Sharing The Cost of Katrina

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As we end this quarter, all eyes are on the hurricane victims and the aid they will receive. No doubt the American people will be generous. We have seen an outpouring of charity unmatched in the annals of American munificence. Not to be outdone, Congress got into the act with an initial $10.8 billion promise of aid. Later when this massive sum was deemed inadequate, another $50 billion was added. More recently the delegation from Louisiana were derided as the real looters when they requested an additional $250 billion in aid. All told, it is my bet that this will be one of the most costly bailouts in American history. This one will be second only to the nearly $1 trillion Savings and Loan rescue package.

This would seem a good time to ponder a rather important issue. A great many people are wringing their hands over where this money will go. They consider perhaps appointing a financial czar, someone having the ultimate authority to make decisions. While this is truly important, I think it’s more critical to ask, “Where will all of this money come from?” That is the real issue. Do we really have an endless supply of money?sharing_the_cost_of_katrina2 If there is such a source, why do they need ours every April or so. The truth about money is that there is no shortage. It seems as if any debt instrument can now be turned into money. In the meantime, American consumers are doing their part by creating enormous levels of debt. Aside from the hurricane, Congress is deficit spending nearly $3 billion a day. We are quickly nearing our $8 trillion dollar credit limit. What do we do? Well, in order to oblige all this excess spending, the Federal Reserve has increased the money supply by an average of $5 billion a day. Further, there really seems to be no limit to this expansion. While we are at it, we could send a check to every citizen for emergency needs. Lord knows we all have them. We can fund any item we want as long as it isn't productive.

If we can rebuild a coastline why can’t we install solar panels or windmills on every public building? If we can rebuild a house, why can’t we build them a first one. Why not give Americans enough money to attend school or obtain housing. Let’s add up the year so far. $268 billion for highway spending, $250 billion or so in war costs, another $450 billion for hurricane relief. That is nearly $1 trillion. The privately owned Federal Reserve has loaned us money which it has created. It seems we can do it just as easily, and a lot cheaper. When the Federal Reserve creates money, and then loans it to us at interest, it makes a profit. In fact the Federal Reserve retains 6% on its paid-in capital. I guess this may have seemed reasonable in 1913 when the total float was less than $500 million and money had to be trucked around, but today electronic money rules, and a 6% take is gouging. Make the Federal Reserve forgo its 6% dividend this year for the first time in its history. Having amassed $100 billion (!) in the public service, they can easily afford to kick in.

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