Is Spending Money You Don’t Have a Good Plan?

By Joel Persinger
YourRealEstateDude.com

Over the past few days I have been approached by several clients who expressed concern that the U.S. Government is leading us into disaster by printing trillions of dollars in a vain hope that doing so will save the economy. On thing all of these folks had in common was their belief that the United States Government is spending money that it doesn’t have. Is that true and if so, is it a good plan?

There’s an old joke that goes, “What do you mean I don’t have any money in my account? I still have checks!” We all know that if I write checks without sufficient money in my bank account, the bank will refuse to cover my checks and vendors will eventually stop accepting them. My checks will become worthless. If I want to dig myself out of the hole and get the vendors to accept my checks again, I will have to borrow the money to cover the checks that I’ve already written, along with any I might intend to write in the future. Then, I will have to find a source of income, like a second job, in order to pay the debt on the money I had to borrow.

When the government prints money, it is essentially writing checks even though it has no money in its bank account. Just like my checks, people will eventually stop accepting the government’s money, because its money will have become worthless. The only way for the government to stave off such an eventuality is to borrow enough money from other countries to cover the checks it has already written, along with any it might intend to write in the future. Then the government will have to find a source of income to pay the debt on the money it had to borrow. Unfortunately, the government cannot get a second job. All it can do is raise taxes on generation after generation of Americans.

It may be disturbing to know, but should be point out that the government doesn’t make anything, grow anything, produce anything or sell anything. Basically, the government doesn’t make any money of its own. The Government is like a horribly fat old uncle who sits on your couch all day, eats your food, watches your TV, minds your business and bosses you around without ever pitching in to help pay the bills.

Many of us think that the government is our benefactor, but the reverse is actually the case. We are the government’s benefactors. We design and manufacture products, grow crops, provide services and run profitable business, while old, fat Uncle Sam sits on his behind and sponges off of us in the form of taxes and bosses us around.

But, what does all this have to do with the housing market? First of all, the economy functions as a unit. You cannot easily separate one section from another. Consequently, what affects one sector eventually affects them all. Therefore, when money is devalued, it takes more of it to buy goods, services and real estate. If you’re old enough to remember the late 1970’s, you remember the recession of the Carter years. We faced double-digit inflation back then. Prices of goods and services were sky high. People lost jobs all over the country. You could only buy gas for your car on odd or even days, depending upon whether your license plate ended in an odd or even number. And even when it was your day to buy gas, you had to wait for long periods because cars were lined up for blocks.

Like it or not, what happens with the economy affects everything. Many highly regarded economists and gurus, including those in the Congressional Budget Office, seem to be rightly concerned that printing all this money will send our economy into a tailspin, driving us headlong into a deep recession. If that happens, it may take more money to buy your house, but you may not be able to sell it. People will be too busy trying to scrape together the money to buy bread, eggs and gasoline. No matter how desperate you may be for a cure to present ills, it seems obvious to this real estate broker/investor that writing checks when you have no money and borrowing money that you cannot pay back will only make our current economic problems worse.