In the news 8-25-98 was a story about a Russian man whose $10,000 savings in a Russian bank was about to be gone or worthless because of the monetary problems of the Russian state. He was saying that people "should remain calm. You never know how these things will turn out." I felt for this man.
I thought to myself, "You poor man. This is what happens when you store the value of your savings in unstable currency offered by an unstable government." Then I thought, "He probably didn't think them to be unstable when he invested." My next thought was for all those Americans storing the value of their life's work in 401K plans. They look great today. What about on the day when people need to cash them in? Will the scene look like George Bailey's Building & Loan (from "It's a Wonderful Life") on the day of the bank run? Will the early birds, the oldest of the Baby Boomers, get their money out but then cause prices to be depressed? Will the act of selling by millions of investors coming into retirement age have the opposite effect on the Dow Jones as when money was pouring in? Remember when the market was skyrocketing as Billions of Dollars were pouring in? What will it do when Billions are draining out?
Many Russians keep their assets in cash. They don't use banks. Unfortunately, since the government determines the value of the money, the Russians are at their mercy. As the trading-value/buying-power of each ruble goes down, it takes more of them to buy bread and meat. This makes it look like prices are rising. It causes the buyers to be angry at the shopkeepers rather than at the people who are destroying the stored value of their money. Bread and meat still cost the same in dollars, pounds, and francs. Since each ruble is worth less compared to each dollar, pound, or franc, it appears to the Russian buying public as though prices are going up when in fact the currency's ability to purchase is going down.
At work, that Russian man was losing money every time he got paid. If his pay is not going up when the buying power of the currency is going down, he's losing money. He won't be able to afford everything that he could buy before the devaluation. The "price" of goods will not have changed but the employee receives less valuable pay with which to make his purchases. Tourists making purchases with Traveler's Checks in dollars will hardly notice the change as millions of Russians sink into poverty.
Each year Taxpayers give their hard-earned money to the government which is then used to pay interest on various U.S. debts. Interest costs have jumped from $214 billion in Fiscal Year 1988 to $355 billion in FY 1997. Each year from 1988 to 1997 interest costs have risen.
FISCAL YEAR 1988 $214,145,028,847.73
FISCAL YEAR 1989 $240,863,231,535.71
FISCAL YEAR 1990 $264,852,544,615.90
FISCAL YEAR 1991 $286,021,921,181.04
FISCAL YEAR 1992 $292,361,073,070.74
FISCAL YEAR 1993 $292,502,219,484.25
FISCAL YEAR 1994 $296,277,764,246.26
FISCAL YEAR 1995 $332,413,555,030.62
FISCAL YEAR 1996 $343,955,076,695.15
FISCAL YEAR 1997 $355,795,834,214.66
FY 1998 interest costs are on pace to top last year's record amount.
OCTOBER $ 21,771,329,048.86
NOVEMBER $ 26,406,819,023.26
DECEMBER $ 67,794,660,401.65
JANUARY $ 21,176,456,166.45
FEBRUARY $ 21,608,866,188.29
MARCH $ 21,781,255,287.88
APRIL $ 21,211,960,916.42
MAY $ 27,447,650,069.18
JUNE $ 68,937,024,302.73
JULY $ 20,832,410,486.97
FISCAL YEAR TOTAL $318,968,431,891.69
* Source --- Bureau of Public Debt, U.S. Department of Treasury
These amounts were paid at relatively low interest rates. What happens when rates go up? Last year the interest paid was about 20% of the entire budget. If rates go up, couldn't the percentage jump to 33% or more of the U.S. budget? What about all the projects that money was supposed to pay for? Unless the taxpayers pay more or the government more effectively collects taxes, some projects must be bumped so that money could be used to keep us out of default.
If our financial house gets too far out of line, we too may see our people running to the bank to get their money before it's gone.
Lee A. Presser
