Deficit Spending and Hard Money
You can’t turn on the news, or fire up your computer without hearing /seeing the latest headlines about what the US government is over-spending on next. Whether it’s the debacle in Iraq, Wall Street bailouts, Detroit bailouts, or some other such nonsense, there’s no denying that our government spending is absolutely out of control. Not only spending every dollar they do have, but spending trillions that they don’t have. In essense, they are borrowing money that doesn’t exist, and we’ll be paying interest on that “invented” money for the next several generations.
It seems like the US public is getting very numb to huge numbers. Figures in the tens and hundreds of billions just don’t seem that large, when we’re staring at a ~$2 trillion deficit for this year alone. Add on a few billion here, and a few billion there, and no one seems to really care that much. My question today, is simply, why? Do we just not care, or is it that we don’t care because the money is imaginary?
What if we were spending in gold bullion?
Imagine, for a moment, that instead of borrowing money that doesn’t exist so we can overspend, the US had to use gold bullion from its reserves. Take GM for example ( because it’s a well-known example, yet hardly the worst ). Instead of the roughly $50 billion in digital ones and zeroes that we’ve poured into the company, imagine that we sent them about 50.8 million ounces of pure gold to keep them afloat. Gold from the US reserves – once spent, it’s gone.
Unlike our current fiat system, where we can continue to borrow more and more until the system implodes, you can’t borrow more gold. Once it’s gone, spending stops.
Would we care more if our money was finite?
That’s what I’m getting at. If the US money supply was finite, and each dollar spent on X meant one less dollar spent on Y, would we all care more about where our money went? Even if you don’t like the idea of a gold standard ( its usefulness is a debate for another time ), I can’t help but think that you’ll agree with me. Thinking of money in terms of something solid and finite would help us all care more about spending.
You can take this to heart with your own finances. Don’t think of your various lines of credit as “money,” because they’re not. Think only of the dollars you have on hand, and in the bank. Quite a simple lesson that we can all take. If only the US government would take note.
June 2nd, 2009 at 8:41 pm
When comparing it to your personal finances, don’t compare it to credit lines. Think of it this way:
Is my earning potential finite?
-No, I can create more value and get a raise.
-I can work a second job and get a second wage.
-I can do work on the side and get infrequent payments.
-I can create something of value and sell it.
-etc
If I told you that your earning potential was finite, would you agree or disagree? It is the same for our economy. Every time we make progress on a technology and start a new s-curve, we create value globally. Every time we pick up another highly-specialized firm, we create value globally. Etc.
What do you think?
June 3rd, 2009 at 5:52 pm
I think that line of thinking is pretty dangerous. What you say is technically true, but I think it doesn’t correlate pretty well here. If we base borrowing on our future ability to earn more, that’s a very slippery slow to walk. Think about it this way.
I figure I can get raises, start a business, new job etc etc to earn more money, so I borrow up to my eyeballs. McMansion, new Escalade with 24’s, Apple everything, new furniture, etc etc etc you get the idea. Before you know it, I have a half million in debt and no reasonable way to pay it back – unless everything goes right in the future. I’ll spend the rest of my life slaving away to pay off the debt I racked up.
The country’s debt is the same way. We’re spending like madmen, because the “money” isn’t as real as it used to be. Future generations will struggle to pay it off, knowing it’s impossible the whole time.