This past year, taxpayers received an Economic Stimulus Payment. This was a very exciting new program that someone explained using the Q and A format:

Q. What is an Economic Stimulus Payment?

A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?

A. From taxpayers.

Q. So the government is giving me back my own money?

A. No, they are borrowing it from China. Your children are expected to repay the Chinese.

Q. What is the purpose of this payment?

A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn't that stimulating the economy of China?

A. Shut up.

Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:

If you spend that money at Wal-Mart, all the money will go to China .

If you spend it on gasoline it will go to Hugo Chavez, the Arabs, and Al Queda.

If you purchase a computer it will go to Taiwan.

If you purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala (unless you buy organic.)

If you buy a car it will go to Japan and Korea.

If you purchase prescription drugs it will go to India.

If you purchase heroin it will go to the Taliban in Afghanistan.

If you give it to a charitable cause, it will go to Nigeria.

And none of it will help the American economy.

We need to keep that money here in America.  You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on prostitutes, domestic beer, or tattoos, since those are the only businesses still in the US.

(For those of you who just wanted a "funny" - that was it.  Hope you enjoyed it!  The rest of this is more serious financial and (some) political commentary.)

Obviously this is rather overstated.  But it makes a some good points:  So long as we're increasing debt, we're not creating wealth.  And it does make a difference where money is spent.  (If you spend your money with local businesses that produce products locally, you will help stimulate your local economy.)

Now we know, with 20-20 hindsight, that those Economic Stimulus Payments didn't stimulate the economy.

Why not?  And what DID happen with most of the money from the Economic Stimulus Payments?

It was primarily used to pay down debt.  (That's primarily what we did with ours.  But we also tend to buy from local shops to support the local economy rather than always going to Big Box stores that use our money to support other areas of the world, and where the prices are sometimes cheaper, the quality is typically the same or worse, and the service is most-often considerably worse.)

Paying down debt is good for the economy of the debtor.  But it doesn't create cashflow... at least not when it's incremental debt reduction.

And paying down debt by borrowing more money isn't really reducing the debt.  It's merely moving the debt elsewhere, to be paid off at another time.

Looking back at the first Q in the Q&A above, there's an assumption.  The stated goal is to "stimulate the economy."   That can either mean improve cashflow and/or create wealth.  Either way, the assumption is that the only way to stimulate the economy is to print more money.  Is that a valid assumption?

Make no mistake: When the government prints more money without an equivalent increase in the value of the total economy, that's not much different than increasing debt. It's actually "just" decreasing the value of every dollar - both those printed and those already in circulation.

Now, if the value of our money was still tied to the value of Gold, and we had enough Gold reserves to match the value of all the money that was printed... and if money was printed as a result of an increase in the value of the Gold reserves, that would be an entirely different matter. But that's a lot of "ifs" and we need to deal with the way things are, not the way they used to be. And we haven't had our money tied to the value of Gold for quite some time now. It's time to Move On.

So, we ran with the assumption that printing more money would stimulate the economy.  And it failed.  It neither increased the cashflow nor created any wealth.

Now we've got a new administration, with "Change" as the new directive.  The House and Senate are essentially the same - at least in terms of who the leaders are and what party controls each.  (The big difference there is that the same party that was in control last year has quite a bit more power this year, due to a larger majority.)

So, what's the new direction?  Keep running with the assumption that printing more money will stimulate the economy.  But instead of merely printing a "mere" $152 Billion, the new administration will print approximately 500% more money - roughly $1,000 Billion (also referred to as $1 Trillion).  The thinking is, that if running fast in the wrong direction didn't work, we should rush to speed up.  Maybe by going 5 times faster the wrong direction will become the right direction.

The problem isn't with how or where to distribute this newly printed (devaluing) money.  No, the problem is with printing the money in the first place.

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This is getting too long... so I'll continue later with another post.  Meanwhile, I hope you enjoyed the little bit of fun at the top.  And I'd love to hear how YOU spent your Economic Stimulus Payment.