Grab Your Umbrella
It’s Raining Money!
By Robert Ross
Look up, in the sky, it’s a bird, it’s a plane . . . no . . . it looks like — I can’t believe my eyes — it’s money. It’s raining money!
In early January 2008, things were looking, not so good for the economy. The stock market had dropped two-thousand points since August 2007, the housing market was in a depression, and foreclosures were at all-time highs. To make matters worse, the “R” word (recession) was being bantered about on the nightly news shows. Then, in late January, Speaker of the House Nancy Pelosi announced that a one-hundred-and-fifty-billion-dollar bipartisan plan had been hatched in Congress. A plan designed to stimulate the economy.
The plan would, in Fed Chairman Ben Bernanke’s words (from a speech given years earlier), “throw money from helicopters,” in an attempt to ward off an economic meltdown. The plan called for individuals to receive $600, and couples to receive $1200, plus $300 for each additional child. Unemployment benefits possibly would be extended (undetermined as of January 30) and a host of other business investment stimulus ideas would be enacted.
Following Speaker Pelosi’s speech, I began pacing back and forth, knowing that soon I would be “put to the task” by the government. As a good citizen, my assignment — after receiving a check for $600 — was to head out to a shopping center with a determined look on my face, and shop.
Visions of new skis, or perhaps a new golf club danced through my head. I had to do my part, knowing that 70 percent of the country’s GDP is based on shopping. My mantra would be — ommm shop — ommm shop — ommm shop.
I must admit though, I was a bit confused. The government seems to have an endless pot of money. Where does it all come from? As a nation, we appear to be spending like drunken sailors. With a massive debt (more than nine trillion dollars), unsustainable entitlements (Social Security, Medicare and the Prescription Drug Program, to mention a few) and a huge trade deficit (more than half a trillion dollars), would my mandate to shop, really help? I even had this silly question floating through my mind: “What country in the world has ever shopped its way to prosperity?”
It occurred to me that perhaps I needed some type of medication to “get my mind right,” to get with the program; to click my heels three times like Dorothy in The Wizard of Oz, and believe. Perhaps the $600 should be used for meds, I thought to myself?
Apparently, I wasn’t alone with my silly thoughts. David Walker, the Comptroller General of the U.S., stated earlier in 2007, that the nation suffers from a “fiscal cancer,” with unsustainable entitlement programs. Mr. Walker went so far as to say that “the survival of the republic is at stake.” If anyone should know, it’s David Walker, he’s the top accountant for the U.S. budget. “Fiscal cancer,” I thought to myself? Perhaps the $600 would be best used for vitamins?
Billionaire financier George Soros believes that the current market turmoil and economic uncertainty does not represent “a normal crisis similar to the other crises” and that the problems of credit, equities and the dollar are “an end to an era.” That’s a little scary, I thought to myself. An end of an era? Cancel the new skis, the meds and the vitamins, freeze-dried food is the way to spend my $600!
John Williams, (www.shadowstats.com), has a very good take on things economic, so I thought I’d cruise on over to his website to view his missives on this stimulus package. Big mistake! According to a recent interview, Mr. Williams seems to think that if the U.S. government were to follow normal accounting practices, the same practices that corporations follow, we would be bankrupt! End of story. I surmised that this stimulus package is going to add to our debt and we’ll be faced with the same problems further down the road. Cancel the skis, the vitamins, the meds and the freeze-dried food, perhaps I should put the $600 under the mattress and wait things out!
So, aside from where I am going to spend my $600, what does this all mean? Presently the housing market, the stock market and the economy are in a category three storm (see: The Coming Storm in the Financial Markets, part I at: http://www.awarenessmag.com/marapr4/MA4_REFLEXIONS.HTML and The Perfect Financial Storm, part II, http://www.awarenessmag.com/novdec5/nd5_reflexions.htm.) The government has no choice other than to inflate its way out of the problem. Inflation in this case means (according to the Austrian school of economics) expanding the money supply. Hence, the money falling from the sky analogy. There is no other choice.
The amount of debt on a personal, city, county, state and Federal level in this country is staggering. For example, currently, California is running a 14.5 billion-dollar budget deficit. Any serious reduction in revenues to the state due to an economic slowdown would force the state to cut services or default on its debts. The city of San Diego, where I live, is just now coming out of a serious financial crisis. Any reduction in revenues to the city would drive the city back to near bankruptcy.
The national saving rate for individuals is a negative .5%. With nothing socked away for a rainy day, there can be no rainy day! Perhaps the most deleterious consequence of a recession would be a substantial decline in the stock market. Over half of American households own equities in one form or another — pension funds, retirement accounts, 401K’s, individual savings and investments would shrink dramatically. Not a pretty picture.
Everything says, get out your umbrellas, the money is going to keep falling from the sky.
And for me and my $600? I am going to buy plenty of Maalox!
Robert Ross can be reached by e-mail at: SanDiegoRoss@Yahoo.com
Copyright 2008 by Robert Ross, all rights reserved
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