The recent decision by Federal Reserve Chairman Ben Bernanke to monetize roughly $600 billion of America’s debt has been greeted by foreign and domestic economists with outrage. And the objection to this plan is well deserved.
What the FED is doing is simply creating money out of thin air. Our money is worth no more and no less than the economic value it reflects. Since this new money is based on nothing of value, it has no real value.
Now I admit that it was a long time ago that I attended economics classes at UGA, but the economic laws we learned made such good sense, that I cannot imagine them being overturned. One of those rules is that the value of the nation’s money supply will always reflect the volume of goods and services created by the economy. Simply put, if the nation’s Gross National Product, the total of goods and services produced within the nation, remains the same, but the amount of money increases, the prices of those goods and services will expand to make up the difference.
Clearly then, if the FED prints up an additional $600 billion and releases it into the economy by buying up federal debt, and the production of goods and services remains the same, then prices will go up. You and I will be forced to pay this debt through the higher prices we have to pay at the cash registers.
Other nations are upset by this, because their investments in U.S. bonds are reduced in value. They see themselves trying to help with our money crisis by buying U.S. debt, only to be stabbed in the back when the value of that debt is dramatically reduced by the issuance of these “cheap dollars.”
But they are not the only ones being damaged by cheap dollars. Millions of Americans have worked hard, skimped and saved and built up savings accounts for their retirement. Every time the FED boosts the money supply without a corresponding boost in productions of goods and services, they deflate the value of those savings. The money our seniors planned to use for their retirement will no longer meet their needs.
So, what should they be doing? Government must stop spending money on non-productive projects. It desperately needs to stop hiring more and more government “workers” who are adding nothing of value to our economy. It needs to cut taxes across the board so that the cost of production of goods and services can be made competitive with the rest of the world.
If our economy were to be freed of the massive tax burdens imposed on it by government at all levels, the local production of goods and services would expand rapidly. All those government employees who lose their taxpayer-funded jobs would easily find productive work in the private sector. The “balance of payments” would be solved, and our dependence on China, India and other foreign economies for domestic goods would be eliminated.
Creation of “cheap dollars” by the FED will damage our financial relations with the rest of the world as well as our retired senior citizens. It is a very bad move.
Frank Gillispie is founder of The Madison County Journal. His e-mail address is email@example.com. His website can be accessed at http://www.frankgillispie.com/gillispieonline.
Frank, if taxes on corporations were reduced to zero,it would only mean higher profits for corporations,not an icrease in production of domestic goods. Besides, what are these domestic goods that you speak of,anyway? What product are we known for manufactoring? Cars?
I don't think the rest of the world wants our gas guzzlers. Services? People that don't have jobs can't afford anything except essential services.
If the Republicans want to repeal policy that is hurting our economy,then they should repeal NAFTA. You can't blame China and India for something we did to ourselves,blame the corporate owned politicians that pushed the legislation thru that drove a death nail into our industrial-based economy.
Unless that happens,the jobs will NEVER come back,and that's a fact!
Manufactoring goods is what made America #1,not services.
Any time the gov't prints more money to cover their mistakes it makes our (TAX PAYERS) money worth less, we all learned this in 7th grade.
What most people have been taught is that the extreamely rich are bad people and they should have to pay for it all, this is FALSE if it weren't for the rich there would be no jobs no one would want to invest and take a risk to better themselves. Rich people are rich because hard work,bright ideas,and an urge to succeed! Do away with the IRS create a FAIR TAX where everyone will pay.
Not exactly. I know many rich people, and they haven't done a days hard work in their life, have no "bright ideas" or urge to succeed. They all got rich from their parents. I have no problem with taxing them. Might even create a job when they have to go to work.