Saturday, July 9, 2011
This article is the fourth in the State of America's Finances series. To read the first article in the series, click here.
One of the important jobs of young children is to annoy their parents on each and every shopping trip they are forced to endure by constantly asking their parents to buy them things. Thinking back to my own childhood, I would like to think that I never engaged in this type of parent-annoying activity, but I am sure that my mother would disagree. In fact, she likes to share the story of the time that she told me she did not have the money to purchase a particular item, and I responded by saying, “Why don't you go to the ATM and get money?” In my mind, the ATM provided access to unlimited access to money for my parents. Unfortunately, I discovered later in life that the ATM only dispenses money that you previously gave to the bank to hold.
However, it appears that our lawmakers in Congress have yet to learn this important lesson. Not only have they run up a massive debt for our nation, but they also go to the bank and attempt to withdraw money that they don't have. The only difference is that Congress actually receives the money instead of the non-sufficient funds message that anyone else would receive. They can do this successfully because the bank they go to is The Federal Reserve Bank, the bank that is also responsible for printing money.
Last year, the Federal Reserve announced a plan for “quantitative easing,” basically meaning that it would print more money and put it into circulation. This allowed Congress to spend additional money without the need to increase the debt; they could just use these “new” dollars instead. However, as the additional money enters the market, all the money loses some of its value.
To help understand this, imagine a pizza. Eight certificates are made granting the owner a slice of that pizza. Logic says to cut the pizza into eight slices and give one to each certificate holder. However, as the maker of the pizza, I forgot to pay the people who provided the sauce and cheese. Since I am out of cash, I print out two more certificates and offer them to pay my debts, and the compaines accept these certificates as payment. There's still only one pizza, but there are now ten certificates. Instead of cutting the pizza into eight slices, I now have to cut it into ten, meaning that each person receives less pizza. To think about it another way, in order to receive the same amount of pizza, a person now must own 1.25 certificates.
As the Federal Reserve began to print money, prices for many items began to increase. Gas prices had settled at around two dollars per gallon, but now have climbed and recently topped four dollars per gallon. Prices for food and clothing have also climbed. In February 2011, three months after the Federal Reserve announced a second quantitative easing program, the government reported food prices rose almost 4%. Just like the pizza analogy, a person must own more dollars in order to continue receiving the same amount of product.
While the Federal Reserve's plan has lessened the overall value of America's debt, it has increased prices and hurt Americans. As our gas tanks and stomachs require more money to fill them, less money is available to be spent elsewhere. This decrease in overall spending hurts the economy even further, resulting in additional layoffs. It should come as no shock that when quantitative easing began, the economic indicators pointing to an economic recovery began to turn down again.
The Federal Reserve must stop dispensing cash to a government that views it as an unlimited source of money. Congress must learn the lesson that I had to learn as a young child: banks should only give money out when money has been deposited. Although today's children are still doing their job of annoying their parents in the store, price increases thanks to quantitative easing are annoying those parents even more.
Friday, July 8, 2011
Thursday, July 7, 2011
Wednesday, July 6, 2011
Tuesday, July 5, 2011
On April 18, 1775, British troops were sent to Lexington, Massachusetts, to seize weaponry held by the Colonial militia. The famous ride by Paul Revere alerted the citizens, and the British troops arrived to see 77 American minutemen waiting on the village green. The 'shot heard round the world' was fired, and with it, the fight for America's independence had begun.
A little over one year later, the Second Continental Congress convened to address the latest efforts in the war and decide how to proceed. On July 2, 1776, the Second Continental Congress approved a resolution for independence, and on July 4, 1776, the members of Congress approved the official document explaining their decision, The Declaration of Independence. With its publication, America legally became an independent nation.
However, The Declaration of Independence actually did very little for the cause of independence. Fighting between the American army and the British army would continue for over five more years, and the official treaty ending the war was not signed until September 3, 1783. With the Treaty of Paris, the British crown officially recognized the colonies as independent, and therefore, America's independence was secured. Why do we celebrate July 4 as Independence Day instead of other dates such as September 3?
Tradition could be one reason. Although July 4 would not become an official federal holiday until 1870, the date was celebrated as early as 1777, one year after the Declaration was adopted. With the revolution still being fought, the only date that we had to celebrate was July 4. Bristol, Rhode Island, celebrated July 4 in 1777, and it hosts the longest-running Independence Day celebration, having been held continuously since 1785. Since celebrations of Independence Day were taking place before the treaty was signed, it certainly is possible that the tradition of celebrating it on July 4 was well-established before the war ended.
Another possible reason could be found in the way that the revolution ended. The fighting in America died down following Cornwallis's surrender at Yorktown in October 1781. Following this defeat, political support for the war in Britian faded and forced the pro-war Prime Minister to resign the following March. The peace party took control of Parliament and voted to end the war in April 1782. A preliminary agreement for peace was reached in November of 1782, but the official treaty was not signed until September 3, 1783. The US ratified the treaty on January 14, 1784, and Britain ratified it on April 9, 1784. This period of two and a half years likely downplayed the significance of the treaty in the eyes of the Americans.
However, there could be a more intentional reason this day is celebrated. Our founding fathers were very wise, and they left us clues in many of their decisions. Perhaps this was another calculated decision by wise men to celebrate not the victory in war that gained our independence, but the bravery of men to stand up for their rights. What we celebrate on July 4th is the day when our founders stated that Americans will take no more encroachment of their rights. While it may have seemed easy to sit in a room and sign a paper (especially as troops were fighting at that very moment), that signature was considered treason by the British, and they certainly knew that anyone who signed that paper would be put to death if captured.
In the celebration of July 4th, we have a reminder that independence and freedom are won by those who put their foot down and refuse to tolerate anything which would take it away. As we look around America today, this is a message we desperately need. As an expanding government begins to encroach on the rights of American citizens, we need a new generation of brave men and women to stand up to our government and tell them that we have had enough loss of freedom in this nation.