This Is The Nation’s Top Economic Advisor

     And you won’t believe the crap he spouts, or how he stammers and misdirects:

     Time was, even a schoolchild knew what money is:

     I was taught that before I could write a check. Note the and in the definition. Money must have both the indicated characteristics. Paper currency can be a medium of exchange, and land can be a store of value, but neither of them is money.

     In the clip above, Bernstein’s tongue tangles because he doesn’t want to be clear about how federal borrowing and the subsequent national indebtedness interplay. It’s vital to the power and status of the political Establishment that those who do understand it be as few as possible – and all of them corralled within the corridors of power.

     Time was, the national debt was owed to individuals and private companies (mostly private banks). But those days are far behind us. Today, the national debt is ever increasingly owed to the Federal Reserve Bank: the entity with the monopoly privilege of creating money out of nothing. In the simplest possible terms, it works like this:

1. Congress passes an appropriations bill that overspends federal revenues.
2. The Secretary of the Treasury applies to the Federal Reserve system for a loan.
3. The Federal Reserve issues the loan to the Treasury: not as physical currency, but as a balance upon which the Treasury can draw. Simultaneously, the Fed creates one or more debt certificates: promises that the Treasury will repay the loan with interest, by some agreed-upon future time. The sum of those instruments equals the amount the Fed has loaned to the Treasury.
        Note that nothing in this sequence of events is at all physical. It’s all as virtual as can be: entries in various Federal Reserve and Treasury ledgers.
4. The credit thus created enters the economy as it’s spent by the various departments of the federal government’s executive branch. In doing so, it dilutes the purchasing power of all the previously existing currency and credit in the national economy.
        The debt thus created is “serviced,” in financial language, by regular interest payments from the Treasury to the Federal Reserve. The principal amount is never reduced. When the debt’s due date arrives, it’s “refinanced” by another loan, possibly at a different interest rate.

     Under contemporary conditions – i.e., since the New Deal years – the principal-amount of the national debt is never reduced. Thus, there are repeating obligations on the Treasury to refinance it and to pay interest on it. Moreover, the total supply of currency and credit only increases, never decreases. Thus, the value of the dollar in purchasing real goods and services never increases; it can only decrease.

     Jared Bernstein is perfectly aware of all this. He’d never explain it to you in the simple, perfectly adequate manner above…but he will defend it to the death.