Spending Our Way Into Oblivion

REPOST OF GOPUSA
Spending Our Way Into Oblivion
By Harris R. Sherline
October 20, 2008

How much longer can the United States continue to spend more money than it takes in, and how much longer can we continue our spendthrift ways before something literally gives? The numbers are getting so big that they are beyond comprehension.

For example, billions and trillions of dollars are almost impossible to understand. Generally, we seem to know what a million dollars can buy. We see the number in the prices of real estate and homes, or perhaps the statistics about various businesses. But, we rarely see big numbers illustrated in terms that are easier to visualize. For example, a billion dollars is 1,000 times one million, and a trillion is a 1000 times one billion.

Considering a billion dollars in terms that may be easier to grasp, at an average of $1,000 per month, based on U.S. Social Security Administration statistics, it would cover the social security benefits for over 83,000 seniors (age 65 and over) for one year, and a trillion dollars could pay social security benefits for every senior in America, a total of about 36.8 million, for over two-and-a-quarter years.

America’s politicians are rapidly spending our way into oblivion. Almost a trillion dollars for the Bailout package, including 25 billion for the auto industry, 150 billion for the Federal Deposit Insurance Corporation (FDIC), an 85 billion loan to insurance giant, A.I.G., along with millions of dollars of “pork” for Hollywood producers (no wonder Hollywood is so anxious to produce anti-Bush movies), stockcar race track owners, Caribbean rum producers, Alaskan fishermen, and who knows what else. Remember, this bill was about 450 pages of text, and since it was handed to Congress only about one day before it was approved, it’s obvious that no one read it or really knew what was buried in it.

In addition, two bills sponsored by Barack Obama are currently working their way through Congress: the Jubilee Act (S. 2166) would cancel as much as another $75 billion worth of Third World Debt and the Global Poverty Act (S. 2433), at an estimated cost of $845 billion.

All this adds up to about two trillion dollars, enough to pay Social Security benefits to the entire senior population for more than four-and-a-half years. We are told the money comes from borrowing, which amounts to putting more currency into circulation.

The ultimate result is inflation. How much and how fast is anyone’s guess, but history is clear about what happens to governments that increase the supply of their currency without appropriate controls and corresponding increases in production. It’s simply a matter of too much money chasing too few goods.

Argentina experienced chronic inflation from 1949 through the 1980s. Hyperinflation exploded to almost 5,000 percent in 1989, when government expenditures reached 35.6 percent of GDP (Gross Domestic Product) and subsequently topped out at over 20,000 percent.

A more contemporary example is Zimbabwe, where hyperinflation reached 12,000 percent in 2006, then increased to the point where a single Zimbabwean dollar was eventually denominated as about $10 trillion. The government was finally forced to lop ten zeros from their currency so the calculators could handle the numbers.

When this happens, people refuse to hold their own nation’s currency and convert their money to other assets that they believe will hold their value as their currency continues to rapidly depreciate. In Argentina, wealthy citizens tried to deposit their money in American banks or they bought stock in American companies. The less wealthy attempted to hold U.S. $100 bills or bought houses or gold or commodities, such as rice — anything to get rid of their pesos. They also tried to offset the consequences of unbridled inflation by indexing contracts, which adjusted payments to compensate for the rise in prices over time.

The bottom line is that the currency of a nation that is experiencing runaway inflation becomes worthless, productivity decreases, capital takes flight, and there are a variety of other consequences, such as the government refusing to redeem the bonds it has issued, etc.

The U.S. is rapidly headed down this track. Running continuous deficits and issuing bonds far in excess of our ability to pay is the beginning of the cycle. We’ve been doing this since WWII, and Americans instinctively know that it’s not right. They may not be financial experts, but they know a con when they see one, and most of them seem to recognize what’s happening now with the “$700 Billion Bailout” and have been protesting very vocally. Unfortunately, only a few members of Congress have been listening.

It’s not too late to stop the train, if common sense is allowed to prevail. If not, we can only look forward to more and higher inflation, just as in Argentina or Zimbabwe, with all the consequences that go with it.

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NOTE: Read more of Harris Sherline’s commentaries on his blog at “opinionfest.com.

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Note — The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.

COMMENTARY

• How do you see this problem being resolved?
• Do you think there is anything you can do to off-set this problem in your own homes?
• Are you going to begin putting your assets into other things like foreign currency or gold?
• What are your current plans to resolve this issues in your own homes?
• Will your own out-of-control spending habits change now that you see the problem our government is experiencing?
• What plans can you make now that will help you deal with the coming crash with the situation takes a nose-dive?
• Do you have some suggestions for families that you have found helpful?

I welcome your comments on these questons so that your answers can help all of us. I am not an economic experts, but I am sure some of you out there reading this report are, and can help us if you are so inclined. I hope you will be inclined to help us and that we will heed your advice.

Thanks,

Judith Sherman
Editor