Our eroding money problem and government fiscal policy

Credit: Barry Hughes, Creative Commons
Credit: Barry Hughes, Creative Commons

I’m an accountant by trade, so numbers and statistics fascinate me.  My dad is an accountant, too, so it’s in my blood.  One of the issues I watch is the government’s fiscal policy – the management of the federal budget and our money supply.  It’s an important indicator of the health of our economy, and it affects every one of us directly.  That’s what makes our current fiscal situation so frightening: the value of our money is being eroded at an astonishing rate.

During Fiscal Year 2013, the U.S, Government spent almost a trillion dollars ($973 billion) more than it took in.  It’s been doing this for years. Â The U.S. National Debt currently stands at just over $16.7 trillion.  That’s seven times federal revenue for 2012, more than six times projected federal revenue for 2013.  And it’s more than the entire GDP for 2012 ($15.5 trillion).  That’s right: what we owe is greater than the value of everything our whole country produced last year.

Imagine of you made, say, $60,000 per year.  Instead of living within your means, you spent $82,000.  To pay for the shortfall, you put the balance on credit cards.  You’ve been doing this every year for a while, and now you owe over $360,000 in credit card debt.  Can you conceive of ever paying that off?  Yet instead of buckling down and trying, in 2014, you plan to charge another $13,000 to your credit cards.  That’s assuming everything goes well.  If you have an emergency – well, you’ll have to charge that to the credit card, too.

Not all of the shortfall is financed by unsecured debt.  The government has been “printing” money at an astounding rate, too.  From 2000 to 2012, our real GDP has grown 23.4%.  Meanwhile, our money supply (as measured by M2) has exploded by 126%.  Dollars have been created five times faster than our economy has grown.  That suggests each dollar is now worth 20 cents compared with twelve years ago.

An economist would explain that such a policy is good for a government deep in debt.  It means the $16.7 trillion national debt is really worth only $3.3 trillion.  But common sense tells us it’s not good for consumers, and especially savers.  If you’ve got a retirement nest egg, it needs to grow at 20% per year just to keep up.  The majority of investments don’t come close to that.