The money behind it all

In today’s America of bailouts and a left-wing that is calling for bigger government, we must remember that money can not solve everything. It is IMPOSSIBLE for the government to solve everything with money because they don’t have an unlimited supply. Sadly, many politicians nowadays act like they do, with new proposals each and everyday that call for billions of dollars in spending increases despite a debt that is over $10,000,000,000,000 (ten trillion dollars.) The country has been spending with a huge debt for quite a while now, but there will be a point when all of that debt will catch up to us. Deficit spending is alright when necessary, but it should be used as a means to get out of debt, not to fund socialist programs which will only lead to more debt. We are currently in a downward spiral of spending and unless we stop we (or future generations) are bound to suffer.

So why exactly will massive deficit spending cause suffering? In order to understand the answer to that question it is important to look at the way the government prints and spends money. The government has a few ways in which it spends dollars that it does not actually have at the moment. It could be through the sale of bonds and other such securities, which is totally fine since eventually the government will cover those securities by buying them back with actual, existing money. Raising taxes is another option, but it is one that should not be used due to the huge economic implications that come along with it (the government continues to use this method, but it really isn’t efficient- look for a future post for more info on this topic.) At the rates that we are spending money, bonds, security sales and even the occasional tax hike simply can not make up what we need. This is when we simply print bills out of thin air to pay for expenses.

The problem with this is that printing a dollar does not make the government a dollar richer. Maybe in terms of how many bills they have it does, but in reality every single existing dollar takes a hit in value in order to support that one dollar that was simply printed, with no backing. If enough of these bills are printed out of thin air, we will start to see noticeable drops in the value of the currency. This generally leads to inflation and the American people (and those who invest in American bonds and currency) suffer.

This trend can easily be seen in modern American history with the prices of a plethora of goods rising in the past few years. From milk to eggs to gasoline, things are just more expensive for Americans. A lot of the blame falls on the government for printing this money out of no where and hence reducing the value of the dollar for everyone. The value of a dollar is really just a product of supply and demand. As the supply increases, the demand (and with it the value) decreases. It may sound odd saying that the demand for a dollar decreases because everyone still wants money, but in terms of the market it essentially does since there are more available dollars.

A weak dollar means that imports from other nations will be more expensive for us Americans since the conversion rate between the USD and the foreign currency is higher. This leads to less imports (since less can be afforded) and if the dollar is weak enough it could mean big trouble. Currently we are so reliant on foreign nations for commodities and other goods that a weak dollar would mean huge increases in prices for the importer and hence, huge increases in price for us citizens. Deficit spending ties into all of this because as the government expands the monetary supply in order to pay for programs, the value of the dollar decreases and it becomes weaker.

Critics of a strong dollar would argue that a weak dollar helps America make money because manufacturers are able to sell more abroad since goods are cheaper for the buyer. While this is true, we simply aren’t anywhere near resource independent and our need for imports will continue, so a weak dollar would mean more money coming in, but also more money going out in order to purchase the foreign goods we rely on so much. There can be a happy medium where the dollar is weak enough that we can sell a good amount and also still be strong enough for us to afford foreign goods, but at the rate of spending and printing the government is doing, we face a severe possibility of passing the tipping point when imports are so expensive that the shelf price of goods is rocketed to a point where Americans will no longer be able to afford them. The manufacturing companies may make the money through exports, but at the end of the day we still import a lot more than we export and we will be facing a trade deficit that we will no longer be able to sustain. That is the day when we face crisis dead in the eye.

Americans will not have as much money and poverty levels will rise. This could lead to a lower GDP and more unemployment and would probably lead to a depression. We all know the horrors of economic depression, as they were made infamous during the Great Depression of the 1930s. So before supporting the next promise of free healthcare or bailouts, please lets think twice about it before passing the legislation. These programs may seem beneficial to us in the short term, but we must think about the future or we risk having our grandchildren suffer the consequences of our bad judgment.