Working Analogy in Progress
Trying to figure out the U.S. economy and the flow of currency can be a monumental task for anyone not familiar with Modern Monetary Theories of macroeconomics. I'm by no means an expert economist. But I'm friends with a few, and I have contact with a few more. Through my own studies, I like to make things clear for myself and use analogies to foster understanding. As I was thinking of one of these analogies, a well-known economist shared with me over the phone, I had a Eureka moment. I came up with the Fountain of U.S. Economics. My own analogy came to me, and it helped me understand more than I could have thought. So I am going to share it with you, in the hopes that you can grasp the simplicity of our very confusing U.S. Economic System.
I want you to picture a water fountain: one with a faucet a the very top, draining down into a catch basin with the return drain.
The Faucet represents the Appropriations set forth by Congress.
The Catch Basin represents the Live Economy, all the money that has been poured into the economy that hasn't drained out yet.
The Drain represents Taxes (and Treasury Bonds), the amount the Government takes back out of the economy to curb inflation.
So we have all that? The water flows from the Appropriations Faucet. The Drain acts so that there is never too much water in the Catch Basin. This can cause Inflation. Too much water and everyone floats away. Too little water and the society can't function adequately. Here's the deal though. The Drain does not return what it drains back up to the faucet. It simply drains it out into the ocean, like the rest of our sewage.
So how does the Fountain of Economics keep working, if the water that drains out of it isn't returned up to the Faucet? How does the Faucet keep pumping out water? What about evaporation or "Leakage"? How can we keep a steady flow of water, so our fountain flows property all the time?
This is where the magic comes in. The Faucet is being fed by a natural spring underground. Yup, just like a well on your old farm. Or just like the well in your local coop. The U.S. has a Sovereign fiat currency. It can create or destroy as much currency as it wishes. The reason we use Congress Appropriations as the Faucet is because we shouldn't rely on inconsistencies in the flow.
So why is it so complicated, if what is mentioned above is all there is to the flow of currency in the U.S.? Well along the way, groups in the first two sections of the process have been diverting water in the wrong direction, building barriers of their own, artificially raising the walls and even filling up water balloons to keep water from reaching the Catch Basin. There is an infestation just beneath the faucet, and it is growing like a sponge above us. At the same time, there are struggles over the Faucet handle on both sides, whether to release more Water into the system or not, for fear of overflow and Inflation or the other side that says we need to force water to the Catch Basin, bypassing the Banking system to make sure water gets to the correct spot to nurture a healthy socioeconomic outcome.
So to recap. The Faucet is fed by a natural spring. It will only end if we cap it. The Drain does not lead back to the Faucet. Spending by the Faucet does not create a Debt in water because the flow is connected to an endless tap of the source. We use Taxes, the Drain, to control the flow of currency reserves in the economy. that Drain empties into obscurity, just like your toilet.
To fix some of our issues we simply need to address them directly, since the private sector has failed to and remains focused on their own "water" reserves.
This is a highly simplified explanation. This is not to say our Fountain of U.S. Economics is not full of holes and cracks all over the place that needs to be addressed. There are many more details a Congressperson must consider when voting for budget appropriations. but beginning to understand the fundamental foundation of the fountain forms formidable debates.