I am certainly no economist. I have studied the subject a bit along with some basic banking operations and a tad of accounting.
There are three basic areas of public finance which are of concern to me: The Federal budget and debt; the devaluation, purposeful or not, of our fiat currency; and the run-away printing presses of the Federal Reserve Bank.
Heard all the hooraw about the “financial cliff”? Here are a couple of interesting facts which dwarf that little hill…
**The Federal Budget Cannot be Balanced – NO WAY*
The total income for the Federal Govt. was $2590 (that’s 2 trillion 590 billion). It cost $1,319 to operate the Federal govt…that is everything, lock-stock & barrell, including national defense. So, the tota
l receipts (2.590) minus cost of the government (1.319) leaves $1271.
$1.270 trillion bucks is a lot of money! What can be done with it? We can pay it out on the “Mandatory programs”. We have to pay the interest on the national debt or the world will foreclose on us. Then there are the programs we promised to finance: Social Security, Medicare/Medicaid, unemployment and a bevy of smaller programs…All these “Mandatory” little gems cost $2.390.
That is where that nasty little deficit came-from…the $1.119 that the Federal govt. had to borrow to cover their budget.
The point is if we shut down the ENTIRE United States Federal Government-all of it-we still could barely cover the “Mandated programs and Interest”.
The Federal budget can no longer be Balanced…period. Do not be fooled by congressional talks about “Balancing the Budget”, “Reducing the National Debt”…they cannot do it…it’s impossible.
One other little item: The Federal government has unfunded mandated spending contracts with the American people (Social Security, health expenses etc) that deown through the years amount to in excess of $100,000.000,000.000.00. That’s pretty much the bottom estimate and you are right it just don’t mean nothin’ except to those folks it was promised-to.
Why is there no serious public discussion about the intractable problems facing this country?
How much is your dollar worth? An interesting fact is that since 1913 our little green buck has depreciated by some 95 to 98%, depending whose figures you peruse. Also of interest is the nature of percentages.
Increasing something percentage-wise can go on into infinity: 100%…1000%…1 million billion%. But in decreasing anything 100% is the limit; anything minus all of itself is, well, nothing.
So about that dollar. If it has lost say 97% of it’s purchasing power…how long is it going to be worth anything at all? Probably not long. And, just in case you have outsmarted me and now assert you have a $20 bill in your pocket-ahah! Well, if 1 buck is worth nothing then 20 of them is worth exactly 20 X nothing and that equals zip, nada, goose egg…nothing.
Probably the most interesting, certainly the most hectic, period of a currency’s lifespan is the last few percentage points of devaluation.
Given that one of the most important, most basic, responsibilities of our Federal govt. is to preserve and protect the public money supply. In fact the Fed. has seen fit to relegate that responsibility to only itself and further it is illegal in the United States for anyone else to produce money in competition…including the states themselves.
All members of the Federal govt. tend to never admit defeat or more descritively and correctly, their incompetence. Their most likely response to a falling value of our little dollar bill would be to print more & more of them (another little sideline the Feds have reserved exclusively to themselves).
Surprise-surprise!! Guess what the Fed has been madly doing the last couple of years?? Printing mass amounts of money, that’s what.
So far the Fed. has been ingeneous about this little scheme. They have printed masses of new money but in order to keep it away from the general public where it would cause massive inflationary pressures, they have managed to keep it locked-up. The cash went to large financial institutions. The Fed has kept interest rates at near zero so the banks turn around and place the money back into accounts with the Federal Reserve as what is known as excess reserves. Banks keep that money there because the Fed pays a higher interest than they can currently get from public loans. So all that money is still locked into the Federal Reserve Bank and it’s tight knit little group of huge financial institutions.
SO the little green dollar is now being propped-up by more & more of hes cloned buddies, but there is a massive overhang of dollars in those excess reserve accounts. The excess reserves are something akin to an avalanche large enough to threaten the entire world…swampping the globe in a suname of worthless money.
With that little bit of groundwork lain, let’s go back to the end life of our greenback. The less a dollar buys, the more dollars will be demanded for those items we need to survive. Like other nations such as Germany, Zimbabwe, China and others we will eventually need a wheelbarrow to carry enough large denomination bills to buy a simple loaf or
This monetary end game is known as hyperinflation. It will continue as the devaluation of the dollar falls to & eventually settle at absolute zero. At that point the government loses control…mainly because no employees are going to hang-around and work for nothing at all.
The government will undoubtedly develop and implement another currency sysem for us to use. Likely ond based once again on a gold standard…gold to back the money.
In the interrum, we will need to rely on some sort of barter system. Carrots swapped for Apples…hogs swapped for gasoline…trade something of which you own an excess for something that will be ov value to you. Older coins that hold high silver, gold and perhaps nickel and copper will progably be used in exchanges.
Somewhere along this rapidly spinning economic crisis, interest rates will start increasing and the mamoth overhang of excess reserves will begin trickle out of the closed Fed system. This is the moment you have been anxiously awaiting. This is the beginning of the end.
Ever heard of the “money Multiplyer”? It’s real simple but of huge importance. The Fed requires member banks to keep a percentage of funds on deposit with the Fed in case of emergencies. That amount is currently 10% of total moneys held by the bank. This 10% yeilds a multiplyer of 10 (1/0.1 = 10) This mean new money entering the banking system of say $1000…the owner deposits it in their bank of choice.
That bank deposits the required 10% reserve with the Fed and then, to make money for their shareholders, they lend the balance of the money out for the profit making interest they will charge the borrower.
The money does not stop/die at that point. the second bank also makes the required Fed. deposite on the remaining $900 and lends the balance of 810 bucks to another borrower to make a little money.
Ths process goes-on until the very last of the original $1000 is accounted-for. That original 10% requirement means the origional 1000 will be doubled & tripled out to an astounding 1000% of it’s original value.
Here is where we get a bit chocked-up by the awsome majesty of money this country is dealing-with.
As we speak the M1 money supply of the United states is approximately $2,418.000,000.000.000.00 (about 2.5 trillion)…this is the easy liquid cash in circulaiton. There are a little over $1.5 trillion excess reserves on deposite.
When that $1.5 trillion comes out into the public system it will immediately be subject to the multiplier effect. Quickly the $1.5 trillion becomes $15 trillion…completely swamping the existing $2.5 trillion which currently exists. At this point we will observe the real effect of way too many dollars chasing to few goods.
Prices of goods & services will rise faster than a nuclear missle…and plunge with a similar devestation.
Will all this happen? Probably not in this precise order, but the potential is very reall and hanging precariously over our heads.
Our dollar is worth virtually nothing. The Fed has printed it by the ton and non of it is backed by anything other that the good will of the Federal fovt…which is so widely respected. The self-same govt which has led us into a quagmire of unredeemable debt and unfunded entitlements which will never be paid.
You be the judge.