Thursday, 10 January 2013

Working in Ottawa today --Magic Beans

Good morning folks,

I will be working in Ottawa today.

Canada needs to export the basic financial skills of Gail Vazquez-Oxlade to the U.S.  Our friends to the south need some help.  You see, they are overspending on their hobbies and entertainment to the point of putting their financial house in a mess.  If you have ever watched Gail's show "Till Debt Do Us Part", you will know that her recipe for recovery is simple.  Write everything down so that you know what you are doing; cut spending; increase income; but most important, commit to the process of getting out of debt and stupidity.

I will preface this blathering with the acknowledgement that I am not an economist, but I have performed an emergency reorganization of a small South American monetary system on my kitchen table --hmmm..  I was going to write about a health issue and was going to acknowledge that while I am not a doctor but that I had performed an emergency appendectomy on my kitchen table. That would be funnier.  Sigh..  economics is such dry topic material.

And we're back.

The U.S. debt is right around 16 trillion dollars. The amount the spend on stuff each year is about 4 trillion, and they bring in revenue around 3 trillion.  So you don't have to own a very powerful calculator to figure out that they added a trillion in debt just last year.  Oh, but wait..  they reduced spending by 61 billion, that has to count for something, yes?  No.  If you were overspending your household budget by $100, cutting out one cup of Starbuck's coffee would not have much effect.

So, wanna hear their latest grand plan?  It doesn't involve reducing spending or increasing income...  Nope.. but rather have the executive branch of gov't mint a magic platinum coin with a 1 trillion dollar face value, and then 'deposit' it at the Federal Reserve and then borrow against it to pay for the shortfall in the current budget.

Once you stop laughing let's examine.

There really is no law preventing such an action, similarly there is no law preventing Treasury Secretary, Timothy Geithner from dressing up like Side Show Bob and guest appearing on The Simpsons.  But neither would solve the debt crisis.

The current circulation of U.S. currency is about 1.2 trillion, if the executive were to magically create an additional 1 trillion in currency, that would effective cut in half the buying power of the dollar that someone had in their pocket.  That is massive hyper inflation.

If they think they have troubles now, wait till they have people running to their banks to withdraw all cash so they can buy a hard asset now!

Another consideration is that the debt is not owed to the Fed, but rather to the creditors which is quite frankly the rest of the world, like China.  I doubt China would accept the deposit of the magic coin either.

Out of time, about to land.  Have a great day and don't take any wooden nickels.