The difference is that the dollar hasn’t blown up……… yet. That is not to say it won’t. We are living in very dangerous financial times and, it seems, that most people don’t get it or are hiding their head. We have a President with the economic skills of a six year old and no sense of his own limitations. So I will try to make my case.
I love money. I don’t mean having large stacks of fifty dollar bills to go out and squander. I love the concept of money. The philosophy of it. A few thousand years ago, salt was used as money. It had value and was hard to come by. Roman centurions were paid in salt. That is where the phrase “worth your salt” came from. Some native Americans used quahog shells that they worked into beads as money. Gems and precious metals have always been favorites.
Hard money was great. But it wore out your pockets and it was heavy. So along comes paper money. That could be anything from a chit only to be used at the company store, a promissory note from a bank, or paper issued by a state. It was obvious that order needed to be brought into the system. So the federal government took over and issued dollars backed by gold. Then they withdrew the gold and backed the paper with silver. Then they withdrew the silver and backed the money with the honor of the United States government. So that is where we are today.
So on to the problems that we have incurred. We have borrowed almost 17 trillion dollars. Last year the interest paid on that debt was almost 360 billion dollars. That is 360 billion dollar that come out of federal revenues before any other money is spent. How much more could be accomplished in this country if we weren’t passing it out to those that we owe. Now the President wants a trillion dollars more because he feels we, shirkers that we are, haven’t given him enough of the money that we have to go out and work for. Just feed your kids a little less. You’ll get by.
Now that 360 billion dollars of interest is based on today’s interest rates. As you may have noticed they are very low. That is why you are not making any money on your savings if you’re fortunate to have any. The reason that those interest rates are low is that the Federal Reserve, under Ben Bernanke, is forcing them to stay low. That and the horrendous rate at which they are printing money are giving the President some cover on his borrow, tax, and spend binge. I coined the term “the Bernanke Bubble” to describe the situation.
As sometimes happens, tightly controlled situations start to come loose after a while. Actually, it always happens when the government is in control. Pressure is being applied to raise interest rates and to slow down the printing presses. Increasing the supply of money decreases the value of the dollar. That causes prices to increase. That puts added pressure for interest rates to rise. The economy gets over stressed in a number of directions. If the interest rate goes up, and it will, the interest payment on the money that the government has so foolishly borrowed, will increase, putting even more stress on the economy. At that point, the Bernanke Bubble could turn into the Bernanke Bomb. If that should happen, and I want to be wrong here, we are all in a heap of trouble.
There are people in Washington that see this and understand it. But they knuckle under to an economically ignorant administration and foolish politicians that think they are the collective font of all knowledge. I pray that there are enough people of honor and courage that will stand up and do the right thing before we become the new Hindenburg.