reply to post by hawkeye1717
Our money is essentially "debt", or a indefinite maturity bond carrying no interest against future tax collections. There is a metric called the M1
money multiplier which gauges the effectiveness of each additional dollar into the system. Above 1, each newly created dollar contributes positively
to economic growth, below 1 and it creates a negative economic impact since you get less for each additional dollar. If you place $10 dollars into the
system, it's economic impact is judged by how many times it circulates in a given amount of time (its velocity). The higher the velocity, the higher
the impact is on the economy. We are now at 1 (or slightly below), which means that each additional dollar is doing less than the previous in economic
output. Combined with a slowing velocity of money it is simply impossible to print ( i.e., Obama/Congressional Stimulus package) yourself out of this,
since each additional dollar has a negative economic impact. A mathematical impossibility. The real issue isn't the lack of money out there, it's
that there is too much of it.
Economic growth since 2000 has been a function of explosive credit growth. Aggregate GDP went from $10 trillion to $14 trillion in this time frame. At
the same time, we went from 260% of GDP (roughly $26 trillion dollars) to over 360% of GDP (roughly $50 trillion dollars) in outstanding debt, public
and private from 2000 to 2007. The growth you are accustomed to is, for all intents and purposes, fake. This is much, much more than just a housing
crisis. This is a DEBT crisis, public and private. You don't remedy an alcoholic with more alcohol, nor do you fix a debt problem by taking on more
One possibility to begin to fix this mess, although painful, is to allow the bad debt to default, as it rightfully should. Once it is out in the open,
confidence returns and we can begin to recapitalize good assets (banks, businesses, etc). If liquidity is not withdrawn from the system, then things
will progress to a much worse state than we are currently in. This mess was created in the first place because of the amount of debt we carried was
not sufficiently backed by productive capacity; taking on more debt does not absolve this problem or fix this "confidence game". Has the massive
injection of liquidity($1.5 trillion explicit + an additional $5 trillion backing of FNM/FRE) into the system since August of 2007 stabilized things?
Ask the 693,000 people who lost their job last month alone. Our public debt is growing exponentially, to what avail?
Addendum: I just saw that for the most recent Treasury Auction, indirect participation was only 18%. This could indicate that foreign buyers of our
debt (China, Russia, UK, etc) are becoming weary of our big spending. Issuance of a variety of kinds of U.S treasury bonds have become a VERY
important source of "income" for financing our government's bailout adventures. In the case that a significant portion of the buyers of our debt
decide to refrain from purchasing more, or rolling over their current bonds, we would face what is called a Treasury Bond dislocation. In other words,
the money spigot would turn off and we would either have to print money from thin air (see above paragraphs), or drastically cut back on spending
(impossible) in order to make up for lost income. The Treasury would have to issue debt at a much higher interest rate in order to lure in purchasers
of more debt, resulting in a number of unintended consequences. These would range from consumer credit interest rates going sky high, to a "crowding
out effect" of the business credit market if Treasury rates were sufficiently high. Not pretty at all.
I'd say our solvent days are far behind us.