Friday, January 9, 2009

A trillion dollars here, a trillion dollars there. . .

By Donald Sensing

- pretty soon we're talking about real money!

It used to take a billion dollars to talk about real money, but that's chicken feed today. Why, just late last year "real money" was merely hundreds of billions, but for Barack Obama, adding a few more zeroes is easy enough to do before breakfast.

Consider that the Congressional Budget Office recently estimated the 2009 budget deficit to be $1.2 trillion. That's on top of the existing federal-debt load of more than $10 trillion.

But wait! There's more!

However, a closer examination of the report demonstrates these numbers are dramatically underestimated due to the scoring of TARP expenditures and obviously the fact that the stimulus was left out of the scoring (CBO is creating a budget baseline based on current law). Based on our analysis, the deficit is actually $2.2 trillion for the fiscal year or nearly 100 percent higher than is being reported. In fact, the deficit will finish the fiscal year at an astonishing 15.5 percent of GDP! Federal spending will rise to 32 percent of GDP.
The question, as everyone realizes, is begged: Where is the money for the so-called $1T "stimulus" going to come from? Well, you know:
For just one week we should ban the verb "stimulate" and the noun "stimulus" — and substitute instead the more honest "borrow," or "print," or "debt"; as in "The government plans to borrow another $1 trillion for the economy," or "The administration today decided to print another $300 billion in cash." Or "Congress met to consider a $1 trillion debt program." But as it is now, the euphemisms only take us ever more distant from reality, as trillions of dollars are bandied about as if they were mere five and tens in the government wallet.
I think Congress will borrow it in preference to printing it, although the latter can't be ruled out. The question is, who is going to lend? China has been the big financier of American binge spending, but buying U.S. debt is losing its appeal in China.
China has bought more than $1 trillion in American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home - a shift that could pose some challenges to the U.S. government in the near future but eventually may even produce salutary effects on the world economy. ...

Normally, China would be the most avid taker of the debt required to pay for those deficits, mainly short-term Treasury securities. In the past five years, China has spent as much as one-seventh of its entire economic output on the purchase of foreign debt - largely U.S. Treasury bonds and American mortgage-backed securities.

But now, Beijing is seeking to pay for its own $600 billion economic stimulus - just as tax revenue falls sharply as the Chinese economy slows.
If no one will underwrite the US federal debt - and there is no other nation's economy, or realistic combination of economies, both willing and able to do so, then "printing" becomes the only choice, unless the "stimulus" is to be abandoned or very sharply cut down (which just won't happen in a Democrat Congress).

And the only possible result of printing is inflation. That means that the stimulus effect of the stimulus package is greatly reduced as time goes on because the buying power of of each dollar is lessened when there is more currency (electronic or physical) in circulation. During the American Revolution, the Continental Congress resorted to printing to finance the war, and Continentals, as the dollar was called then, became so devalued that one of Gen. George Washington's logisticians complained that, "A wagon load of money will hardly buy a wagon load of goods."

So we will wind up with neither a stimulus nor a real-valued dollar, and things will be and will get worse, not better.

2 comments:

Doug said...

Based on Obama's rhetoric I'm afraid his knowledge of history and economics is based on loony Left philosophy of that fine institution called Harvard. Cynically, I hope he was just appeasing the uneducated during the election with quotes like "spreading the wealth around". Otherwise we are in for a rough 4 years.

Craig Moore said...

Prinitng our way to prosperity is historically a disaster. But it empowers gov't and I think Democrats see this as an opportunity to expand their power. Instead of "spreading the wealth," I think Obama is more interested in "spreading the power" of the Democratic Party."