Can we borrow and spend our way to prosperity?
U.S. Government spending was projected to be $4.8 trillion in 2021. Total U.S. government revenue was estimated at $3.9 trillion. Source: The White House. “A Budget for America’s Future: F.Y. 2021.”
The right retirement planning in Grand Rapids can help safeguard futures, but for that, you must understand how money and its value changes over the years.
We hear the word “Trillion” so frequently, many of us just gloss over its meaning. How big is a Trillion Dollars? Imagine that if you spent a million dollars every day since Jesus Christ was born…over 2,000 years later, you still wouldn’t have spent a trillion dollars! Or, imagine if you had a job that paid you $1 per second, or $3,600 per hour. You would earn a Million Dollars in only 11.6 days! How long before you earned a Trillion dollars? You would have to work another 31,688 years! A Trillion dollars is so significant, it’s hard to comprehend.
Wealth management consulting firms can help you understand international situations, and global changes act as an impetus for domestic economies.
In March 2021, Congress passed the third round of pandemic relief (giving $1,400 checks to most Americans). It had a $1.9 Trillion price tag. That brought the 3 Covid19 relief packages to $6 Trillion. That equals $18,181 in spending – for every single American. Adjusted for inflation, it’s more than eight times larger than Franklin Roosevelt’s “New Deal” passed during the Great Depression. Recently, President Biden proposed spending an additional $6 Trillion. For perspective, that’s approximately 25% of what the entire U.S. economy produces in a year.
Where is all this money coming from? We are borrowing and printing money at a startling rate. We’re essentially putting it on our nation’s credit card and taking it from existing holders of dollars. Can we proceed to keep delaying or hesitating as a part of our plan for financial solvency? Does that work…to borrow and spend our way to prosperity?
Consider the following
It took the United States 206 years to accumulate a $1 Trillion National Debt (1982). In the next 26 years, we expanded it tenfold, to $10 Trillion (2008). In the next 9 years, we doubled it, reaching $20 Trillion (2017). We’re now at $28 Trillion (3/2021). Do you see a pattern? We now owe the equivalent of $85,381 per person for everyone in the country. Why should we care?
The cost of “Free Money.”
Money has two primary values, first, as a medium of exchange. When we buy something, we exchange our dollars for goods or services. However, the second value of money is as a store of value. This is especially important for retired individuals as they typically no longer have earned income. They rely upon their savings to provide much of the money they need for their retirement. When our government prints “new dollars,” they spend just like the dollars we have saved. However, the “new dollars” dilute the purchasing power of our existing dollars, as they are now worthless. We experience this as inflation. The reality is that when the Government prints new money, they transfer a portion of your wealth to whomever the Government chooses to bestow the “new dollars.”
The great economist Ludwig Von Mises made this point in his 1944 book Bureaucracy. “In truth, the government cannot deliver if it does not first take from somebody,” “They cannot spend without taking the money out of the pockets of a few people for the benefit of others.”
The Government has only 3 ways to raise money.
Each has a cost
- Increase taxes: This reduces economic growth in two ways; First, it takes money away from the people who earn the money as they cannot spend it; Second, it disincentivizes working.
- Borrow: This means higher future taxes and increased interest costs as more of the federal budget must be allocated to service the debt, which creates a drag on future economic growth.
- Print New Money: This is a “stealth tax,” which dilutes the purchasing power of existing dollars. We see it as inflation. Things cost more.
The St. Louis’ Federal Reserve Bank states that 35% of all the American dollars printed by the U.S. were printed in 2020.
Has all of this “free money” had an impact? The Consumer Price Index increased 5% for May. The jump in overall CPI is “the largest 12-month increase since the period ending June 1992.” The price of lumber is up 356%; Gasoline is up 56.2%; Used cars and trucks up 29.7%. In the housing market, it is now the norm for homes to sell OVER the asking price with multiple offers. Why? Milton Friedman said several years ago that inflation is basically “too much money pursuing too few goods.” We call it inflation.
Dr. Thomas Sowell, the eminent economist and senior fellow at Stanford University’s Hoover Institute, made the point vividly more than 20 years ago: “A $100 bill would’ve bought less in 1998 as compared to a $20 bill in the 1960s. This means that the people who kept their money in a safe over the years would have lost 80 percent of the value because no safe can keep your money safe from politicians who control the printing presses.”
The Government can create more dollars but not more wealth. Meanwhile, the stock market continues to set record highs while the “main street economy” struggles. Experienced investors are waiting for the “final dance” in this epic market rally. But, like all dances, eventually, the music stops.
If you have questions pertaining to your own personal situation or know someone who needs help, please call our office at (616) 942-9080. We are here to aid and offer assistance to you, our clients.