now soared. The article notes that by 2011 the public (government) debt had reached 89% of GDP and that is worse for 2012. The projected US GDP is roughly $15.6 trillion and just based upon the increase in the US debt ceiling to $15.2 trillion, which only takes us to October, the public debt is going to rise from 89% of GDP noted to over 97% of GDP in 2012. Realistically we can actual expect the public (government) debt to exceed the GDP this year because I doubt we'll reach the $15.6 trillion in GPD or that that the national debt will remain at just $15.2 trillion by the end of the year.

http://knoema.com/gdp-by-country?gclid=CKHRzuj8wLACFSoZQgodNznGXQ

Bascially the American people and corporations are doing what needs to be done to bring the economy back into sustainable growth and expansion but the federal government, by borrowing, is counter-acting the positive moves by individuals and corporations. If the US government adds another $900 billion in debt in 2013 as both Republicans and Democrats are proposing then individuals and corporations have to reduce their debt by an additional $900 billion just to break even. That's $900 billion worth of cars, homes and other commodities that won't be purchased by the private sector that could have been funded by borrowing by individuals and corporations that have already reduced their debt to below the thresholds required for the economy to expand.

To put that into perspective $900 billion in additional federal debt equals about 9 million jobs which will not be created in 2013 because of the increases in the national debt projected for 2013.

 

Who knows the answer of what the downside risks are to remove $500 billion from the private sector and transfer it to government?

I'm guessing here but on average does the Obama tax cuts and FICA holiday give an extra $2000 per year per average worker? If this is true, and ignoring taxation on this additional income, this is approximately $40 cash per week per worker. Who knows the answer of what happens when 150 million Americans reduce their spending by $40 per week?

GDP creates jobs at about $100K each while government spending creates jobs at about $250K each. If these numbers are accurate, then transferring $500 billion to government increases unemployment.

Lastly, how can we justify giving another dime to government before they can prove they will act in a fiscally responsible fashion that directly benefits Americans at home?

 

"Although we have a whole cottage industry devoted to warning us about the dangers of too much public debt, we don’t have any comparable Cassandras telling us about the dangers of too much private debt. Yet the history of the past 30 years (or 300) clearly shows that too much debt, of whatever variety, can pose a systemic risk to the national and global economies.

As much as we hear politicians, pundits, tea-party patriots and the Congressional Budget Office obsessing about government debt, it was excessive private debt — not public debt — that caused the 2008 financial meltdown." (U.S. debt load falling at fastest pace since 1950s, MarketWatch, By Rex Nutting | MarketWatch – Fri, Jun 8, 2012 12:00 AM EDT)

Bad free enterprise makes a ball of debt and bad government fixes it with a length of chain...

Kept thinking about that $6000 house, and have 1944 math book:

"Should Mr. and Mrs. Jenkins buy this attractive $4000 home? They have $1500 with which to make a first payment on it, and can borrow the remaining $2500 from the local Building and Loan Association. Do you think that borrowing money to buy a houme is advisable? Under what conditions is it advisable?" (Arithmetic for Young America, grade eight, by Raleigh Schorling, John R. Clark, and Rolland R. Smith, World Book Company, Yonkers-on-Hundson, New York, Copyright 1944)

Although the picture shows Mr. and Mrs. Jenkins sitting in a shiny nice convertable, house approximately 900 square feet, which I bet would be illegal new today where that one was, according to my parents, after the war, they were using a wood stove and had to take the car down to the creek to swell the spokes; the book was from night school because daddy went in the Army at 16, before Pearl Harbor.

"Average Cost of new house $3,450.00
Average wages per year $2,400.00"
http://www.thepeoplehistory.com/1944.html

69.57% (what percentage wages is of new house)

2010 $272,900
www.census.gov/const/uspriceann.pdf
2010 $39,959.30
http://www.ssa.gov/oact/cola/awidevelop.html

14.64% (what percentage wages is of new house) Just see CNN's truck driver Bernita Jones, whose house was in a hood that I used to howl at the moon at when it was woods.

7810.14 (percent difference between houses)
1564.97 (percent difference between wages)

-78.96 (difference between the two above percentages)

"As a percentage of gross domestic product, a yardstick of a nation’s economy, the total debt in 1944 was 97.6 percent and debt held by the public was 88.3 percent." http://www.politifact.com/new-jerse...olt-says-1944-us-had-twice-much-debt-it-does/

Considering all the figures this is the Greater Depression.

Not impossible to fix though.

PS. The cute lifeguard made me go home because of lightning, and it is still raining, and I do not know if it is the after laying in the surf beachbum malaise or my bad bwain, but whoever's household debts hit 85% of GDP is an idiot. All subsequent figuring is been to beach bwain ciphering where I helped lifeguard move stuck stand...so don't laugh too much...my little bwain is messing with my big bwain.

 

A point being missed is that Americans have predominately been paying down personal debt and that doesn't create jobs. So that extra $40/wk wasn't creating jobs. Of course paying down personal debt is important for the economy but if the government borrows a dollar for every dollar of personal debt that's paid off the net effect is that there is a zero reduction in debt. The total debt has not changed in that case because total debt is based upon the combined private and public debt. Government deficit spending is off-setting the reduction in personal debt today. Private debt (personal and corportate) is back where it belongs but public debt has soared way above what it can be for a healthy economy.

Of note the FICA/Payroll tax reductions were not a tax reduction. They were a shell game where those funds were replaced with general revenue taxes (or borrowing against general revenues). Why didn't they just reduce income tax rates for those earning below $107K instead?

There are two components to fiscal responsibility. It is a combination of increasing revenue as well as reducing expendatures. Allowing temporary tax reductions to expire increases revenue by roughly $500 billion but that has to be matched with roughly $400 billion in expendature reductions. Doing both is fiscally responsible. Simply raising taxes without the expendature reductions is fiscal irresponsibility. Tax increase and expendature cuts that result in a balance/surplus budget are fiscally responsible. Is there any question about that being a fact?

 

Outside of the "cute lifeguard" I sort of got lost with the numbers but I will provide an example.

In 1950 my parents purchase a new 'middle-class" home that was probably 900 sq/ft with a one-car attached garage for roughly $6000.

Using the 'gold clause' which was re-instated in 1977 under President Ford I recently sold a home for $6,000 in American Gold Eagles. Those Gold Eagles have a comparative value of slightly more than $200K which is about what the 'market value" was of the house I sold. I would state that the home I sold was slightly better than the one my parents purchased but they were basically equitable.

The cost of the two was basically the same. We have a serious problem related to legal tender in the United States today because a $50 American Gold Eagle and a $50 Federal Reserve note, both of which are legal tender for all debts public and private, are the "same" according to the laws of the United States but don't have the identical purchasing power. Title 31 establishes a requirement for the Federal Reserve to maintain the equal purchasing power but it does not and our goverment isn't forcing the Federal Reserve to comply with the law.

If both forms of "legal tender" (i.e US coins and currency) had the same purchasing power then the national debt, as measured in American Gold Eagles, is equal to over 300 billion ounces of gold. It would take over 1000 years for the US government to pay off the debt in American Gold Eagles.

That is a different story for a different discussion of course so let's not go into it here.

 

In your example the home is basically equitible, cost $6000 then worth $200K now.

By coincidence my house was built in 1944. Cost then I assume to be around the same for the period, the owners used to sit on the roof and watch the Daytona races on the Beach, and before the housing bubble burst was appraised at $240K, which as a former Real Estate agent I thought was way too high.

The fair market value has increased, yet that increase is not the point.

Say for instance an ounce of gold was $33.85 in 1944, and in 2010 it was $1,224.53, ignoring all the stuff about FED thingys, we need to know the percent difference between the two and compare that to figures between to times to see if we are screwed more now than then.

There is like a difference of 3517.52% between gold in 1944 and gold in 2010.

http://www.nma.org/pdf/gold/his_gold_prices.pdf

So then you look at the percent difference between wages then and now, and other stuff like .15 gas versus what we have now...or cost of living.

1564.97% (percent difference between wages of 1944 and 2010) and 3517.52% (percent difference between gold prices of 1944 and 2010) are no where near each other.

Could just be my math, or data, or bad bwain, or could just be a problem. Kind of like when Heisenberg was told it could be, and he explained how it could be, if a brain child figures out the problem here I might see it.

If you are lost with my numbers, believe me, I am brain dead with them.

What we are interested in is the debt.

Now if wages, between the times, are not keeping pace with say the price of gold, between the time, then today it is reasonable to assume especially when considering that in CNN's truck driver Bernita Jones hood zoning laws require a larger house than in 1944, one has to have more debt than say Mr. and Mrs. Jenkins for the same house. And that increased debt is not just from an increased in house size.

That I would think is relevant.

Now if my figures are correct, about the 1564.97% (percent difference between wages of 1944 and 2010) and 3517.52% (percent difference between gold prices of 1944 and 2010), what effect is there on your calculations between the Federal Reserve note value and Gold Eagles.

Certainly if wages are not high enough it will take longer to pay off the debt than it did for those after 1944.

You have $6000 in Gold Eagles, which according to you is equitable to $200,000 in Federal Reserve notes.

Gold price now $1594.60, and gold price at the link above in 1950 was $34.72.

There is a 3,233.33% difference between 6000 and 200,000, but a 4492.74% percent difference between gold prices of 1950 and 2012.

So, if my figures are correct, how would it correlate to your "It would take over 1000 years for the US government to pay off the debt in American Gold Eagles?"

Does the difference between your 6000 and 200,000 house costs for the same house, and percent difference between wages of 1950 and 2012 (figures not included here), and 1950 and 2012 gold prices, support such an argument?

Now 3233,33 is 71.97 percent of the total 4492.74. Granted you are probably rounding the 6000 and 200000, so it throws it off, but is it really a factor of depreciation of that old house or inflated market prices?

At this point in the brain dead math the plebian is looking at the "1000 years for the US government to pay off the debt" with American Gold Eagles, and to compare that to the projected time to pay it off using Federal Reserve notes, right?

So what is the projected time to pay off the debt with Federal Reserve notes? Any plan will do. We need that to determine if the percentages match up with the other factors.

Now really at this point in rhetoric a statement like "It would take over 1000 years for the US government to pay off the debt in American Gold Eagles," is easier than actually showing the math. The plebian is not expected to do the math, eyes are expected to glass over, and such rhetoric is more easily acceptable. Let's elect Ron Pods. Because to be honest when I asked a Ron Pod to tell me what taxes he supported, instead of pie in sky chart first time Ron Paul ran, the minion could not tell me then whether it was excise or imposts or other; so in my eyes the invasion of body snatching pod people had begun.

The worth of the house between times is indicative of many factors, and the price of gold between those times is too, but most important is the wages of the people we need to pay off the debt. Those wages MUST be comparible in gold of the time to the 1944 greatest generation, if not the debt certainly will take longer to pay off.

Intuitively, without knowing of a plan to pay off the debt with Federal Reserve notes, I suspect the 1000 year figure is way off.

What is more important is whether our wages and costs of living are comparable to the generation that had such a debt, as to how screwed we are. Unless of course they were using Gold Eagles? And I still do not understand that.

 

There are surely tens of millions of Americans who are spending that $40 each week into the economy because they don't have any/much debt. I suppose if debt is being paid down this provides more cash to the lenders which does energize the economy with jobs...don't know how effective this is but it is productive for the economy.

The primary discussion about debt should be about assuring the US economy is as healthy as possible. A healthy economy basically solves all the deficit and debt problems. However, even an economy 25% larger is meaningless if our idiots in Washington keep spending and spending...

 

The US government established the value of gold at $50/oz (unless it's with $10 American Eagles and then it's $40/oz).

Article I Section 8 delegates the Congress with the responsibility to coin Money and regulate the Value thereof. The Congress has done this repeatedly over the history of the United States and most recently with the Gold Bullion Coin Act of 1985.

http://caselaw.lp.findlaw.com/data/constitution/article01/

I didn't set the "Value" of Gold coins, the US Congress did. The purchasing power of an ounce of gold hasn't changed much over time but the "value" as lawful money has. It went from roughly $20/oz with a Double Eagle to $50/oz for an American Eagle. The ounce of gold still has the same purchasing power. Federal Reserve notes are promissory notes and like all promissory notes in the free market they are discounted. Currenty a Federal Reserve note is discounted about 97%. People call that "inflation" but in fact it's just the discounting of promissory notes based upon the ability of the individual to redeem the promise. Today a person is required to use about $1700 in Federal Reserve notes to obtain $50 in lawful money (i.e. a $50 American Eagle coin).

But I really didn't want to get into this here. Technically, under the law, the US government owes about 300 billion ounces in gold but it doesn't have to use gold to eliminate that debt. It can also "burn" the promissory notes that equal that amount.

 

No problem getting into it, we have to pay the debt in real money not Archie comic book gold.

I am still not getting the point of it. If you opened the issue in cross examination to then take it off topic is kind of wierd.

If the value of gold is $50/oz, when you get the payment, you put it in God's little acre, no problem, if you loan it and the debt is not just based upon $50/oz and accrued interest, it is based upon accrued interest and $1594.60/oz, due to Archie comic book value, we have a problem.

The purchasing power of an ounce of gold hasn't changed much over time?

I find that hard to believe when in 1950 it was $34.72 and now is $1594.60.

If I gave you a dollar in FED paper in 1950 and you put it in a frame it is worth what it says it is worth in Gold 300 years later, , you got one dollar in gold, probably need a microscope to see it; ignoring its Archie comic book value; I see no problem with that. I do see a problem with our debt increasing because the unit of measure grows larger due to Archie comic book value.

{(*)(*)(*)(*), where did I put those Dark Shadows comics?}

If our debt is $34.72, and the interest rate is low, and we do not pay it off in a timely manner but we allow the $34.72 to increase not by accrued interest but due to $34.72 growing like Archie comic book value, there is a problem.

That is the way it looks to me. I just do not get the other point.

*****

"A point being missed is that Americans have predominately been paying down personal debt and that doesn't create jobs." (Shiva_TD)

"There are surely tens of millions of Americans who are spending that $40 each week into the economy because they don't have any/much debt. I suppose if debt is being paid down this provides more cash to the lenders which does energize the economy with jobs...don't know how effective this is but it is productive for the economy." (OldManOnFire)

I agree with OldManOnFire that less personal debt frees up more money for more economy and thereby creates jobs. In fact I would claim paying down personal debt and keeping it low creates more jobs in the long run; consider that personal debt is like friction, it creates more potential for failure and any failure is like a loss of grease in the economic bearing.

This is proof that irresponsible lending was fueling business:

"Why the sudden clampdown on business cards? The answer lies in the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. Better known as the Credit CARD Act, this federal consumer-credit reform bill became law in May 2009. Starting in February of 2010, the law imposed restrictions on consumer credit card terms, including limits on what card issuers can charge in late fees and higher interest. The catch? Business credit cards weren't included in the law's protections, giving credit card issuers free rein to make up their consumer card losses with business card rate and fee hikes." http://www.allbusiness.com/banking-...ervices-payment/15306162-1.html#axzz1xV4IZ3wy

Source: http://www.allbusiness.com/banking-...ervices-payment/15306162-1.html#ixzz1xV4dEAyu

The real people opposed to responsible debt management:

"The National Retail Federation said the rule "undermines more than a generation of progress" since passage of the Equal Credit Opportunity Act."

Read more: http://www.creditcards.com/credit-c...cards-household-income-1282.php#ixzz1xV5dY7GZ
Compare credit cards here - CreditCards.com

"Women trapped in abusive marriages may be unable to work due to a controlling spouse, a hallmark of relationships characterized by domestic violence," Maloney and Slaughter told the Federal Reserve in a letter as it was considering the rule. "The availability of an independent credit card may represent her best chance at establishing independence and a path out of a dangerous relationship." (ibid)

And who exactly is paying those payments, the real slave or the ball and chain? And are those retail credit cards really going to reduce abuse and domestic violence?

 

The Congess of the United States determines the "value" of US Coinage under Article I Section 8 Clause 4. Congress, has over time, redefined the value of gold coins produced by the US Mint. What a US Minted Gold Coin is worth on the free market as a medium of exchange has been relatively constant related to other comodities based upon 1 oz of gold to other commodities over time.

To Reflect how Congress has changed the "value of money" we can use the following example though.

A Double Eagle is a gold coin of the United States with a denomination of $20 and have a gold content of 0.9675 troy oz. The coins are made from a 90% gold (0.900 fine = 21.6 kt) and 10% copper alloy. The Double Eagle gold coin was authorized by the Coinage Act of 1849. During the lifespan of Double Eagles we had several different US Mint Silver dollars and the Peace Dollar was the last of those. The Peace Dollar had 0.77344 oz of silver. The relationship between a US Silver Dollar and an American Double Eagle was roughly 26:1.

Since 1985 when Congress last changed the value of gold coins a $50 American Eagle contains 1 troy oz of gold plus other alloys (mostly copper for hardness) for a gross weight of 1.0909. This is very comparable to a $20 Double Eagle but it's value relative to a Silver Eagle is substantially less. An American Silver Eagle contains one ounce of pure silver so the relative value of a Silver Eagle to a $50 Gold Eagle is 50:1 (except if compared to $10 American Eagles and then the value is 40:1 because Congress failed math 101).

What many people fail to understand is that the enumerated role of Congress to "regulate the Value thereof" related to money is not about how much a person can buy with a dollar. It's about ensuring that the different metals used in US Minted coins are all "worth" the same amount, or a close as possible, to each other. Based upon the current laws passed by Congress in 1985 fifty American Eagles should have the same purchasing power as one $50 American Eagle because that is what Congress established by "regulating" the value of the two different coins.

Today that 50:1 silver to gold ratio is fairly accurate as the relationship between American Eagle Silver Coins and a $50 American Eagle gold coins is 50.85:1.

Federal Reserve notes are just what they say they are. They're "notes" and in finance that refers to promissory notes. They are legal tender but they are not lawful money. They promise redemption in lawful money but the Federal Reserve will not honor that promise if we present Federal Reserve notes for redemption at a Federal Reserve bank. Their relationship to lawful money is the same relationship that any promissory note has. It is discounted and like all notes the discounting is directly related to how hard it is to redeem that which is promised.

Ironically, as the US Central Bank, the law (Title 31) requires that the Federal Reserve maintain the equal purchasing power of all legal tender in the United States. American Eagle coins are legal tender and they are the only legal tender other than Federal Reserve notes in circulation today. Obviously a $50 American Eagle will purchase a lot more than a $50 Federal Reserve note and the Federal Reserve it out of compliance with the laws of the United States.

 

Federal Reserve notes are not promisory notes.

Federal reserve notes are absolutely lawful money. You are really trying to argue they are not lawful money?

I very much doubt that. Please cite the law that "requires that the Federal Reserve maintain the equal purchasing power of all legal tender in the United States."

 

So an addition to the "Great Analogy of the US National Debt" would be when the kids come into the office with an amortization schedule that is a few pages, and hand the usurer a payment with Federal Reserve Notes, and are handed a new amortization schedule that is thicker than Raygun's budget and their money back.

They look at it all dumbfounded, and they say, but "this says it will take a 1000 years to pay it off?"

And then the usurer with a big smile points to the Obamanator type picture of the Libertarian President who put us back on lawful money, and says, "we do not accept funny money."

Is that accurate?

 

This is a rather long road to establish what money is and what the laws are regarding it but let me try.

First of all Federal Reserve notes specifically state right at the top of the bill that they are a FEDERAL RESERVE NOTE and all "notes" under the financial definition are promissory notes.

http://education.yahoo.com/reference/dictionary/entry/promissory note

The Statutory Laws of the United States also establish that a Federal Reserve note is a promissory note as the laws require redemption of that note in "Lawful Money" (i.e. indicating that Federal Reserve notes are not "lawful money" as a note cannot promise itself).

http://www.law.cornell.edu/uscode/text/12/411

A Federal Reserve note is not "money" but it is legal tender which can be used in lieu or money for all debts public and private. This is also established by Statutory Law.

http://www.law.cornell.edu/uscode/text/31/5103

As for the requirement for the Federal Reserve to maintain the equal purchasing power of all legal tender in the United States this is also covered under statutory law:

http://www.law.cornell.edu/uscode/text/31/5119

So technically the Treasurer of the United States is to determine if the two forms of legal tender (i.e. American Eagle Coins and Federal Reserve notes) have the same purchasing power. If they do not then the US Treasury is to redeem Gold certificates the Federal Reserve has in its possession (which are backing for Federal Reserve notes), the US Mint will produce the gold American Eagle Coins and the Treasury will provide those coins so that the Federal Reserve, as the US Central Bank, and introduce them into circulation. That isn't happening......

Instead of referring to the Gold Bullion Coin Act of 1985 let me use a quotation from the US Mint just to confirm that all American Eagle coins are legal tender.

http://www.usmint.gov/mint_programs/american_eagles/index.cfm?Action=american_eagle_platinum

Of course I could also cite the US Supreme Court decision in Julliard v Greenman on "Legal Tender" where the Supreme Court declared promissory notes issued or authorized by the US government as being Constitutional based upon Article I Section 8's delegated authority of Congress to "borrow money on the credit of the United States" as opposed to it's authorization to coin money but I'll just provide the link.

http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=case&court=US&vol=110&page=421

A lot of ground is covered so let me summarize it all. Title 31 establishes that Federal Reserve notes are legal tender and according to Title 12 Federal Reserve notes are to be redeemed on demand in "lawful money" which makes them a promissory note.

Title 31 also states that US Minted coins are legal tender and the US Mint confirms that all American Eagle Coins are legal tender coins. American Eagle Coins to not promise anything and are not promissory in nature. They are what they are, lawful money.

There are only two forms of Legal Tender being produced in the United States today with one being Federal Reserve (promissory) notes and the other being US Minted American Eagle coins which are lawful money because they don't promise anything. American Eagle coins are "lawful money" because money is not a promise of money - Federal Reserve notes promise lawful money. Both are legal tender.

This take us 90% of the way down the road because US Minted Coins are "Lawful Money" (i.e. legal tender) coins being produced by the US Mint but it doesn't define "money" which Congress is authorized to "Coin" under Article I Section 8.

The end of the road is that the gold, silver and recently added platimum is the money that the US Mint takes and turns into "lawful money" by the manufacturing process of "coining" of the money. The Mint creates a controlled alloy with a specific amount of "money" (e.g. one troy ounce of pure gold for a $50 American Eagle plus other alloys for hardness) and through the manufacturing process of "coining" creates a "token" that is certified by the Mint and assigned a denomination relative to the other "coins" being produced by the US Mint and that is legal tender lawful money.

US Congress is delegated no authority to "create" money in the Constitution because it cannot create gold, silver or platinum but it authorized to take gold, silver and platimum and to "coin" it into lawful (i.e. legal tender) money for use in commerce. It is also authorized to borrow money (i.e. gold, silver and platinum) on the credit of the United States and issue promissory notes (e.g. Federal Reserve notes) under the Constitution that represents that borrowing of money.

There is a slight problem though and that is when Congress "borrows money" its issuing promissory notes but not actually getting any "money" for them. That's a whole different problem that relates to "check kiting" on an epic scale.

 

Almost LOL but there is a way out of the problem. Not a "pretty" way but there is a way.

First of all many wrongly believe that Nixon took us off the gold standard but he did not. He merely withdrew the US from the Bretton Woods agreement that set an arbitrary value of $35 USD per ounce of gold. FDR in the 1930's (techincally) under the Emergency Banking Act had "borrowed" all of the gold (money) of the American people to address the financial problems of the depression and issued Federal Reserve (promissory) notes that promised redemption in gold coins once the emergency was over. That "emergency" continued until 1974 when the Ford adminstration repealed the Emergency Banking Act. Techincally we were back on the gold standard and Title 12 stated we could redeem our Federal Reserve notes in "lawful money" which included gold coins but the Federal Reserve wouldn't do that and still won't. The government is not requiring the Federal Reserve to follow the statutory laws of the United States.

Anyway, that brings us up to today and obviously the US government doesn't have enough gold to back the dollar at $50/oz. It doesn't have to back every dollar but it has to back enough of them on demand until the demand is satisfied because people really do like to use currency. It is easier in most cases to use. Additionally it only needs to cover "legal tender" in circulation which is less than $1 trillion today but which would certainly go up if people could redeem Federal Reserve notes in American Eagle coins.

So I did a little math and based upon the national debt (i.e. what the US government owes) and the estimated gold supply of the US government (which includes much of that which was borrowed from the People in the 1930's) I came up with the "value" of an ounce of gold in dollars. It worked out to one ounce of gold being worth about $5000.

That is considerably higher than the value of gold on the free market today but if the US government had to redeem the entire $15 trillion national debt it could only do it based upon the gold it currently has in it's possession. That would still drive the price of gold up and the US would be required to replace the gold it coins into money and issues on demand with more gold revenues.

So, based upon the authority of Congress to coin money and regulate the value thereof I would have Congress pass a new law similiar to the Gold Bullion Coin Act of 1985 and create a $5000 gold coin with one ounce of pure gold. Wa-La we're back on the "gold standard" and anyone could go into any Federal Reserve Bank and redeem a $5000 in Federal Reserve notes for a $5000 American Eagle coin. The US government could pay off much of it's pre-existing $15 trillion debt with the new $5000 American Eagle coins by simply coining the gold held at Fort Knox.

The key for the future would be that the Federal Reserve could only use $5000 gold coins to purchase federal debt and it would always be forced to redeem any Federal Reserve note in "lawful money" in the future. That would put a brake on this run-away borrowing because the borrowing is basically limited to "gold on hand" or "gold revenues" by the Federal government.

 

I see an argument that would tend to indicate any coin which value is set by Congress, but its actual value cannot really be set, and its purpose is a Gold Standard or to back up Federal Reserve Notes in circulation, is illegal; since the value of Gold cannot be regulated, and the coin has a face value, therefore, the Gold coin of a set value is unconstitutional.

If say for instance Congress commissioned Gold coins but they had no face Value, they simply contained a set portion of Gold, and when a twenty dollar Federal Reserve Note was redeemed and you wanted Gold you get twenty dollars in Gold at current Gold prices and no more than twenty dollars in Gold in real time, then it would be legal.

That is only if "To coin Money, regulate the Value thereof," means they are regulating the value of Money (a Unit) and not a commodity such as Gold.

In essence any coin which had or has a face value or set value lower than its actual value in metal would be unconstitutional, because Congress has the power to regulate the Value of money not the power to regulate the Value of a commodity of Gold.

And if Congress sets the value of money at money (a Unit), not the value of money at Gold (a commodity), twenty dollar paper is worth twenty dollar paper, that is their power. The twenty dollar paper is legal tender, the coin that has a face value of twenty dollars but its true value cannot be regulated is instantly unconstitutional.

Due to your argument it would be better to pay off the debt first, then pass laws that future debts be backed up by a reserve of Gold; still the same problem exists if the Value of Gold plummets such that not enough exists to back up the debt.

Since it is so much easier to regulate a Unit than a commodity, therefore, "Lawful Money" cannot be a commodity.

Best just to pay off the debt, with the Units in circulation, and have a balanced budget amendment, where so much money put in circulation is backed by so much money specifically in reserve for such debt, such that any debt can be paid off instantly if need be. And if the need happens, no further debts can be acquired beyond a specific amount backed by the emergency reserve. Money does not have to be backed by Gold, or any other fluctuating commodity, it is simply backed by a "Unit" whose value is regulated and has reserves in place for debts and emergency.

 

Decisions, Decisions; if you decide we are straying off topic:

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Could just start from here:

#243 {Iriemon's post}
#244 {because of this post I do not think they should be moved, without including a good reference to the video in the first post of this topic, I kind of think this one should remain, along with enough to see how we got here}
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Me and Iriemon have been debating for a while:

http://www.debatepolitics.com/archives/20826-terrorists-not-terrorists-9.html#post562692 {a little humor}

 

This is a misunderstanding of what "establish the value thereof" is referring to. It has nothing to do with "purchasing power" of the dollar. It has to do with regulating the different "coins" made out of the same or dissimilar metals.

For example, the Gold Bullion Coin Act of 1985 established that a $50 American Eagle contained 1 oz of pure gold and a $5 American Gold Eagle contained 1/10th of an ounce of pure gold. Congress "regulated the value thereof" between the two coins and it is logical that a $5 coin should have 1/10th of the amount of gold content that a $50 coin has because it's 1/10th as much based upon the denomination of the coin. Ten $5 American Gold Eagles have the same gold content as one $50 American Gold Eagle. What doesn't make sense in that law is that a $10 American Gold Eagle has 1/4 ounce of gold so five $10 American Gold Eagles contain 1.25 oz of gold while the $50 American Gold Eagle only has 1 oz of gold. I'd rather have $50 in $10 American Eagles than a single $50 American Gold Eagle and if they were in common circulation today in their capacity of "legal tender" then everyone would rather have the $10 Gold Eagles because they contain more "money" that either $5 or $50 Gold Eagles. Congress screwed that one up.

But Congress also has to "regulate the value thereof" between Gold Eagles and Silver Eagles and the introduced $100 Platinum Eagles that were added in the 1990's.

Congress did "good" with the relationship between metallic content of the Silver Eagles and Gold Eagles when they established the 50:1 relationship as that's the current relationship between the "money" which is the silver and gold bullion in the market.

Congress failed related to the $100 Platinum Eagles though because there isn't a 2:1 relationship between gold and platinum in the market. In fact, I just checked the value of gold and platinum and gold is selling for slightly more than $1600/oz while platinum is selling for slightly less than $1500/oz. Platimum is worth less than gold currently so a $100 Platinum Eagle is not worth two $50 Gold Eagles. A person would have to be a complete idiot to exchange two $50 Gold Eagles for a $100 Platinum Eagle.

Congress does not "regulate the value thereof" for Federal Reserve notes. As was previously addressed these are "legal tender" promissory notes and the denomination on the bill establishes what it's "worth" if redeemed in lawful money under the law. Because the Federal Reserve doesn't comply with the law in redeeming Federal Reserve notes in "lawful money" in the free market they are discounted (just like any other promissory note) which is why a Federal Reserve note will only purchase about 2.5% of what "lawful money" will purchase.

Congress, since the passage of the Emergency Banking Act of 1933 (repealed in 1974) has forgotten that when they refer to "dollars" in legislation there are referring to the lawful money of the United States which is American Eagle coins. For example the current Federal minimum wage is $7.25/hr which equates to $290/wk for a 40-hr workweek. If they were paid every two weeks with a paycheck for $580, under the laws of the United States which I've previously cited they could cash that check and receive (11) $50 American Gold Eagles and (30) American Silver Eagles that have an exchange value relative to other commodities equal to over $19,000 in Federal Reserve notes. Not bad when a person earning federal minimum wage could purchase a new car with two weeks wages if they were paid in US Minted coins that are legal tender and "lawful money" in the United States.

As a reminder I just sold some real estate for $6,000 in Gold Eagles and as long as I don't convert those to Federal Reserve notes, which I have no intention of doing, then I took a huge financial loss on the property. I did verify that I can write-off this loss with the IRS (in writing) because $6000 is $6000 as far as the US government is concerned regardless of whether it's in Gold Eagles or Federal Reserve notes. Of course if I sell those coins, as opposed to just spending them, then I'll earn a profit and would have to pay taxes on that profit.

 

Such arguments will be your undoing.

Since the rich principle means of production has been cheating poor people for decades and not paying them in lawful money, therefore, we need redistribution of wealth and social and economic justice; forty acres of arable bottom land and an air-conditioned John Deere tractor with all necessary implements, seed, and fuel for a year, should be a good start. Obama 2012! Long Live the Obamanation!

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A set number of Units can be regulated to buy a commodity, but a commodity cannot be regulated to buy another commodity and it be called trade and more expressly be called "Free Trade."

We can give you 30 units of Caesar for so much work and can regulate how many Caesars are in circulation, because We have a monopoly on making Caesars, but because We do not have a monopoly on making Gold, We cannot regulate the value thereof.

The intent is to Make Money, and regulate the value of it; whereas only the States or forbidden to Make Units of Money.