When my wife and I first got married we hardly had two nickels to rub together. I had just graduated from college and was just beginning my accounting career so; of course, my income was at an entry level. We had just purchased our first home, or what you might call a home since it was a mobile home.
I remember when a pre-approved credit card for Woolco came in the mail. It had a $500 credit limit which at the time seemed like a million dollars. Thinking we had just won the lottery, we went out and bought all the things we had to put off because we lacked money.
We had so much fun buying small appliances for our new home, things for our new baby, clothes, records and cassettes (the CD had not been invented yet). The fun lasted for about three to four weeks but ended when we received something in the mail. What we received was our bill meaning we now had to pay for our fun. Since we did not have the funds to pay the entire balance, our fun came at a price. That price was interest since we could only afford the minimum payments. Such is the reality of spending money on credit; the money eventually has to be repaid, usually with interest, to the person from whom it was borrowed.
Since the present economic downturn began in September, we have witnessed one government bailout after another. The recent stimulus plan was nothing more than additional government spending. The government is not spending money it currently has since it has experienced budget deficits for several years. The money being spent is just like the money my wife and I spent when we used our credit card.
The money currently being spent is coming from two sources. The first is being borrowed from foreign investors through the sale of treasury bills. However, the government has reduced the interest being paid on these investments so they are less attractive to foreign investors. Since this source of funding is drying up the government has created a second funding source. The second source of funding for this spending is being created out of thin air through monetary policy.
The bill is eventually going to come in and someone will have to pay. The treasury bills have terms ranging from one to 30 years. This means that when they mature, the government will have to pay back the lenders with interest. The good news is we can predict when these payments will become due and budget accordingly. However, the money being created out of thin air also has to be repaid. This repayment will occur as the increased supply of money in the system causes the value of the dollar to decline. This will cause inflation, which means consumers will pay this money back through higher prices for the goods and services they consume.
Senator John McCain during debate on the stimulus bill called it the generational theft act. His reason for this was that future generations will be the ones paying back the money through higher taxes that will be required to pay back the debt when it matures and higher prices brought on by current liberal monetary policies. The question we need to ask ourselves is this. Is this the legacy we want to leave our children and grand children? Personally, my answer to this question is no that is why I urge everyone to write the president, their senators, and their congressperson telling them to quit this spending spree and restore some sanity to our government and its monetary policy. If they refuse to listen, inform them that there will be an election in 2010 and 2012 and they can be replaced.
We have not maxed out our nation’s credit card yet so it is not too late to stop the insanity. I invite you to comment or contact me at dalewsr34@gmail.com.
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