The monetary and fiscal policies of the U.S. Federal Government today have an impact on every citizen’s personal budget. While this unnerving fact is in disharmony with the clear intentions of our founding fathers for a limited central government for our republic, this harsh reality has become undeniable.
U.S. fiscal policy refers to the taxing and spending policies enacted by the U.S. Congress each year and signed into law by the U.S. president and implemented by the executive branch, and their subsequent consequences on economic activity within the United States. Monetary policy refers to the combined borrowing and lending policies of the U.S. government, the central bank, and the banking industry implemented with the objective of managing the purchasing power of U.S. currency and related economic activity.
U.S. Gross Domestic Product (GDP), a widely cited measure that estimates aggregate economic activity, in Fiscal Year (FY) 2010 approached nearly $15 trillion, an amount representing approximately one-quarter of global GDP. U.S. Federal Government spending totaled nearly $3.5 trillion in FY2010, or over 23% of GDP, approximately $1.5 trillion of which had to be borrowed via the issuance of new debt. When calculating in-state and local government spending, total government spending in the United States now exceeds 30% of all economic activity. Thus, government at all levels now directly spends nearly $1 out of every $3 spent in America, and that without taking into account the extensive government influence on the remaining $2 spent by private businesses and citizens through unfunded legislative mandates and regulatory policies.
However, it is monetary policy that influences your personal budget to an even greater degree than fiscal policy. U.S. monetary policy is largely set and established by the Federal Reserve System, which in effect acts as the central bank and lender of last resort for the U.S. government and economy. However, despite the U.S. Constitution placing the sole power to tax, spend, borrow, and coin money with the U.S. Congress, Congress has for nearly 100 years ceded much of this awesome power to the Federal Reserve System, which is not a government agency or entity at all, but rather is a private, for-profit corporation.
When the U.S. government spends more money in any given year than it takes in from taxes and fees, which is basically every year, the annual difference is referred to as the U.S. deficit, the sum of which over many years is referred to as the U.S. public debt, which today is just shy of $15 trillion or 99% of GDP. In fact, both total public debt and debt as a percentage of GDP have more than doubled in less than 10 years, increasing by nearly $5 trillion or 50% in just 3 years from FY2008-2010.
The U.S. government has the sovereign authority to issue this debt itself, interest-free, through the U.S. Treasury Department; yet, for nearly 100 years, the U.S. government has instead chosen to borrow this debt, at interest, from the Federal Reserve System. Interest paid to this private corporation on this public debt now approaches $500 billion annually. Now the Federal Reserve System does not have any money of its own to lend the U.S. government, but rather has an exclusive legal charter to create money out of nothing and lend it at interest, with the stated goal of keeping the purchasing power of the currency “stable” while simultaneously maximizing economic activity. Since the economic crisis of 2008, in addition to the money lent to the U.S. government, the Federal Reserve System has also used this power to create money to lend at least $9 trillion directly to numerous large U.S. commercial banks, Wall Street firms, foreign banks, and foreign central banks, as the national and global lender of last resort to “maintain financial market liquidity.”
Now if all this astronomical amount of money lent to the U.S. government and private banks has been newly created and thus expanded the money supply, or total amount of money in circulation, without a corresponding increase in actual goods and services available to purchase, then all of this new money will have the effect to dilute the value of the existing money stock, a.k.a. inflation. Now inflation is not really the increase in the price of goods or the value of assets, as is popularly explained, but rather inflation is the decrease in the purchasing power of the currency you hold with which to buy things. This less than desirable reality can already be especially noticed when we go out shopping to buy tangible products and commodities, such as gasoline and food, which directly impacts the personal budget of every American.
But if the actual money supply has nearly tripled in just five years, and the spending and borrowing policies of the government and Feds appear to be continuing unabated, then the true effect on purchasing power and prices that will result in the near future can only be described as hyper-inflationary. Thus, we can expect to require a greater and still greater percentage of our income just to meet the basic living expenses of food, housing, and transportation; and thus we must adjust our personal budgeting priorities, lifestyle expectations, and retirement decisions accordingly.
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