Reelection bail-out: You gotta love Lucy
September 21, 2012
When Lucy Ricardo and Ethyl Mertz started a cookie business to make money to cover up their spendthrift shopping ways from Ricky and Fred, all went well until Lucy and Ethyl compared their cost-of-production with their sales receipts. To their dismay, the ladies discovered they were losing money on each cookie they sold. When Ethyl asked Lucy what they should do, Lucy offered her classic, sitcom-solution: “Look Ethyl, we’re gonna make it up on volume.”
Let’s assume President Obama appoints Ethyl to be Treasury Secretary and he appoints Lucy to be Federal Reserve Bank Chairperson. Desperate to kick-start an economy that got worse due to billions of tax dollars spent to bail out Big Labor and Big Wall Street, President Obama orders the ladies to bail out his reelection efforts by flooding financial markets with more of what critics call “funny money.”
So, Ethyl’s Treasury Department prints billions of dollars of Treasury Bonds. Lucy, over at the Federal Reserve Bank, buys the Treasury Bonds from the Treasury with billions of dollars that Lucy just makes up out of thin air. Lucy says, in order to convert thin-air dollars into actual dollars, she will hold an auction and sell the Treasury Bonds to wealthy investors and even to Red China. They will loan the United States actual dollars in return for our government’s pledge to not only pay the principal back in actual tax dollars but to also pay lenders actual tax dollars in interest on the bonds. That way, President Obama can use the borrowed money to pay for social welfare programs, to pay government salaries and pensions, and even have some money for national defense. Especially, since he’s cutting defense in half.
Lucy claims these actions by the Federal Reserve Bank will boost the stock market temporarily, making it easier for the Wall Streeters who owe President Obama big time for their bail-outs to contribute even more money to President Obama’s reelection campaign. Knowing that 93 percent of Wall Street’s stocks and bonds are owned by only 20 percent of America’s investors, Lucy says making the fat cats richer will cause the fat cats to spend more money and thus create a “trickle-down” economy. Ethyl reminds Lucy that President Obama dislikes the term “trickle-down.” They decide not to mention that.
But wait! Ethyl realizes the United States must not only pay back the government-bond holders their principal but must also pay them interest on their investment as well. She says, “Lucy, the amount of debt we have created here is greater than the amount of money that we can possibly recover. Where on earth will we get the money to pay off the $16-trillion-dollar national debt?”
Lucy, who as you know is a financial genius, says, “Not to worry Ethyl. If our borrowed money circulates through the economy fast enough and if we tax the economy high enough, we can use the higher taxes to pay down some of our national debt.”
“You mean this government-borrowing business is like our cookie-making business where we lost money on every cookie we sold?”
“Look, Ethyl, I already told you. We’re gonna make it up on volume.”
Nationally syndicated columnist, William Hamilton, was educated at the University of Oklahoma, the George Washington University, the U.S Naval War College, the University of Nebraska, and Harvard University.