This is a layman’s understanding and frustration of what’s going on in the world. Maybe I’m off in my perception of things – feel free to correct me.
So, lately, all we’ve been hearing about is stimulus and bailouts and huge sums of cash. What no one seems to be taking seriously in these discussions is where the huge sums of cash are coming from. Technically, all these big organizations, and our government on top of that, are broke. So where’s the money coming from? We know there aren’t stockpiles of cash lying around that is being drawn from. So where?
In one sense, it’s coming from nowhere. In a more real sense, it is being stolen from our pockets. The Treasury department is being ordered to print new cash. Printing new cash can be a good thing, but in this case, it’s bad and immoral. All those hard earned dollars that you have saved away? Yeah, it’s becoming worth less and less. More on why that’s immoral later.
The pieces of paper we call cash symbolize a backing physical precious commodity held in trust by the government – for example, there’s a bit of gold lying around that is equitable to your dollar.
So why is printing more cash bad? Well, first, when can printing cash be good? Printing cash can be good in two instances that I can think of: (1) the government has an increase in its backing stores of precious commodity or (2) the government is trying to keep the value of its cash equitable with other places in the world that are experiencing a decline in the backing value of their cash. In this latter instance, you are devaluing your cash but for the benefit of maintaining equitable currency exchange between foreign markets. To be honest, I don’t know how useful (2) really would be and if it ever has come into play. There’s also a 3rd option – you print cash to replace cash. So you print cash, hold it in reserve, wait to reclaim cash to destroy (’cause it worn out, damaged, whatever), and release an equitable amount of cash that was held in reserve.
So those are the three instances where I think printing cash can be good. There may be others.
When is printing cash bad? In the second good instance mentioned above, I noted that the printing of cash will decrease the value of cash if there’s not an increase in the backing stores of commodity. So for example, you have a dollar bill, and its backing is a chunk of gold. The government comes along and prints some cash, and now that chunk of gold is backing two dollars. So now your original dollar is worth half of its original chunk. If the government gives you your second dollar – great! You’re breaking even. But what happens when the government gives that dollar to someone else? Well, the short version is, you’ve been robbed. And that’s exactly what’s going on today.
And thus here we are in our present situation. Our banks are failing. Economic backbones such as the auto industry are failing. And the government is printing cash (thus devaluing all of our present currency) to bail everyone and their dead great great grandfather out of debt. Does anyone else see the problem there? Debtors owe creditors money. The government is printing new money, giving it the debtors, and letting them pay off their creditors. In some sense, what debt there is should be increasing by the printing of money (i.e. devaluation caused by printing should make the value of debts owed increase), but either way, the value of your money is being decreased so that the difference can be given to someone else that has squandered the money they had away.
It’s kinda like the prodigal son, upon realizing that he’s broke and all manner of screwed up, sending a letter to his father asking for more money (“Dad, need more money”), and the father sending the prodigal son money obtained from the wealth of the responsible son. Note in this version, the prodigal son did not change his ways or return home. If you don’t think that’s occurring right now in our economy between wayward banks, institutions, and irresponsible private citizens (the prodigal son) and our government (the father) and the rest of us (the responsible son), wake up.
Let the banks fail. Let people go bankrupt. You can’t spend your way out of debt. You have to save your way out of debt. And while that may seem like a lot of inaction, it’s actually a very different form of action than what has been exercised for the past 17 years. The current form of action being proposed by Obama and his administration is just a continuation of what got us here in the first place. Obama’s not turning the country away from the cliff, he’s hitting the accelerator. The short term will make people feel good, but the long term just cannot sustain itself.