Tuesday, October 14, 2008

Money For Nothing - Part 2

Counting the $700 billion the congress and the president just authorized the Treasury department to use, almost $2 trillion has now been committed by the federal government to get the financial system functioning again. Several of our friends are also pitching in. The combined commitments announced by the US, Europe and Japan exceed $4 trillion.

The government politicos say "trillion" like it's an everyday number that just slips right off your lips. I can't really get my mind around such a staggering number. $4,000,000,000,000. I don't know about you, but all those digits look really scary to me.

Where does all this money come from?

I admitted in a previous post that I really don't understand money very well, but here goes. I assume that the Chinese and friendly OPEC nations will continue to lend a bunch of it to us by buying treasury bills and bonds. The rest will be created magically by just printing more of the paper variety we're used to seeing and by making some entries in an exotic "grand ledger in the sky".

This will increase our national debt to over $10 trillion. Some people think that this is really bad because our kids and grandkids will have to pay this back. But that never seems to happen. They may just pass the debt on to their kids and grandkids. In economic theory, I think this strategy is called "kicking it down the road".

Another possibility is that we'll experience a case of serious inflation (kind of like serious indigestion, but on a national scale). Thus, while we pay back the stated amount, it will not be worth very much in real money (whatever that is).

Just where does this leave us? In dire straits, where the money is for nothing (and the chicks for free). Hmm... I seem to remember something similar to that a while ago on MTV .


Anonymous said...

The financial situation has done something for the nation that no political party has been able to accomplish. We are all, rich and poor alike, in the same dumper. Yes I know those who have lost the most will not agree, but loss no matter what the degree or scope is still devastating.NMI

Marilyn said...
This comment has been removed by a blog administrator.
marilyn said...

I was thinking how quickly you could get out of debt if you could just print money whenever you needed it. Not having to pay it back would be even more wonderful.

Maybe when we pull out of Iraq and Afganistan we could take the money we spend on the war effort and pay down the national debt. Until then it seems insurmountable.

Incontrovertible said...

Marilyn, I accidentally deleted your comment. It has been re-posted.