The Senate passed Obama’s proposed economic stimulus plan Tuesday after a week of prodding from the White House. The bill will now proceed to negotiations between the House and Senate to iron out the $20 billion difference. The Senate version increased spending to $838 billion. Where will this stimulus money come from? The answer is simple. The federal government, in collusion with the Federal Reserve, will create it.
I am sure we all know the Law of Conservation of Matter. Matter cannot be created or destroyed, only rearranged. Money essentially is the substance that embodies energy so it can be moved around an economy efficiently. Neither energy nor matter can be created, and the same applies to money. Increases in the money supply must come at the expense of something, and that something is principally your pocketbook.
A consequence of Obama’s Keynesian experiment on the American people will become apparent to many in the near future. Just how soon inflation will rise significantly is difficult to predict, as it will depend on how quickly the dollars hot-off-the-presses are dumped into the economy. But the long-term result of this dubious economic experiment most certainly will be rising prices and a decrease in your dollar’s spending power. Just as we chuckle at how low prices were for basic goods in our parents’ college years, future generations will do the same, but even more so.
For a common example, take the price of a loaf of bread. In 1970, the average price was about 25 cents. Today it’s around $2. You’re lucky inflation didn’t climb any faster than it did or you might have starved to death.
A graphic case study of the dangers of inflation due to the government mismanagement of the money supply does exist in the 21st century. Once the breadbasket of southern Africa, now thousands are dying of starvation in Zimbabwe, where an annual inflation rate of 89.7 sextillion (1021) percent has wiped out citizens’ savings and their wages as soon as they are paid, leading to an inability to purchase anything, including food. Vendors no longer commonly accept the national currency, and on Jan. 29 the government legalized the use of foreign currencies in business. The destruction of a currency is complete.
How does this have anything to do with us here in the United States? The answer is simple. Operating on a fiat currency system identical to the the U.S. dollar, the Zimbabwe government printed its way out of war and foreign debts. Due to a snowballing multiplier effect, this injection of “money” into the economy led to the devaluation of the currency.
For now, the U.S. government is ignoring the problem of the $10.7 trillion national debt and the $720 million being spent daily on foreign wars. But the day of reckoning to pay these debts will soon come, and combined with the entitlement gap of $50 trillion, the future of the dollar is precarious. Besides raising federal taxes or inflating their way out of the problem, the only option the U.S. government has to balance the budget would be cutting total federal spending by over 60 percent. Does that look likely based on Obama’s campaign promises and current spending plans? Don’t count on it.
Colin McKim is an environmental management and protection junior and a Mustang Daily political columnist.