A Dollar for your Thoughts
Over a decade ago, Erskine Bowles, Co-Chair of the bipartisan Deficit Reduction Commission, said that continued deficit spending by the federal government would lead to the “most predictable economic crisis in history.” Incrementally reducing the likelihood that reckless deficit spending will crash the U.S. economy in the near-term (as opposed to a certain collapse in the longer term) is entirely dependent upon the acceptance, viability, and confidence of the U.S. Dollar as a fiat currency (and as a reserve currency among other nations of the world).
The only thing that sustains the value of dollars is a continued demand for those dollars. Interest rates have been artificially suppressed for over a decade by flooding domestic and world economies with dollars. Most of the dollars in existence have been created out of thin air in the last few years. It is akin to hauling in diamonds by dump truck loads but expecting them to retain the same premium price, as was formerly attributed to the commodity based upon its unique character and relative scarcity. Such an expectation is utterly irrational and unreasonable.
Flooding the market with dollars was not an effort to benefit the “little man.” It was done by political minions in order to buy support from an increasingly dependent electorate. It was done in order to hide the true costs of deficit spending. It was done so as to keep down interest accruals on the gargantuan National Debt, which presently exceeds $30 Trillion. Paying interest at rates of just 5–6%, which represent the historical average, would cannibalize a large portion of government revenues.
It is almost inconceivable for the federal government to increase revenues at levels that would be sufficient to pay such interest accruals, to close existing spending deficits, AND to address entitlement insolvencies (without even considering the possibility of actually paying down the debt). No matter how vibrant and resilient the U.S. economy may be, taxation at these levels likely would bring it to a screeching halt. In order to have any hope of success, any efforts must be accompanied by significant budget cuts and austerity (as well as increases in individual productivity and personal responsibility).
Acknowledging that government is no panacea would require the political classes to admit that they were wrong — very wrong. This is the disconcerting reality, which politicians and government technocrats wish to hide from the prying eyes of the public. They will do almost anything to keep the public from looking behind the curtain so as to see the incompetent and impotent “wizards.”
What happens when the well ultimately runs dry? The federal government constantly walks a tightrope between allowing, nay enabling, the nation to live well beyond its collective means and crashing the entire economy. In fits of ignorance and in demonstrations of arrogance, many persons seem determined (through abuse or neglect) to “kill the goose that lays the golden eggs.”
If a “viable” alternative currency were developed by some economic competitor or financial foe — or should global confidence wane in the U.S. Dollar, the relative “value” of dollars could drop dramatically and quickly. “Some day” could come sooner rather than later.
Some parties actually argue that inflation (an inevitable byproduct of reduced currency value) makes it easier to pay dollar-denominated debt. However, increased inflation also makes it harder to find patsies, dupes, and suckers, who are willing to take on future debt offerings (without corresponding increases in interest). Inflation makes it harder to print Monopoly Money (without further devaluing the currency), and it makes it harder on Americans, who see their paychecks shrinking and their life savings dwindling.
