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Joe Barbieri has Bachelors' degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 13 years, with over 10 years on the institutional side of the business. He has covered positions from Fund Accounting to Investment... More
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  • What Is Behind The Threat Of A U.S. Government Shutdown? 0 comments
    Mar 8, 2013 7:17 AM

    There has been news of the possibility of the shutting down of the U.S. government. This is not the first time that this idea has been made public. Is anyone concerned? It seems that a government shutdown has become a political game of chicken, and people are using this idea to try to get budgetary compromises. Why is the notion of a government shutdown occurring repeatedly? It seems that the problem is not really being solved, but being delayed by some measure or another. The crux of the problem is that the United States has too much public sector debt. The idea of a recovery that will overcome the debt through accumulation of higher tax revenue can work in the short term. In the long term, the compounding of the debt interest makes the debt amount infinite, which makes infinite taxation impossible.

    This is analogous to the recycling issue in the 1960's or the 1970's. Back then, the prevailing attitude is that the world's resources are limitless, and wasting time and money to recycle "garbage" was either not worth it, or viewed as some tax on disposal that was a kind of cash grab. The environmentalists and other groups warned that the earth's resources are finite, and shortages would occur. Now in the year 2013, recycling is not only accepted, but profitable and necessary. There are shortages of almost every raw material - the same ones that were viewed as unlimited 50 years ago. Looking at money, the same pattern is emerging and the same issues are coming up. Why? Money is based on what is created, and although the ideas of invention are infinite, the economy in its present form is limited by the resources and amount of work that can be done. It is really the same issue with a different set of parameters to measure it with. Taxes are finite, as is GDP growth. Economies can either be constant or growing. If they grow, there must be periods of contraction to allow a rebalancing to occur.

    What about the government shutdown? This news will persist as long as growth and debt accumulation is expected to occur infinitely. Even if you tax the air someone breathes, all of the money someone inherits, all of the corporate profits or every transaction that occurs, sooner or later you will run out of tax money and the debt will keep on compounding. The government shutdown is really about reaching the limits of paying off an infinite debt. The solution to a government shutdown really exists in reorganizing the economy to make it sustainable.

    Sources:

    1) http://www.reuters.com/article/2013/03/07/us-usa-fiscal-idUSBRE92517S20130307

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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