Our Currency and Lending

Theoretically, our economic system can operate on the fiat currency we now use. But the world runs on reality, not theory. Once we began debasing our currency in 1965, it was just a matter of time before we arrived at where we are today. Our elected officials will always find ways to spend more than they take in. Unless we get people back to work and our economy running at 100%, we may as well cap the government debt ceiling even if it means defaulting on what we owe. There is no way that we will ever be able to repay our debts except with worthless currency.

And deficit spending with a fiat currency puts us right where we are today. Long term fixed interest rates for home loans were below 5% back in the 1950's. But money had a fixed value then. Here in the US, you could redeem silver certificates for a silver dollar containing about .75 ounce of silver. Internationally, other countries could exchange the dollars they held for gold. But as the value of the dollar eroded during the 60's and 70's, long term interest rates rose until going over 10% in the late 70's. Home building and sales stopped until ARM's and interest rates lowered in the 80's. The only reason that 30 year fixed home loan interest rates are below 5% today is because any new loan or refinance at those rates are immediately being sold to Fannie Mae or Freddie Mac. NO PRIVATE INSTITUTION IS GOING TO LEND MONEY LONG TERM AT LOW INTEREST RATES NOT KNOWING THE VALUE OF THE MONEY WHICH WILL BE REPAID.

Ultimately, every aspect of our economy and welfare would improve with stable money. But it would probably be more difficult (until we get a handle on the deficits that we are running) to go back to a stable currency than it was detaching the dollar from gold and silver. Our immediate concern should be to get people back to work and stop the flow of red ink, then try to figure out how to stabalize the dollar and reduce the national debt.

We already know that getting people back to work requires getting people out of debt and making them customers. And significantly lowering people's debt levels can be achieved by lowering their biggest expense (housing). And lowering the expense of housing can be achieved by lowering interest rates. And interest rates can easily be lowered by TAKING THE RISK (of unstable money) OUT OF LENDING by allowing banks and other mortgage lenders to borrow the money that they are lending for the same length of time that they are lending it.