Pat McGeehan: Dollar's devaluation has real consequences
IN October, the U.S. Congress passed a continuing resolution, which among other things, enabled the federal government to again raise its debt limit. Much of the media immediately praised the action, as the shut-down "crisis" was finally over, and the government re-opened for business.
However, little attention was given to the real crisis, a much deeper problem that is being disregarded within the beltway of our nation's capital - a true catastrophe that is also being utterly ignored by our own state's oblivious federal representatives.
Within 24 hours of this debt resolution sailing through the Congress, over $350 billion were borrowed - and the government's debt now officially stands well over $17 trillion. This is to say nothing of the untold trillions of dollars in unfunded liabilities the American taxpayer is expected to cover well into the future. As staggering as these numbers may be, very few in Washington, D.C. understand the magnitude of this national dilemma.
This predicament grows even more dangerous once another little known fact is revealed. The trillion dollar deficits our government is continuing to spend are no longer coming from real "borrowed" money. The Chinese are no longer lining up to purchase American treasury bonds, and lend our government their savings. Despite popular opinion, very few foreigners are loaning money to the American government now.
So where is all of this "borrowed" money coming from?
Over the past several years, the largest buyer of American debt has now become the Federal Reserve, our country's central bank. To permit the federal government to desperately cling to spending money it doesn't have, last year alone the Federal Reserve purchased over 75 percent of all U.S. Treasury bonds. What does this mean?
To be clear, the Federal Reserve has zero resources at its disposal. So when the Fed steps in as the "lender of last resort," and buys U.S. government debt, new dollars are being created out of thin air.
In essence, the only thing the Fed does have at its disposal is the printing press, and this has become the new norm in Washington, D.C. The printing press is running at full speed ahead. Since 2008, trillions of new dollars have been "printed-up" to lend to the federal government, as well as to finance large, politically-connected banking institutions - in order to maintain some semblance of "solvency." Wall Street is booming, and so is Washington.
Turning to the printing press though is a dangerous notion, and a perilous path Washington D.C. has set its sights on. But this is nothing new. History is ripe with various government regimes utilizing the printing press as a means to grow government power.
For the average American though, this massive devaluation of the dollar has real consequences. The reality of this boom on Wall Street and in Washington, D.C. is not prosperity-but just the opposite. It represents poverty to the average American, because as more dollars are printed by the Federal Reserve, the average American will find that their purchasing power will drop. This can already be seen - at the grocery store or the gas pump-prices simply go up on the necessities, and well before any raises can be given out to the hard working men and women of this country. In a way, this represents a tax - the inflation tax.
Day by day though, the federal government is growing insolvent - and even though the Dow Jones on Wall Street may be at an all-time high, this money-printing scheme must eventually come to an end. Our current economic wellbeing hinges on it.
If we fool-heartedly believe that deficit spending should continue, that interest rates should be forced to nothing, simply by the printing press-that savings are no longer required, that savings should actually be penalized - we will simply prolong the day of reckoning.
It is not too late to stave off the consequences of these reckless actions - but these horrific ideas of mounting deficits, and "monetary easing" must come to an end. Interest rates must be allowed to rise, and reflect what the market can supply and demand.
And of course, higher interest rates force our ignorant leaders in government to slow their spending binge. But above all else, serious reductions in government spending must take place or else economic ruin will transpire.
Though economic times are indeed uncertain, one thing is not. If Washington, D.C. continues the path of money printing and deficit spending, the American people, by and large, will face grave hardship. History does not sugar coat this result.
Pat McGeehan, author of Printing Our Way to Poverty, is a Republican candidate for the U.S. Senate. He is a graduate of the U.S. Air Force Academy, and a former member of the House of Delegates. His website is www.SaveWV.com.