The National Deficit & Growth in Money Supply

Continuing our discussion from yesterday, the growth in the United States national deficit and money supply foreshadow difficulty for the Dollar.

As the Dollar supply increases, the value of our Dollars decreases

We’ve been looking at factors which could lead to the destruction of Americans’ wealth and purchasing power.  Today, we’ll look at these two factors.

The National Deficit Keeps Adding Up

Even with this overwhelming looming crisis, our government continues to borrow huge amounts of new money every week.  In June 2010, Democrats leading the House of Representatives decided for the first time since budget rules were put in place in 1974 not to propose a long term budget.  This was basically an acknowledgment that the budget is never going to come close to being balanced while at the same time a refusal to even look at the problem.  This is blatant sabotage!

In addition, many of the factors we listed previously will cause our economy to crumble (such as bank crises, real estate crises, Government entities, States, & Cities crises).  Governments will likely react in panic and choose more bailouts enabled by the printing and borrowing of even more money.  So while the national deficit may seem incredibly large now, it could become substantially bigger.  As we said yesterday, this leads to a debt which is already the largest in the history of the world and cannot possibly be repaid.  The fact that we are adding to it at these incredible speeds shows that this situation will probably come to an ugly conclusion sooner rather than later.

The Multiplying Money Supply
In less than two years between 2008 and 2010, the Federal Reserve tripled the money supply from $800 Billion to well over $2 Trillion.  This is the very definition of inflation.  If there are instantly 3 times as many US Dollars floating around, then logically, the US Dollars that you hold are worth 1/3 what they used to be.  There is nothing backing these Dollars, so the number of them is directly proportional to the value of them.

Of course, in practice, there is a time delay before the effects of this money printing is felt.  This lag is typically 1 to 3 years, but is influenced by many factors such as the velocity of money within the economy.  But whether it is felt quickly, or with more delay, the effect should be as certain as it always is.

This is Part 5 of the series Hyperinflation and the Dollar. To continue with this series, click on Pt 6.  To use this as a growth tool to better understand your own calling, please read Pt 1, Pt 2, Pt 3 and Pt 4.

Photo credit: Shirley Two Feathers

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