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Tuesday, January 15, 2013

Printing Money the Government Way

The US Government issues some 80 million "payments" each month according to this.

That's 960 million payments each year.

Divide the $3.5 trillion the government spends and you find that each payment is about $3,600 USD per payment.

Each work-day hour 480,000 (based on a 2,000 hour work year) "payments" are made.

That's about 133 payments of $3,600 USD each second.

A fast printer can easily print 1,000 pages a minute or 50,000 pages an hour (considering support and maintenance time as well).

So ten big fast printers running non-stop would get the job done if the US Government was a business.

But its not.

There are dozens if not hundreds of departments and areas that print checks.

And then there is the preparation for printing the checks - who receives the check (or EFT) - what amount - on what date, etc. etc. etc.

When the current Administration says that "prioritizing payments" is "unworkable" (see this) I think that it really means is these printing operations simply run non-stop making "payments" without checks or limits beyond whatever funding the agency receives.

What I mean is that there is no notion of making specific payments.

For example, in a business, you have to prioritize payments.  Revenue and sales are not consistent month to month yet bills, e.g., a car or equipment lease payment, must be made each month.

So in a business you typically prioritize employee payroll and taxes first - if you don't pay they won't work.  If you don't pay payroll taxes you'll get hammered by the IRS.  Management is secondary in terms of payroll.

Next you have to pay things like rent, leases, and regular expenses like power, water, and so on.

Things that need to be paid or they will get turned off.

Sometimes if revenue is thin you put off rent, or power, or rotate payments just enough to keep everything on and running.

Sometimes you pay but you pay late.

But my belief is that the government model is not like this.

There is either an "on" state - we have budget so we pay - or an "off" state - no funding we have to stop running the check printers.

There is nothing else because that's how government thinks.  It believes that there will always be "funding" to run whatever operation needs running.

In reality, of course, only the government thinks this way.  My belief is that not even states (with some exceptions) do this.  All have actual budgets, payment priorities and so on.

Of course there are legal obligations to pay.

But what if there is in fact no money to do so?

Obviously IRS refunds, for example, could be delayed days or weeks without problems.  Similarly for many other types of payments such as retiree payments (which the Treasury is currently delaying because the borrowing limit has been exceeded).

Employee pay or benefit payments, however, would be problematic to delay.

Basically the US Government is a giant machine that craps out money no matter what.

And since this has gone on for decades no limits, bounds, checks or prioritization is built into the system.  So the Administration needs "all the money" or nothing will work.

Government is not designed to say - okay Social Security (which, by the way, is supposedly solvent for a few more years so why budget issues would affect this are unclear to me) - you only get X dollars to work with this month.

But it needs to be.

Its pure fantasy to pretend money will always be there regardless.

The "full faith and credit" of the United State Government applies only to debt payments.  There are about $20 billion dollars of these each month.

The US Government takes in about $200 billion USD each month.

More than enough to maintain the good standing of US debt.

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