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View Diary: Krugman: Dwindling Deficit Disorder (135 comments)

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  •  Well, the cost of borrowing is low because (0+ / 0-)

    the federal reserve is charging banks a minimal amount to cover processing and record keeping costs. Which is as it should be. After all, when the Federal Reserve takes dollars from the Treasury, they cost nothing when it's done electronically. Bills printed by the Bureau of Engraving cost eight cents, regardless of the denomination (one dollar bill costs the same as a hundred dollar bill and in 2012 they issued over three billion of the latter).
    The dollar is intrinsically worthless. It is a certified IOU, which, like a certified check, has a guarantee. Similarly, when two people apply for a certificate of marriage, that gives their relationship additional weight -- more than a common law marriage has.
    A dollar is a symbol of value, much as an inch is a symbol of distance or an ounce is a symbol of weight. The things symbolized are real and important, but an abstract inch is worthless.
    Why we borrow certificates from people who accumulate them like used postage stamps and then pay a premium for their use is a puzzlement. I suppose it all goes back to the Dutch, who managed to acquire all the gold stolen and brought back from the Americas and to sequester it in vaults, while they gave people credit slips to pass around instead of the gold. Presumably, the Dutch took a portion of the gold for themselves in payment for keeping it safe. How Spain, which had plundered the gold managed to lose it within a generation, I don't know. The Dutch used it to finance the industrial development in Britain. Also, industrial agriculture in the American colonies was financed. The inability to pay off loans led to the routine bankruptcy of the plantations and accounted for slaves being sold off and their families disrupted.
    Poor financial management by modern corporations affects modern families in a similar negative way.

    We organize governments to deliver services and prevent abuse.

    by hannah on Mon Mar 11, 2013 at 04:16:08 PM PDT

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