How an Economy Grows and Why it Crashes

What happens when a person runs out of money? The bank takes over and claims everything
owned by that person, including houses and anything else with value that is being paid off like a
new car. That is what happens to so called normal people anyways. But has anyone ever
stopped and pondered what the all powerful United States Government does when the money
runs out? The government can spend without ever seeming to run out of money because of
something called a debt ceiling. Another unanswered question regarding the spending and
financial security of governments is: Why are some countries rich while others are poor? This
seems like a question that could be easily answered with excuses about the different resources
and the amount of people, but there is more to it than that. Many people also debate whether
spending or saving is the best cure for a bad economy. Any amount of money saved could be
used as a cushion in case of a nationwide emergency such as a natural disaster that requires large
amounts of funds to rebuild communities and businesses, but spending could maybe build
something bigger and better that could be beneficial to the incoming flow to the country. One
last pressing question is where inflation comes from. Well, when the big shots in suits figured
out that more money was being given out than was actually in the banks; a way to make more
without spending more was created. The best way to have these questions answered is by reading
How and Economy Grows and Why it Crashes by New York Times Bestselling Author Peter
D. Schiff.
So what happens when the government has no more money to spend? Well, after running into
this problem long ago, the United States Officials came up with a little something called a debt
ceiling. A debt ceiling is the legal limit on the total level of federal debt the government can
accrue (The Committee for a Responsible Federal Budget). This means that whenever the
government spends to the point of being so far in debt that the ceiling has been reached, there is
nothing else to do but raise the ceiling and keep raising it whenever the limit is reached. The
current debt ceiling in 2014 is set at $16,787,451,118,147 (The Concord Coalition). It is highly
likely that it will go up more and more as the years go on.
The next question would be: Why are some countries rich while others are poor? There are many
ways to approach this question, and there are many theories including: Energy, Education,
Technology, Health, Environment, and Trade (Globalization 101). One of the most obvious ones
is the difference of resources in each country. For example, a country that is consistently pulling
natural resources out of the ground and selling them for market price will have a better flow of
income than a country without natural resources. Education also has a large impact on a
countrys income because in many ways it is viewed as a business and it creates jobs and brings
a circulation of money through schools and the economy. Another expanding market in this
century is technology. Everyone has a cellphone or a tablet or a computer, or all of them. So the
countries that produce these and market them are going to have an obviously larger amount of
income than other countries. Medical facilities such as hospitals and clinics are also very
beneficial to a country. People are willing to pay money to make themselves better if they are
unwell, which they can only do with access to facilities. For example in the United States, there
is a hospital or a clinic in almost every single town; but in a country such as Africa, there is not,
which is just another absence of cash flow for that nation. One of the biggest reasons for
inequality between nations wealth is trade between countries. For example, take the trading
industry between the United States and China; U.S. goods and private services trade with China
totaled $579 billion in 2012 (Office of the United States Trade Representative).
One of the most interesting questions, and most important, is the factual question of whether
spending or saving is the best cure for a bad economy. Author Peter Schiff explained that savings
are not just a way to increase spending, but a buffer to shield economies from unexpected
problems (Schiff). When disasters like floods, fires, hurricanes, and earthquakes tear through a
community and destroy the property of the people and wipe out their local funds, immediate
reconstruction is required and that is only possible if some sort of money is set aside for the sad
and rainy day. Another reason that saving is an appropriate solution is to help afford necessities
in the future. Prices drop and change every day, so having that cushion of cash surrounding
someone has many positive possibilities like being able to buy goods at a cheaper price in the
future than one would be able to get for in the present. As Peter Schiff says a fish saved is
indeed a fish earned, and saving is definitely the best choice for a bad economy.
The last main point in Schiffs How and Economy Grows and Why it Crashes is the matter of
inflation and where it comes from. It began when the government was loaning out more money
than they actually had, or in the words of Max Goodbank VII the bank director I have only nine
fish available for every 10 notes that you guys have handed out. Well, to fix this problem,
Franky Deep brought in his technicians and figured out a way to change the fish and make even
more, smaller, fish out of the discarded and garbage fish they found. This fish was then used to
refill the banks savings so they could continue to hand out the fish notes that were good for
one fish whenever the people wanted to cash it in. Even though the fish were not the same as the
ones the people were used to, they were ten percent smaller! So to avoid the problem of people
comparing the smaller fish to the original fish, the government simply passed a law stating that
the comparing of the fish was illegal.
In conclusion, Peter D. Schiff has given a solid understanding about the economy of the United
States of America. The author explains why the government can spend without ever seeming to
run out of money; because of the debt ceiling, why some countries are rich while others are poor;
because of the difference in energy, education, technology, health, environment, and trade. Schiff
also talks about spending and saving money, and which is the best cure for a bad economy, and
Peter claims that saving is the safest route for a falling economy so that cushion is always there
for the unexpected when a character in the book states a fish saved is indeed a fish earned. One
last point that the author makes is about inflation and where it comes from, and he then goes on
to explain it by using examples of fish and how characters in the book made smaller fish out of
garbage fish to replenish the savings that the government claimed was already full in the first
place. Overall, Peter D. Schiff gave a complete lesson on the economy and why it crashes; and
also how to catch a fish with your bare hands.

Works Cited
Globalization 101. Why Are Some Nations Richer than Others? . 2014. 9 May 2014
<http://www.globalization101.org/why-are-some-nations-richer-than-others-2/>.
Office of the United States Trade Representative. The People's Republic of China. 4 April 2014. 9 May
2014 <http://www.ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china>.
Schiff, Peter D. How an Economy Grows and Why it Crashes. Hoboken, New Jersey: John Wiley & Sons,
Inc., 2010.
The Committee for a Responsible Federal Budget. Everything You Should Know About the Debt Ceiling.
2010. 3 May 2014 <http://crfb.org/document/updated-qa-everything-you-should-know-about-debt-
ceiling?gclid=CL7_j-r1hb4CFYmCfgodnKwAOw>.
The Concord Coalition. US Total National Debt. 2014. 3 May 2014 <http://www.concordcoalition.org/us-
total-national-debt?gclid=CPmEpt-Okb4CFcJqfgod0TMATw>.