It's Bad Karma, Dude.

What's this, you say? A post? That's right, people. A post. It only took 10+ months, but some things only get better with time.  Right?

Last time we talked about how a country can go into debt.  The idea of a country in debt can seem kind of silly sometimes, but it has its merit - only if it isn't abused (as is the case in the U.S.).  I promised you that we'd talk about countries printing their own money and what that does.  So here we go!  Are you psyched?! Are you ready?! Cuz this one's gona rock your world.

Before we can really talk about what printing money does, let's talk about what money is.  What is money? Is this paper in my pocket really "worth" something, or is it just paper? And what's with all the cool drawings, watermarks, and other stuff in and on the paper?  What gives?!  Well, money - simply put - represents a resource, or the ability to obtain a resource.  (don't think about it too hard)  Some people think that money represents a certain amount of gold.  Well, it did.  Back in the 70's, Richard Nixon (I am not a croooooook!) ended the 'gold standard' which basically stated that a dollar represented a certain amount of gold.  Everybody likes gold (ooooooo, shiny!) and there isn't a ton of it, so therefore, it's valuable.  The theory was "he who has the gold, has the power" - so therefore "he who has gold, has the ability to trade that gold for pretty much anything he wants, and in the process, look powerful."  Well, the world decided that the gold standard wasn't fun, so they nixed it (no pun intended!) and decided to "let the market determine how much a country's money was worth."  ....aaaaaand that's where we are today.

Now that we know that money represents a resource - or, power, prestige, coolness, etc... - we have to have something that would tell us how many resources that means (or how cool we can look or feel after giving the money to someone else).  This is done by the "invisible hand" of the market. Lemme splain.  A ship is sailing in the ocean, and crashes on a small island.  The survivors are few, but of course they include: Cool Mike, Tim, Billy, and all 22 of their closest friends.  Well, after a few days they realize that they're going to be a while - so they get to work.  Cool Mike collects coconuts, Tim makes leafy blankets, and Billy catches fishies.  They all find some cool stuff, and it's all different.  But how do they trade these products?  After all, you can't just GIVE them away!  They need something that would represent their commodities - because, after all, everyone knows that trading one blanket for one fish isn't going to work.  Having the right amount of blankets or coconuts to trade at the right time, with the right people, was getting too hard.

As they were walking on the beach, they found a small pile of 1000 shiny black rocks with white speckles.  "These rocks rock!" was the consensus.  So, they each took 40 rocks and let the 'free market' do the rest.  Mike decided that climbing the trees was hard work - much harder than weaving silly leaves.  He would demand 3 shiny rocks per coconut.  Nobody wanted to trade 3 shiny rocks for a silly coconut, so they refused to trade.... so Mike had to lower his asking price to 2 shiny rocks. Deal!  Fish traded for 3 shiny rocks, and blankets for 4.  Poles were 2, and a bucket of sand was 1.  (whoever thought of selling sand was either a genius, or an idiot.  The market decides!)  As time went on, their little system of trading rocks for resources got more and more refined and they were pretty pleased with themselves.  But suddenly Cool Mike noticed that Tim showed up to trade some rocks for coconuts - But Tim had TONS of rocks!  "No fair!" cried Mike, "Where did those come from?!"  Knowing that they only had 100 rocks in the beginning, Mike knew that 200 rocks was "impossible!!"  Tim had found a new stash of shiny black rocks with white speckles.  What to do.... what to dooooo.......  Well, Mike now wants 5 rocks for a coconut. Deal!  But the next day Billy shows up with 400 rocks in a bag.  OK - Mike now wants 60 rocks for a coconut! Why the jump? well, Mike knows that the next day somebody's probably going to show up with 1,000 rocks - so he's planning ahead.  (The market always anticipates) True to their pattern, someone shows up with a wheelbarrow of rocks the next day, so Mike decides that black shiny rocks aren't worth anything.  The inflation got worse and worse, until it broke the system.

This simple scenario is exactly what happens in real life.  If a government goes hunting for more shiny rocks (i.e. prints money) then those rocks become worth less to whoever will receive them.  If a government keeps printing money, then eventually the money will become "worthless" and a society will revert back to a bartering situation where direct resources are traded instead of trading money that represents resources.  In other words, Mike would go back to trading coconuts for fish and blankets.  This is why educated people frown on printing money to pay people.  It's just bad karma.

Did I blow your mind?  I sure hope so.  I don't know what I'll talk about next time - but it'll be worth the wait!

Funyuns and Gummy Sharks!

Even if you're like me, and the idea of watching the news is similar to getting a root canal from a gerbal, you still hear a LOT about how the U.S. is going into more and more debt. And if you're like any normal person, you might say to yourself, "um, the U.S. going into debt? with who? and how? Ah, who cares - let's get Cafe Rio for dinner" I know I've said that a few times myself.

I'll make this one quick - because it's going to be painful. Promise.

First - think of the U.S. as a person, not a country.
Second - think of every country in the whole wide world as a person, not a 'country'
Third - put yourself in one of those person's shoes. What do YOU do when you want a specific resource and you don't have any resources to trade? You borrow a resource to trade! (personally, I like to borrow from family. It makes Sunday dinner much more interesting and tends to liven up the conversation)

Now, put the U.S. into that scenario. 'We' want stuff. And we want it now. Free food, free health care, free everything!!!! Unfortunately, we don't have anything to trade for it, so we decide to borrow stuff to trade for the stuff we want. (interesting how that works) This "stuff" is referred to as "money" but it can be anything of value (but most people like money, because they're more confident that the next guy in line will think that it's valuable as well, aka, it will be easier to trade for other stuff. Don't think about it too hard, remember, you have Cafe Rio waiting at 7:42 on the dot)

In our case, we like to borrow from China, Japan, and a bunch of other people, er, I mean, countries around the world. Technically they could come back and say "hey, gimme all your lunch money!" but if they did then we'd have to say "sorry, I spent it all on funyuns and gummy sharks" and then there'd be fighting and stuff. Countries are usually pretty good about paying other countries back, unless of course they borrow from the U.S. - then they just wait it out until we say "OK, keep it, we'll borrow more money and pay off your debt."

So, there you have it. "We" aka the U.S. like to have our stuff, and let other people just give it to us. Next time I'll talk about printing money, er, I mean, pulling our own resources out of the air, and we'll go into exchange rates. Now, depressurize and go get your dinner. It's already 7:43.