Debt Bondage and the New America

As of today, January 29, 2009, the national debt of the United States is over $10.5 trillion and growing. Social Security and Medicare have a currently estimated unfunded liability of nearly $60 trillion. In just one month in 2008 – between September and October – the national debt increased by nearly a trillion dollars.

The lesson to be learned will not be realized in time to stop another massive spending initiative by the federal government. The second half of the Troubled Asset Relief Program (TARP) has already been approved by Congress, even though the first half had a negligible effect on our financial markets and was spent in what can be considered questionable ways. The new administration is ready to spend an additional $825 billion in borrowed money with more unknown bailout plans sure to come in the near future.

History shows us that when an economy is struggling as badly as it is today, greatly increasing government debt does little to turn it around. The notion that increased debt will solve most problems in the market is not only wrong, but it is especially wrong when it was colossal and mismanaged debt that created the problem in the first place. Anyone with the capacity to think will understand that if your finances are in trouble because you’ve spent money you don’t have and cannot repay, then spending more money you don’t have and can’t repay will not solve the problem – it will make it worse.

The Great Depression was a result of substantial debt in the banking system. Creditors in the 1920’s did what today’s creditors have recently done – they gave out too many loans without enough investments. Today’s creditors also gave loans to the wrong people – those who were high risk and were likely to default. One wrong trigger-pull in the market could consequently derail the entire economy for an indefinite amount of time, and in turn, cause a cycle of deflation, money-hoarding, and an extreme lack of consumer confidence. This is what is happening today and expanding the debt of the federal government will not stop the cycle. It has to be resolved by market forces, i.e. consumer demand/confidence and market supply/stability.

More fundamental to analyzing our economic problems is asking why the government interferes in this process and what the effects are. When a company fails because of poor management, inferior products, or loss of assets, it should not be the role of government to step in and prevent them from going under. And it certainly should not be done at the expense of the taxpayers. It is not the responsibility of every tax-paying American to guarantee that any business remain open which would otherwise fail. That is not capitalism and it won’t work. Those policies breed irresponsibility and encourage fraud in those institutions or businesses that are described as “too big” or “too important” to fail.

Think about it for a moment. Our federal government is taking money from those who are producing successfully and giving it away to those who are not. We are allowing our government to punish the very people and businesses that will help the economy rebound and give that money to the people who put us in this current financial position. And it was the federal government that actually helped them derail our economy with their failed policies and corrupt dealings.

What’s the government’s reasoning behind supporting these failing businesses? Apparently, they believe these companies deserve the imaginary right to continue to squander the money of their investors.

There is no right to own or operate a successful business in this country. Every entrepreneur knows the risks involved in starting a company and what is needed to operate and maintain it. Confiscated tax dollars do not and should not factor into their equations. It is a fiction of our federal government that it is their job to determine which businesses are best for the American economy and which ones deserve to be saved during slow economic times. Even worse, it is reckless for the government to spend money they don’t have in order to support those businesses. And worse still, it is irresponsible to do so when the economy is already mired in both private and public debt.

What we will get as a result from our federal government’s intervention is little more than new spending programs and regulations that will inevitably lead to future financial distress from an ever-increasing national debt and policies that discourage free-market competition and investment. The proposed $800 billion-plus will not save our economy – in fact, it will most likely do the exact opposite. Spending our way out of debt is not a solution any reasonable statesman should agree to. It is not how debt-consolidating services reduce the debts of their clients and it is not how our federal government will reduce the overwhelming debt of the American economy.

How will we pay for all of these bailouts and “stimulus” packages? Simple – the federal government will continue to print more money. As the mints press on, your money will become increasingly worthless. Our debt under this administration and Congress will increase immensely. As it does, we will print even more money – as we have been doing excessively over the last several months. Sooner or later, these vast amounts of newly-printed money will cripple our economy with hyperinflation. When that happens, our capitalist economy and our way of life as we once knew it is finished.

Our governments at all levels are panicked. They are not economists and they are not an assembly of successful businessmen. They rarely make informed economic decisions and they will not make better decisions when under pressure.

If we want to correct the economy we only need to accomplish some very fundamental tasks:

1.  Reduce government spending. Don’t spend money we don’t have and don’t do it every single fiscal year to the tune of billions – or trillions – of dollars of deficits.

2.  Decrease regulations and repeal legislation and policies that are anti-competitive.

3.  Reduce taxes on everyone, including corporate taxes and particularly capital gains. (My personal preference would be to implement the FairTax to achieve this end.) This needs to coincide with reduced spending.

4.  Remove any trade barriers that unjustly penalize American businesses for selling their products outside of our borders. The purpose of the federal government is to “promote the general welfare” of the United States, not stifle it through inherently unfair trade policies and treaties.

5.  Reform all entitlement programs and do not create any new ones. Entitlement spending will bankrupt this country, yet the goal of the current administration is to create additional entitlements through programs such as “universal healthcare.” With about $60 trillion in unfunded liabilities as it is, healthcare entitlements will surely destroy any chance of recovery and will guarantee the failure of the American economic system.

These actions could put us on the right track. Unfortunately, nobody in Washington D.C. is going to consider any of it in the near future. Their goal is not to reduce their power and influence over the People – it is to increase it in any way possible. Because of that, the federal government may soon be holding each American citizen in bondage to repay the debts Congress has accumulated. We could essentially become the 21st century’s version of indentured servants. 

This will be the legacy of our domineering but inept government. However, they are only half of the problem. The voters who elected these politicians to office, and the people who are too irresponsible to control their own finances and live within their means, are the other half of the equation. We cannot place all of the blame on our government. Without our votes, they don’t get into office. Without our irresponsible consumption, lenders would not have so many loans in default. We are selling ourselves and future generations to foreign investors and governments, but we don’t seem to care.

Something will have to give in the next few years. Either we will be able to stave off hyperinflation with an induced recession and thereby avoid complete economic collapse (but still retain our massive debt for another day), or we will accumulate so much debt and print so much money that we will pass well beyond the threshold of fiscal stability and eventually succumb to a socialist economy.

The good thing is – we can do something about it. We can demand responsibility and efficiency from our government and if our representatives don’t comply, we can vote them out of office. We can elect people who are leaders and visionaries that have a considerable amount of fiscal sense. But we need to start doing this now, or else we will soon be living in the new America where the only voting that takes place is among an unelected Congress – and their purposes only involve setting new labor demands on those in bondage to them.