America’s Economic Chickens Coming Home to Roost

It seems that not a day goes by where there is not another scandal making headlines.  No more had the bombshell regarding New York’s Governor died down then the next bomb explodes on the Republican side of the aisle.  Once the dust settles and the amount of money fraudulently stolen by the RNC Treasurer is determined; this story will run longer than the Spitzer affair ever could.  That is until the next example of adjunct corruption hits the newswires. 

It seems that not a day goes by where there is not another huge story coming out of New York or Washington that proves conclusively the United States of America is in not only a recession, but possibly a depression.  The amount of money being hurled by the Federal Reserve Board at failing banks and other financial institutions is astounding.  Any sane person would ask the one burning question: Where does all this money come from? 

As long as the United States Government can print money, it can always print more if it wants to.  As the Dollar continues to fall, it takes more and more of those dollars to buy things, especially commodities such as gold and oil.  For years, gold could be purchased for around $400 per ounce.  In other words, it would take four $100 bills to buy an ounce of gold.  Suddenly the dollar loses ground in a hurry and instead of four $100 bills, it takes five, then six, then seven, then eight, and then nine and now it takes ten $100 bills to buy the exact same ounce of gold one could buy of four.  Again, the question becomes one of; where does the extra money come from to pay the inflated price?

If you went to the grocery store and bought a gallon of milk for $3 today, you would not think anything of it.  You had planned to pay that much for your milk.  But, what if next week when you go to the store the cost of that same gallon of milk is now $4?  Somewhere and from some place you must find an extra $1 to pay for the milk.  Now what happens if the same thing happens with bread, eggs, cheese, meat and every other item on your grocery list?  Instead of a grocery bill of $100 which was budgeted for, the bill for the identical items is now $130.  Somewhere one must find an extra $30 or put back on the shelf $30 of items.

What if you managed to find the extra $30 only to find that the cost to fill your car up with gas suddenly increased from $40 to $60?  Now you must find an extra $20 for gas.  Upon returning home, you see the electric bill arrived.  Upon opening the envelope you see the rates increased 20% and the bill is $50 more than expected.  Also in the stack of bills is the dreaded credit card bills that used to be paid in full each month.  Guess where the “extra” money to pay the increased costs of everything else will come from?

When there is no extra money available, and there is a dramatic price increase in things such as food or fuel; the difference has to be made up from somewhere.  The only way to make ends meet is to either cut back or borrow more.  Since most of us don’t want to (or can’t) cut back any more than we have, that leaves borrowing.  To inspire us to borrow more, the Federal Reserve lowers interest rates.  Somehow this is to spur corporations and individuals to borrow more so as to spend more at inflated prices to keep the economy going.

The United States Government already spends far more than it takes in due to silly wars and pet pork projects.  The economy starts to stall.  IRS income starts to fall.  What is the Government’s answer?  First they “bless” most citizens of this country with a little check with the stipulation it is to be spent on something you don’t need so as to get the economy going again.  Then it dumps over 200 billion dollars into banks and other financial institutions to prop them up so they don’t go bankrupt.  Then they announce they will keep doing this as long as it takes to stabilize the economy.

Meanwhile, the country goes deeper into debt as it just keeps printing more “funny money”.  The more money is printed, the less it is worth.  The less it is worth, the more it takes to purchase anything.  This vicious cycle could go on indefinitely if not for the fact that other countries see what is happening and start selling their dollars while they still can get something for them.  The more dollars are sold, the less they sell for. 

If you had a $100 bill 50 years ago, it was backed by $100 of gold.  In other words, the country had to have something “hard” to back up its desire to print more money.  Ever since the country went off the gold standard in the 1960’s, the temptation has always been there to turn the printing presses up to high and print more and more money.  Why not?  There is nothing to attach it to.

Every country which has fallen into depression sees its currency lose its value and soon become worth less than the paper it’s printed on.  It happened in Germany, it happened in Mexico and it is happening in the United States of America this very day.  The reason gold, oil and other commodities have spiked in price is because it take so many more U.S. dollars to buy them.  Have you priced a Japanese car recently? 

Sooner or later the bubble will burst and the reality of the whole situation will settle in upon families all over this land.  When it does, the instinctive reaction will be workers wanting higher wages to pay for the higher priced goods they need and want.  If the employers start giving higher wages they then must charge more for their products to pay for the higher wages.  Thus the vicious cycle begins.

This country somehow endured two of these cycles within ten years of each other in 1974 and again in 1980.  The unfortunate reality of the whole situation is that most of those who can remember the impact of those two periods of high inflation are retired or passed away.  The current batch of young adults were not even born in 1974 let alone remember anything about “wage and price” controls and only getting gasoline every other day.

Sooner or later the “chickens will come home to roost” when it comes to economic policy.  If the Federal Reserve Board would have only RAISED interest rates six months ago, the country would have rebounded by now from a short recession and be well on its way to a period of nice growth.  But, the Fed opted to go for the “quick bounce” lowering interest rates provides.  The trouble is, with each bounce, the ball is going flatter and flatter.  Soon, if not already, there will be no bounce for the ball will be out of air.

Shortsighted economic policies yield long standing problems.  The irresponsible actions of the Federal Reserve Board would have gotten all involved fired long ago if it were a private company.  But, since no one controls the Fed, it can do pretty much whatever it wants, and it has. 

No matter who says what to try and keep things looking “up”, there is only one way this country can head, and that is DOWN.  I wish it were not so, but mistakes have a way of piling up and there have been a ton of them made by all levels of Government, greedy investors and ignorant people who keep covering their eyes and pretending things are not as bad as they look.  Guess what, it is time to open our eyes, evaluate and take appropriate actions to protect ourselves from what is coming. 


2 Responses to “America’s Economic Chickens Coming Home to Roost”

  1. March 17, 2008 at 8:02 am

    I have visited this site on many an occasion now but this post is the 1st one that I have ever commented on.

    Congratulations on such a fine article and site I have found it very helpful and informative – I only wish that there were more out there like this one.

    I never leave empty handed, sometimes I may even be a little disappointed that I may not agree with a post or reply that has been made. But hey! that is life and if every one agreed on the same thing what a boring old world we would live in.

    Keep up the good work and cheers.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: