Here's the deal as I know it. A trillion dollars does not just fall out of the sky whenever Obama signs his name.

Now that the stimulus package is signed, our government has to decide how to fund it.

Four choices come to mind:

1. Print it and flirt with inflation

2. Tax it and negate the spending (Kinda defeats the purpose)

3. Sell treasurys to whomever can afford to buy them and (this is key) trusts that they will realize a return on investment, (that's our tax money that will have to be collected from us and our kids and our employers at some future date to pay off the treasury notes when they mature, so it's still tax, just not right now) Suppose we are in no better shape then to pay those taxes in the future then we are today, that's my concern if I am China.

4. Cut wastefull spending.

Obviously we'll do some of each of the first three. We'll push the envelope of inflation with as much seigniorage as we can get away with, tax whatever entities appear to have cash laying around (idle capital only as taxing away anything that is slated to fund new production would be counterproductive)yea right... and finally sell treasurys to China and Japan, but they have to believe we are going to be fiscally responsible (hence tonight's speech and the flip flop from January "now is no time to worry about the defecit" rhetoric) or they might not be interested in the risk. I'm not sure how much money they have to spend anyway both their economies are hurting now too.

The fourth option will get no play. We could cut wasteful spending. I'd drop the war on drugs before the war in Afghanistan. Hell, if pot and opium were legal, Afghanistan might become a good trading partner. Trading partners are friendly. So, as opposed to spending billions on the futile effort to stop mutually beneficial exchanges between consenting adults, we could tax the shit and make money. What do you suppose is the swing between the red ink and the green? According to Jeffery Miron a Harvard economist, roughly 80 Billion per year.

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