The mainstream media wants you to believe the war and the economy are unrelated. They could not be farther from the truth. The war isn't only about tax dollars being spent; it is about jobs and money moving to foreign countries. There are really three ways to spur an economy. Redistribute where the money is being spent, borrow money, or print more money. Spending on the war has redistributed our economy overseas and for us to recover that economy, it must be brought back to the US.
Money spent locally in an economy turns over five to seven times. This means that money passes through local businesses and employees’ hands five to seven times before being leaked out into other economies. Based on a national average, these turns generate about two-thirds in additional economic activity.
Building a bridge in a town is an example of money turning in a local economy. The contractors will buy supplies locally (cement, stones, rental equipment, etc…). They will also eat and live in the town, which benefits local businesses. These businesses then have extra revenue and they in turn spend it on supplies, food, and entertainment. As this money churns, it also creates new jobs. For instance, restaurants are busier and must hire more waitresses. The new waitresses now have money to go shopping. The money in this example not created; it is redistributed because the tax dollars circulate in the local economy. This keeps inflation relatively low.
Tax rebate checks, like the ones that will soon be distributed by the government, only add to the money the country owes. Like a home loan, the money will be borrowed, and then repaid with interest. This means growth is stifled in the future as the loan is repaid and even more money spent on interest. This repayment is done with taxes or by cutting local spending, like fixing a road that would employ hundreds of people. So far, instead of repaying the loan, the US just keeps borrowing money from foreign countries.
The Fed recently took the last option, printing money; or as they call it lowering the interest rate. This allows banks to borrow money at a lower rate so they loan it out at a lower rate. Consumers will then borrow more from the banks because it is a better deal. Say a person wants to make payments on a home loan of $1500 a month. At 8% interest they can borrow about $205,000. If the fed lowers the rate to 7%, the same person can now borrow $225,000. Where did the extra money really come from and what determines the rate?
Needless to say, the more printed money that is pumped into an economy only benefits the economy for a very short while. This is because inflation will soon catch up with the amount of money that was printed. Supposed there are two people looking to buy a home. One has $200,000 and the other has $215,000. To make it simple, let’s assume there is only one home in the market. What will the price of the house be? It will be $200,001 because the person with $215,000 would offer just slightly more than the person with the $200,000. This is simple supply and demand. Now, imagine if interest rates were dropped and each person could now obtain an additional $20,000. What is the new price of the house? As one may guess, it becomes $220,001. Therefore, the price of the house just inflated $20,000.
When a candidate talks about saving the economy, he should talk about redistributing resources. America has 702 military bases in 130 nations. This is over 250,000 people that are living abroad. This would be like adding another city to our country. Much like the contractor scenario above, a military base buys goods and services from the local economy. Our soldiers also buy goods and services. Think of all the businesses that service a base and its people overseas. Those could be American employees and businesses.
According to the President’s budget, the spending alone on the military is $750 billion dollars for 2008, with $170 billion going to fight wars. Our foreign aid budget is over $25 billion. The cost of the stimulus package, including tax rebate checks passed recently by the President and Congress is $168 billion. Lower interest rates and borrowed money lead to a short term fix but reverse themselves down the road with interest payments and inflation. Wouldn’t it make more sense to redirect $200 billion from overseas to the US? The money would turn over in our economy and lead to more spending and job creation. This is money we have already spent; it is not new money being printed.
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Published: Saturday, February 9, 2008
Last modified: Sunday, March 2, 2008
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