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Thursday, September 23, 2010

Retro Housewife School Of Civics & Public Finance - The Plot To Get Your Money

I am not an expert but I can read. I learn best by teaching, but at the same time, I am also a student because the last time I took the time to read laws and regulations pertaining to finance was back in 1991 or so. The reason I am now reading them again is because I know there is going to be a grand money grab, the likes of which we have never seen. I know this because the government is broke but still wants to spend money. It has maxed out all of its credit cards and is now applying for new ones. Right now, our government is working on its new credit card application which it will submit to the Bank Of We The People. (You, Me and the 364 million other citizens, minus those who work for the government.)

You will probably never see the credit card application, although you can if you want to and there will be more than just one. But I think that the government is going to start passing a series of new laws which will eventually allow them to get their hands on the $14 Trillion or so that we have socked away in IRA and 401(k) retirement accounts. I did not come up with this theory, I subscribe to various newsletters written by folks who have been predicting this for some time now. Everybody in my family makes fun of me for reading these newsletters because "they are just trying to scare you so they can sell you something" and while it is true that they are always trying to sell me something, and what they say can be frightening, it doesn't mean that what they are saying isn't true. I am now in my third year of subscribing to my "wacko" newsletters and so far my wackos are batting 1000.

I come from a very well-educated family who are used to seeing information written in a certain way, and my wacko newsletters are not written in intellectual speak. There is ample usage of over-sized fonts, bolding, and exclamatory punctuation!!!!!!!!!!!!

This reminds me of a joke one of my econ professors told in class once, it goes like this:

An economist and a businessman were walking down a busy street when all of a sudden the businessman shouts: 
"Look! There's a $100 bill on the ground!!!!!" (was $20...I adjusted for inflation) 
The economist launches into a discussion of why it is not possible for there to be a $100 bill on the ground, because somebody would surely have seen it and picked it up already. 
So the businessman reaches down, picks up the $100 and sticks it in his pocket. 

While this joke was meant to illustrate a point in a discussion of efficient markets, I think it does a good job at highlighting the disadvantages of intellectual snobbery. There is a price attached, and in this case it was $100.

Here are some basics before we get started:


  • The US Government is running an enormous deficit which is not a death sentence by itself, we have had large deficits before, but there is a bigger problem called "entitlement programs" or Social Security and Medicare and some unlucky demographics in the form of an enormous group of baby-boomers who have just started to collect that to which they are entitled.
  • There is no giant piggy bank sitting in Washington containing all the money we have paid into social security, current retirees are paid from the payments made by current workers, and I am pretty sure that the surplus funds have been spent as well. This year marks the first year that social security is also running a deficit. Meaning that the government has to come up with the difference from other places than what we pay in SSI. 
  • The way the government is able to spend money it does not have is by borrowing money from the public. It does this in the form of government bonds like T-bills, people with extra money can buy those bonds as an investment and they have mostly been considered safe investments in the past.
  • China owns a ton of US bonds and is starting to get a little nervous about having so much money in US debt - China made Japan buy a bunch of the US bonds it had so that now China and Japan are our biggest creditors.
  • As long as the US government is running a deficit, it will need for there to be people out there willing to buy government bonds. If nobody wants to buy those bonds, then the only way it can spend money it does not have is to print more of it (buy a wheel barrel) or raise taxes.
  • In an economy in a recession, raising taxes will make things worse, so this would be the beginning of a death spiral.
  • Printing money will lead to hyper-inflation, and this is an area that economists don't really argue about as there are enough examples of regimes which have done this just prior to their collapse to cut short any claim to the contrary.
  • So, what's a broke federal government to do?
  • Meet S. 3760: A bill to amend the Internal Revenue Code of 1986 to expand personal savings and retirement...
  • tbc

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