Diary

America - Create Wealth or Die

America – Create Wealth Or Die

The Dilemma Washington Ignores

 

By Michael Giere

 

The tragic explosion of the drilling platform Deepwater Horizon in the Gulf of Mexico was caused by a tremendous surge of methane gas that was under incredible pressure below 5,000 feet of sea water. Once the gas escaped into the drilling equipment, it raced towards the surface gaining volume and speed as the pressure eased, until it blew out the top of the rig. The resulting explosions and fire were so intense, that the enormous platform was totally lost in 24 hours.

 

Much the same thing is happening right now to the American economy.

 

The economy is under the staggering pressure of unchecked debt and spending, while real private wealth is being systematically eroded or destroyed. Within a matter of months our current debt – real debt mostly financed in short term bonds on which we actually pay interest – plus the annual Federal budget will breach 100% of our economic output, nearly $15 trillion dollars a year. As surely as the methane gas destroyed the Deepwater Horizon, our surging debt and spending cannot be controlled once it escapes. The only hope of averting disaster now is real economic growth – to create new wealth. Ironically, this is the only option not being discussed in official Washington. 

 

The situation is so simple every citizen living on a budget “gets it.” Once your income is consumed entirely by debt and spending, you lose realistic options in every aspect of your daily life. Every penny you take in goes out the door and soon, supporting the debt drives even more debt. The only way to alter this dilemma is to increase income into the budget – to generate more wealth – while not increasing expenses.   

 

For the national economy this means private wealth creation. The government, of course has no money except that which it prints, borrows or collects in taxes. None of these activities creates wealth or increases the production of wealth; it only consumes private wealth in some financial context. The nearly $800 billion dollar so-called “stimulus” package last year, as well as the $800 billion dollar TARP program used ostensibly to fight the financial meltdown in late 2008, was entirely borrowed and printed money. It didn’t exist in the form of wealth that the Federal government held in some manner, or had in its actual possession. Like every dollar the Federal government spends or obligates, the money came at the expense or detriment of the private economy. So when someone says that Federal government can “create” a job by spending money, or prop up a ailing economy by moving money from one citizen to another, it is either willful ignorance or political posturing. If I came over to your home and stole money that you had stashed in the cookie jar, I’ve not created anything. I’ve taken wealth that you’ve earned, and consumed it for the benefit of me, or someone else to whom I passed it on. (We call this stealing, except when the government does it!)  

 

While the government can’t create wealth, it can encourage or discourage wealth creation. For much of our history, the Federal government encouraged growth by consuming” a relatively small share of the goods and services produced by the economy – or the Gross Domestic Product (GDP) – in the form of taxes and borrowing. However, in recent years this percent of the national income that is bled away and consumed by the Federal Government has spiked dramatically, and it now takes nearly 25% of the national wealth. Of course, taxes, borrowing or printing money are not the only ways the government can negatively influence wealth creation. The government can create regulations or demands that require private citizens to not produce something they otherwise would (or to produce it elsewhere), or cause an expense that devalues the ultimate worth of something.    

 

Today, the wild excess of the Federal government stands as the single greatest threat to American prosperity and even to our constitutional government itself. The country is losing the ability to react and to create a prosperous future when every resource has to be marshaled to pay for our debt and mandatory obligations. Ominously, the nation also faces grave foreign policy issues as the practical potential increases every year that America’s debt holders will influence or demand specific policies in opposition to our national interest.

 

If we continue on the current path, the nation will have no choice but to de-value the debt by repudiation, inflation, or by allowing the dollar to sink in value – or some combination of all three. Any of these options would have terrible consequences for individual citizens whose homes, savings and retirement accounts would collapse in real value and potential value. The standard of living for Americans would out of necessity be drastically lowered by these measures. Another gloomy but growing possibility would be that we could be forced into selling hard national assets to raise money, such as timber, minerals or land. When you are a debtor, you play by the rules of the creditor, even if you are a government.

 

There is only one way out of this dilemma. We must severely restrict and cap the money Washington can spend and obligate; we must cut personal and corporate taxes in a radical, pro-growth manner; we must demand responsible trade practices; and we must take away Washington’s ability to interfere with the economy by transferring expenses via regulation and unfunded mandates to the states and the private sector. In short, America must create wealth the old fashion way, or it will simply die as the nation we have always known.