Posted by
Michael St. Mars on Tuesday, February 17, 2009 4:48:25 PM
Over the years, computers have been used to create vast simulation programs to track everything from weather patterns, to the movement of goods and services inside a particular industry. Indeed, our estimations of global climate change are based on simulations, and many graduate programs in business and management use simulations as a learning tool. The most relevant of simulations, for our economic crisis in 2009, are those that simulate the development of entire cities.
City simulation starts with a plot of land, raw resources, and a stipend of money to start construction. Everything from the efficiency of roads and bridges, to the availability of eclectic goods in local markets, is tracked and simulated in real time. As the administrator, it is your job to build the city, manage the resources, and levy taxes for maintenance. A poor administrator will run the city into the ground in a matter of years – an experienced governor will achieve massive tax revenue to continue expanding the city.
The money cheat is a crack in the programming that most simulations have. In developing the simulation, it would allow programmers to use all available options, building everything to check for bugs in the software. When the money cheat is used otherwise, it shows the exact problem we experience today, where there is no constraint on the money supply.
Obama’s economic stimulus plan for 2009 could be summed as such: “Why don’t we just use the old money cheat?” No other president has ever suggested such a blatant disregard for the forces that keep an economy in check. Without foreign investors, or assets to cover our debt, we are actually printing more money based on nothing but the capacity of the US Mint. That is the money cheat in a nutshell and the results are always disastrous.
It starts with a small injection of money to help the process of expansion and to cover previous mismanagement. It ends with constant injections of money and spiraling debt that, when simulated for many years into the future, ends with economic collapse. After the money cheat, no matter the tax rate, tax revenue is always in the red.
The problem with the money cheat is the same problem with the economic stimulus package (a.k.a. TARP 1, TARP 2, and soon to come, TARP 3, TARP 4, and on to TARP Infinity). It is the underlying problem with all complex systems when the constraints of operation are removed. In summary, the quality of decision making diminishes, because there is no real cost of failure.
In government, the same is true, but heretofore the government has never blatantly indebted the American people to such an extent. The total debt owed by America is larger than the gross domestic product of all other nations on Earth combined. In other words, from accounting we know that total assets must equal total liabilities plus owners equity (A=L+OE), and if the equation is not satisfied the books are unbalanced. In our situation, the right side of the equations is larger than the left side of the equation could ever be, even when combining the world’s assets and wealth into one.
Due to the money cheat, America has spent so fast and furiously that the world is now insolvent, and a revaluation of assets is imminent. The accounting equation will eventually be satisfied. Eventually, unbalanced books will lead to empty dinner plates, and someone will be forced to make good on our financial obligations. Until then, inflation and devaluation will plague the economy, causing a slow burn to collapse.
Inflation is a devaluation of the dollar; buying houses for a fraction of the cost after foreclosure is a devaluation of real estate. With the money cheat, we create the operational contraints, and so far we have failed miserably. To set the world right, all American assets will lose value, because those assets are based on an old debtors promise to do better (the US). With the amount of debt accrued, our promise is no longer viable, and other nations are refusing to invest in American debt (it is seen as a literal liability). Russia and China are selling all of their US currency for gold, silver, and other commodities. Someone has a clue, and it isn’t us, because we have the money cheat!