Tuesday, July 15, 2014

Understanding the Bailout: Spending 800 Billion to One Trillion Dollars

Understanding the Bailout: Spending 800 Billion to One Trillion Dollars Less Than 1 Percent of the Population Has Any Idea How Much Money that Is Lex LoebContributor Network . This is a secret that your government would prefer you know nothing about. It may be a crime to release this information because ignorance is bliss and no government wants an uprising against it or even the sentiments that voters may throw them out of office given dangerous information like this. How much is 800 billion dollars, say for a proposed bank bail out plan or for a stimulus plan or for just general re-distribution? 800 billion dollars looks like this: $800,000,000,000 . It is a finite number and certainly not the biggest number ever imagined or realized. If you want to buy half million dollar homes with that much money it will buy you 1.6 million $500,000 homes. or twice as many $250,000 homes. That does not really give you a good idea of how much 800 billion dollars is because most people don't go shopping for 1.6 or 3.2 million homes. The CIA world fact book estimated that the US population in 2008 was about 304 million people. Using that number , 800 billion dollars comes to $2,631.57 per person that the US Government is just planning to run of the US Treasury printing presses. When it comes to a trillion dollars, $1,000,000,000,000 , that is $3278,69 per person. That seems to be an almost manageable figure for a country with average incomes above $40,000 but when you go to a 3 trillion dollar congressional budget which is what the Congressional budget was in 2008 before the financial crisis happened, that is $9836.06 per person. When the budget zoomed to over 7 trillion dollars during and after the banking crisis, that came to $22,950.82 per person. Then comes the really bad news. Out of the 305 million Americans counted, only 155 million (in 2008 according to the CIA world fact book are the nation's labor force including the unemployed. That is about 51 % of the 350 million which means you can essentially double the cost of all those prior calculations. That means that congressional spending is really much more expensive. 7 trillion dollars of government spending will cost each laborer $45,901.70 per worker which is more than they make on average. Last year's 7 trillion dollars plus in spending is not going to include the congressional budget this year which because of the ongoing financial "crisis" might double quickly to 14 trillion to 20 trillion US dollars which is $90,322.58 per laborer in the country. That would make the country worse than insolvent, bankrupt and broke. Of course the workers are not supposed to pay their government spending obligations all in one year as internal national debt because it is not an external debt but over time because it can be amortized just like a mortgage. Government already has plenty of existing indention national debt to service so that just means the workers taxes will have to go up and the US dollar is being effectively devalued because the internal transfer payments of printing and distributing money from the US treasury is essentially a zero sum game. What is a zero sum game? The best analogy is this: ten poker players are sitting at a table playing poker including the dealer who is also a player and happens to be the government. The dealer is a special player who can print money to stay in the game. Assuming there is 500 dollars on the table unequally divided by 10 players , or around 50 dollars each. The zero sum game is that if the dealer ordered all players who had more than 50 dollars to give their winnings back to the other players to make all the players equal then there is still just $500 on the table. Then assuming that the government and dealer decided to equalize the amount of money on the table by just printing out an extra $500 of funny money and distributed to the player selectively according to how much the dealer liked them or by feeling sorry for the ones who had lost the most in the poker game than guess how much real money is still on the table? $500! Not $1000. Why because even if the dollars all look the same some are funny money and some are not. If that were all the money in circulation in the entire country it would quickly come to mean that something that had been worth $1 before the money was printed and supplied to the economy would cost $2 afterwords. that would be assuming that no one could tell the difference between funny money and the real money. If they could tell the difference players would just leave the table who had the most real money and leave the players who only had funny money to sit there and play against each other. It definitely would not mean that players would bet $2 instead of $1 per ante, All the players at the table would eventually be sitting there broke and naked if the dealer continued to print an unlimited supply of money for itself to play with . Government could buy their clothing in exchange for giving them funny money and still have an unlimited supply to make all possible bets. They might even have a house advantage, being the government and dealer in a poker game. A trillion dollars of funny money works the exact same way. Government can spend it outright to buy things and it can just give it away to their better friends. It it is indistinguishable from real money than it becomes real money and things naturally will have to cost a lot more. The zero sum game rules do not necessarily apply in the real economy because of the international nature of the economy. For mystifying reasons foreigners and their governments seem to value US dollar funny money much more than they should. Their belief is that the money is good because the US government has the power to tax US citizens and that the rates of taxation are a huge percentage. US GDP is enormous so printing trillions of funny money dollars does get absorbed into the world economy but ultimately it remains funny. Bad money drives all the good money out of the economy and that is all that is left because there is no way to tell a funny buck form a comic buck it just becomes worthless with successive devaluations. Feeding the money supply is not usually called devaluation because a devaluation is often a sudden money shock caused when government changes the official rate of exchange with foreign currencies. It gets rather complicated because the US dollar is one of the most free floating currencies on the planet and often only fixed by foreign governments who desire official exchange rates and not directed by the US treasury. That can change when our government decides to peg the dollar to some rate or some other currency value ratio. Chances are that when our government starts creating trillions of dollars in immediate spending packages that they will soon be playing the devaluation game. The new secretary of the treasury was not yet sworn into office and he was attempting to strong arm the Chinese government into appreciating the value of it's currency to the US dollar which is essentially a selective currency US dollar devaluation. Absolutely amazingly bad policy and a sign of really bad things to come. We are talking the End of the USA as we know it government puts the country into a position that money is raining down from the sky. How much rain and snow will you have to collect in buckets to take to the store to buy something to eat? That is called a snow job and your government you elected is not being very careful how it spends 800 billion dollars or each coming trillion dollars or three trillion dollars budget money. OK so the rhetoric that they are going to tax the rich and not the middle class or the poor comes into play now. How? assuming there are 500 Forbes Richest People in America and the average one has 1.2 billion dollars each , then their total net assets is 600 billion dollars. That is 200 billion dollars less than just 800 billion dollars. It does not take long for government to completely deplete and rob the rich as a resource before they do have to start hitting up for cash the other 155 million workers. Asset values of the rich actually fall when the economy crumbles so the government gets less and less trying to squeeze anyone for taxes and the funny thing is that after government prints trillions of funny money dollars when they tax the citizens they get funny money back! That only means they need to print even more funny money to make up for the difference later on. The good news is that in 40 years there will be so much inflation that the average annual wage in the USA might be one million dollars per year so a lot of the debt being created may cancel itself out. Could it all work out well in the end? Probably the very rich will be most likely to stay very rich and chances are every government on the face of the earth will devalue their currencies just as much if not a lot more. So how would it be that the US could self destruct doing this? The problem arise in the shorter term 1-20 years. If devaluation is very swift suddenly much of the population can find themselves destitute and jobless. Government can go on printing money with wild abandon and at some point no one is going to accept it and if they do they will simply be better off going deeply into debt instead of saving money. Why then is our government always telling us we need a much higher savings rate and at the very same time they are causing infinite inflation which makes it necessary to go totally into debt to survive financially? Everyone wishing to turn the US economy into a high inflation banana republic economy will be sorry except for real estate owners who go so deep into debt they will virtually own anything they want to buy on credit for free. Lock in low interest rates before financial markets drive them up. One way to do that is to go out and buy some of the most in debt corporations in existence in times when they are most likely to go bankrupt because when the tide turns they will be the best leveraged investments in world history should they survive the pseudo deflationary post financial crisis phase. Unfortunately for non financial wizards , that most Americans are, most are doomed to failure trying to prevent the government from destroying their existing wealth because the dance steps required for survival are complicated as the risks are very high of having far too much debt before the inflation ultimately makes that the best financial move. It one waits too long to borrow money money for rent will cost far too much and the debt is not bearable as government will attempt to control inflation after they create it. When congress is voting to create 800 billion dollars out of nothing and you are nodding your head with everyone else about what a great idea that would be to make us all rich just think about that being the same thing as some snook sitting at a poker table and writing I.O.U.s to play with . If it makes it better that he happens to be your government then you just happen to be snookered by Mr snook. That does not mean you are dumb but it does mean you are stupid. The difference between being dumb and being stupid is that dumb people are not smart and stupid people can be smart but they are ever so happy to go over a cliff with a crowd of people doing the exact same thing. It is not stupid think that 800 billion is a lot of money but it maybe stupid to think that printing that much money is going to stop you from saving it or cause an economic stimulus to occur just because it makes a hell of a lot more money. .

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