"When it becomes dominated by a collectivist creed, democracy will inevitably destroy itself." ~ Friedrich August von Hayek
Exclusive to STR
February 4, 2009
The figure currently being bandied about for the bailout is three trillion. That's three trillion dollars, which could be more meaningful if we knew what 'dollars' were. But whatever they are, three trillion of them is a number so large that one simply cannot comprehend it. It might even be thought to be meaningless, because one doesn't experience 'trillions' of anything. Sure, there are easily trillions of molecules in our bodies, but they are invisible. We cannot see them or appreciate them directly. Come to think of it, that's true of modern money, too.
But whether a check is for ten dollars, or ten billion dollars, it is expected that those numbers entitle the payee to something--if only other numbers borrowed into existence by someone, somewhere, sometime. They could be numbers engraved on paper, or electronic entries in an account, but they've got to be there if the check is 'good.' So the question arises, at least in my mind: Where are the numbers that comprise the three trillion for the bailout?
The general expectation seems to be that the government will provide the three trillion. In fact, this seems to be taken for granted by the assorted television pundits. But does the government have three trillion in some petty cash account, just waiting to be spent? Perhaps it does, but if so, it won't admit it. Can the government be expected to receive three trillion in surplus income in the foreseeable future? That's unlikely. In truth, the government professes to be trillions in debt itself, so looking to it for a loan is hardly reasonable.
Implicit, therefore, in the assumption that the government will hand over three trillion is the further assumption that the funds will come from the taxpayer, but the same questions arise. Do the taxpayers have a three trillion dollar stash, just waiting to be looted by Uncle Sam? Do they expect to increase their incomes sufficiently to provide an additional three trillion in tax revenues? Don't bet on it, especially since Mr. Obama has indicated he favors a three hundred billion tax cut!
From statistics on the Internet, I learned that 43% of households spend more than they earn each year. Don't look to them for help, Uncle Sam! The average household has about $8,000 in credit card debt. Total consumer debt is just shy of $2 trillion, averaging over $18,000 per household--and that doesn't include mortgage debt! So taxpayers would seem an unlikely source of $3 trillion.
If the taxpayers are expected to pony up $3 trillion, therefore, where will they get it? They will have to go to the source, and the source of modern money is--the bank.
But wait! Aren't the banks themselves lined up for bailouts? Something doesn't make sense here--at least on the surface. Literature from the Federal Reserve System tells us that the ability of banks to create money makes bankruptcy impossible, but that same ability can lead to something worse: runaway inflation.
So we seem to be impaled on the horns of a dilemma: runaway inflation on one hand, if the banks simply create enough money to bail out the line of supplicants, or a back-breaking depression if the banks decline to do so. When banks create money, however, they do it as a loan, so creating $3 trillion to try to salvage the economy would burden that selfsame economy with a $3 trillion debt--plus interest. That's not much of a solution; indeed, it's what caused the problem in the first place.
On the other hand, the banks can do nothing, and allow the economy to sink further and further into depression. That looks like a much more satisfactory course of action, at least from the point of view of the banks, and the government, which they, in effect, own.
There are three economic classes: the very rich, the middle class, and the poor. The latter don't count. They are cannon fodder; clay for demagogues to mold. The very rich are often part of the system, and will survive more or less unscathed. It is the middle class that will be destroyed if/when the state turns to them and demands $3 trillion in additional taxes. They may try to borrow, and be told that the banks don't have the funds to lend. That's nonsense, as we've seen above, but most people will believe it. In any event, it doesn't follow that if automakers (for example) are given billions of dollars, the public will be stimulated to buy their cars.
President Franklin Roosevelt is said to have remarked that nothing happens by accident in politics; if it happens, it was intended to happen. He spoke the truth, at least on that occasion. Our tax laws and monetary system have been systematically nibbling away at the middle class for decades, and the climax may be approaching. To what purpose would the rulers crush the productive, entrepreneurial, middle-class? I'm not an insider; I can only surmise. Perhaps the whole idea is to create a one-world economic system, with a one-world government to follow.
With country after country wallowing in economic depression, with high unemployment, and endemic business failures, what can people do but turn to a bright, shiny, new government to make the whole world better? Experience is said to be the best teacher, and what it teaches is that people never learn!
Brace yourself. The next few years should be interesting.
Paul Hein is semi-retired from the practice of medicine (ophthalmology) in St. Louis. His book All Work and No Pay should be available soon from Amazon.com.
by Paul Hein