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 can 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.
Instead of urging restraint, our politicians have presided over, and even encouraged, a reckless lending orgy and consumption binge financed by foreign lenders. The result has been further increases in our economic imbalance.
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 taxpayers’ funds. So far, the total amounts to some $3.5 trillion. Doubtless there will be more–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. The 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.