Furthermore, Joe the Plumber would put the cash in his old, green toolbox Monday morning and take the money to the bank and deposit it. At least the whole amount would now be safe in the bank, he thought. Thanks to the Bailout, the FDIC now insured deposits up to $250,000, which happened to be the annual income that divided the poor from the rich in the United States, whereas he would have lost $150,000 of it if it had been in the bank a month ago, as the insurance only covered $100,000 back then. He had gotten down on his knees with Jenny and the kids and thanked God that he had not put all the money in the bank before, as the Great State Bank had failed and had been duly federalized and renamed the Federal Great State Bank. So now his bank, backed by no less than Uncle Sam and In God We Trust, was sound, and his deposits would be safe from bank failures if not from tax collectors.

Joe the Plumber would not lose any sleep over the fact that he had evaded at least a half-million dollars in taxes over the past few years as an unlicensed plumber. It was just a fluke that the I.R.S. had nailed him for three years with a random audit, and would not have him prosecuted if he paid up in ten days. He really did not believe he had done anything morally wrong even though tax evasion was illegal. First of all, he was a democratic Republican, one who believed in majority rule through elected representatives hand-picked by party bosses; at least he was a Republican when the Republicans were in control of Congress and the White House; and everyone knew that the majority more or less cheated on their taxes, many of them fraudulently taking charitable deductions on Schedule A for their compassionate conservatism. Moreover, Big Government was wrong simply because of its size, so Joe the Plumber was not being selfish for withholding supplies from it until it was reformed, trimmed down to expend its limited revenue to achieve sovereignty’s most legitimate form, the mightiest police and military force in the world, greater than the sum of the next three largest forces on the globe.

Now Joe the Plumber had taken some interest in banking due to the banking crisis. As a plumber, he was especially fascinated by the talk about the credit and liquidity crises and cash flows, and how the banks had shut the valves even when they had plenty of liquid, because of the confidence crisis. The economists said there was a difference between money and credit, inasmuch as money is what you buy groceries with, while credit pays for groceries with money borrowed from someone else whom you will pay back, but Joe the Plumber thought the difference was essentially between paper and plastic, the two being virtually convertible at the check-out counter. And then he did some Internet research and found out that banks are money machines that have a monopoly on creating money out of money by ideally loaning out a total of ten times the amount of money deposited with a bank. His mouth watered when he read the juicy paper, ‘Reserve Requirements’, published by the Federal Reserve Bank of New York:

“If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100 + $90 + $81 + $72.90 + … = $1,000).”

Joe the Plumber knew that depositors may lose confidence in banks and want their money back at the same time, make a run on banks, wiping out the reserves and driving even sound banks into bankruptcy. Besides the reserve requirement on deposit liabilities, banks have capital requirements requiring them to have capital, the difference between assets and liabilities, as a cushion amounting to a certain percentage of their assets such as cash, government securities, and loans. Steve Forbes explained to Joe the Plumber that an “asinine” accounting rule called FAS157 required banks to write down or “mark-to-market” the value of their loans to a minimal level when there was virtually no market for them, hence the banks lost assets and capital at the stroke of a pen, and could no longer lend out money. So the government stepped in to buy stock. The “liquidity infusion” of the government’s head plumber greatly improved the bank capital, putting the banks in a position to make loans and thereby create money again.

Yet, learned Joe the Plumber, banks might have plenty of cash to lend out but refuse to do so because they lose confidence in one another, aggravating the credit crisis. One reason for the diffidence might be the amounts due from gambling on the fluctuating value of loans outstanding, placing bets called insurance premiums via “credit default swaps.” Anyone can play, even if she has no interest in the loan bet on. Credit default swaps were being retailed by Lehman on fancy paper in Germany as if they were as good as money. The U.S. Congress exempted the unregulated betting from state gambling laws. Joe the Plumber learned that maybe $70 trillion of those so-called insurance policies are out there; netted out, they might amount to $5 trillion due and payable, and for all one bank knows, another bank might be bankrupted over night – it is the custom to seize banks in the middle of the night while everyone is fast asleep. 

Anyway, Joe the Plumber supposed that if extending credit makes money because the amount of the loan is deposited in a bank and 90% of it is loaned out again and deposited again to create more money, and so on, then there is not much difference between money and credit. Indeed, he noticed that the bills he had on hand were clearly marked, “Federal Reserve Note.” They did not amount to a promise to pay so much gold to the bearer on demand; the promise amounts to acceptance as legal tender. There exists an implicit promise that people will deliver goods and services on presentation of this printed money, which is only a small portion, at least half of it in foreign countries, of transaction money; the most of transaction money is demand deposit or checking account money, which is useful to both the depositor and the bank, while paper money is only immediately useful to the bearer.

Money, Joe the Plumber concluded after thinking about it for awhile, is both an asset and a liability, a sort of system of mutual claims, and the debt mounts when the supply of money is inflated by credit expansions. If people cannot pay that debt by producing what is owed when it comes due, the money will lose purchasing power. Be that as it may, he was disturbed to hear from the White House that the banks were not loaning out the taxpayer money used to buy stock in the banks. They were sitting on the money or using it to gobble up other banks. When fast-talking White House Press Secretary Dana Perino came out to the podium and speedily said, “What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” Joe the Plumber was livid. So they were holding out! Lending the money out should have been part of the scheme! “The way that banks make money,” she said, “is by lending money. And so, they have every incentive to move forward and start using this money.”

“Damn right! That’s how they make money, and in more ways than one, so they had better start doling it out!” Joe the Plumber affirmed out loud to the television, and yelled out to Jenny to bring him another Bud from the kitchen. Surely the banks would heed the White House now and ramp up lending, he thought. He figured he would help the cause with his $250,000 Monday morning. Why, the banking system, if functioning efficiently, might turn his money into $2,500,000! Heck, after he paid off the I.R.S. for back taxes and paid some estimated taxes, he might borrow some money from the bank himself.

Another reason he had for wanting to deposit his money in the bank instead of keeping it in the basement was not so patriotic. He was concerned, for example, that he would make the I.R.S. suspicious if he tried to immediately pay the $42,594 back taxes and penalties and interest he owed in hard cash at the I.R.S. office downtown – a check drawn on the bank would be the best way to go.

Having resolved to do what he had to do, he turned his thoughts to the troubling thought that he might not be a $250,000 man again until the economy recovered from the impending Great Recession. So he and Jenny would have to vote for Barrack Obama to save money in taxes. Hopefully, things would be looking up in four years, in which case he and Jenny would have to vote for Sarah Palin. Indeed, he would do what any enterprising economic animal would do. Still he was mad as hell at the whole scene. What aggravated him the most about all these promising politicians is that they were bribing taxpayers with taxpayer’s money. However, he managed to calm down a bit by meditating on the magic of making money. Maybe man can live on loans alone after all.