How Many Euros Is Enough?

October 17, 2011
	The briefing was updated yesterday and can be found in The Briefing Room. I've had an idea for a few years now of trying to bring the billions and trillions of dollars always being spoken of regarding our government into terms of a household budget.  If this could be done, then a lot more people could grasp the numbers and get upset enough to take action. This weekend as I was reading, I came across this very short blog post from an economist and it blew my socks off.  They say to Keep It Simple Stupid, well, it couldn't get any simpler than this!  Some stats about the US government: U.S. Tax revenue: $2,170,000,000,000 Fed budget: $3,820,000,000,000 New debt: $ 1,650,000,000,000 National debt: $14,271,000,000,000 Recent budget cuts: $ 38,500,000,000 Now, remove 8 zeroes and pretend it’s a household budget: Annual family income: $21,700 Money the family spent: $38,200 New debt on the credit card: $16,500 Outstanding balance on the credit card: $142,710 Total budget cuts: $385 Can you believe that?  The family has $21,700 in annual income, spent $38,200 by adding $16,500 to the already huge $142,710 credit card bill.  At least they had the forsight to cut the budget, but a whopping $385?  The biggest difference between the government and a household, is the government can "create" currency to pay their bills.  If we tried to create our own currency, they would throw us in jail!  This week, John Mauldin referred to Art Cashin's article where he spoke  about the Weimar Republic.  These guys were printing money to pay their bills and improve the economy (QE2?).  Unfortunately the economy didn't improve.  After multiple attempts of printing money and no economic reaction, they devalued the mark.  To bring this into terms we can understand, lets look at the cost of a loaf of bread:   "In the middle of 1914, just before the war, a one pound loaf of bread cost 13 cents. Two years later it was 19 cents. Two years more and it sold for 22 cents. By 1919 it was 26 cents.  Now the fun begins. In 1920, a loaf of bread soared to $1.20, and then in 1921 it hit $1.35. By the middle of 1922 it was $3.50. At the start of 1923 it rocketed to $700 a loaf. Five months later a loaf went for $1200. By September it was $2 million. A month later it was $670 million (wide spread rioting broke out). The next month it hit $3 billion. By mid month it was $100 billion. Then it all collapsed [as if a roughly 8 billion times rise in cost wasn't already collapse!" You may say that things are different now, but Peter Bernholz studied 29 periods of hyperinflation throughout the world.  His takeaway was that the ratio between a government's deficit and its expenditures was key to its path to inflation and hyperinflation.  20% deficits were behind all but four cases of hyperinflation.  Where is this percentage for the US?  30%! We are spending nearly twice what we make and "borrowing - creating" the difference.  Germany is fiscally sound today because of the hard lessons they learned from the Weimar Republic.  I think we need to read and learn those lessons without experiencing them ourselves. The briefing room this week points to a potential change in the investment climate and what we are doing about it.  Please keep yourself abreast of those changes.  As they say, "The only thing guaranteed is change." I will leave you with a perplexing question.  Is it a vase, or two faces on this cow's face? Have a great day!! John Norquay CEO PivotPoint Advisors		In order to view the graphs and charts in our newsletter, please click the link at the top of your email to "always show images from PivotPoint Advisors" Resources Check out our Youtube Channel  Like our FaceBook FAN Page We manage money inside 401k plans. Know anyone who may want to use us? Click "Forward to a friend" (immediately below) to share this newsletter with friends you think may appreciate our services. Forward to a Friend Twitter Subscribe to the Weekly Briefing Report Unsubscribe Update Subscription Preferences View Email In Browser