This one I read.  I am not going to rate it but I will say that the headline caught me and the story was one I would not attribute to an economist.

Let me set the record straight.

The dollar is weak and has been for years.  In fact though, it is not even as low (particularly against the Euro) as it was a year ago.  Heck, all you need to do is travel outside of the Americas to know that this is true.  I paid the equivalent of $8 for a Whopper Combo in Turkey not too long ago.  Before that there was the $5 one scoop (tiny at that) ice cream in Rome (they call it Gillato so they can charge more — who says they Europeans haven’t learned American marketing techniques?).

But that was over a year ago.  Long before the FED and the Goverment started printing money and whaling on our debt structure.

Of course you would expect the dollar to be weak and continue so when the government is creating money out of whole cloth ( ad nihilo I think the philosophers call it . . . out of nothing).

The sad fact is that this doesn’t seem even close to ending.  Money will be pouring out of the proverbial presses for months, if  not years to come. The government thinks it has to do it to spur the economyl

If you have forgotten, or never paid attention to your Econ classes let me tell you how this works.

Right not there is one main way.

First, the FED creates money by buying bonds from the Treasury (in March they announced plans to buy at least $300 billion over the next year or so).  The government needs money to spend on stimulus packages (two at least and more likely to come) so they sell a few billion $$ of short term or long term bonds to the FED who pays for them with $$ they don’t have.  It is really all an electronic transaction but it works.  Say, $30 billion last month in 6 month notes purchased by the FED.

What does the government do?  They get that $30 billion electronic transfer and then spend it by sending it to the states or individuals in another transfer.  At the end of this loop the electronic transfer goes into someone’s (like you or me) account at a bank and we draw on it (usually with electronic spending with credit cards).

Bingo $30 billion into the economy.  But wait, there is more, if you spend it now you also get, this one time only — or actually everytime it happens . . . yes you get PUBLIC DEBT!  The government now owes $30 billion more to someone (often foreign government buy the debt . . . like China, which is a whole nother story).

I think you probably get the idea now.

The problem is that now our PUBLIC DEBT is becoming an increasing portion of total GDP.   Public debt was only 37% of GDP only two years ago and this year it is going to be north of 55%.  Sure interest rates are low and so the government doesn’t have to spend that much to pay the interest  . . . but what happens when the economy really turns and the FED has to raise rates?  Crippling debt coupled with crippling debt service (interest) bring . . . a bust.  But there is a way out.

President Obama is starting to recognize this and you should too.

The debt has to be paid and there are limited ways for the government to raise $$ . . . think taxes (by any name . . . excise fees on tires from China or increases in individual tax rates).  Tax receipts were down nearly 17% for the year ended Sep. 30 due to the economy (people stop spending) and corporate receipts were down nearly 55% (companies stop making profits . . . and how!).

Weak Dollar?  Jeez Louise!  Of course it is weak and it is going to get weaker.

What you need to know is that this can’t let this happen without planning ahead.

Saving money under the mattress is throwing it away as $$ weaken and are worth less (Germany in the 1920’s, Argentina in the 1980’s and Zimbabwe as you read.

So, like I pointed out last week, one great answer is to spend to stimulate the economy (buy things or invest).  That is what is beginning to happen but not nearly enough!

Markets are up, retail figures are not as disappointing as expected and consumer confidence is artificially low right now. A great time to invest or spend!

Spending turns that $30 billion mentioned above into $60 or $90 billion in the marketplace by something called the ‘multiplier’ (something for another day).  This helps the economy which puts tax $$ in the governments coffers and lets them pay of debt.  It also helps businesses put $$ to the bottom line and that means jobs.

Bottom line.  Weak dollar, shmaller . . .  the answer is to spend (wisely) or perish (not really quite that bad but you get the idea).

Start Christmas spending now.  Beat the rush and support our spendthrifty government!

Oh I can’t wait for 2010!

Thanks to flickr’s chego101 for the photo