Suppose I had three sons – Joe, Rich and Sam. Rich was a middle manager almost scraping six figures. Joe was a worker only making 30 grand a year but he still had a roof over his head, two TVs, a car and a leather jacket. In fact, every year Joe would get a five grand kickback that Sam would take directly from Rich’s bank account and deposit in Joe’s. Anyway, both Joe and Rich were net savers on the whole, but Sam was different. Sam was making fifty thousand dollars a year but borrowing an additional twenty five thousand per year on top of this. And all the while he was carrying an additional two hundred and ninety thousand dollars in credit card debt along with two point three million dollars in unfunded liability. Now, lets say Sam wanted to give himself some more money. He wanted to take the money from Rich and Joe, but he didn’t want them to know about it. And so instead of drawing the money directly from their bank accounts, Sam – after giving a speech in September - simply devalued the money Joe and Rich already had in their possession by five percent, giving himself nine thousand dollars. Joe and Rich didn’t think Sam was taking their money because when they looked in their bank accounts they saw the same amount of cash. But their money was worth less and they weren’t able to buy as many goods and services with it. In fact, Sam had already done this several times before over the course of the past couple years, devaluing all of the money in the system by a total of thirty percent, to pocket almost sixty thousand dollars. Now the question is: Is this fair?
Numbers are based off of 2.6 trilion (the government’s real income) == $50,000 (average US household income).
I simply asked myself: For what the government is doing, what would be the equivalent in behavior for a normal family. So with 2.6 trillion equals 50 thousand dollars, I then applied the equivalent ($19,500 = $1,000,000,000,000) and extrapolated out the government’s current figures.
Figures taken from:
http://www.usdebtclock.org/
http://en.wikipedia.org/wiki/2011_United_States_federal_budget
http://www.federalreserve.gov/releases/H6/Current/
http://www.usnews.com/opinion/articles/2010/10/05/median-us-household-income-by-state
http://www.census.gov/prod/2010pubs/p60-238.pdf
http://money.cnn.com/news/storysupplement/economy/bailouttracker/
The scariest thing I realized: There’s only 9.3 trillion U.S. dollars in circulation, and the government has pumped 3 trillion additional dollars into the system ex nihlo in the last couple of years.
Very good Ted. I did not know the 9.3 trillion figure. Your 30% devaluation makes sense. So I assume the total now is 9.3 trillion and if 3 trillion was added does that mean it was around 6.3 trillion a few years ago? If so that is a 47% increase in money supply.
It’s not a perfect analogy because not all of the $3,000,000,000,000.00 in bailouts in the past 2 1/2 years has gone into monetary circulation, only about half of it has (see http://www.federalreserve.gov/releases/H6/hist/h6hist1.htm). But that’s still effectively a 15% devaluation of the money supply.
The consumer price index only shows a 5% devaluation during the same time period (see http://www.bls.gov/data/inflation_calculator.htm) so not all of the money placed into circulation by the bailouts is moving around. Still, this is a very real tax against the american people, many of whom have not had a raise in several years or have been downsized due to lack of investment because no one want’s to expand with the climate being so uncertain – and in cases openly hostile to business – in Washington D.C.
BTW, a good article on fiat money. Breaks down a little at the end but some good concepts in the middle: http://netrightdaily.com/2011/09/why-cant-republicans-cut-spending/