Wednesday, June 23, 2010

A simple way to explain the effects of deficit spending.

A friend sent me an email yesterday with a photo of a 1957 lunch counter menu from F. W. Woolworth's department store. The prices on the menu are mind-boggling when compared to what you would pay in any modest eating place today. A slice of Apple Pie for 15 cents or a Ham Sandwich for 30 cents in 1957 would easily cost $3 to $4 today. This menu is pictured below and it immediately brought to mind the staggering deficit spending going on today in the Obama controlled Democrat dominated Congress. Take a look for yourself: (click the picture for a larger view)

For those who are good at math, the difference between the 15-cent price for a slice of Apple Pie (I'm not talking about any fancy restaurant here) and a today's average price of $3. is a staggering increase of 2,000%. Let me repeat that, two thousand percent. I recall that back in 1964 when I bought my first brand new car I paid $2,500 for a Ford Fairlane and in 1969 when I bought my first home we paid $26,000 for it. Just last year I bought another new car and paid more for it than what I paid for my first home. As a side note to my first new car purchase, at the time the Ford Fairlane came with two seat belts as standard equipment for the front passengers and I had three small children at the time. I took the car to the Ford service department and had three seat belts installed in the rear seat for them. They charged me $10 for the parts and labor.

So how does deficit spending decrease the value of our currency? If you take, for example, a gallon of milk, and that gallon represents the total amount of printed currency, and you add a gallon of water to double the volume you wind up with a very diluted milk.  Imagine doing that hundreds of times over and over and what you wind up with is very little milk and lots of water. This is just what happens when the Treasury Department prints more currency. The increase in the total volume of currency has diluted the value of the money in circulation and that reduces the spending value. The price of a slice of Apple Pie goes up and up as the value of the dollar to buy it goes down. 

Now the really bad part of this is that everything else in our country has also lost its value along with the money and this makes it a favorable opportunity for foreign countries to buy up American assets because they suddenly become very cheap investments. We will wake up some day and find that American's no longer own their own country. 

Is this part of Obama's plan for America?

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