THERE WILL BE NO TREES LEFT IN THIS COUNTRY BY 2011
Okay maybe that's a little extreme, but at the rate the Feds are going right now, we're gonna have to start cutting down the Redwood Forrest to keep the printing presses spitting out paper. For those of you that don't know what in the world I am talking about, let me make it plain...
Our leaders passed a bill to "print" $750 billion to shore up the banking system and prevent a financial institution meltdown in October. What many people don't realize is that we have actually "printed" close to $2 trillion over the past year if you include the bailouts of the Bear Stearns bank, Fannie Mae, Fannie Mac, Indy Mac, and more.
So where does this money come from, you wonder? Who pays for this? You do, Mr. & Ms. taxpayer, that's who! The government "borrows" the money and we as taxpayers will foot the bill for the next 100 generations (well, maybe that's a little exaggerated).
But before you think all of this is an automatic process and a "done deal", hold your horses...
First of all, we have to sell bonds on the world market to raise the money. What if countries don't purchase the bonds? We'll get into that later. But let's assume we do "raise" the money. What happens next? We flood $750 billion into the economy over time. That's $750 billion of "fiat" money that does not exist right now. It's virtually the same as the government "printing" money off and injecting it into the economy.
While everyone is sound asleep and not paying any attention to what we just did, let me fill you in on a secret. Printing money, or creating borrowed money that doesn't exist and pumping it into the economy to save the banks or for whatever reason we have will destroy the value of the dollar. At the rate we are going, the dollar will be worthless very soon.
I was so happy to see CNBC run this story about Jim Rogers speaking at the World Money Show Conference in London. Jim Rogers basically said what I have been thinking for a long time, that printing money to solve problems on behalf of the Federal Reserve is a "terrible policy".
If you can't seem to understand why printing money is such a bad idea, let me give you this short illustration.
Let's say that every adult in our home town was given $100,000 of "stimulus" money by the Federal Government. What would result? Well, for starters, there would be a run on every retailer in town. Anything that could be bought would be bought quickly. Imagine what would happen at the new car lot. Every vehicle would disappear quickly, and you would have a waiting list for the next delivery. But you would then have competition for what would be a "scarce" product (the demand is higher than the supply). If John Doe wanted the next F-150 truck more than Joe Six-Pack (haha), then he would offer the dealer $5,000 more. This would start a bidding war.
The next thing you know, the prices of the new vehicles would skyrocket to meet the new demand, and the new retail prices would "correct" for the new influx of cash into the community. Now, a $20,000 car might be $50,000 or more because of the artificial deman. This would have an effect on retail goods accross the board, and eventually would affect the service industry and even utilities.
I have actually heard people say that the cure to this economic downturn would be to give every citizen $1,000,000. And they seriously think this is a good idea. Well, to tell the truth, printing checks for $600 for stimulus rebates or bailing out Wall Street at a cost of $2,000,000,000,000 (yes, that's 2 trillion) is just as stupid.
When the day is done, the value of the dollar will correct for the amount of currency in circulation. If we keep this up, the dollar is doomed. And we can blame our political leaders, both the Democrats and Republicans when it happens.
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