Continued from Blogs of January 26 & 29, 2012
Dealing with the debt problem means firstly understanding the economic powerhouse that is the USA. The US $ remains the world’s currency and is accepted universally. Fixing the US $ is PRIORITY #1.
In the previous blogs, we discussed
– Bringing government expenditures under control
– Allowing capitalists economy Freedom while protecting society
– The foolishness of political “correctness”
– Curtaining the abusive power of union leaders who now mirror industrialists.
– Limits on Industrialists & Separation of the Four Financial Pillars
We continue with
The Barney Franks of the world and others who claim knowledge of complicated matters, while having never understood what is going on around them
We need limits on the Barney Franks of the world and their power to cause capitalists to do crazy things.
Some politicians are determined to do good for society, but fail to understand how capitalism works. Our lives would be so much better if every politician were forced to take a course in “What is Capitalism and How Does it Work?” In a society such as ours, it always surprises me how elected politicians can exert power without first having a mandatory requirement to educate themselves as to how society works.
Barney thought that government was all powerful and if a law was passed, it would automatically bring benefits to the people. This is the essence of Communism. Communism means that the central committee who supposedly look after the people, makes the rules under which society functions.
Without going into a major essay here, suffice to say that history has proven that communism does not work.
History has also proven, that Capitalism is a dynamic and ever evolving force that flows like a river’s current around obstacles.
Barney and the Mortgage Lenders
So when Barney forced mortgage lenders to lend a small portion of their house mortgage lending, to people that didn’t deserve to obtain that mortgage, and when he said that government would indirectly guarantee that mortgage, in his naivety, Barney created a monster.
Once again, normal human greed, that is resident in all of us, found ways to use these new artificial rules to their own benefit. What resulted with a lot of capitalistic creativity, was loans to everyone that would accept them, all indirectly guaranteed by the government.
Another idiotic disaster. A Republican (Reagan) who destroys the separation of the financial pillars, and a Democrat (Franks) combined to bring the USA to its knees, and we all are suffering.
Thankfully, Capitalism is robust and redundant. In spite of the disastrous effect of all of the well-intended, Capitalism over a relatively short time frame, corrects itself.
The weak fall by the wayside. The next wave of prosperity starts. The cycles repeat again.
Sunset Laws
It seem to me, that governments are so inefficient, that every law, aside from basic rights and freedoms, should automatically, under the constitution, have a sunset provision. It seems the only way to protect us against the “do-gooders”.
Limits Mandated on all Levels of Government Spending
This is a call to prevent well meaning politicians from hurting society with all of their good intentions, and from following the unproven theories of this or that economist.
Let’s put a simple rule in place. You cannot spend more money than you raise from taxes. A simple rule. A rule that would allow Capitalism to grow exponentially and minimize well intentioned politicians from hurting us – all in the name of good intentions.
A Brief Analysis of US Debt
I concentrate on US debt because the US is the world’s largest debtor and has the world’s largest economy.
US government expenditures are now over 24% of GNP. The last time US expenditures were over 24% of GDP was in the two WW II years 1942 and 1946. The ratio was even higher between 1943 and 1945, averaging a bit over 42% when the war effort was at its peak. The war was funded mainly through deficit spending because revenues as a percent of GDP never exceeded 21%. After the war emergency, expenses were promptly reduced to a range of between 17% and 18% of GDP, where they stayed until recent years.
Compare this to the European Union, which is experiencing its own fiscal crisis? For the 27 countries in the European Union, government expenditures have averaged slightly over 50 % of GDP, or nearly double that for the US. The evidence seems clear that governments, which produce nothing, can’t consume a huge proportion of a nation’s GDP before the fiscal burdens become too great to bear.
What to Do?
The first step should be for the nation to decide how large government should be and to put in place procedures to ensure that expenditures don’t exceed revenues. This should be an amendment to the Constitution, and is essential to future well being. The only exceptions should events of war or threats to the nation.
Revenue should be allocated to spending on items of national interest – wars, people’s health and education. All other matters should not be a federal government initiative.
Spending would then grow on pace with GDP as the economy prospered. As GDP increases, so can government spending. During periods when revenues exceed expenditures, government should pay down the debt rather than increase it. Over the longer run, this should reduce outstanding debt, especially as a percentage of GDP.
Emergencies, as we saw from WWII, do occasionally require that unusual expenditures be made. This is why a congressional spending and revenue limit should be imposed that also permits an override of the budget limits with a super majority vote by both the House and Senate upon recommendation by the President.
Getting to this state of affairs could not be done immediately as the shock to society would be too great. Perhaps a restraining program over a 10 year period would be appropriate.
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