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Nothing lasts forever – so too, U.S. economic growth

March 3, 2008

For the past few years I’ve read articles about the unsustainable growth of the U.S. economy. At the time the first of these articles caught my attention, many “experts” were quick to dismiss any thought that the U.S. economy might be anything other than the most robust, stable economy in the history of the world. The dollar was, after all, the de facto world’s currency; used to transact all manner of goods and services. We were continually assured that our economy could always grow its way out of any bubble. As long as the world used dollars to buy and sell, nothing could stop the continuous growth of the U.S. economy.

Fast forward to today. The dollar is no longer the currency of choice in some markets; oil, for example. The average American’s standard of living is, for the first time in over 100 years, less than that of the average resident of England. It takes $1.50 to equal one euro. The Canadian dollar has for the first time in 30 years achieved parity with the U.S. dollar.

The government has told us that inflation (the normally gradual debasement of our currency) was roughly 3.5% last year. That seems to be the running theme for the past few years. I don’t know what consumer prices they sample to come up with that number. Nobody likes to think their government intentionally distorts the truth, but here are just three of many glaring inconsistencies in their statistics:

  • In the 3 year period from 2003 – 2006, homes “appreciated” in value by over 100%.
  • In the 3 year period from 2003 – 2006, gasoline increased from under $2.00 per gallon to well over $3.00 per gallon.
  • In the past 12 months, gold purchased in U.S. dollars has doubled in cost.

People, some with multiple jobs, are struggling to maintain a decent standard of living. Many resort to using credit to remain afloat from month to month. Yet it is the misuse of credit that has caused the majority of the economic peril we now face.

To illustrate my point, it might be expected that I immediately jump to sub-prime mortgage lending. However, it’s more important to start with the single largest borrower in recorded history: the U.S. government.

Many of my previous missives have contained references to the burgeoning debt accumulated by our federal government. The debt is primarily due to lawmakers promising to do things (think prescription drugs, Medicare, Medicaid and the current “stimulus package”) without concern for the Constitutional authority to do so, or the manner in which the promises will be funded. Congress has for years obligated dollars, far in excess of those available in the Treasury, to pay for goodies to show their constituents that they are being cared for by their governmental benefactors. The fact that those goodies are paid for by every American taxpayer is of little consequence as long as we get our share of “free” government handouts.

There’s another side to government spending that can’t be overlooked. That is the direct support of the nearly all-powerful military industrial complex. In his farewell address to the nation, on January 17th, 1960, President Dwight D. Eisenhower warned us against the rise in power of the military industrial complex. His warning has gone unheeded. Defense suppliers hire many employees in almost every congressional district. Defense spending is good for the economy, we’re told. Yet, we are now faced with the very real prospect of contrived conflicts with the sole purpose of ensuring the coffers of our military equipment suppliers are overflowing; again at taxpayer expense.

It begins when a senior decision maker in the Pentagon is approached by a former comrade at arms, now employed by a defense contractor. The Pentagon official is shown how a new system or an upgrade to an existing system could be beneficial. Beneficial not only to the nation’s defense, but to the retirement plans of the Pentagon official. That aspect is never directly addressed; to do so would violate ethics laws. And thus the march toward the procurement process is begun. One such procurement effort is detailed here and here.

The U.S. government’s example of fiscal irresponsibility is also mirrored in many state legislatures around the country. From there, it finds its way to counties and finally to cities. Each of these governmental entities offers a wide variety of social programs, incentives to attract business and general wasteful spending. One of the cities in my local area has a population of fewer than 200,000 people and a debt of $500 million. Nice work!

By now everyone is well aware of the problems caused by the sub-prime mortgage malaise. The effects on business are easily calculated. Since late 2006, the number of mortgage lenders in the U.S. that are now defunct stands at 232. The huge write downs by a multitude of mortgage lenders and the foreign bailout of Citibank tell of the depth of the impact on the financial sector.

The cost in human terms is not quite as easy to assess. Some people I’ve talked with are fine with the thought of hapless consumers caught in the web of easy credit getting their just deserts. Perhaps a fair assessment, but were it not for the greed of mortgage lenders, spurred by the “relaxed” credit offered by the Federal Reserve, those human beings would never have qualified for a sub-prime loan and therefore not now be subjected to foreclosure and eviction.

The average household has consumer debt of between $10 thousand and $50 thousand. There are those who earn less than $40 thousand per year and struggle to live from payday to payday — but they can’t live without a 50” flat panel HDTV. Instead of saving up the money for their purchase, they make installment payments over a 3 year period. Imagine, a form of indenture for the purpose of watching sports in high definition. And why not?

Our government speaks out of both sides of the mouth on wealth building. They tell us to save, but then tax the interest on the savings as income. The government has removed all incentive to save. Little wonder we’re a nation of debtors.

The fiscal irresponsibility exhibited at the personal, community, state and federal levels is unparalleled in human history. In a very real sense, we the people are financial slaves, doing no more than servicing debt. Those who own that debt own us, and our government, as well.

The question is do we wait until we can no longer service the debt to take action, or do we take action now to limit the destructive effects that will surely come with the all-but-certain financial meltdown?

I wish I had all the answers. The simple fact is that I do not. I know with certainty that I will no longer accumulate debt. I will do my best to help candidates at all levels of government who will uphold the Constitution and foreswear fiscal irresponsibility.

Until next time

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