Most of us pay taxes. This is money; we were paid for producing something. Tax dollars are for government consumption. Our savings are kind of like taxes also, we are not consuming product if we save our dollars. In order to save for retirement, we have to forgo consumption now, for consumption in our retirement years 20 to 40 years out.
From there, our saving flow into a bank. Lately you hear about all of the money the government has thrown at the “Banksters.” Let’s step back and take a second look. From 1999 to 2006 the banks threw money (your deposits) at anyone that wanted to sell a house (not buy, follow me). An 80 year old with a bad cough in a wheel chair, could qualify to buy a home. Nothing down and the owner got a cashiers check from the bank. Real money was paid by the bank for the home sale. By 2008 it was rather obvious that real estate loans with nothing down, were performing rather poorly. The banking system as a whole, had lent about (your estimate here or mine) 12 trillion dollars. The money was given to the sellers of the real estate. Now with homeowners walking away from their loans, the FDIC has to make the depositors “Whole again.” In order to do it, the FDIC prints dollars to cover depositor’s losses. The investors/owners in the failed banks lose their whole investment. FDIC insurance only eliminates bank runs.
Next, consider our government, they collect 2.1 trillion in taxes and spend 3.5 trillion. Congress is spending 50% more than they take in taxes. OK so it is a loan, but look at it this way, it is pure consumption. Government doesn’t produce anything. They had to borrow the dollars from us savers in order to spend them. The product consumed by government is now gone.
Just as a rough estimate, the National Debt is about 14 trillion. Add another 4 trillion for the worthless debt held as collateral at the Federal Reserve. Add another 1.5 trillion dollars a year, from now on, as part of the Federal budget.
There comes a point to where educated people figure out that the game is over. I don’t think we are quite there yet. The government is both printing money and taxing us at the same time. Taxes work great, but you don’t have to raise taxes if you print money. Inflation is a silent and invisible tax and it pays government bills just as slick as taxes.
Congress has no idea of the mess they are in. FDR started the snowball rolling and it has gotten bigger. Today there isn’t enough product to satisfy the demand made by the savers, who over time, opted out for immediate gratification for consumption, by saving. Indirectly the money borrowed by government came from the banks and our Ira's. Without FDIC insurance in place the banks would have failed, and the government's source of funds to finance the deficit would have disappeared. (Can't have that happen, can we???)
In the truest sense, if our government was to pay back the 18 trillion dollars borrowed (laugh if you feel the urge), everyone would be whole, the trouble is, it is not going to happen. If Treasury rates were to hit 12%, it would take all of our taxes to pay the interest on the National debt. We have stepped into a new realm of economics I would like to label “Disneyland Economics.” You wish for what you want and Congress will provide it. The trouble is, real life doesn’t work that way. Congress borrowed 18 trillion of real money and wants to borrow more. It’s a little like buying a car and your only concern is, "Can I borrow enough to make the next payment?"
Looking at the bright side, this isn't the handbasket to hell drill, Congress is going to drive our nation to the new Disneyland in style. I'm so excited. Are we there yet?