In brief, the wealth that people thought they possessed did not in fact exist. When enough people saw that their perception of their wealth was untrue, the system unravelled.
The generally accepted perception of banking and commerce is completely false and will continue to offer up failures until it is aligned with reality. Neither banking nor commerce can produce a dime of actual money to measure and store value. Both are merely methods of managing the money that only the issuing government can provide, shuffling it around between winners and losers via zero-sum transactions.
The currency-issuing government holds a monopoly patent on the currency it creates at will (sans a gold reserve to defend). It is a product of law and the government’s ability to recall/destroy its value as a single-use tax credit. As long as the government maintains the ability to levy and collect taxes it will control the economy as the price setter and can “afford” anything that is for sale priced in the currency/unit of measure it creates at will.
As the monopoly issuer of the currency, the government never “needs” its own currency back to enable it to spend. It does, however, need us to need it, and occasionally to have less of it to control inflation or accomplish the desired equity balance. Taxation serves both purposes but is never “revenue” for the currency issuer that must spend its currency into existence prior to collecting (or borrowing) it. Only by spending more than it demands back in taxes can the government provide the private sector with a durable store of value from its commerce that is able to retire private debt, fund economic growth, or be accumulated as wealth.
By positing the government as a competing “USER” of the currency, not the monopoly “ISSUER”, the wealthy can maintain their comparative status and produce the least inflation, or even deflation, that protects their wealth from erosion. If the general population view taxation as “revenue” for their government they will act as watchdogs to avoid any currency creation that might erode wealth or drive it to more risky investment in the private sector.
This was actually an easier sell than one might expect because it resonates with everything the people understand about their personal finances and budgeting, as well as any entity “not” the currency issuer. What makes a state Governor successful might make them a dismal failure in a federal office where they take part in economic decision making. With a proper perspective of federal spending, it becomes obvious that “ANY” misery that can be mitigated by spending is purely a political decision not justified by economics.
Should the population have a collective epiphany and realize that the red ink of the federal government is the only source of black ink for the private sector those politicians who have made balanced federal budgets the political holy grail might hope that their job loss is the only retribution they realize.
