June 7, 2011

The Great Default: It Is Coming, Count on It

The Great Default: It Is Coming, Count on It

"All costs are present costs. It is only a question of who pays them and why." -Gary North-

Cookie Jar Economic Model

When you catch a child with his hand in the cookie jar, you can be certain of these few things:
  • He is after a present cookie
  • He will not replace that cookie
  • He is driven by the desire for present gratification

Now, think of U.S national economic production as a cookie factory

Traditional Bolu Cookies Factory

People are employed to produce cookies. They make cookies, but they also eat cookies..

If they made no cookies, could they eat cookies? Only those cookies already in the cookie jar.

If, because of a war, the U.S government tells the public that from now on, "we must support the troops," this means that those at work in the cookie factory must send their cookies to the troops. The troops will eat the cookies. But they will not be producing cookies.

Toy Story Troops

The U.S Government sold war bonds in World War II. The total by the end of the program in 1946 was $185 billion - in early 1940's dollars - a gigantic amount.

The War Finance Committee and the War Advertising Council spent more money on this ad campaign thanany other in the history of American advertising.

But why did the U.S government sell them?

If the cost of the war in men and material was paid for by those on the battlefield who suffered and died, as well as by the folks back home who had to reduce their consumption, what did the war bond produce of economic value? A war bond could not reduce the loss of human life. It could not reduce the number of burned-out tanks. 

In short, a war bond could not reduce the cost of war.

Then, why sell them?

The reason was motivation. The cookie jar was being depleted, day by day.

This meant that replacements were necessary.
Folks back home who were engaged in war production would have to reduce their consumption. This output had to replace whatever had been lost.

The three crucial question: 

  1. Which folks would have to cut back?
  2. Which folks wouldn't?
  3. For how long?

Anyone who says we are passing the present costs to future generations does not understand economic cause and effect.

We are told that we are using politics to leave massive debt to our children. As soon as this burden grows too heavy, Congress will then sell more debt.

At some point, that debt will not find a market. The Great Default will then take place.

Gary North is the author of a free 20-volume series, An Economic Commentary on Bible

"There will be victims. The Great Default will affect millions of people who do not understand that they are at risk or why."

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Technically analyze the forex market mainly on USDJPY, EURUSD and GBPUSD by using market rhythm method started by Philip Nel on Forex Factory. The thread started on 2007 and still alive.
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