Comments on economics, mystery fiction, drama, and art.

Tuesday, April 05, 2005

"Just IOUs"

I may be forced to rant at some length about this.

Consider your checking account. What does it consist of? A promise by your bank to pay, on demand, funds you have deposited in the bank to a payee named by you. Your checking account is an IOU. Consider your savings account or your certificate of deposit. What do they consist of. A promise to pay you interest and to pay to you those funds (at a time and on terms to which you have agreed). Your savings account and your CDs are IOUs. Consider those corporate bonds you own. What do they consist of? A promise to pay you periodic interest and to redeem the bond on a specified date. Your corporate bonds are IOUs. Consider that money market mutual fund you have at Fidelity Investments. What does it consist of? A promise to pay you interest and to redeem the principal value. Your money market mutual fund deposits are

. If those IOUs have no value, then virtually all the wealth of people in the United States has no value.

Do you believe that? Does George W. Bush believe that? Does he believe that for the assets to have value, they must have little piles of Federal Reserve Notes somewhere in vaults? Or piles of gold bars? Wait. What's a Federal Reserve Note? It's an IOU. There's no stash of gold behind it.

If George Bush believes what he has been saying about the bonds in the Social Security Trust Fund, he's a fool.

If he doesn't believe it, he's a liar.


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