If Congress passed and Mr. Obama signed a bill requiring that every family in America immediately be paid a “Stimulus Incentive Payment” of $ 500,000, the economy would turn around tomorrow.  Most families would be able to retire their mortgage – poof, the mortgage mess is solved.  Those assets would be solid again.  Most families would also be able to buy that new car they have been putting off buying – poof, the Auto Industry is humming again.  Lots of families would take that vacation they have put off for years – poof, the Hospitality Industry is back on its feet. Entrepreneurs would take advantage of this time and money to start the businesses based on the ideas they have harbored for years.  Yes, $500,000 to each of about 100,000,000 families would be about $50 trillion.  And, yes, there would be some that would not be helped by all this money, like those who manufacture product in the US to export or those who make a living importing cheaper goods from abroad.  But, think of it.  Every family with a paid off home, a new car, a Hawaii Vacation.  Wow.  What a solution.  Why didn’t Mr. Obama Think of This?

••••••

There have been a lot of solutions to the financial mess floating around recently.  Most of them make very little sense. My personal take is that if the government leaves well enough alone, things will normalize.  Yes, many businesses and institutions will fail.  But, since nature abhors a vacuum, other enterprises/institutions will take the place of those who fail, if there is a real need.  Letting our Government try to buy our way out of this mess seems to me to be the least likely plan to succeed.

This is the solution currently being tried by the new Obama Administration with the willing assistance of Congress. That is, to spend our way out of the mess and to have the spending guided by government agencies.  If Congress and Mr. Obama continue to spend at the rate they have since they took office, our government will spend about $50 Trillion in four years.  That assumes that about $2 T have been spent in the first two months of this administration.  This may be high and I certainly hope the rate of spending slows dramatically, but, humor me and let me use the $50 Trillion figure.  

If our government spends $50 Trillion, that will be about equal to the Gross Domestic Product during that same period.  In other words, to raise that much in taxes would take a 100% confiscation of all value added to the economy by the people of the United States.  This assumes our GDP is about $12.5 T. per year.  It is actually more like $14.5 Trillion.  Inflation is the most regressive tax.  It increases the cost of a loaf of bread by the same amount for a millionaire as for a welfare mom.

What would be the effect of this massive infusion of money into the economy?  My opinion is that one really significant effect would be inflation.  If we assume that we are planning on doubling the amount of currency in circulation, we can also assume that we will halve the value of the currency.  That means that the value of the cash you hold will be half of what it was before the massive spending began.  That means your dollars will buy half as much.  In fact, it means that your government will have taxed all your cash and your income by 50% without ever collecting a penny of tax.  That, of course, is on top of the fact that you are being taxed on average about 25% of what you earn.  (That is based on 12.6% average Federal Income Tax, about 3% state income tax, about 6% sales tax and about 4% in property taxes – these last three numbers are guesses and vary widely by state).  
This assumes the amount of currency is only doubled.  The amount of currency in circulation is now in the neighborhood of  $1.5 trillion.  That means that injecting $50 Trillion into the system could increase the currency by over thirty times.  Visions of Germans taking wheelbarrows of currency to the store to buy bread come to mind.

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