What will stop our economy from recovering. by Steve Hutchinson
(conservative)
Monday, March 15, 2010
What a difference a year makes,or does it? A year ago our financial institutions, government and policy regulators faced one of the gravest situations our country has ever dealt with. And before we knew it, Bear Stearns and Lehman Brothers evaporated in a mist of government intervention in the name of economic stability. The investment banking industry disappeared almost overnight and firms with storied names and reputations such as Merrill Lynch and Wachovia were absorbed into larger entities in a rash of orchestrated consolidations and government policy making.
We saw our financial markets drop precipitously as investors clamored for the safety of cash. Uncertainty and fear reigned. Interest rates dropped overnight as the Federal Reserve intervened into the money supply as never seen before. And this was just during the month of October.
What lies ahead? Can our economy rebuild? Can our government deliver on promises of economic security? Will the small businesses of America restore their self confidence and seize the opportunities created by this chaos to grow and expand their businesses? These are good questions .
I am not certain about economic recovery, but I am certain about four precepts that could potentially delay or place our potential for economic prosperity at risk. They are not political in nature, but grounded in solid economics and study.
1. Increasing government control or regulation.
2. Limiting or restricting free-trade
3. Inflationary money supply
4. Raising personal and business taxes.
Each of these independently can be managed, but the implications of all four of these policies manifesting themselves could have significant implications for the resumption of the long term growth of our economy.
Today the government controls two-thirds of our auto industry. The government's interests in our banking, insurance and investment businesses concerns many Americans. We have seen the Federal Reserve increase the money supply to historic proportions. The impact of unwinding these activities stokes realistic fears of inflation. Tax policy is at the centerpiece of the government's economic policy. Their focus seems to be taking a larger share of our incomes and redistributing this revenue through more government programs. Many of the the hindrances to reestablishing our prosperity are already in place.
As quickly as one can possibly imagine we have saddled our children and grandchildren with a debt thay can't possibly repay. As of this date 100% of all tax revenues are used to pay for entitlement programs. The continuing role of confiscatory taxes will be the norm for the future.
We should watch carefully as policy changes manifest themselves and remember that more often than not, uncertainty for the masses can generate opportunities for some if we maintain perspective in our judgments and keep our focus fearless. We have a great country and a great people. Founded in hard work and the love of freedom. But through this we should seek wisdom.
"A person who does not seek wisdom, will soon find himself at a banquet ofconsequences" Author Unknown
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Posted By: Jahfre Fire Eater
Date: 2010-03-15 19:57:51
Hi Steve,
 I don't consider recovery to include returning to an unsustainable model of perpetual growth.
As long as GDP is measured in inflated dollars it is a meaningless number anyway.
If the markets were free to operate without manipulation from governments we could count on efficiency and productivity increases to constantly reduce the price of goods. We could eventually return to a time when an average family could be supported on the modest income of just one adult worker. This is impossible under the perpertual growth fallacy.
The bailout of the banks engendered by the federal government has devasted the finances of State and Municipal governments countrywide, and the crisis that will emerge has yet to be played out. For the better part of the past decade, employment losses in private sector have been offset by growing the government workforce at all levels. Now with 10% unemployment at the national level, and few prospects emerging for employment opportunity in the private sector, the local government sector is about to do what for them has been unthinkable over the past generation, they are about to send government workers packing.Â
In recent times, state and local government could project future revenue growth based upon a percentage take in property and sales taxes from expanding consumerism, and payroll taxes from growing employment rolls and compensation. For the first time in the lives of most living Americans, revenues from these structural bases are in sharp decline, and show no means to improve for at least a dozen or more years. That said, the unemployment rolls are about to grow, and the means to assist those with few or no prospects, are rapidly dissipating.
Having pulled off the heist of the century, if not the millenium, the banks that have acquired money created by the federal government at favorable rates, are using that money to lend back to that government at substantial profit (repairing their balance sheets), so that the market for federal debt remains viable. State and local governments have not been offered the same deal, thus the crisis that will ensue. The banks, of course, refuse to lend to other than the federal government who will insure that repayment is made by all means possible.
Our seeming recovery is nothing but another peak in a trend line down, for economic measures are mostly laden with peaks and valleys. The social effects of the current course are not yet evolved, but what are the prospects for an environment where more than 20% its able workforce cannot find a living wage?
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