Don't waste your breath on junkies, they cannot see that DEBT IS EVIL, and like most junkies they will go to their graves with the fit hanging out of a vein.

Speaking of junkies, 8000 on the dow was a good floor but no, they need their adrenaline fix (don't glorify them as dopamine junkies Nate, they like the rough dirty stuff).

Hi there, anagama,

I think the word that might be hanging you up is "cash" (I didn't use it my post, but you used it in yours.)

Cash is frequently thought of as a tangible item, like a dollar bill, silver coin, or the like. Since such items have physical existence we can easily slip into the idea that they have some intrinsic value, when in fact they usually have almost none. Like all other forms of money (personal checks, electronic bank records, IOU's and Treasury Bills) 'cash' derives its value from belief, trust and agreement. We agree, believe and trust that this physical (but symbolic) item will be honored by others as a medium of exchange for REAL things.

It's so easy to exchange money for the actual things we need or want that most people slip into thinking that they want money itself... but to want money itself is of course quite psychotic. What we actually need or want are the REAL things that money enables us to acquire (food, shelter, clothing, and cooperation or dominance over the actions of others.)

That's one of the essential points of Nate's essay. Whereas money is abstract and can exist in infinitely large quantities, REAL things are finite and can exist only in limited amounts.

But that's not the only problem. One of the other problems is how we control (or fail to control) the relationship between the abstract things (various forms of money) and the real things (the things we require for life.)

Unfortunately, it is possible to have symbols of symbols and that's where the serious trouble starts. We put cash in a bank and the bank gives us a statement that we have that much money on account. That statement is a symbol for the cash. The cash itself is long gone, as a mortgaged house loan (for example) and the bank has only a signed contract (the mortgage) that the loan will be repaid with interest.

That mortgage contract is thus a symbol of a symbol of a symbol.

Well, you can see that this all gets pretty complicated pretty quickly, and if the bank sells the mortgage contract (or bunches of them) you can see that things can start to get out of hand.

By the time the ownership chain of symbols is eight or ten layers deep, electronic computers become necessary just to keep records of the mess. That records exist, however, is neither guarantee nor proof that anyone understands them.

Indeed, no one does. The symbolized money in today's financial world is so multi-layered and recursive that no human mind is capable of comprehending it.

We're all guessing.

First of all, your money debt instrument will be 'intrinsically' valuable provided that your yield (return on accumulated money) exceeds the liability represented by its issue. Unfortunately, we are in a very low yield environment and the liability is increasing geometrically. If the liability exceeds a certain subjective threshold, the liability will rocket into meaninglessness. Your money will be worthless because nobody will accept it. Its 'implied obligation' would be infinite and would exceed any possible yield.

On the other hand, the increase in yield relative to a stable liability will mean (borrowed/loaned) money will be harder and harder to obtain. This is where we are now. Banks can get 7% lending to other banks overnight. That's a pretty good yield! Lending to you is risky compared to lending to a bank since your chance of default is theoretically higher than the insured bank.

"Further, a promise that is broken leaves nothing behind."

Depends ... who makes the promise.

If you make the promise (to a bank) and walk away, the bank will go to court and obtain a judgement against you. Your wages will be garnisheed or your car reposessed or ... your house forclosed upon and you put onto the street.

Alternatively, you can petition the bankruptcy court to discharge all your debts. In that case, the debts are forgiven. These hassles involved keep people from simply walking away. That, and the appearance that some are clever and hard- working enough to claim a small part of success ... a 'win' in the gambling casino called the US economy. Some people have to be allowed to win, otherwise nobody would gamble.

Nobody is winning so nobody is playing.

It is also besides the point of the inherent liability of lent money, since the obligation is yours individually as the borrower of the money, not of the money itself.

YOUR bankruptcy would not increase the liability inherent in the money ... but millions of bankruptcies would. This is also where we are, now.

As to the promises ... again. The Federal Reserve is doing the best it can to borrow for all of us citizens. Unfortunately, there is no 'bankruptcy' for the world's largest deadbeat. The government is required to keep its promises. Unlike a hedgee fund or investment bank or commercial business, it can't cheat or 'bend' the rules. It has to always 'play it straight', even if it is doing something completely idiotic. As a result of both sets of circumstances, the Fed has become the 'fool in the market', who buys high and sells low, who buys at the top and sells at the bottom, who winds up holding all the 'bad bets' the other casino gamblers want to unload.

Since the Fed (and the Treasury) are well- known fools, any organization that anything to do with them is either another fool or a churlish knave, taking advantage of the handicapped. The more the Fed 'tries to help' by lending, the more damage it causes.