A "Fire" Thread - What's Wrong With The Economy

derby_dude started a "Fire" thread called What's Wrong with the Economy on 01/29/09. He said:

"For about 100 years our economy has been a 'borrow and spend' economy. The consumer can't borrow any more so he must pay down his debt. When the consumer has built up his savings and paid his debt down to a more manageable level he will start spending again. No amount of stimulus from Big Uncle is going to get us out of this.

I look for unemployment to hit around 30%, the illegal immigrants to go home, many people working for $7.25 an hour dang thankful they have work, inflation pushing toward 20%, foreclosures to skyrocket, bankruptcies to hit the stratosphere, etc. I look for at least a 10 year deep depression if for no other reason that the government will do everything it can to make last at least that long"

I spent the better part of the day trying to understand responses to his thread. To give an idea of how ignorant I was about this stuff: Bristoe said "The "so called" stimulus package is just a diversion to keep people thinking that something is being done by the government to fix the economic disaster. Just more theater." I said, "So, are you saying it'll pass, but the money isn't really there, so the money won't really be thrown up in the air, so to speak, - no harm done? No real harm, that is."

Bristoe said, "No,..I'm saying that it'll pass and the money will *always* be there. It's just paper. If it ever runs short they'll just print up more. The government never runs out of money. When it needs some, the Federal Reserve just runs some off for them. Of course, everytime they run off a batch of new money it makes the existing money worth just that much less."

Part of my problem understanding this comes from the idea that our money has to be backed up by something valuable. It is, but that 'valuable something' is the same 'valuable something' that's already backing up our money. Every time the Fed prints and issues more money, it divides the 'valuable something' into even smaller pieces; thereby causing our money to be worth even less.

According to the U.S. Department of the Treasury FAQs,Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. This has been the case since 1933. The notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are "backed" by all the goods and services in the economy." So Federal Reserve Notes are backed by the Gross Domestic Product.

From an English article (The Money Oracle): "...a graphical representation of the fall in value of the US$ since the Federal Reserve took control of the monetary system"



There's a lot of this kind of stuff on the web about the Federal Reserve. Most of it I take with a grain of salt. I don't take Glenn Beck with a grain of salt:
Glenn Beck: Look Behind The Curtain