Just Who’s Money Is It Anyway?– Currency, Debt and the Role of Government

By James Preston Allen, Publisher

If I were to ask the average person on the street, “Whose money was in their pocket,” they would adamantly tell me that it was theirs. In the common understanding of ownership, they’d be right. On a much bigger perspective, the currency of any nation or region belongs to the people of that nation. Basically it means that it is both yours and ours collectively. The banks think that it belongs to them.

If you don’t believe this, then try printing up some money with your own picture on it backed, not by the Federal Reserve, but  by the bank of “Me” and see just how far that will get you at the supermarket. This concept of money, which has been around since our ancestors first started trading using seashells, is a curious thing as it is reliant on everyone trusting that this currency actually holds some intrinsic value, however abstract it has become.

Trust is actually the critical issue with money, some say that’s why we only print pictures of dead presidents on it, because they are the only ones Americans trust.  The issue of  trust is essential in dealing with the core idea of “this note is legal tender for all debts public and private.”

Gone are the days when the currency was backed by gold or even silver. It is now backed by nothing more than our faith in the U.S. government and its ability to sell treasury bonds on the world market. It’s a pretty abstract concept when you think about it. The idea is comparable to an electrical current. Electricity only keeps flowing if the circuit remains unbroken. This is relevant to the way money works as well. If you stop the flow of money, the system short-circuits. That’s what almost happened with the Wall Street Banks and the nation in 2007.

The economy was “re-booted” with a massive infusion of currency into the financial system reflecting trust. Now lo-and-behold, Wall Street is posting record high volumes and profits. Yet, on the Main Street side of this equation, money and credit is still very tight. The sequester of the federal budget has done little to bolster the confidence in the future and our friendly bankers are squeezing more money out of small business with fees and credit restrictions– none of which are actually going to improve unemployment or growth of the real economy. So what to do?

My conservative readers keep harping on cutting the budget. Cut Medicare, cut Social Security and cut…cut…cut. But look at what just one small piece of federal spending in infrastructure has done in Los Angeles.  The Metro Expo line, which runs from downtown to Culver City was projected to cost $620 million. It was recently that reported cost overruns was in the range of $220 million with critics screaming in its wake. Yet, rail line has created thousands of jobs. And what’s more, at every Expo Line station, there is a flurry of development investments. This in turn will  increase property tax revenues and eventually higher sales taxes.

This is a prime example of the maxim, “private profit follows public investment.” The Federal money spent on the MTA expo line and the building booms around those stations is perhaps one of the most significant bright spots of a struggling Southern California economy.

This example of leveraging federal transportation grants to build transportation infrastructure that in turn inspires private capital investments should not be lost on the Port of Los Angeles as it moves forward with its Ports O’Call waterfront development. The current Mayor of Los Angeles previously authorized a study of similar transportation links to the Harbor and connecting it with various routes to the LAX airport.  If this and other transportation projects were made, it would not only guarantee a successful waterfront development, but would create huge capital investments all along its route to some of the most economically impacted parts of this region.

This  is an example of government doing for the people that which they can not do for themselves, and spending our way out of a recession.