Ken Connor
Going out of business?
By Ken Connor
June 4, 2010

In September 2008, as our President announced that he was abandoning the free market in order to save it and Congress was scrambling to pass the Emergency Economic Stabilization Act, Peter Schiff — President of Euro-Pacific Capital — had this to say about the notion of a government bailout of the U.S. banking industry:

"In response to the most irresponsible monetary policy in U.S. history, American citizens borrowed and spent trillions of dollars, and now the institutions that loaned them the money are going broke because we can't pay it back. And this bailout isn't going to change the fact that we're broke. As a society we need to go back: away from borrowing and spending and towards producing and saving again. And the government's trying to interfere with the free market, and if they succeed with this bailout, what they're going to do is bring on a crisis far greater than the one they are trying to avoid."

Nearly two years later, the truth of Mr. Schiff's prediction could not be any clearer. We long ago lost sight of the fundamentals of responsible economics and have become a "borrow and spend" society. Multiple bailouts combined with out-of-control spending have led to a quadrupling of the U.S. budget deficit and a national debt of $13 trillion and rising. According to the Heritage Foundation's 2010 Federal Spending By the Numbers report, "spending and deficits continu[e] to grow at a pace not seen since World War II. Washington will spend $30,543 per household in 2010 — $5,000 per household more than just two years ago."

As ludicrous as it seems, our government's response to an economic crisis fueled largely by reckless borrowing and spending has been to... borrow and spend more. The decision-makers at the top have embraced the fallacious notion that a nation can spend its way to prosperity using borrowed money. This is a fallacy that many American families lived by for a better part of the last decade, riding high on the inflated lifestyle supported by easy credit. But, the bubble burst and it all came crashing down. Now with credit hard to come by, home foreclosures a common occurrence, and unemployment at record highs, many families that used to swear by "borrow and spend" have become reluctant disciples of "save and produce." The question remains, however, whether our government and representatives will ever get the message.

In order to dig ourselves out of the economic hole we've created, one of two things must occur: We must reduce spending or increase revenue. According to the Heritage Foundation, the government would merely need to reduce annual spending to the level that prevailed through the 1980s and 1990s (about $21,000 per household) in order to balance the budget by 2012. The President's existing budget, however, is evidence enough that restoring fiscal discipline is not high on his list of priorities. After all, the American people do love their entitlements, and squawk as we may about "cutting spending," what we really mean by that is "cut the other guy's program, but keep your hands of my [insert entitlement/social welfare/education program here]."

The alternative, then, is to raise taxes. However, the problem with raising taxes, as any Economics 101 student can tell you, is that increasing taxes has a chilling effect on productivity. Businesses can't thrive under onerous tax burdens, and the effects of this — dare I say it — "trickle down" to everyone else. When businesses can't produce, employees and their families can't get ahead. Saving and investing decline, and reliance on credit (or government) increases. Tax cuts, on the other hand, free up money to circulate at all levels of the economy, which actually boosts productivity and, eventually, leads to increased revenues for Uncle Sam. It's unfortunate that the issue of taxes have become such a tool for class warfare and partisanship when the truth is that adequate government revenues and low taxes need not be mutually exclusive.

As the economic viability of the European Union teeters on the brink of collapse, Americans are getting a close up look at what happens when "borrow and spend" becomes the national M.O.; yet instead of learning from the mistakes of others and changing our course, we seem more determined than ever to plunge headlong into deeper debt, spending our way into oblivion in order to "stimulate" the economy and "spread the wealth around."

America is approaching a financial breaking point. Government continues to balloon in size, taxes are poised to increase in any one of a dozen ways, and the companies responsible for a lion's share of the economic collapse are doing business as usual, having been rescued from collapse by the benevolence of Uncle Sam, at enormous cost to the taxpayers.

The American people and their government must change their way of doing business. If we don't, we will soon be out of business.

© Ken Connor


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