California is getting ready to issue notes promising to pay its vendors at a future date.  According to the theory of tax-driven money, if California just made state taxes payable in these IOU’s they would be on the road to having their own currency.  If it could borrow and spend in its own currency, California would have no “budget crisis.”

Economists and pundits, even President Obama are warning us that government debt is getting out of control.  We’re “out of money” Obama said on C-SPAN, and John Taylor is worried that S&P will downgrade the government’s credit rating.

What they all have in common is that they fail to realize where money comes from.  There is no financial constraint on a government that issues a nonconvertible, floating currency like the US dollar.  Credit ratings are based on the ability of the borrower to pay the money back.  If you could print your own money, what do you think your credit rating should be?  Come on, paper money really does grow on trees!

The constraint is political.  The government can only choose to run out of money.  It can only choose default on its payments, like it did in 1995.

This talk about solvency and how much money the government has ignores the real economic factors that their actions influence.  Inflation, interest rates, capital and labor employment among them.

I stumbled onto a very interesting Rasmussen poll over the weekend; turns out only 7% of Americans are on board with bailing out the bonus hording crooks on Wall Street. So what does Congress do? Well, they’re preparing to vote on a bipartisan bailout to the tune of $700,000,000,000. It’s nice how both parties can get together and agree on doing exactly what the American people don’t want. If you think this is going to be limited to $700B, I like your optimism!

I’ll keep this post short and sweet, so I don’t lose any of you on this; The federal government is no longer representative of the people. Wether it’s economic policy, foreign policy, or presidential candidates, we are not given any real options. I am so sick of the false left/right paradigm; both parties pick and choose knee-jerk topics for us to argue over, offering us more government in this direction or more government in that direction.

““If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”-Thomas Jefferson

***EDIT*** It looks like Rasmussen re-polled last night, and was able to craft the questions to get a better response; the Fed now allegedly has a 28% approval rating for saving Wall Street’s ass.