The China-virus shutdown and fiat currency
Exclusive: Michael Master notes unlike the government, citizens can't just print more dollars
By Michael MasterPublished May 8, 2020 at 7:11pm
To understand how China hurt the United States and other capitalist countries by allowing the China virus to get out of Wuhan, we need to understand currency.
U.S. currency is debt. It is fiat.
It does not represent ownership of anything.
Not gold. Not silver. Not anything.
Read what is on any denomination of currency.
A dollar is a note, debt, for some labor, service, or product that was provided.
It is only worth what someone else will provide in products, services, or labor at a specific point in time for that dollar – which changes in worth as economic conditions change for any specific product, service, or labor.
If less quantity is available of some labor, service, or product, then more dollars are required to procure it.
Who owns that debt?
Anyone who purchases a treasury note or some other form of government-issued bond. Investors.
Foreign governments. Debt purchasing debt. Fiat traded for bonds/treasuries. Debt purchasing debt.
Why do investors purchase U.S.-issued bonds/treasuries since they do not represent ownership of anything?
Because they are the most secure in the world.
What makes U.S. debt secure?
The fact that you can purchase labor, service, or products in America with it.
If no labor, service, or products are available, then those notes (currency) would be worthless due to inflation caused by scarcity of labor, services and products.
That is the risk of the China virus.
That is how China hurt the United States.
Deliberately or not, by shutting down the U.S. economy because of the China virus, labor, service and products were shut down, becoming less available.
By not opening up, the value of money is at risk as the economics for labor, services and products change.
The government can print as much money as it sells treasuries or other bonds.
If the buyers of those bonds or treasuries think that too much currency (debt) has been printed, then they will stop purchasing bonds or treasuries.
That is the magic of capitalism. Demand and supply control the price and quantity of bonds and treasuries. Currently, those investors and the Fed are buying all the bonds/treasuries the government issues.
Why? Because they are the best, most secure in the world.
The China virus is changing that dynamic as the economies of capitalist countries shut down.
Did China allow the virus to spread deliberately because it was losing the trade war?
Half of the China economy depends on exports, as half of the Chinese live in abject poverty.
And China exports were down for the first time since 1992 prior to the China virus pandemic.
When those treasuries/bonds become due, how does the government make payment on them?
Either from 1) surpluses (more government revenues than expenses – profits), or 2) by issuing more treasuries/bonds to replace them, or 3) by printing more currency (notes).
Only the federal government can print more currency to pay expenses or bonds/treasuries.
An individual cannot.
A state government cannot.
This leaves only two choices for states and/or citizens: 1) create surpluses (profits), or 2) pay debt by incurring more debt.
And how do you do either of those if no one is working?
Deliberately or not, China hurt the United States and other capitalist countries by getting us to shut down our economies.
We should never have done that.
We should never allow it again.
We need to reopen for business now, immediately, and rebuild capitalism as The Arsenal of Democracy.
If not, then the USA and other capitalistic countries are doing exactly what socialist/communist countries and the Democratic Party want them to do.
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