So doesn’t this mean that it’s logical to argue that this is how economies collapse ..
John Whitling
71

So doesn’t this mean that it’s logical to argue that this is how economies collapse .. wealth inequality which results in reduced consumer consumption and more importantly the selling of treasuries/bonds as the primary means of economic growth, thus increasing debt to unsustainable levels?
I get that there is no debt per say, that with a fiat currency it’s either monies on the government side or consumer side that determine debt/surplus.

I’m not sure you “get that there is no debt per say”. I don’t mean this to be condescending, but I think you’re still wrestling with yourself over this and attempting to find a middle ground where new knowledge can coincide with old misconception comfortably. It’s quite common, so you’re not alone in this.

Bond sales by the Treasury are closer to taxation than they are to spending. They remove currency from the economy in direct proportion to the currency injection they fund, albeit temporarily, so the only “debt” they incur is the interest paid on them, and that usually doesn’t even compensate for inflation over the life of the bond. They are also not required for spending, as the reserve accounts of the government could simply be marked up by amounts necessary to fund the appropriations of Congress with keystrokes instead of borrowing.

Bond sales are useful in monetary policy to hit the target interest rates the Fed prescribes in managing employment and economic activity via commercial lending. This hasn’t been sufficient to overcome poor fiscal policy from Congress and has been relied upon far too heavily, but it’s not a major factor in inflationary pressure. The safe haven offered by the US Treasury for excess cash will always be in demand, even if we set interest at zero. Those who purchase bonds, including foreign governments, do so because they want dollars that are needed to settle trade balances denominated in dollars. They move a portion of their reserve accounts to Treasury bonds as good fiscal management. The only reason they would want to question this would be the deterioration of America’s buying power and general economy, not the level of its “debt”. Our trading partners are more astute in the workings of our economy than our politicians are.

The only thing problematic about the present system is the propaganda/fear fodder offered by the terminology surrounding borrowing and debt as the voters relate to it from their personal budgeting experience as “users” of currency. The Fed, although actually a governmental entity, is managed by banks and bankers and they see no upside for them to correct common misconceptions that create demand for credit as the population leverages its private debt to compensate for anemic fiscal spending policy and austerity politics. The financial sector has grown from 7% of GDP in ’84 to over 20% currently as “trickle down” mythology economics has replaced active government fiscal management of the economy.

In similar means since taxes today are still being collected on incomes, further increases in tax rates on the upper incomes to validate support programs to lesser income citizens also increases money velocity. If taxes were not collected wouldn’t it be more difficult to control income inequality?

Taxation has some useful functions in the economy, ie: directing investments and guarding against inflation, but supplying revenue to fund spending isn’t one of them. Taxes are “canceled” currency and there is no function of the Treasury that transports them to the government’s reserve accounts to make them available to spend. The issuer of the currency doesn’t need, or use, our currency to spend. The wealthy, and their lapdog politicians, fully understand this and that is why they spend so much to corrupt our government to avoid taxation. In a way, one can hardly blame them except that they don’t stop with tax avoidance once they establish power over the government and the result is war and preservation of status quo economic influence and industries.

You should also adopt this attitude toward taxes, and you probably will once it sinks in that “ALL” currency the federal government collects from you, including FICA and Medicare payments, is trash canned upon receipt. Knowledge is power and only by demanding proper management of the “economy”, not simply the budget, can we regain that power from the elites.

So is this what a collapsing economy looks like? I think so. If so is it fair to say that income inequality is a threat to economic stability for fiat currencies?

More so than you imagine. A capitalistic economy will direct all of its energies to follow currency, thus molding social dynamics as well as economics. As the lower classes are threatened from cuts to their support systems and automatic stabilizers, as well as job losses from offshoring and AI, civil unrest becomes more prevalent and people who don’t understand the complexities of economics will blame others, including the most victimized, for their problems as the pie shrinks for everyone. Government will always default to preservation of the status quo over actually protecting the people and this is how fascism takes root.

Desperation in the lower income demographics, usually minorities who are the first to be unemployed and the last to be employed, drives alcohol and drug use, crime, and disruption of the family unit that has always been the bedrock of society. These will always be seen as threats to society and tough justice, not economic equality, as the fix. Already stressed state and local budgets will be further burdened by more prisons, militarized police, reduced social services to communities, and a generalized fear of each other among the population increases the potential for authoritarian leadership in a drain circling dynamic.

Imagine how much more effectively resources could be allocated with a federally funded job guarantee with a livable wage and benefits administered at state and local levels. It would end the blackmail of poverty employers call “free markets” by empowering employees to say no the them and replace many demoralizing safety net programs, as well as set a minimum wage/benefit floor for workers. It would also preserve habits that enhance employability of workers while greatly increasing social capital in communities by monetizing much needed work, including adaption to green energy/clean environmental policies, that don’t offer profit potential for privatization.

Many might choose to remain employed in such a system if it offered them the chance to utilize their talents and passions while earning a basic living with dignity and a sense of contribution. Musicians could play and teach and venues could be built for them, just as one example. If the general population were aware of the reality of spending/taxation there wouldn’t be the animosity that comes from thinking of someone drawing a paycheck or benefits from “their” taxes and civil strife would be greatly reduced.

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