Monday, April 11, 2011

Shutdown: Is the Money Worth It

Just a few days ago, I received a message from my brother angry at the President because he had the impending fear in him that he would not get paid his salary to defend this country. I feel for him, and it would be hard to go without pay when you risk your life every day to jump from helicopters to rescue innocent civilians from drowning (this is my brothers job). The question that immediately popped into my head was, if he got paid, what is he getting paid? The United States government has worked its way into a situation where it can either go broke or not pay anyone, a situation that would mean even if the government didn't shut down or money still may become worthless.

First lets look at the shutdown. A shutdown is a monetary tactic that is used to force votes and save money. It usually happens when a budget cannot be agreed on, so the checks just stop coming out. Our government has shut down twice in 1995 and 1996 and has had the same problems since then. Its impact is that only services deemed "essential" would continue to receive funding, while nobody else would. In the words of Timothy McMahon of, "The government shutdown is not a plan it is the lack of plan. It is like a person maxing out their credit cards. The only difference is they are in charge of their own credit limit. So after pretending to deal with the issue for a few days or a few weeks, they will say OK we’ve approved ourselves for a higher credit limit and that will be the end of it. More out of control spending. Will it reduce spending? For a few days but it won’t have any meaningful effect. It is simply a way for congress to pretend to address the issue with lots of government posturing but no real results."

Now that we have a better look at what the shutdown really is, lets look at what this budget problem could mean if we didn't resturcture our financial system. Like my brother, many in the military are afraid that they will not get paid, but even if they do the money may not be worth anything soon. According to Christopher Chantrill of, "Inflation is caused by the Federal Reserve buying federal debt and paying for it with newly printed dollars." Which means continued spending while trying to pay off our debt will just cause increased inflation. Inflation would mean that even if all government employees were paid, their money would become worthless, there is more of a fear than ever that the dollar will fall. Mr. Chantrill continues,"It has already fallen by 98 percent since 1913. It will go lower."

So in the end, whether there is a shutdown or not, we are headed somewhere we don't want to be. Our only true option is to find sources of revenue that does not hurt americans, and to cut spending in ways that would have the least impact. As for the future of the dollar, Mr.McMahon sums it up best, "It’s almost certain that over the long run the dollar will fall because that is the only way the government can reduce the debt. In the short run who knows but the dollar has been falling for 40 years against the Swiss franc why would it stop now?" To my brother, my friends, and my countrymen I have to say don't worry, we will survive. "Governments inflate, default, shutdown, and renege on their promises all the time.  It all seems strange to us because Britain and the US have avoided defaults in the past.  That seems to be likely to change in the near future." Chantrill told me in his closing remarks. It is saddening, but it is a neccisary evil. We can only hope the bottom is not as rough as it looks from here. 

No comments:

Post a Comment