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Monthly Archives: June 2012

It Doesn’t Grow On Trees

Why is our 15.7 trillion dollar national debt a problem? Doesn’t the government have the ability to print its own money to pay for it? Unfortunately, while the government does have the ability to print money, it can’t generate wealth.

Wealth consists of all our goods and resources and it is finite; there are only so many goods to go around. Money is a representation of wealth used as an easy method to trade our wealth. Money is only valuable for what wealth you can buy with it. Since the US adopted a fiat currency system, our money hasn’t been anchored by any concrete resource and the government can print as much as it likes, however, no matter how many dollars are printed, the overall wealth of our country will not increase. Printing enough money to cover our debt would more than double the amount of US dollars in the world, but this wouldn’t make us any better off since doubling the money wouldn’t double the quantity of bread, shoes, cars, or houses, and prices would quickly rise, or inflate, to reflect the new value of the dollar.

This is not just an academic exercise; other governments have already made the mistake of trying to print their way out of debt. Pre-WWII Germany tried to print its way out of debt, and it got to the point where it took a wheelbarrow full of currency to buy a loaf of bread [1]. In Zimbabwe just 5 years ago, the rate of inflation was so high that the prices in stores would double every 1.3 days, and the government, towards the end, was printing 100 trillion dollar notes [2].

Unless we want to find ourselves in the same situation, the only way to throw off our mountain of debt is to stop spending more than we produce. There is no easy fix.

100 Trillion Dollar Note

German children playing with bricks of currency

 

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Posted by on June 20, 2012 in National Finances

 

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Thoughts on Sustainability

These days, “sustainability” is a hot word, generally used in conjunction with other words like environmental, renewable, or resources. Many politicians have fully embraced the idea of sustainability as it relates to the environment, citing our responsibilities as stewards of the Earth and the need to leave a clean and healthy place for the next generation to live. But, many of the same voices who crusade for environmental sustainability have not been able to apply the same kind of forethought to our country’s fiscal sustainability.

To the left, those who espouse theories on ways to achieve environmental sustainability, even when it eliminates jobs for American workers, are described as “green” and seen as heroic crusaders for environmental justice. However, anyone who uses the same kind of reasoning to support a theory on how to achieve fiscal sustainability is described as a radical extremist and dismissed as heartless and ignorant, and if they do anything that may be perceived as threatening to American jobs, as in the case of Wisconsin Governor Scott Walker, they receive death threats in addition to the insults.

Although those that support either environmental or fiscal sustainability will often find themselves on opposite ends of the political spectrum, what they really want is the same thing, for our society to live within its ability to provide for itself so the next generation is not left with our mess. Just as harvesting timber faster than it can grow will lead to deforestation, spending more money than we earn will lead to debt, and in the same way that our forests aren’t endless, neither is our credit endless. The goal of sustainability is to not deplete or damage our resources, but our nation’s financial resources are already deeply damaged by debt and continue to be used faster than they’re being renewed.

 
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Posted by on June 6, 2012 in National Finances

 

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