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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: TobagoJack who wrote (33289)5/8/2003 5:42:27 AM
From: elmatador  Read Replies (2) of 74559
 
Once the guy (of the previpous posting) was working, he produced a pack of bolts. Bolts were sold to a customer who paid in cash. Part of this cash ended up as his salary, out of it, there was a cut going to be deposited into the social security account. For this guy who was working, there was a lot of people eating from his production: Part of his salary was paid as income tax. Once he bought a beer and a pack of cigarettes there more taxes taken as well as when he was fueling his car. A big part of his money ended up administered by an entity called government. This entity not only administered his money, it also printed the money used by all the citizens like this guy.

From the perspective of this entity, money either contributed by the citizens of the country in question, or the money freshly printed was undistinguishable. It can't say, where this bill come from? Fresh from the mint or was it from the cash circulating into the economy. To make matters easy, they discovered that it was just a matter to keep the machine provided with enough money for if money would run out of the system you would get something called a Depression of the 30's.

Actually public finance is very simple: Most what generates news and noise in countries are about people who doesn't want to pay money into the system (tax) or people who wants to take more money out of the system. On former you have CEO who get USD6million tax credit to buy a Citation company jet and the later you include people who make SARS scare or create enemies to get money for 'defense' or tell that there is water in the Moon's pole.

Now look to the whole thing again: There are not many guys making bolts. Most of the traditional jobs associated to making stuff like bolts migrated to China or elsewhere. So bolts are imported and the Chinese are paid in USD. USD that becomes China foreign reserves. The idea is to keep exporting stuff to those guys who produce cheaper he stuff that you need. Problem is the guys out there have factories that make things that you want and you have less factories producing things that they want. The result is a commercial deficit of half trillion USD.

But look closely. The guys who got used to live off the production of the guy who used to make bolts are not tightening their belts!! They keep spending more and more. And the guys who paid into the system are vanishing by the day. Plus the entity called government is giving taxes breaks. But you know that the system has to be kept liquid. Don't you see here a case for printing money to keep the machine running?
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