President Bush proudly signed off on a $170 billion stimulus package last week. Congress willingly approved. The two peacefully joined hands for the first time since they surmised to free Mesopotamia.This time, however, they focused their do-gooder righteousness on the struggling American consumer. In a last-ditch effort to avoid the big â€œR,â€ Washington procured no less than $300 ($600 in most cases) for every man, woman or child who earns a paycheck or receives Social Security.Mr. Market smiled. The cadence of the buy-now-pay-later American generation lives to see another day.
Morality aside, dear reader, you must forgive us for spoiling the fun. But from where exactly does this $170 billion magically come?
The last time we checked, Congress doesnâ€™t produce widgets for Chinese consumption. It doesnâ€™t sell government land. Nor does it rent its legislative acumen to some chaotic third-world country. Itâ€™s up to its ears in debt. The latest budget promises only to borrow much more. So where exactly did Congress find $170 billion?
We assume the deal went something like thisâ€¦
The U.S. Congress turned to the U.S. Treasury. The U.S. Treasury turned to foreign buyers (China). Foreign buyers should (and will) require a higher rate of return for holding a depreciating fiat currency. But they shrugged. They knew that money would make its way back to China through a Wal-Mart near you. So they acquiesced. They lent Hank more money. Meanwhile, the juice keeps running.
Unfortunately, before long, Washington will receive a bill. Itâ€™s postmarked â€œBeijing.â€ Government opens the little white envelope to find it owes the Chinese $170 billion big ones, plus interest. It sighsâ€¦
So once again, Congress will turn to the U.S. Treasury. The Treasury balks. Chinese loans arenâ€™t an option.
Hmmâ€¦ It scratches its head.
Then, like a child playing one parent against the other, Congress runs down the street and knocks on the other benevolent bankerâ€™s door.
But â€œHelicopter Benâ€ squirms.
Lower rates inject more money, he muses, but thereâ€™s only one way that money will make it to Washingtonâ€™s bank account.
The endgame: Congress must tax.
At first, Washington turns to tariffs. â€œTax the foreigners,â€ it shouts. â€œSecure our borders! Theyâ€™re the ones who stole your jobsâ€¦ Theyâ€™re the reason weâ€™re in this whole mess!â€
. . .