6/12/2012

Forward on Headwinds



The newest Obama Administration excuse for America's anemic economic recovery is that the European debt crisis is impeding our own recovery. It can be debated whether the United States economy ever truly did begin a real recovery or whether what little economic surge we have seen in the past couple of years is just the "sugar rush" of big government Sugar Daddy Obama's nearly trillion dollar "stimulus".

A stimulus is supposed to work on the same theory that a mechanic uses ether sprayed into the carburetor in order to start a cold engine. A shot in the carburetor of ether starts the engine running long enough for the engine to overcome its sluggishness and begins to run on its own. However if the vehicle has no fuel to begin with this "trick" not only will not work, it can be detrimental. 

The whole idea of government "stimulus" to spur economic growth is a failed theory to begin with. It is ultimately based on the proposition that money really has no value and if carried to its extreme conclusion it achieves just that end.

Let's look at it this way, in order for government to stimulate the economy with an infusion of money, regardless of where it is spent, then the government must first get the money from somewhere. There are really only three ways for the government to obtain money;

1. They can impose taxes on the public.

2. They can borrow money.

3. They can simply print money.
If government taxes the public then how are they stimulating growth? Since the purpose of stimulus is to spend money how can taking money from the public and returning it to the public be doing any more than shuffling cards (currency). If Obama had actually taxed the money necessary to pay for his 800 billion stimulus it would take $2,605 ($217/month for 12 months) from every living man woman and child in the nation, to pay for it. How could taking this much money from all citizens spur economic economic growth? You are not infusing the economy but rather depriving it of its fuel.  Right there the scam of stimulus is exposed for what it is, but politicians over the past few decades have used the slight of hand to hide the obvious in the future.

If government borrows the money then they do not have to immediately raise taxes in order to pay for stimulus. This just shifts the above scenario (taxing now) into the future, with the added cost of interest on the loan. This "kicking the can..." method is the most popular gambit since it gives the allusion of getting something for nothing and this is why stimulus funded in this way will indeed give a "sugar rush" of economic growth. Money is flowing into the economy that has not yet been taken out of the economy. Well sort of,  the money loaned to the government is no longer available for private investment, The government in essence now becomes an entrepreneur, the "engine" of the economy using other peoples money in an attempt to spur economic growth. But government is not a business, it neither has the same experience or risk versus reward motivations to invest and spend wisely. It is all just an allusion because in truth the money has been taken out of the economy and spent less efficiently than it otherwise would be by politicians and bureaucrats.  As time goes on this money "given out" by borrowing must be paid back (with interest) so the government must either take it from somewhere else in its budget or raise revenues- taxes. Since government rarely decreases or restrains itself and everyone knows it, everyone knows taxes are on the way which further hinders economic growth.

If government simply prints more money which the Federal Reserve has been doing under the Orwellian label of Quantitative Easing then the currency is devalued and inflation is on the way. In spite the fact that the Federal Government has played games with their definition of what inflation is, anyone with common sense knows that if you flood the economy with money the money becomes less valuable and therefore whatever is purchased with devalued currency costs more.  This is why inflation is known as the "hidden tax", governments do not have to actually raise taxes legislatively, the printing of money accomplishes the same goal, it wipes out debt by passing on the cost to the citizens, it now takes $1.35 to purchase what that same dollar purchased in 2000. In addition  the government pays back creditors with a less valuable currency than that which they were loaned.  For all the talk of China's currency manipulation, nobody does it more than our own Federal Reserve. This is also the main reason that the price of gas inexplicably is so high while the global economy is so slow. Since oil is traded in US dollars, the less valuable the dollar the more expensive oil and most everything else. Those who say it doesn't matter we only owe it to ourselves are not only factually wrong, they are fools.  We are trading the joy of instant gratification for inevitable long term suffering, a one night stand at the expense of contracting the HIV virus.

Though the above scenario is about stimulus spending the same holds true for all government spending. Regardless of what the money is spent on, other than certain fees and royalties which are ultimately passed onto the public anyway, the federal government only has the three above ways of generating "revenues" , taxing it, borrowing it  (future taxes) or printing it (future higher prices). There are no magic beans and the only golden goose is private sector growth  upon which government is a parasite.  It can not be emphasized enough that all revenues to the Federal government comes directly or indirectly either immediately or in the future from the public, from citizens.  Governments do not create wealth, they seize it.

Which brings us back to Obama's newest excuse, the so called headwinds created by Europe's sovereign debt crisis.  The operative word here is debt.

Politicians and many pundits attempt to distract attention from this simple truth that government debt is the problem. They do this by focusing on the catalyst to the crisis rather than the cause. Yes there were financial institution problems, even abuses which precipitated a financial crisis. Yes there was a severe recession caused by a real estate bubble bursting both here and in other nations around the world. But as the description of  these so called "headwinds" indicates, it is sovereign debt which is the underlying cause. Governments cannot pay their bills. They have made promises they can not keep and the current slow down in the economy only exposed more quickly the underlying problem-debt.

Because of their debt crisis Europe is sinking into another recession, the slow down of their economies will obviously affect the United States economy since they are one of our largest trading partners and our economies are intricately tied together. Their recession almost certainly will throw us into one.

Of course the hypocrisy in all of this is that Obama is blaming Europe's problems for ours while he has and continues to peruse an agenda which will lead the United States to the same conclusion that Europe now finds itself in. The same debt which European nations are unable to cope with which is making a mockery of their government promises causing institutional and societal turmoil, Obama is promoting as the cure to what ails us.

Obama's prescription is the disease itself.

The same reckless unsustainable government economic policies that Europe has lived under for generations and which Democratic politicians for a generation have with much success imposed on the US  are now finally coming home to roost. Obama and his progressive ilk are now using that which they promote as an excuse for why they can not succeed.

Obama is sailing the same headwinds he blames for our own slowdown.

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