As I write this Monday morning, Congress still hasn’t extended the federal debt ceiling and the government is still shut down - or at least some of it is.
I for one have yet to lose any sleep over this situation as I simply assume that at the last minute Congress will extend the debt ceiling and send all furloughed federal workers back to their jobs.
In fact, Congress simply reminds me a lot of my procrastinating self - why act today when you can furiously act in the moments right before a deadline kicks in?
Going back to my school term-paper days and carrying forward to my newspaper days, I’ve always subscribed to this philosophy. I don’t necessarily recommend this habit to young people, but I can report from experience that great and big tasks can indeed be accomplished at the last moment. This is why God invented “all-nighters.”
Plus, when it comes to extending the debt ceiling, Congress has no other choice. If members of Congress do not extend the debt ceiling, not only will they not get paid; their office staffers, who do such a great job of making Congress people feel powerful and important, will also not get paid.
Nor will those who own treasury bonds and are expecting to receive their interest payments or social security recipients ... or Medicaid recipients, Medicare recipients, active and retired military, non-furloughed federal employees and the bazillion already retired federal employees.
Food stamps will also not be issued (and since Obama became president there are now tens of millions more Americans who rely on food stamps). Also, unemployment benefits might not be paid and a lot more people are receiving these these days as well.
Of course, many Americans have simply quit looking for jobs and presumably no longer receive these benefits. However, as “60 Minutes” reported recently, a lot of these unemployed workers have probably traded in unemployment benefits for social security disability payments - another area of impressive growth during our economic “recovery.”
The above is just a tiny list of government expenditures that people are counting on. Because so many people now count on the government to make ends meet, the government simply cannot default on its obligations.
Well (in theory) it could, but in reality it will not - lest the government have to call out the Marines to prevent rioting in the streets and prevent looting in Wal-Marts and drug stores.
Plus, the Marines would be working without pay and might not report to duty stations. The federal government would have to rely on state governments to call out the National Guard, I guess.
Today’s reality is that the government spends about $700 billion to $1 trillion each year that it doesn’t have coming into its myriad coffers. To make up the difference, it simply prints money.
The U.S. Federal Reserve prints this money (actually it’s more likely to create computer digits these days) and deposits these funds into the U.S. Department of Treasury’s checking account.
Technically, these are loans, but by now everyone knows all of this money will never be re-paid to the Fed. On the other hand, countries that purchase our country’s treasury bonds no doubt would like to be paid back in form of interest payments and principal payments.
If, for whatever reason, the U.S. government did not make scheduled payments on these interest payments, who knows what scary things might happen.
Such an unforeseen event would conceivably trigger a chain reaction of other financial events, leading possibly to banks shutting their doors and Wal-Mart selling out of every item on their shelves in a matter of hours.
While “preppers” would be basking in luxury behind their burglar bars feasting on Meals Ready to Eat, the rest of us would be reduced to diets of pine cones and squirrel .... that is, if we co-opt and then master Junior’s trusty sling shot.
(Seriously, it might not be a bad idea to make nice with the neighborhood prepper while we still have time. This strategy might end up being a life-saver when we run out of toilet paper or reach the point where we would gladly sign over 10,000 shares of Exxon stock for two extra strength Tylenol).
No, given this “Mad Max” scenario, I am 99.99999 percent sure our country will extend the debt ceiling and keep printing money as needed. This week, 12 months from now .. when I’m 64.
But I’m no Warren Buffet ...
This is also why I’ve become such an enthusiastic proponent of gold and silver as “insurance” investments. The idea behind this investment strategy is that at some point, people (nations, investment funds, etc.) will lose confidence in a U.S. dollar that is being printed at hyperbolic rates.
As they say, you can’t print gold or silver so it has real value.
But I’m no Warren Buffet as an investor. Despite the fact that all common-sense macro economic indicators point to the fact that people should be acquiring precious metals to protect themselves from our perpetual money-printing environment, the prices of said metals have been sinking like a rock in recent months.
My theory is that “the powers that be” - who recognize that gold and silver are a major threat to the dollar and U.S. Treasury markets - are doing everything they can, fair or unfair, to destroy investor “sentiment” in precious metals.
Amazingly, this price-manipulating campaign has been wildly successful. The vast majority of Americans either don’t think of gold and silver as an inflation hedge or don’t think inflation is a cause for concern. In fact, the Fed and the mainstream financial press seem to be more worried about “deflation” (prices either going down or not going up fast enough).
This also baffles me as I pay the bills at my house and the price of every single item I write checks for (groceries, utilities, gas, insurance, clothes, etc.) is going up a lot more than the 1.7 percent the financial news reports as the rate of inflation.
I - ever the contrarian - say that inflation is here right now. One person who agrees with me is my political hero, Ron Paul, the father of political contrarians.
Ron Paul has always said that inflation is the real killer for those of us struggling to remain in the middle class. It’s why it’s almost mandatory today that two adults work to sustain the standard of living our parents had 30 or 40 years ago (when far fewer women worked).
Trick or Treat!
Since this month is Halloween, I’ll share a quick candy-coated anecdote on inflation.
In my “Opie Taylor” days living in Opelika, Alabama, my mother would often give me a dollar bill after school. I would take this money and, with a group of neighborhood kids, trek the length of Gwen Mill Drive, then cut through a little trail of kudzu covered woods at the end of the street, before eventually emerging from this jungle at our destination, Mr. Quick (a convenience store).
Not only did that dollar bill serve its purpose of getting the kids out of the house for an hour, it also bought me a bag full of sugary goodies - A Nestles Crunch bar, Hershey bar, a sleeve of Now and Laters, some Zots, plus an Icee or a Coke.
Today, that dollar, when tax is included, wouldn’t buy me a single Hershey bar.
This, I think, is what Ron Paul is talking about when he opines about the scourge of inflation and the erosion of the U.S. currency. The candy tells the story!
In fact, since the Federal Reserve was created and the U.S. went off the gold standard, the dollar has lost 98 percent of its purchasing power.
I’m almost certain my 2-year-old daughter will live to see the day when a dollar bill will only pay for a single piece of chewing gum.
The reason for this is because the U.S. government will NOT default on its debt and obligations. Not. Going. To. Happen. If it needs more money (which it will), it will simply create more money.
Money doesn’t grow on trees at my house, but it apparently does in the greenhouse where they store the computers at the U.S. Federal Reserve. That is, debt ceilings can always be raised and always will be raised.
It’s no big deal . Nothing to lose any sleep over. Certainly no reason to buy gold or silver and risk having financial pundits make fun of you. After all, there’s plenty more computer digits where these came from.
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Bill Rice is managing editor of The Montgomery (AL) Independent. He can be reached by email at: bill@montgomeryindependent.com
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