0535 - Trillions

To our surprise, a savvy and sophisticated visitor to the Sea Rocks recently said that, despite working in Washington, she had no idea how large a Trillion was. With the U.S. budget deficit now over half a Trillion and rising, and the Congress and the President agreeing on cutting taxes, flying to Mars, and paying for everybody’s drugs (the good kind), the U.S. is now and will be fiscally ineligible to join the European Union, assuming it wanted to. We feel this innumeracy (yes, it is a word, despite our spell-checker’s opinion) requires rapid action, and our Revered Investment Guru (the R.I.G.) springs into action.

The R.I.G. starts small. It turns out that there are two kinds of Billions. An American Billion is one thousand millions (1,000,000,000). A British Billion is a million millions (1,000,000,000,000). So also, there is the U.S. Trillion, which is a thousand Billions (a thousand thousand millions), while the British Trillion is a million times greater (a million million millions, or 10 to the 18th power). Not even the U.S. Government spends a British Trillion, so let us stick with the U.S. Trillion, which is where the U.S. budget deficit will be, promptly.

A worker who earns $25,000 a year and works for 40 years will earn a million dollars total. Even these days, a million dollars cautiously invested will suffice for a modest retirement, if not many fine wines. Well, the 10 Billion or so extra that the U.S. Congress just appropriated for rain forests in Iowa and similar porky projects would be the life earnings of ten thousand workers at that $25K a year. A half Trillion-plus U.S. deficit due this year is the lifetime earnings of 500,000 of our standard workers. If a (U.S.) Trillion dollar annual deficit arrives, as seems likely, that will be the lifetime earnings of a million of our standardized workers. That’s a lot, is it not?

Put another way, if you are a mere millionaire, and earn 5% on your capital, you have an income of $50,000 a year. If you have a Billion dollars and earn five percent on it, your income is $50 million a year. Well, if you think about that, $50 million invested at 5% yields you $2.5 million a year income. And $2.5 million if invested at 5% yields an income of $125,000 a year. So, if you are a Billionaire, you can live comfortably on the interest on the interest on the interest of your money.

It is not the usual function of this column to scold governments for profligacy. Those who do usually warn of a decline in the value of the dollar – painfully evident when we visit the Tropicana Restaurant in St. Martin for a fine Bistro lunch, priced in Euros. Or, they warn that our children will be burdened with our debts, an argument always trotted out during an election, formerly by Republicans and now by Democrats, but never with effect on the voting public. Apparently, a lot of parents feel it will serve the little monsters right. Yet, we confess we don’t like the economy of the U.S. to be compared with the sarcastically named banana republics, which the wiser and more prudent world financiers have always scolded for spending of money they don’t have.

There’s no political benefit, anywhere in the world, for an administration to cut Government spending. There’s no political benefit in raising taxes, or Arnold will come along and boot you out. It is impossible, apparently, to fire government workers, any time, anywhere. So, if you’re in the U.S., you’d better get used to eating a lot of banana splits.

Next time: Puzzlement [OO #536]

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