There Is No Magic Pill

The Congress is about to pass this so called Stimulus Act ( or as some are calling it, "The Generational Theft Act" or "Zimbabwe II - the US Version"). It will cost us, when all is said and done, well over one trillion dollars or $1,000,000,000,000. That's a lot of zeros in that number.

Do you think we have that kind of petty cash laying around the old treasury just gathering dust? Do you imagine some vault in the basement of some government building in D.C. with piles of hundred dollar bills just waiting to be spent? Is there some big bank account where all of this is deposited where some mousy, bespectacled clerk anxiously awaits for Mr. Geithner to pop in and make a withdrawal?

The answer is obviously no. We don't have the money laying around in a room or an account somewhere. We will have to borrow it and some of the people we will have to borrow it from are not people we think of as having our best interests at heart.

It would be one thing if all of this money were to be spent upfront, within one year for infrastructure only. That might help a little. The problem is that most of this money does not go for infrastructure and most of what does is scheduled for two or more years out.

We are about to mortgage our grandchildren's and great-grandchildren's future for a plethora of pork! A big part of what got us to this point is the profligate spending by our legislatures and compliant chief executives at every level and party affiliation.

At some point, in the not too distant future, the bill for all of this will come due. The piper will demand his payment and we will have no choice but to raise taxes. The government will have to pay this back and they only have two sources to get the money. The first is from us. The second is just to print more money.

The amount of taxes that will have to be raised to pay this back will cripple America. Any small benefit we might get (and it's not even guaranteed there will even be a benefit) from this bill will quickly evaporate. Taxes for all Americans, not just the mythical rich, will have to be significantly raised to pay the bill. The more money we are forced to pay in taxes is less money we will have for us and our families. The more money that must be paid to service our debt is money that is not available for the social programs many seem to think we need. It also means that as employers are forced to pay more in taxes, there will be less for salaries, hiring, research and development and investment in new facilities. You will have less money to buy a house, buy a car, go on vacation or even pay your electric bill. Your ability to provide more than just necessities will be significantly impaired.

Add to the fact that this bill also sets up more entitlement spending that will also have to be funded, beyond what it will cost to pay back this huge loan, only makes the outlook that much more grim.

The other alternative is to just print more money. Easy enough, but there is a price to pay for that as well. It will cause our money to be even worth less than it is now and the amount of money required would probably propel us into hyper-inflation. For an example of this kind of monetary policy, one need only look to Zimbabwe where it takes trillions and trillions of Zimbabwe Dollars to buy a loaf of bread - if you can find one.

There is no magic pill for the economy and spending hundreds of billions of dollars that we don't have is certainly not going to help us or the economy in any way shape or form. No pork-laden government spending bill will fix this mess.

The bill will come due. The party will be over and the hangover will probably never end. The American dream will be finished.

VW