Thanks to Junior Mogambo Ranger (JMR) Marc H, who sent the clip from
CourtHouseNews.com with the perfect illustration of both the worth of the IOUs
that the state of California created and used to pay its bills, and the general
worth of fiat money (like the US dollar) in general.
The particulars are that California did not have enough dollars to pay its
bills after running the state into the ground with their laughable leftist
lunacies, and so it decided to print up IOUs with which to pay its bills!
In effect, California then had two fiat currencies, and there is probably some
Gresham’s Law lesson in there somewhere when some banks refused to accept the
IOUs.
Oddly enough, neither will the state of California, which issued
them! Stranger than fiction! Court House News puts it as "Small businesses that
received $682 million in IOUs from the state say California expects them to pay
taxes on the worthless scraps of paper but refuses to accept its own IOUs to
pay debts or taxes." Hahaha!
Let’s stop laughing long enough to review: California paid its vendors with its
own newly created money, but it won't accept the same money back as payment for
taxes or debts!
The problem is that there are limits on how much you can borrow, and if you
continue to spend more than you make, accomplished by the simple expedient of
borrowing money and then spending it having a wonderful time, then one day you
are going to hit that debt limit, whereupon all hell breaks loose, like when
you are at the restaurant and the snotty little waiter unexpectedly comes over
and, with an irritating tone to his voice, embarrasses the hell out of you by
tossing your credit card rudely in your surprised face and loudly declaring
"Your credit card has been denied, sir, because apparently you recently spent
the last of your available credit at what appears to be a wild, drunken
bacchanal at a bar and, around midnight, on a case of frozen microwave
burritos, a cup of coffee, and a rather large purchase of adult videos and
associated novelties at what appears to be a truck stop."
So you can see how reaching a debt limit is a bummer! If you are the federal
government, however, the problem is as simple as having the CIA or National
Security Agency kill the snotty waiter and giving yourself some more "wiggle
room" by raising your own debt limit! Hahaha! It's easy when you know how!
Sure enough, The 5-Minute Forecast reports that Tim Geithner, ridiculous
Secretary of the Treasury, wrote to the members of Congress and begged that "It
is critically important that Congress act before the [debt] limit is reached so
that citizens and investors here and around the world can remain confident that
the United States will always meet its obligations."
The 5 says facetiously that this could be interpreted as meaning that "our
Treasury Secretary is finally putting his foot down, insisting that Congress
pull back its lavish spending programs and start addressing our incredible
$11.6 trillion national debt" by deliberately letting the people suffer the
pain of spending less money and paying back debt, which (if you know anything
about the American system of federal, state and local government, or the way
Americans now clamor for a free lunch for everybody) is enough to make you
laugh and laugh and laugh so hard that pieces of microwave burrito that you ate
last night, fly out of your mouth! Hahahaha! Now THAT'S laughing! Hahahaha!
Suddenly, The 5 says, "Wait ... what's that?" which I thought was going to be
some stinging criticism referring to the sudden appearance of half-digested
pieces of burrito flying through the air, but was thankfully not.
Instead, it was what you thought it was ... "Geithner's actually asking for
Congress to raise the debt ceiling", which he does (as one gathers from the
text of Mr Geithner's actual remarks) because "If Congress authorizes our
government to dig deeper than $12.1 trillion in debt (our current glass
ceiling), our partners here and abroad will somehow 'remain confident.'"
To this apparent contradiction, The 5 asks, "How perverse is that?"
Well, by this time I was pretty despondent about the economic future of this
country and the world, although I had a kind of pleasant buzz and was having
fun kind of swaying back and forth on the barstool while looking at myself
swaying in the mirror behind the bar.
I was marveling at the devastating changes that have happened to my face and my
life since that special, special moment a long, long time ago when a naive
young moron happily said "I do" because he was too stupid to even vaguely
comprehend that married life was not like it appears on TV, where dad comes
home from some job where he makes enough money to support a whole family
consisting of (at least) a few kids and a wife wearing a pearl necklace and
high heels all day, instead of the gruesome reality of having to break your
aching back at some dead-end job making almost nothing, even with exhausting
overtime, and then having to listen to your wife whining that she doesn't have
any money because you are lazy and stupid, which is true but - damn it! - she
didn't know that before we were married?
And on TV, the wife calls her husband "dear" instead of "you disgusting pig",
and who gives him an affectionate kiss on the cheek when he gets home, instead
of shrieking "Don't lay a finger on me, you disgusting pig!" which is the same
"disgusting pig" crack we were talking about earlier, proving my point,
whatever it was, but you can see the kind of crap I have been putting up with
(or "up with which I am putting") seemingly All My Freaking Life (AMFL).
On the other hand, if it happened on TV, you would say, "Don't be stupid! That
can't possibly happen in real life!" but the fact is that California has issued
a new fiat money that is so foul that not even the issuing government will
accept it in payment for anything! Hahaha!
This brings us to gold, which in 4,500 years, has always found someone to
accept it in payment for everything! Hahaha! So which one do you want? Paper
California IOUs, paper dollars or gold?
Whee! This investing stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2009, The Daily Reckoning.)
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