Vail Daily columnist Butch Mazzuca: Ulitmate consequences of kicking the can
January 21, 2013
When Zimbabwe attained independence in 1980, the Zimbabwean dollar was valued at $1.54. By early 2009, the government there issued the world’s first 100-trillion dollar bill – that’s Z$100,000,000,000,000. It remains largest denomination of currency ever issued. (My wife and I have a Z$5,000,000,000 bill in our scrapbook from a trip we took there in 2010.)
In just less than three decades, Zimbabwe went from using Z$1 Z$2, Z$5, Z$10 and Z$20 denominations to those in the millions, then billions, and ultimately to a hundred trillion dollars as the government sought to prop up its weakening economy.
The Zimbabwean dollar was officially abandoned in January 2009, after it had lost 99.9 percent of its value. Today, the British pound and U.S. dollar are the only universally accepted currencies there.
During our trip, my wife and I met a bus driver by the name of Chinouyazue. He related to us how one day he went to the market to buy some bread with Z$10,000. When he arrived, he discovered the price of a loaf of bread was Z$15,000. Disheartened, he walked two miles back to his home in 105-degree heat to get more money from his wife. When he returned several hours later with Z$15,000, he found the price of that same loaf of bread had increased to Z$30,000.
This is perhaps the most extreme example of currency devaluation-inflation in history, at least modern history. I tell this story to illustrate what is within the realm of possibility when a government’s spending outpaces its revenues.
There is no comparing our fiscal situation to that of Zimbabwe, but there are parallels. The most notable is the realization that a nation cannot spend and print its way out of an economic hole.
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Yet, somehow, millions of Americans seem to believe that the rules applying to our personal finances don’t apply to our government. What they fail to take into account is that Visa, our local bank and our credit unions put limits on our spending, making the consequences of exceeding our limit immediate and absolute. It’s impossible to pour water from an empty bucket.
But who limits government spending? And when fiscal issues deal in trillions of dollars, the numbers become so mind-boggling that it’s impossible for the layperson to grasp the enormity of the problem.
Nonetheless, common sense tells us that no one, not even government, can outspend its income indefinitely. There must be a point from which there is no return. Moreover, our fiscal problems go hand-in-hand with the acrimony we see in Washington, making it difficult to differentiate trumpery from fact. But every voting American needs to understand two things: The U.S. government has operated without a budget for the past four years, and for every $6 in revenue our government takes in, it spends $10.
Where do we get the extra $4? Our treasury borrows it. As a consequence, we incur debt, which currently stands at approximately $16 trillion and is about equal to one quarter of the world’s economy. To make matters worse, our treasury must continue borrowing money until spending is put in line with revenues, or there is no one left willing to lend it.
The way Washington had addressed this problem for the past 12 years is known as kicking the fiscal can down the road. That is, let some future president, Congress or generation deal with the consequences.
But the problem with that line of reasoning is that no one knows how far we can kick this can. Why? Because the amounts involved are unprecedented in human history, and it’s pure naivete to believe this can go on indefinitely.
When politicians talk of a “balanced approach” or a “fair share,” I wish they would define what those terms mean. They use those phrases because they resonate with voters. But what’s fair to Peter may not be fair to Paul.
To help focus this issue, we need to keep just three things in mind:
First, our fiscal problems could be solved in five minutes if we had a law stipulating that any time there is a deficit of more than 3 percent of our GDP, all sitting members of congress are ineligible for re-election – a suggestion from billionaire Warren Buffet.
Second, politicians are not trying to solve our problems. They are trying to solve their own problems, which are getting elected and re-elected.
Third, as we know from personal experience, it’s far, far easier to spend and borrow money than it is to increase your income and cut expenses.
Unless the president and Congress choose to cut spending significantly (significantly being the operative word) and increase taxes without jeopardizing a recovery, they are just kicking the can farther down the road.
How they accomplish this task is their job to figure out. That’s why they get all those wonderful perks and benefits.
If they fail, the consequences will be very unpleasant. Just ask the Zimbabweans.
Quote of the day: “Only in government is any benefit, however small, considered to be worth any cost, however large” – Thomas Sowell.
Butch Mazzuca, of Edwards, writes regularly for the Vail Daily. He can be reached at firstname.lastname@example.org.