We have recently heard many shocking stories of brutal killings and ruthless violence related to drug cartels warring with Mexican and US officials. It is approaching the fever pitch of a full blown crisis. Unfortunately, the administration is not likely to waste this opportunity to further expand government. Hopefully, we can take a deep breath and look at history for the optimal way to deal with this dangerous situation, which is not unprecedented.
Alcohol prohibition in the 1920’s brought similar violence, gangs, lawlessness, corruption and brutality. The reason for the violence was not that making and selling alcohol was inherently dangerous. The violence came about because of the creation of a brutal black market which also drove profits through the roof. These profits enabled criminals like Al Capone to become incredibly wealthy, and militantly defensive of that wealth. Al Capone saw the repeal of Prohibition as a great threat, and indeed smuggling operations and gangland violence fell apart after repeal. Today, picking up a bottle of wine for dinner is a relatively benign transaction, and beer trucks travel openly and peacefully along their distribution routes.
Similarly today, the best way to fight violent drug cartels would be to pull the rug out from under their profits by bringing these transactions out into the sunlight. People who, unwisely, buy drugs would hardly opt for the back alley criminal dealer as a source, if a coffeehouse-style dispensary was an option. Moreover, a law-abiding dispensary is likely to check ID’s and refuse sale to minors, as bars and ABC stores tend to do very diligently. Think of all the time and resources law enforcement could save if they could instead focus on violent crimes, instead of this impossible nanny-state mandate of saving people from themselves!
If these reasons don’t convince the drug warriors, I would urge them to go back to the Constitution and consider where there is any authority to prohibit private personal choices like this. All of our freedoms – the freedom of religion and assembly, the freedom of speech, the right to bear arms, the right to be free from unnecessary government searches and seizures – stem from the precept that you own yourself and are responsible for your own choices. Prohibition laws negate self-ownership and are an absolute affront to the principles of freedom. I disagree vehemently with the recreational use of drugs, but at the same time, if people are only free to make good decisions, they are not truly free. In any case, states should decide for themselves how to handle these issues and the federal government should respect their choices.
My great concern is that instead of dealing deliberatively with the actual problems, Congress will be pressed again to act quickly without much thought or debate. I can’t think of a single problem we haven’t made worse that way. The panic generated by the looming crisis in Mexico should not be redirected into curtailing more rights, especially our second amendment rights, as seems to be in the works. Certainly, more gun laws in response to this violence will only serve to disarm lawful citizens. This is something to watch out for and stand up against. We have escalated the drug war enough to see it only escalates the violence and profits associated with drugs. It is time to try freedom instead.
Monday
Tuesday
15 YEAR DEPRESSION
Pension trustees and insurance company portfolio managers look away now. Your increased commitment to government bond holdings in recent times is about to blow up spectacularly.
At least, that is the view of Ron Paul, the US congressman who ran against John McCain in last year’s Republican Party presidential nomination.
His is a minority view. Yields on government bonds worldwide have been falling fast over the past few months and in the UK, the commencement of “quantitative easing” this month sent bond prices soaring.
But the credibility of both western governments and their currencies is waning, and has been ever since the gold standard was abandoned in 1971, says Mr Paul. And that means even “safe” investments are far from safe, he claims.
“People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates,” Mr Paul says.
“If you are in Treasuries, you will need to be watchful and nimble to time your escape.”
Unfortunately, cashing out will not protect the value of investments, he insists, because “fiat” currencies will all decline over the coming years as measures to try to haul the world economy out of recession fail. “The current stimulus measures are making things a lot worse,” says Mr Paul.
“The US government just won’t allow the correction the economy needs.” He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. “No one remembers that one. They’ll remember this one, because it will last 15 years.”
At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s.
“Europe and the US will both have to fundamentally change their money systems,” he adds.
And don’t even mention shares to Mr Paul: “The last place you want to be is in the stock market,” he says. “It may not bottom out for 10 years – just look at Japan.”
Of course, everyone has a view on the credit crisis, its causes and putative solutions. What differentiates Mr Paul is that he has been warning of the dangers to the world economy for nearly 40 years. “The breakdown of Bretton Woods was my motivation for running for Congress. I have been talking about the dangers ever since and warning that the control by central banks over the money supply would create an enormous bubble.”
A deep recession had only been avoided up until now because of the efforts of successive governments to reflate the economy. But there are no more policy levers left, says Mr Paul. “This is the big one.”
Unsurprisingly, Mr Paul has been viewed as a crank in Washington, dismissed as a doomsayer and a party-pooper. His bill early this year to abolish the Federal Reserve was largely ignored. And his adherence to the Austrian School of economics, which predicted that fiat currencies would destabilise the world economy, has won him few friends.
“People don’t like the Austrians because they are against big government, against armies and against the welfare state. To accept Austrian economics, you have to accept limitations of credit expansion and that is what has kept the government and financial firms in business for so long.”
However, his views are, for the first time, being taken seriously in Washington. Like another politician who recently aimed for high office, Al Gore, Mr Paul’s uncomfortable truths are starting to be deliberated at elevated political levels. “Before last summer, in meetings nobody really knew I was there. Now they often defer to me on economic matters. But you won’t catch any of them admitting that publicly – not yet at least.”
He believes that markets will fall much further and inflation rise much higher before his fellow politicians recognise that the system has failed. “We are likely to see an inflation depression,” Mr Paul says.
“In the 1970s, we had stagflation, but not depression. Inflation depression is what you see in Zimbabwe.”
Even Nouriel Roubini, the renegade economist whose once “extreme” views are now mainstream, fights shy of this analysis. The investment options arising from the analysis are no more palatable. In fact, according to Mr Paul, there is only one: gold.
Such an unproductive asset (unless you are a jeweller) appears unattractive even with the gold price having risen three-fold during the Bush administration. But Mr Paul argues that the current price of about $900/ounce could look cheap in a few years.
“It is not so much that gold will go up but that fiat currencies will go down,” he says. He even advocates a return to the gold standard, which he says is not as difficult as it sounds to achieve.
Mr Paul, it should be noted, first invested in gold nearly 40 years ago when it was worth $35/ounce and holds a part of his wealth in the metal. But he is not alone: gold exchange traded commodities have seen record inflows in the past six months, most wealth managers now recommend a core holding and central banks are loath to sell their quotas. Indeed, Russia has even announced it is buying gold.
Nevertheless, most large institutions, including pension funds, have little or no gold holdings. Mr Paul argues this is a mistake and decries the widely held view that gold is an anachronism.
“Gold is natural money and has been for 6,000 years,” he says.
“You just can’t repeal those laws. A scrap of paper, which the government can just add a nought to, will not do.” He does not, though, expect the mainstream investment industry and its advisers to rush to the bullion vaults.
At least, that is the view of Ron Paul, the US congressman who ran against John McCain in last year’s Republican Party presidential nomination.
His is a minority view. Yields on government bonds worldwide have been falling fast over the past few months and in the UK, the commencement of “quantitative easing” this month sent bond prices soaring.
But the credibility of both western governments and their currencies is waning, and has been ever since the gold standard was abandoned in 1971, says Mr Paul. And that means even “safe” investments are far from safe, he claims.
“People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates,” Mr Paul says.
“If you are in Treasuries, you will need to be watchful and nimble to time your escape.”
Unfortunately, cashing out will not protect the value of investments, he insists, because “fiat” currencies will all decline over the coming years as measures to try to haul the world economy out of recession fail. “The current stimulus measures are making things a lot worse,” says Mr Paul.
“The US government just won’t allow the correction the economy needs.” He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. “No one remembers that one. They’ll remember this one, because it will last 15 years.”
At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s.
“Europe and the US will both have to fundamentally change their money systems,” he adds.
And don’t even mention shares to Mr Paul: “The last place you want to be is in the stock market,” he says. “It may not bottom out for 10 years – just look at Japan.”
Of course, everyone has a view on the credit crisis, its causes and putative solutions. What differentiates Mr Paul is that he has been warning of the dangers to the world economy for nearly 40 years. “The breakdown of Bretton Woods was my motivation for running for Congress. I have been talking about the dangers ever since and warning that the control by central banks over the money supply would create an enormous bubble.”
A deep recession had only been avoided up until now because of the efforts of successive governments to reflate the economy. But there are no more policy levers left, says Mr Paul. “This is the big one.”
Unsurprisingly, Mr Paul has been viewed as a crank in Washington, dismissed as a doomsayer and a party-pooper. His bill early this year to abolish the Federal Reserve was largely ignored. And his adherence to the Austrian School of economics, which predicted that fiat currencies would destabilise the world economy, has won him few friends.
“People don’t like the Austrians because they are against big government, against armies and against the welfare state. To accept Austrian economics, you have to accept limitations of credit expansion and that is what has kept the government and financial firms in business for so long.”
However, his views are, for the first time, being taken seriously in Washington. Like another politician who recently aimed for high office, Al Gore, Mr Paul’s uncomfortable truths are starting to be deliberated at elevated political levels. “Before last summer, in meetings nobody really knew I was there. Now they often defer to me on economic matters. But you won’t catch any of them admitting that publicly – not yet at least.”
He believes that markets will fall much further and inflation rise much higher before his fellow politicians recognise that the system has failed. “We are likely to see an inflation depression,” Mr Paul says.
“In the 1970s, we had stagflation, but not depression. Inflation depression is what you see in Zimbabwe.”
Even Nouriel Roubini, the renegade economist whose once “extreme” views are now mainstream, fights shy of this analysis. The investment options arising from the analysis are no more palatable. In fact, according to Mr Paul, there is only one: gold.
Such an unproductive asset (unless you are a jeweller) appears unattractive even with the gold price having risen three-fold during the Bush administration. But Mr Paul argues that the current price of about $900/ounce could look cheap in a few years.
“It is not so much that gold will go up but that fiat currencies will go down,” he says. He even advocates a return to the gold standard, which he says is not as difficult as it sounds to achieve.
Mr Paul, it should be noted, first invested in gold nearly 40 years ago when it was worth $35/ounce and holds a part of his wealth in the metal. But he is not alone: gold exchange traded commodities have seen record inflows in the past six months, most wealth managers now recommend a core holding and central banks are loath to sell their quotas. Indeed, Russia has even announced it is buying gold.
Nevertheless, most large institutions, including pension funds, have little or no gold holdings. Mr Paul argues this is a mistake and decries the widely held view that gold is an anachronism.
“Gold is natural money and has been for 6,000 years,” he says.
“You just can’t repeal those laws. A scrap of paper, which the government can just add a nought to, will not do.” He does not, though, expect the mainstream investment industry and its advisers to rush to the bullion vaults.
Monday
BANKRUPTCY IS ECONOMIC STIMULUS
The distraction on Capitol Hill this week has to do with the jackpot bonuses that executives at AIG recently received. The argument is over a relative drop in the bucket. The total amount of bonuses given out was $165 million. The government has put $170 billion into AIG so far. Many now are demanding we get this money back. We ought to be spending our time and effort doing something more worthwhile, like figuring out how the Federal Reserve is handling the trillions of dollars they are creating and pumping into the economy, and how that is affecting the purchasing power of dollars in your pocket.
The big mistake was appropriating the TARP funds in the first place. A Johnny-come-lately bill of attainder won’t stop the spending epidemic. This whole situation is a perfect demonstration of why “doing nothing” and letting failing companies fail would have been much better than sinking valuable money and resources into them.
When a company makes a profit, it is a signal that it is taking resources and increasing their value while controlling costs. When a company operates at a loss, it is a signal that it is decreasing the value of its resources or letting out-of-control costs outstrip any value it has created. A company operating at a loss is therefore an engine of wealth destruction. Bankruptcies are a net positive for the economy because more productive competitors are rewarded by opportunities to buy up remaining assets at bargain prices to strengthen their operations. In an economy that allows this kind of growth and change, any jobs lost by bankruptcy are soon replaced by new ones as the most efficiently managed businesses gain access to more assets and expand.
Bankruptcy was the stimulus that we needed in the case of AIG. More bankruptcies would clean out malinvested resources and enable economic growth again.
AIG, by losing money and maneuvering their operations to the brink of bankruptcy, was telling us that they were inefficient. So what did we do? We forced the taxpayer to assume the losses, and now we are supposed to be shocked that it is not working out. Had AIG gone bankrupt, it would have been impossible to hand out these bonuses. The taxpayer would have been fleeced for $170 billion less last year. Had they gone bankrupt, the world would not have come to an end, it would just continue on with one less engine of wealth destruction.
We should have learned from Japan. The 1990’s is referred to as Japan’s “lost decade” because of the zombie banks kept on life support by the Japanese government. Any productivity was redirected through these engines of wealth destruction, resulting in long term stagnation. We should and can avoid this outcome if we come to our senses.
A recession should be a time of strengthening and regrouping for an economy. But as long as the government insists on maintaining the status quo by propping up failed institutions, we will continue to dig a bigger hole for ourselves.
The big mistake was appropriating the TARP funds in the first place. A Johnny-come-lately bill of attainder won’t stop the spending epidemic. This whole situation is a perfect demonstration of why “doing nothing” and letting failing companies fail would have been much better than sinking valuable money and resources into them.
When a company makes a profit, it is a signal that it is taking resources and increasing their value while controlling costs. When a company operates at a loss, it is a signal that it is decreasing the value of its resources or letting out-of-control costs outstrip any value it has created. A company operating at a loss is therefore an engine of wealth destruction. Bankruptcies are a net positive for the economy because more productive competitors are rewarded by opportunities to buy up remaining assets at bargain prices to strengthen their operations. In an economy that allows this kind of growth and change, any jobs lost by bankruptcy are soon replaced by new ones as the most efficiently managed businesses gain access to more assets and expand.
Bankruptcy was the stimulus that we needed in the case of AIG. More bankruptcies would clean out malinvested resources and enable economic growth again.
AIG, by losing money and maneuvering their operations to the brink of bankruptcy, was telling us that they were inefficient. So what did we do? We forced the taxpayer to assume the losses, and now we are supposed to be shocked that it is not working out. Had AIG gone bankrupt, it would have been impossible to hand out these bonuses. The taxpayer would have been fleeced for $170 billion less last year. Had they gone bankrupt, the world would not have come to an end, it would just continue on with one less engine of wealth destruction.
We should have learned from Japan. The 1990’s is referred to as Japan’s “lost decade” because of the zombie banks kept on life support by the Japanese government. Any productivity was redirected through these engines of wealth destruction, resulting in long term stagnation. We should and can avoid this outcome if we come to our senses.
A recession should be a time of strengthening and regrouping for an economy. But as long as the government insists on maintaining the status quo by propping up failed institutions, we will continue to dig a bigger hole for ourselves.
Tuesday
EARMARKS DON'T ADD UP
Earmarks seem to be the hot topic this week, and as a fiscal conservative I am dismayed so many people deliberately distort the earmarking process and grandstand to make political points. It is an easy thing to do with earmarks. It takes a little more time and patience to grasp the reality of what earmarks really are.
To be sure, if earmarks were the driving force behind explosive government spending as some have been led to believe, that would be a good reason for all the fuss. The misconception seems to be that members of Congress put together a bunch of requests for project funding, add them all together and come up with a budget. The truth is, it is not done that way. The total level of spending is determined by the Congressional leadership and the appropriators before any Member has a chance to offer any amendments. Members’ requests are simply recommendations to allocate parts of that spending for certain items in that members’ district or state. If funds are not designated, they revert to non-designated spending controlled by bureaucrats in the executive branch. In other words, when a designation request makes it into the budget, it subtracts funds out of what is available to the executive branch and bureaucrats in various departments, and targets it for projects that the people and their representatives request in their districts. If a congressman does not submit funding requests for his district the money is simply spent elsewhere. To eliminate all earmarks would be to further consolidate power in the already dominant executive branch and not save a penny.
Furthermore, designating how money is spent provides a level of transparency and accountability over taxpayer dollars that we don’t have with general funds. I argue that all spending should be decided by Congress so that we at least know where the money goes. This has been a major problem with TARP funding. The public and Congress are now trying to find out where all that money went.
The real issue is that the overall budget is too big, by far, which is why I always vote against it. But attacking the 1 percent that was earmarked solves nothing. The whole issue is a distraction from the real problems we face, which are that the Federal Government will absorb over 1/3 of our country’s GDP this year and taxpayers are forced to fork over more than half their income to fund government at all levels. On top of that, the national debt is $11 trillion, which is $36,000 per citizen. The recent increases in bailouts, government spending and money creation is going to hobble our economy for decades. We must curb the government’s appetite severely if this country is ever to thrive again. The noise over “earmarks” is a red herring and a distraction from the real issue of uncommitted spending.
It is time to attack the entirety of government spending. We especially need a full account of the activities of the Federal Reserve that spends and creates trillions of dollars with no meaningful oversight. This is a huge problem that needs immediate attention.
To be sure, if earmarks were the driving force behind explosive government spending as some have been led to believe, that would be a good reason for all the fuss. The misconception seems to be that members of Congress put together a bunch of requests for project funding, add them all together and come up with a budget. The truth is, it is not done that way. The total level of spending is determined by the Congressional leadership and the appropriators before any Member has a chance to offer any amendments. Members’ requests are simply recommendations to allocate parts of that spending for certain items in that members’ district or state. If funds are not designated, they revert to non-designated spending controlled by bureaucrats in the executive branch. In other words, when a designation request makes it into the budget, it subtracts funds out of what is available to the executive branch and bureaucrats in various departments, and targets it for projects that the people and their representatives request in their districts. If a congressman does not submit funding requests for his district the money is simply spent elsewhere. To eliminate all earmarks would be to further consolidate power in the already dominant executive branch and not save a penny.
Furthermore, designating how money is spent provides a level of transparency and accountability over taxpayer dollars that we don’t have with general funds. I argue that all spending should be decided by Congress so that we at least know where the money goes. This has been a major problem with TARP funding. The public and Congress are now trying to find out where all that money went.
The real issue is that the overall budget is too big, by far, which is why I always vote against it. But attacking the 1 percent that was earmarked solves nothing. The whole issue is a distraction from the real problems we face, which are that the Federal Government will absorb over 1/3 of our country’s GDP this year and taxpayers are forced to fork over more than half their income to fund government at all levels. On top of that, the national debt is $11 trillion, which is $36,000 per citizen. The recent increases in bailouts, government spending and money creation is going to hobble our economy for decades. We must curb the government’s appetite severely if this country is ever to thrive again. The noise over “earmarks” is a red herring and a distraction from the real issue of uncommitted spending.
It is time to attack the entirety of government spending. We especially need a full account of the activities of the Federal Reserve that spends and creates trillions of dollars with no meaningful oversight. This is a huge problem that needs immediate attention.
Friday
IMAGINE
Imagine for a moment that somewhere in the middle of Texas there was a large foreign military base, say Chinese or Russian. Imagine that thousands of armed foreign troops were constantly patrolling American streets in military vehicles. Imagine they were here under the auspices of “keeping us safe” or “promoting democracy” or “protecting their strategic interests.”
Imagine that they operated outside of US law, and that the Constitution did not apply to them. Imagine that every now and then they made mistakes or acted on bad information and accidentally killed or terrorized innocent Americans, including women and children, most of the time with little to no repercussions or consequences. Imagine that they set up check points on our soil and routinely searched and ransacked entire neighborhoods of homes. Imagine if Americans were fearful of these foreign troops, and overwhelmingly thought America would be better off without their presence.
Imagine if some Americans were so angry about them being in Texas that they actually joined together to fight them off, in defense of our soil and sovereignty, because leadership in government refused or were unable to do so. Imagine that those Americans were labeled terrorists or insurgents for their defensive actions, and routinely killed, or captured and tortured by the foreign troops on our land. Imagine that the occupiers’ attitude was that if they just killed enough Americans, the resistance would stop, but instead, for every American killed, ten more would take up arms against them, resulting in perpetual bloodshed. Imagine if most of the citizens of the foreign land also wanted these troops to return home. Imagine if they elected a leader who promised to bring them home and put an end to this horror.
Imagine if that leader changed his mind once he took office.
The reality is that our military presence on foreign soil is as offensive to the people that live there as armed Chinese troops would be if they were stationed in Texas. We would not stand for it here, but we have had a globe straddling empire and a very intrusive foreign policy for decades that incites a lot of hatred and resentment towards us.
According to our own CIA, our meddling in the Middle East was the prime motivation for the horrific attacks on 9/11. But instead of re-evaluating our foreign policy, we have simply escalated it. We had a right to go after those responsible for 9/11, to be sure, but why do so many Americans feel as if we have a right to a military presence in some 160 countries when we wouldn’t stand for even one foreign base on our soil, for any reason? These are not embassies, mind you, these are military installations. The new administration is not materially changing anything about this. Shuffling troops around and playing with semantics does not accomplish the goals of the American people, who simply want our men and women to come home. 50,000 troops left behind in Iraq is not conducive to peace any more than 50,000 Russian soldiers would be in the United States.
Shutting down military bases and ceasing to deal with other nations with threats and violence is not isolationism. It is the opposite. Opening ourselves up to friendship, honest trade and diplomacy is the foreign policy of peace and prosperity. It is the only foreign policy that will not bankrupt us in short order, as our current actions most definitely will. I share the disappointment of the American people in the foreign policy rhetoric coming from the administration. The sad thing is, our foreign policy WILL change eventually, as Rome’s did, when all budgetary and monetary tricks to fund it are exhausted.
Imagine that they operated outside of US law, and that the Constitution did not apply to them. Imagine that every now and then they made mistakes or acted on bad information and accidentally killed or terrorized innocent Americans, including women and children, most of the time with little to no repercussions or consequences. Imagine that they set up check points on our soil and routinely searched and ransacked entire neighborhoods of homes. Imagine if Americans were fearful of these foreign troops, and overwhelmingly thought America would be better off without their presence.
Imagine if some Americans were so angry about them being in Texas that they actually joined together to fight them off, in defense of our soil and sovereignty, because leadership in government refused or were unable to do so. Imagine that those Americans were labeled terrorists or insurgents for their defensive actions, and routinely killed, or captured and tortured by the foreign troops on our land. Imagine that the occupiers’ attitude was that if they just killed enough Americans, the resistance would stop, but instead, for every American killed, ten more would take up arms against them, resulting in perpetual bloodshed. Imagine if most of the citizens of the foreign land also wanted these troops to return home. Imagine if they elected a leader who promised to bring them home and put an end to this horror.
Imagine if that leader changed his mind once he took office.
The reality is that our military presence on foreign soil is as offensive to the people that live there as armed Chinese troops would be if they were stationed in Texas. We would not stand for it here, but we have had a globe straddling empire and a very intrusive foreign policy for decades that incites a lot of hatred and resentment towards us.
According to our own CIA, our meddling in the Middle East was the prime motivation for the horrific attacks on 9/11. But instead of re-evaluating our foreign policy, we have simply escalated it. We had a right to go after those responsible for 9/11, to be sure, but why do so many Americans feel as if we have a right to a military presence in some 160 countries when we wouldn’t stand for even one foreign base on our soil, for any reason? These are not embassies, mind you, these are military installations. The new administration is not materially changing anything about this. Shuffling troops around and playing with semantics does not accomplish the goals of the American people, who simply want our men and women to come home. 50,000 troops left behind in Iraq is not conducive to peace any more than 50,000 Russian soldiers would be in the United States.
Shutting down military bases and ceasing to deal with other nations with threats and violence is not isolationism. It is the opposite. Opening ourselves up to friendship, honest trade and diplomacy is the foreign policy of peace and prosperity. It is the only foreign policy that will not bankrupt us in short order, as our current actions most definitely will. I share the disappointment of the American people in the foreign policy rhetoric coming from the administration. The sad thing is, our foreign policy WILL change eventually, as Rome’s did, when all budgetary and monetary tricks to fund it are exhausted.
IS SPENDING THE ANSWER?
This week, Congress and the administration once again showed their lack of economic understanding, as they ramped up spending to record levels. On the surface, maybe it does look to some like the economic crisis is a liquidity problem, that the economy is in trouble because money is not changing hands at the pace it once did in the boom years. They believe that to get back to a booming economy money needs to start changing hands again – and the quickest way to do this is for the federal government to massively expand spending to pump new money into the system. If this is the extent of their understanding, no wonder they call for spending, taxing, bailouts and inflation.
If spending was the solution, we never would have had a problem. During the last eight years, we’ve blown up the size of government and certainly had no want of spending on foreign or domestic policy. The Bush administration increased spending almost 20 percent its first term, and nearly doubled the national debt by the end of the second term. Certainly the case cannot be made that lack of government spending created the problem or can be the solution.
This is mirrored in American households. According to CNN private sector debt is 365 percent of private sector gross domestic product. Many relied simply on steady and continued increase in home values to enable spending and secure more debt. That trend has proven unsustainable and many Americans are adjusting their finances accordingly. For the first time, household debt is beginning to fall as consumers wake up to the realities of paying off debt and living within their means.
Wouldn’t it be great if the government would do the same?
A lot of capital and liquidity is out there waiting in the wings as the new administration is bringing about government uncertainty, a concept discussed by Robert Higgs as prolonging the Great Depression. In other words, it is a foregone conclusion that government will act. But, like a chicken with its head cut off, no one knows which way it will run, just that it will flail about wildly until it collapses.
Why start a business, when businesses could face the brunt of an increase in future taxation? Similarly, why hire a new employee if tax policy will just force you to fire them later on to stay afloat? Why buy a house, when you have no idea how future government meddling in the housing market will affect its value? Why spend at the shopping mall, or buy a new car when you don’t know how tax policy will affect your family budget, or if your job will come under the axe because your employer’s tax burden is increased?
I argue these kinds of questions and concerns contribute to the weakening economy. This type of tax policy keeps capital out of third world nations, and now is keeping capital in hiding here in the US. People are concerned about security and savings again, retrenching their household and business budgets. The economy could be helped if the government would just get out of the way and restore sound monetary and fiscal policies
If spending was the solution, we never would have had a problem. During the last eight years, we’ve blown up the size of government and certainly had no want of spending on foreign or domestic policy. The Bush administration increased spending almost 20 percent its first term, and nearly doubled the national debt by the end of the second term. Certainly the case cannot be made that lack of government spending created the problem or can be the solution.
This is mirrored in American households. According to CNN private sector debt is 365 percent of private sector gross domestic product. Many relied simply on steady and continued increase in home values to enable spending and secure more debt. That trend has proven unsustainable and many Americans are adjusting their finances accordingly. For the first time, household debt is beginning to fall as consumers wake up to the realities of paying off debt and living within their means.
Wouldn’t it be great if the government would do the same?
A lot of capital and liquidity is out there waiting in the wings as the new administration is bringing about government uncertainty, a concept discussed by Robert Higgs as prolonging the Great Depression. In other words, it is a foregone conclusion that government will act. But, like a chicken with its head cut off, no one knows which way it will run, just that it will flail about wildly until it collapses.
Why start a business, when businesses could face the brunt of an increase in future taxation? Similarly, why hire a new employee if tax policy will just force you to fire them later on to stay afloat? Why buy a house, when you have no idea how future government meddling in the housing market will affect its value? Why spend at the shopping mall, or buy a new car when you don’t know how tax policy will affect your family budget, or if your job will come under the axe because your employer’s tax burden is increased?
I argue these kinds of questions and concerns contribute to the weakening economy. This type of tax policy keeps capital out of third world nations, and now is keeping capital in hiding here in the US. People are concerned about security and savings again, retrenching their household and business budgets. The economy could be helped if the government would just get out of the way and restore sound monetary and fiscal policies
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