Mark, frequent blog reader, recently commented:
I agree that these trillions that have been injected into the system are going to be a problem. But the real problem is the size of the debt that these new bailouts are being added to.
A great graphical representation is available at Chris Martenson’s, The Crash Course particularly Chapter 11, How much is a trillion, and Chapter 12, Debt.
To convey how huge a trillion dollars is, Chris compares a trillion dollars to a billion dollars. He shows that a billion dollars, if composed of a stack of one thousand dollar bills, would reach just 358 feet, a third the way up a giant skyscraper. But a trillion dollars is a stack of one thousand dollar bills 67.9 MILES HIGH !!!
Then, in Chapter 12, we see the national debt (10.6 trillion dollars a few minutes ago, not including future obligations like social security, medicare, etc.) plotted since 1950. We’re on the ascending slope of a geometric progression, the straigt up off the chart portion (we’ve all heard of the amazing potential of compound interest When it’s applied to debt rather than savings its just as amazing). This will screw the dollar and turn the US into a very different country than the one we grew up in. (Edit: You can see Dr. Martenson’s work here.)
Other than that, have a nice weekend! -Mark
Mark was also studious enough to let us know that the lowest rates and best transparency he found for gold bullion storage was at www.bullionvault.com. Thank you very much for bringing us this information Mark.
I did some calculations on the size of the national debt for the last speech I gave. I have some pretty handy conversion factors, but I think we all understand how massive the size of the Federal Debt is. In fact, I was reflecting on the words of Henry Hazlitt this morning who said in his book The Failure of the New Economics that the relationship between expanding the money supply and expanding consumer prices is a complex one: when you first start to expand the money supply, consumer prices move by a far lower percentage, but as you add more and more money to circulation the consumer prices rise by greater and greater percentage. Eventually, the addition of small amounts of money (percentage wise) drive up consumer inflation more than you would expect.
That’s why Obama is calling for a trillion dollar deficit in the face of this economic downturn. Since we already have a national debt that is trillions of dollars, we’d need to start going in debt an increasingly large amount in order to see any stimulus effect from deficit spending. Ludwig von Mises also talks about this in his book Human Action: A Treatise on Economics where he says that:
In all countries where inflation has been rapid, it has been observed that the decrease in the value of the money has occurred faster than the increase in its quantity.
I love von Mises’s writing. He seemed to understand what was going on, but one thing I think he got wrong was people’s willingness to accept inflation and fiat money. Mises (also in Human Action) wrote that:
Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed. Only the belief, that the inflation will come to a stop, maintains the value of the notes.
He also wrote (although I can’t find the quote offhand) that a government can only succeed in introducing a fiat money by a gradual perversion of a commodity money such as we saw here in the United States. But we’ve seen time and again in countries such as Venezuela and Zimbabwe that people will accept a new fiat currency that is introduced to replace a fiat money that has lost its value.
That people would willingly accept an inherently worthless money from the same people who provided them with the last money that has been show to be inherently worthless seemed an impossibility to Mises. I must say I can’t quite fathom it myself. When faced with the economic calamity that results from hyperinflation, would a people not demand a sound money? Apparently, they may want one, but will accept another fiat note issued by the same government that destroyed their last currency.
And so it is regarding inflationary expectations. Mises wrote that people only accept inflation because they believe that it is temporary and that soon it will end, but these days we know the truth of just what people will accept. We all accept that the dollars of next year are going to buy fewer goods than the dollars of this year, and if that isn’t so, it’s viewed as a calamitous deflation. The central banks of the world have done a superb job of convincing us inflation is just a part of modern living and to just ignore it.
In fact, central bankers don’t even talk about controlling inflation anymore, instead it’s just peoples expectations of inflation that need controlling. In so doing, central bankers blame the victim by saying that the root cause of inflation is that people are expecting it and that these “inflationary expectations” are what causes people to ask for higher prices today. That the root of the problem might just be more and more money made out of nothing and injected into the system gets nary a mention except by economists such as Ludwig von Mises.
It will be interesting to witness the collapse of the American dollar. Will Americans be as docile as Argentineans in accepting a new fiat currency issued by the same central government that bankrupted the last one? Or will they demand a return to sound money? I, for one, have and will continue to agitate people to demand sound money. I’m not surprised that people don’t pay much attention today, but I will be surprised if they don’t pay attention when faced with hyperinflation. Sound money has become one of those ideas such as personal responsibility and the free market: it’s an idea people like and politicians will therefore play to them, but no one seems to care that those same politicians do not carry out their promises of giving us sound money or free markets. And to witness American’s willingness to reject the notion of personal responsibility, we need look no further than the bailout of the auto industry.