Money Tree - Commentary by Frank Gillispie

Money Tree – Commentary by Frank Gillispie 11/19/09

What is that dollar in your pocket worth? There is a lot of concern being expressed in the media these days about the weakness of the dollar. It is losing value, especially in the world markets. So how do they determine what it is worth?

The simple answer is that the dollar is worth whatever it will buy. For example, if the price of crude oil goes back up to $100.00 a barrel, which it may, then $100.00 is worth one barrel of oil. But if the dollar continue to lose value in the world markets, that barrel of oil will cost more. If, in the future, the price of oil goes to $200.00 a barrel, then the value of the dollar will have been cut in half.

Now here is how it works. Our economy has a certain amount of goods, services and property at any given time. And we have a certain number of dollars depending on the government's monetary policy. These two figures will always balance out. The amount of dollars will always match the amount of goods, services and property. If the number of dollars is increased, say by the government spending more money than it collects in taxes, the price of the goods, services and property will increase until the balance is restored. That is what causes inflation.

We are currently in a financial crisis caused by excessive government spending. Government is spending trillions of dollars they do not have, creating a vast new number of dollars. That means that one of two things must happen. Either we need to vastly expand our production of goods and services to absorb all this new money, or the price of everything we buy will have to increase dramatically. (The amount of property, especially land, is not likely to increase significantly.)

Inflation will help solve one of our problems, the national debt. If we double the number of available dollars, thus cutting the value of a dollar in half. Then we would be able to pay back all that borrowed money to China, India and our other creditors with cheep dollars. They will not like that very much and will likely refuse to extend credit to us in the future.

But the real sufferers will be those people on fixed income. Those who live off of income from saving accounts, pensions and such. They will find themselves having to buy less and less as the price of everything they need rapidly increases. Their fixed dollars will not keep up with the prices.

"Deficit spending is simply a scheme for the "hidden" confiscation of wealth." --Alan Greenspan

The massive spending programs currently underway by our government cannot be sustained. They simply cannot collect enough taxes to support these programs which means that the deficit will continue to grow, creating more and more dollars without producing goods and services to balance them. Our elderly citizens will be severely damaged by this policy by having their fixed incomes greatly reduced in value.

And our young people will be heavily damaged by being forced to pay off the massive debt out of their future earnings.

Unless there is a dramatic change in our government’s spending policy, we face a very poor future.

"I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." --Thomas Jefferson

"A people who mean to be their own governors must arm themselves with the power that knowledge gives. A popular government without popular knowledge or the means of acquiring it, is but a prelude to a farce or a tragedy or perhaps both." --James Madison

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