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When will the Fiscal Madness Stop?

By: Steve Johnson

7/29/2008 - 15 Comments

The government just keeps making more and more economic decisions that are completely mad.

The madness started way back in the 70’s, when Nixon removed the gold standard because congress was spending more money than the country had – which forced the Federal Reserve to increase the money supply – causing prices to increase which meant that they could no longer hold the dollar to a fixed price of gold. 

In the 90’s, Allan Greenspan held interest rates lower than inflation for a long time – which again increased the money supply – causing the dollar to lose value even quicker.

Last year the Federal Reserve again dropped the interest rate below inflation, which is where it is today. Inflation is increasing very fast, yet congress as just approved a housing bailout bill that is worth over 400 billion dollars and extends a line of credit to the government sponsored mortgage giants Freddie Mac and Fannie Mae to support more than five trillion dollars worth of paper assets - which are not worth a quarter of their value.

When will the madness stop?  How long will foreign nations continue to support America because of its impact on the global economy?

Bailout Nation

A Bush administration said Monday the next government will inherit a record federal budget deficit for next year that approaches $490-billion (U.S.). A deficit approaching $490-billion would easily surpass the record deficit of $413-billion set in 2004. That’s about $1600 per person.

The Dollar will Pay

The only way that I see America paying for these massive bailouts is by the dollar losing tremendous value over the next several years. In the 70’s and early 80’s the dollar lost two-thirds of its value – from a decade of high inflation. What that means is that prices will go up for years, until you can buy the same thing for three times what that you could just a few years ago. 

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