Sunday, November 09, 2008

Where's Nancy Pelosi Going to get the Money?

So Nancy Pelosi's first budget was $162B in the red, her second was something like $406B in the red and this next one is supposed to be around $1T (that's right, one trillion dollars!) in the red. Who has that kind of money to lend to the government? And it's not just our government, it's governments all around the world who are having to borrow like mad. Dittos for states and counties and cities.

I'm really scratching my head on this one and wondering what to do with my money because of it. It seems to me that this level of borrowing is going to utterly dominate the financial world in the next year. I can only see two alternatives. Interest rates may go way up as the demand for money will outstrip the supply. The other possibility will be wild inflation as the Federal government prints money to make up the difference.

Fortunately, these kinds of developments don't happen overnight and one ought to be able to see them beginning. As I read through the financial blogs, I'm keeping my eyes open for just which way this is going and will continue to post updates and links here.


Ohioan@Heart said...

The result will be inflation. This not only elminates the problems with borrowing, it effectively transfers wealth.

The ones you give the money to get ahead and those that already have money find that what they had is devalued (effectively taking it from them).


Anonymous said...

I agree, it will be inflation. Right at the moment, it isn't showing because the government is in the process of converting "fictitious" money (overvalued mortgages) into "real" money (government notes), but they're going to overshoot pretty soon and we'll probably settle into inflationary levels similar to what we saw in the late 70s and early 80s. You know, back when CDs had interest rates of around 12%.

K T Cat said...

There's a complication here. As foreign governments default and Western Europe's banks start to cave in, money will rush the US to seek safety. When that happens, inflation will be kept in check as the excess dollars will be sopped up by foreign investors.

I think.