America's Missed Opportunity

Most Americans have come to accept the simple truth that we have eroded our national wealth by consuming far more than we produce. With this understanding taking hold, and with the severity of the financial crisis spreading, government has an opportunity to radically change course to put the nation on a different economic path. But rather than making a meaningful turn, all our politicians are willing to do is put their foot on the accelerator.

We have been told repeatedly by our leaders that consumer spending is the life force of our economy. With our industrial base all but gone, personal consumption now accounts for 72 percent of GDP. As a result, politicians simply won't allow American consumers to consider a belated bout of economic prudence.

The collapse of the real estate casino embarrassed Government and angered Americans greatly. But the crisis does create a significant political base upon which our Government could engineer a real cure for America's economic and financial ills. It is a great opportunity. So far, it has been ignored.

On the grounds that it was in America's vital interests to unfreeze the credit markets, the administration terrified Congress into authorizing a total of some $1 trillion to 'fix' or restore the system--the old flawed system! Without waiting to see if their plan has even a chance of success, the parade of self congratulations has already begun.

Together with other major G-7 nations, the U.S. Federal Reserve has led the charge to underwrite, or nationalize, the banks, with taxpayer funds. So far, the total amounts to some $3.5 trillion. Doubtless there will be much more to come.

So, the banks have been rescued, for a time at least. But what of the American economy: has that been rescued as well? The answer is a resounding 'No'!

While trillions of dollars are being spent on keeping the current, deeply flawed, banking system functioning (and their profligate executives well compensated), nothing is being done or even discussed, that will restore a sustainable balance to the American economy. Their only solutions have been economic stimulus packages that look to prop up spending with hundreds of billions of printing press dollars. Economists concede that eventually Americans will need to cut back, spend less, and save more. However, they argue that such measures are best delayed until we have printed our way back to economic health. It sounds absurd, because it is.

Americans inherently realize what is wrong, and they would likely support tougher measures to put America back on track. They want corrective action and are looking for real change. But our leaders are terrified, particularly of the truth. While they criticize business leaders for opaque accounting, Congress and the Administration lead the way in smoke and mirrors. The suspicion that the government does not tell the truth about the economy has become widely accepted.

For instance, most observers acknowledge that the public debt of the U.S. Treasury has risen from $5.2 trillion to a staggering $10 trillion in the past year. This is some 71 percent of our annual domestic production. But this is only part of the story. The national balance sheet is more notable for what it does not mention. The total U.S. Treasury debt, including private IOU's to Medicare and Social Security, is a nightmarish $50 trillion, or some 3.6 times our national earnings as measured by GDP!

Another area of potential 'eyewash' is the growing realization that many government statistics are 'cooked'. For instance, when household bills were rising at a rate of some 20 percent in early 2008, the government was reporting an official inflation rate of some 3 percent?

To restore our economy to a healthy balance will require a massive political initiative. But a skilled leader with the truth in his pocket and the political wind at his back has a chance, perhaps, of pushing through the severe and painful reforms needed. Short of this, the rake's progress will continue, with the U.S. dollar pursuing its long-term decline.

Comments

[Smarty_Pants:]

The typical hard working American will pursue the proper course regardless of what drivel the financial system's economic propagandists spout. They will cut discretionary spending and increase savings to the best of their ability. This is a good thing. It will put the economy into recession and wring out the malinvestments of the past by concentrating spending in areas which are necessities instead of luxuries.

The flies in the ointment, as is usually the case, are those parties who refuse to face reality and continue to live beyond their means until calamity strikes. At that point they run to the gub'mint demanding assistance for their plight (think Wall Street bankers for one group) and naturally the gub'mint gives it to them.

The gub'mint's actions only serve to encourage the continuation and increase of wasteful spending at a time when there is no money available to waste. So the merry-go-round continues on and the gub'mint keeps borrowing more and more to bail out the grasshoppers who refuse to take responsibility for their own well being, and the problem gets worse by the day.

Eventually the merry-go-round will stop and it won't be pretty. Unfortunately it will be the hard working savers who will wind up suffering for things that the spenders caused with gub'mint assistance.

PS. In the 1930s personal consumption represented over 90% of the economy. The bad news isn't that it's now 72%. The bad news is that the government now represents 28% instead of less than 10%. The government is taking an extra 18% of income from the populace (or borrowing it) and spending it wastefully.

2008 Oct 23 09:38 AM

[moonbat1775:]

Perhaps the only way to cure the bankers of their propensity to cause booms and the resulting busts is to deny them the collateral that would fall due to them in a bust. Let everyone cease paying his mortgage or pay it back with "thin-air" since that is where their loan came from. There is legal precedent for this apparently at the state level (too lazy to look it up).

Disclosure: No outstanding loans (except to family)

2008 Oct 23 09:49 AM

[look closer:]

"Let everyone cease paying his mortgage......." Moonbat1775, there is nothing better the American public would love to do at this point in order to STICK it to these idiot bankers and govt fools. However, we need to live without any more nightmares than we have already. A better suggestion would be to be selective in WHAT we pay. Pay basic necessities and let the remaining go for now ---- delinquent. This is the best time to do it, this would be the encouragement the new Obama administration as well as the Congress, will need to modify real change in the system and incorporate those changes suggested by Mr. Browne. Mr. Browne, you are right a majority of the American people see the big picture, and would support the overhaul of the economic system. But will it be done??
GO delinquent !!! Keep the money you would have paid available --- as you need to eventually pay later.

2008 Oct 23 12:17 PM

[Fabien Hug:]

I'am afraid that Social Security and Medicare IOUs are not accounted for because they know they'll never pay.

2008 Oct 23 12:50 PM

[bbowen7:]

It is comfortable to blame bankers and the government - they deserve it. But the problem is us. SUVs, McMansions, and home equity loans. In San Francisco on the November ballot we will have state and local initiatives to approve tens of billions of increased spending for transportation, hospitals, and a take-over of SF utilities by the board of Supervisors. The state is broke and in a recession. Most will pass.

2008 Oct 23 12:57 PM

[fran:]

as indicated by the preceding comments--the public doesn't and won't--understand,try to understand, take action.

a wise, worldly, sophisticated investor[ Jim Rogers] understands. he picked up his chips, went to a fresh game in a new town with potential which we have frittered away through our negligence, naivete, and over consumptive lifestyle. the other players "want in" more than we do.

sign me: GERRY MANDER

2008 Oct 23 06:38 PM

[Learn from ...:]

"GO delinquent", what a great suggestion! There can't be a better way of teaching a financially clueless nation the lesson about living within the means.

Bravo "look closer", I applaud your immense wisdom.

2008 Oct 23 08:52 PM

[aardvark:]

For years Americans have been inclined to worship a cowboy mentality that puts livable values far behind flash and zoom and false bravado. So we have expensive tastes...gourmet you might say... in giant stadiums, exotic cable tv, mini-Ferraris, last ditch medicine, witless politicians, and brutal wars more for teenage macho than national security. Maybe we ought to take a lesson from our enemies and learn less is often more.

2008 Oct 23 11:12 PM