Friday, March 20, 2009

A trillion here, a trillion there

Only recently mass storage devices have grown to the extent that the average person can buy a 1 Terabyte hard drive (or even larger). A Terabyte is 1000 Gigabytes. Familiarity with this concept of a trillion has apparently jaded our society so quickly that the U.S. Government's recent announcement that the Federal Reserve will buy $1.15 trillion in Treasuries. One time Senator Everett Dirksen was quoted as saying, "A billion here, a billion there, pretty soon it adds up to real money." Well, it added up to real money.

It might be a good idea to try to real grasp of this number, even given the present familiarity with trillions.

A trillion seconds is 31,688 years. A stack of 1 trillion $1000 bills (not $1 bills) would be over 67 miles high. The government could give a million people a million dollars each. Here is a graphic representation of the amount of money in a $1 trillion.

The national debt is estimated to be over $11 trillion or about $36,000 per person for every man, woman and child in America today. However, there is a whole lot of disagreement about the amount of the debt, even from the government itself. If you have a new baby, that baby immediately has a $36,000 debt. Maybe, we could negotiate with the government and if we paid our share, $36,000, we wouldn't ever have to pay anymore taxes?

James Hamilton of Econbrowser puts a trillion dollars into perspective this way:

A trillion dollars is about the total amount collected in [individual] income taxes by the U.S. federal government in fiscal year 2006-- $1.04 trillion, if you're curious to use the exact number. That gives me a simple rule of thumb for personalizing these numbers. If I want to know what an additional trillion dollars in government borrowing or spending will mean for me, I just imagine what it would be like to pay twice as much in federal income taxes for one year. So, for example, with the President's proposed budget calling for deficits of $1.75 trillion for 2009 and an additional $1.17 trillion for 2010, after 3 years of paying twice as much as I paid in 2006, I'd have about paid off my share of the bill for the first two years of the proposal.

What is the effect of adding these huge sums of money to our money supply? No one knows. Isn't that a bit scary.

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