Imagine a family— it may be your family –who goes hog wild this Christmas. Money is very tight, but you pull out the credit cards anyway and start spending to the max. You want everyone to have a great Christmas and to get what they want, so you go on a spree. You use up your small cash reserves. Then you resort to credit cards and begin to run up huge debts. You pull out your Visa Card and spend it to the limit. You pull out your Discover Card and do the same. You get another credit card offer in the mail from MasterCard, so you spend that out as well. You are intent on every one having a great Christmas NOW, but you are not thinking of the bills that are coming in January.
Many of us have been there, and have learned the lessons that a) those bills have to be paid, b) it takes a long time to pay them off, c) January, February, March etc. are miserable because you live in the prison of debt, and d) this does not make good financial sense for the family. While there is reasonable debt, this kind of debt is unreasonable. Consequently, when you finally get out of this hole, you resolve never to go that deeply in debt again and to do Christmas differently.
Now, let’s change the circumstances. Imagine a government—it may be our government –that goes hog wild spending as well. But money is not tight, because its reserves are not backed by gold but by trust. Besides, the government can print money. This government wants to give many members of the family whatever they wants. Plus it has new priorities and projects of its own. So it spends and spends and spends. Short term, many people are happy, but long term, the complications rise. The bills are coming in January.
A strange economic irrationality has possessed the minds of many lawmakers and citizens. Our congress is committing us to unprecedented levels of spending and debt accumulation. Meanwhile, the expectations of American citizens on what government can and should do has lost touch with reality. We want more and more goods and services from government, but are unwilling to pay for them. How will this be pulled off? To pay for all these things, (let alone unfunded liabilities), the government must raise taxes, borrow, inflate the currency, or do some combination of these three things.
And boy are we spending and accumulating debt at an unprecedented rate. The deficit for this year is 1.4 trillion. Projected spending increases for this year represent the largest government expansion since 1952. We are on a spree that shows no signs of slowing down.
Along with that we are borrowing. We have a mounting national debt that we are dumping on to our children and grandchildren. It is now at 12 trillion dollars. Right now 3.5 trillion of this is foreign held national debt. Current estimates, “all things being equal” (which they rarely are) are that this debt will grow by another 9 trillion from 2009—2019.
All the while congress is not only proposing massive new programs, but is now considering raising the limit on the national credit card yet again!
According to the Congressional Record, “In six months, the president and congress have put the country on a course to spend more and accrue more debt than any president in history. In fact, to take on more debt than all the other presidents in the history of the United States combined.”
The only remaining way to balance the numbers then will be by inflation (where more dollars are printed but they are worth less) and raising taxes. True, inflation has been used in the past, and some times taxes need to go up. BUT, and this is a very big BUT, at the current spending rates, we are talking about major inflation and taxation down the road.
My mother’s parents left Germany in the 1920s because the Weimar government let spending go unchecked and inflation became insane. It became so bad that it eventually took wheelbarrows of money to pay for a loaf of bread. I am not saying that will happen here, but this historical memory is deeply embedded into our family psyche. The best economies can fail and currencies can be devalued.
The taxation that will be needed to pay the bills could have all kinds of ramifications as well. But one huge ramification will be that Americans have less money to give to charitable causes (like churches and ministries) because of the extra financial pressures and incentives the government is talking about taking away from major givers.
Our economic house is not in order. Remember that our word “economy” comes from the Greek word oikonomos. Originally the word meant “one who manages the household.” As the word developed, its meaning expanded to mean “the management of the financial resources of the community or state.” I contend, (non-economist layman that I am), that things were not in good shape under our former president, and now they appear to be getting worse under our new president.
With regard to the current health care debate, while I am in favor of numerous health care reforms, I am skeptical of proposals that add both unpredictable and massive levels of spending. I have written my representatives to let them know.
This month, watch congress. Don’t tune out or be lulled by Christmas so that you do not pay attention. Call your congressman and tell them that the current levels of spending make no sense. Hold them accountable. After all, they are politicians. For each call they receive, they calculate that a certain number of voters feel the same but did not call.
Very important decisions are being made. Speaking out on this and other important issues in our democracy is essential. Especially now. Why? Because January is coming.
Great post Don! I remember saying when the stimulus bill was being written/passed in February, “I wish Dave Ramsey was involved in writing this bill!” It would have been a different story… 🙂
Congrats on 1 year of blogging! I read, though rarely comment – that’s the case with most blogs out there I’ve found. I’m sure you have tons of readers.