What would a Stimulus Package Stimulate?
Dale Netherton
January 15, 2008
There is a certain awareness that the country is heading into a recession. In an election year this is a kiss of death to the politicians who deny reality and donīt want to get involved. Like an alarm clock has gone off the candidates for President are positioning themselves to avoid any blame for this obvious downturn in the economy. And what do politicians do to avoid a recession? Iīll give you a hint. It rhymes with "end".
Hillary Clinton thinking she is ahead of the curve has proposed a "stimulus " plan that will get some "government money" out there to those who will suffer with higher heating costs , etc. One wonders that if this is so easy a solution why we donīt just spend ourselves into prosperity and be done with these burdensome business cycles of boom and bust. LIke raising the minimum wage to $25.00, there is a reason why you cannot just dump money into the market. Just to refresh .... if you made the minimum wage $25.00 per hour the person paying this wage would have to reassess his cost of doing business. If he couldnīt get the return to pay for the increase he would either fold up business or pass it on to his consumers. If the price of his goods or services were too expensive to afford then with no sales he would go out of business. If people were willing to pay the new higher prices the cost of this labor would still have to be subtracted from his revenues to determine what his profit margin was ( if any ). At any rate the people buying from him would be paying higher prices for what they bought at a cheaper price before the minimum wage was increased. So higher wages beget higher prices, really not so difficult to understand.
Now what about if you simply toss more money into the economy via the government. The government has no money. The government can print money or borrow money or take in tax money but there is no reservoir of funds. Printing money is legalized counterfeiting. Therefore the money you dump on the market from government sanctioned printing is money that has less value. If $50,000 was all there was in the market and you dumped another $50,000 by caprice the value of the dollar would be reduced by half. Think about the government opening up credit to unlimited levels and printing without restraint. People would get credit that normally would be rejected. Money would be everywhere and its value would be equivalent to air. The value of money is tied to its scarcity. It is also tied to the value behind it. If it is backed by gold or silver it has real value based on the market price of these precious metals. If it backed by the governments promise to pay and the government has amassed a debt that creates doubt in the governmentīs ability to pay, confidence is eroded in the value of the money and people seeing this happen retreat to tangible stores of value such as gold and silver . Thus the price of gold and silver increases as inflation grows. Check out the price of gold and how its continuing to gain in value and you have all the proof you need that inflation is far greater than the government is reporting.
With this happening a stimulus package would pour more paper money into a market that is already shaking from loss of the dollarīs value. Traditionally when we saw inflation increasing we had the Fed tighten interest rates i.e credit . This tightening did not pour more money into the market but made it harder to acquire. This of course made it increase in value as it was harder to get and there was less of it. Thus inflation was reduced. Today the politicians and the Fed chairman are talking about authorizing more money ( added to the national debt ) and lowering interest rates thereby releasing more money and making it less valuable.
If you understand this is what is happening and you wonder what will happen if this is allowed to continue, please take a look at any country that has allowed inflation to get out of control. This will happen whether the politicians pretend there is low inflation or not. A stimulus will accelerate inflation and when this new money starts to dry up due to the increased real value loss of our currency, a new recession more brutal than the first will begin to appear. Goods and services that escaped the first recession will be affected . More money will be required to bail out more debtors and the value of the currency will deteriorate further. When inflation reaches 30 , 40 , 50 % and continues to be reported as 2 or 3 % reality will activate the chaos of people unable to afford food, fuel, heating , health care , insurance, housing et al.
People will band together to protest. Unions will become more vocal and bold . Businesses will take bankruptcy, the government will try with futility to bail out and help the needy while creating more and more decreases in the value of the currency. Coins will become obsolete as they will be worthless ( except the collectibles ) and will buy nothing. Savings accounts will be worth far less than they were a week ago and food and fuel will become more scarce as more producers go out of business unable to operate as their costs rise ahead of their ability to generate revenues.
This is not a guess of the future . This is what has happened every time a government has debased the currency and attempted to operate at debt levels that undermined the governments ability to generate revenue. This happens to individuals who spend more than they earn and it happens to governments who spend more than they can confiscate or borrow.
But it does not have to end up this way . A limited government cannot do what it is not permitted to do. How a limited government is established is not really known for sure as it has never been done. Ours is a partially limited government that is eroding what few protections we have. But a declaration that a limited government is to be established is the first step. The reasons outlined for such a government must be clearly stated and the idea promoted until it is acceptable. How the limited government is to be funded must be addressed next and a document that forbids an unlimited government from arising must be drawn up, promoted and eventually enforced. There is much to do to move in this direction and there will be those who believe it cannot be done. There will be those who believe they can make work what is falling down around them. But just as the founding fathers defied the thinking of the monarchs of Europe and instituted a sovereign nation that recognized individual rights, a radical alternative to unlimited political power can arise.
The candidates in this campaign have uttered the word " change" but what they are alluding to is not a fundamental change but a change in who wields the unlimited power to rule. This is not change. Replacing bodies and heads that contain the same thoughts and end up acting the same is substitution , not change. Change requires changing thoughts that lead to different actions. These different actions then must lead to different results that will avoid debasing the currency, destroying the standard of living and reducing the nation to second class status.
We have listened to the same old political thoughts for too long and it is time for the message of revision to replace that of promised reform. This means that fundamental rethinking is in order and the politics of old is defunct. Politicians must realize the era of unlimited political power is on the decline and will not be tolerated. The trust and power that has been granted has led us to the situation today where dishonesty in accounting is the norm and evading the vileness of inflation is sanctioned. The stimulus that is needed is a nudge to leave the stage of deception and recognize the limitation of government, its nature and its function.
Hillary Clinton thinking she is ahead of the curve has proposed a "stimulus " plan that will get some "government money" out there to those who will suffer with higher heating costs , etc. One wonders that if this is so easy a solution why we donīt just spend ourselves into prosperity and be done with these burdensome business cycles of boom and bust. LIke raising the minimum wage to $25.00, there is a reason why you cannot just dump money into the market. Just to refresh .... if you made the minimum wage $25.00 per hour the person paying this wage would have to reassess his cost of doing business. If he couldnīt get the return to pay for the increase he would either fold up business or pass it on to his consumers. If the price of his goods or services were too expensive to afford then with no sales he would go out of business. If people were willing to pay the new higher prices the cost of this labor would still have to be subtracted from his revenues to determine what his profit margin was ( if any ). At any rate the people buying from him would be paying higher prices for what they bought at a cheaper price before the minimum wage was increased. So higher wages beget higher prices, really not so difficult to understand.
Now what about if you simply toss more money into the economy via the government. The government has no money. The government can print money or borrow money or take in tax money but there is no reservoir of funds. Printing money is legalized counterfeiting. Therefore the money you dump on the market from government sanctioned printing is money that has less value. If $50,000 was all there was in the market and you dumped another $50,000 by caprice the value of the dollar would be reduced by half. Think about the government opening up credit to unlimited levels and printing without restraint. People would get credit that normally would be rejected. Money would be everywhere and its value would be equivalent to air. The value of money is tied to its scarcity. It is also tied to the value behind it. If it is backed by gold or silver it has real value based on the market price of these precious metals. If it backed by the governments promise to pay and the government has amassed a debt that creates doubt in the governmentīs ability to pay, confidence is eroded in the value of the money and people seeing this happen retreat to tangible stores of value such as gold and silver . Thus the price of gold and silver increases as inflation grows. Check out the price of gold and how its continuing to gain in value and you have all the proof you need that inflation is far greater than the government is reporting.
With this happening a stimulus package would pour more paper money into a market that is already shaking from loss of the dollarīs value. Traditionally when we saw inflation increasing we had the Fed tighten interest rates i.e credit . This tightening did not pour more money into the market but made it harder to acquire. This of course made it increase in value as it was harder to get and there was less of it. Thus inflation was reduced. Today the politicians and the Fed chairman are talking about authorizing more money ( added to the national debt ) and lowering interest rates thereby releasing more money and making it less valuable.
If you understand this is what is happening and you wonder what will happen if this is allowed to continue, please take a look at any country that has allowed inflation to get out of control. This will happen whether the politicians pretend there is low inflation or not. A stimulus will accelerate inflation and when this new money starts to dry up due to the increased real value loss of our currency, a new recession more brutal than the first will begin to appear. Goods and services that escaped the first recession will be affected . More money will be required to bail out more debtors and the value of the currency will deteriorate further. When inflation reaches 30 , 40 , 50 % and continues to be reported as 2 or 3 % reality will activate the chaos of people unable to afford food, fuel, heating , health care , insurance, housing et al.
People will band together to protest. Unions will become more vocal and bold . Businesses will take bankruptcy, the government will try with futility to bail out and help the needy while creating more and more decreases in the value of the currency. Coins will become obsolete as they will be worthless ( except the collectibles ) and will buy nothing. Savings accounts will be worth far less than they were a week ago and food and fuel will become more scarce as more producers go out of business unable to operate as their costs rise ahead of their ability to generate revenues.
This is not a guess of the future . This is what has happened every time a government has debased the currency and attempted to operate at debt levels that undermined the governments ability to generate revenue. This happens to individuals who spend more than they earn and it happens to governments who spend more than they can confiscate or borrow.
But it does not have to end up this way . A limited government cannot do what it is not permitted to do. How a limited government is established is not really known for sure as it has never been done. Ours is a partially limited government that is eroding what few protections we have. But a declaration that a limited government is to be established is the first step. The reasons outlined for such a government must be clearly stated and the idea promoted until it is acceptable. How the limited government is to be funded must be addressed next and a document that forbids an unlimited government from arising must be drawn up, promoted and eventually enforced. There is much to do to move in this direction and there will be those who believe it cannot be done. There will be those who believe they can make work what is falling down around them. But just as the founding fathers defied the thinking of the monarchs of Europe and instituted a sovereign nation that recognized individual rights, a radical alternative to unlimited political power can arise.
The candidates in this campaign have uttered the word " change" but what they are alluding to is not a fundamental change but a change in who wields the unlimited power to rule. This is not change. Replacing bodies and heads that contain the same thoughts and end up acting the same is substitution , not change. Change requires changing thoughts that lead to different actions. These different actions then must lead to different results that will avoid debasing the currency, destroying the standard of living and reducing the nation to second class status.
We have listened to the same old political thoughts for too long and it is time for the message of revision to replace that of promised reform. This means that fundamental rethinking is in order and the politics of old is defunct. Politicians must realize the era of unlimited political power is on the decline and will not be tolerated. The trust and power that has been granted has led us to the situation today where dishonesty in accounting is the norm and evading the vileness of inflation is sanctioned. The stimulus that is needed is a nudge to leave the stage of deception and recognize the limitation of government, its nature and its function.
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