Monday, August 01, 2011

Spending Discipline

When normal families find themselves overextended. They start to cut expenses. When a business is losing money, they cut expenses in an effort to put the company back on a stable financial footing. When a Government spends more than they have, just give yourself a new credit card.

We the people are now on the hook for $16 trillion. Say it with me. Sixteen Trillion dollars.

An additional Trillion, that would be in addition to the Two Trillion they are getting and spending from taxes, wasn't enough to get the Government through the end of the year according to President Obama. A Thousand Thousand Million wasn't enough to get past December.

That is the little fact that is lost in the discussions with the public. That they are spending MORE than they are bringing in is well known. HOW much they are getting in is never discussed.

So what are our options now? The economy isn't improving despite the claims of Debbie Wasserman-Schultz. What more can the Government spend to turn it around? That's the problem. Washington is operating on a what is known as a Keynes theory. This theory dates back to 1936. Think about that for a moment. Name another theory on any subject that has survived since 1936. Naval Warfare, in 1936 Naval Theory was that the Battleship would rule the day forever. That theory was dominant until 1941. Land Warfare. The lessons of World War One dictated that the Defensive was preferred. That reinforced structures would be able to defend indefinitely and only the fool went on the offensive. The fact was that Maneuver was again coming dominant in warfare.

In psychiatry, the Doctors were sill regularly using electro shock therapy. It turns out if you fry a patients brain, they no longer have psychotic episodes. Cigarettes were considered healthy. Minorities were considered inferior. I could go on for quite a while about all the things we believed we knew to be absolutely true based upon theories. Things that have been subsequently demonstrated to absolutely untrue time and time again.

Yet, no one dares to question the wisdom of the Keynes theory because that is absolutely true. Despite the fact that it doesn't seem to be working, and hasn't for some time. Like a cult of idol worshipers though, the economic experts declare we are simply not faithful enough to this god Keynes. Or we simply didn't understand the whole Keynes.

Under Keynes theories Governments are supposed to spend money we don't have, in order to save capitalism. Yet the application of this theory has caused the Government to literally overspend the entire Gross National Product. We now owe more money that the entire nation produced in all goods and services for 2010. That means that even if every single dollar was taxed at 100% by the Federal Government, we could not pay our debts within a single year.

That doesn't include a single dollar for anything else but our debts.

But the theory isn't working. By Keynes theories, after spending trillions of dollars we don't have, unemployment should be essentially zero. It isn't, because Government's that hire all the people are not capitalist, but socialist. Those economies, called top down economies, don't work. We've seen the collapse of how many of them? The Soviet Union is the most famous example.

So the economy is stalling, and people are now expecting it to fail. They are girding themselves for another Great Depression, pulling money out of the market, and putting it into insured savings accounts. Banks are getting nervous about that, and have started charging fees to keep the money. Why would they get nervous? Because they're expected to pay interest, and they can't get any money to pay the interest much less the insurance premiums.

At what point do people start taking the money from the bank, and burying it in the back yard, or stuffing it under the mattress?

Government is blamed because Government sets themselves up as the solution to all problems. That they aren't the solution has been demonstrated time and time again, but we keep turning to them for solutions and they keep coming up with more of the same failed policies. This recession as it slips into Depression should be the death of Keynes theories once and for all. Yet far too many will continue to worship at the alter of Keynes, because it's easier to do that than enforce spending discipline on our elected leaders. We don't want to be prioritized out of whatever Federal Program that we depend on individually. Be it a job, a field, a payment, medicare, or the list goes on and on.

As the economy collapses, and the Government goes bankrupt, some economist somewhere will be shouting at us on the news that we didn't go far enough with the Keynes theories. Or we were not faithful enough to his brilliance. We were simply unfaithful in the eyes of the Keynes god.

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