There has been much chatter about John Maynard Keynes in the last six months. Stimulus packages are based on his concept of the government stepping in as the spender of last resort when demand evaporates. I prefer to focus on these wise words of Mr. Keynes and another astute man of the Depression era.
John Maynard Keynes:
What a Government spends the public pay for. There is no such thing as an uncovered deficit.
Groucho Marx:
Politics is the art of looking for trouble, finding it, misdiagnosing it, and then misapplying the wrong remedies.
There is an overwhelming consensus that government must do something to save us. Whenever I see Republicans, Democrats, supply-siders, and Keynesians all agree about something, I know it will be a calamity. Haven’t they done enough already. Based on the chart below, they have committed our grandchildren to spending more than all the major initiatives in the history of our country.
Our country is now permitting government leaders to pick the winners in our economic system. Their history of picking winners is not comforting. Government chose ethanol as the winner in the alternative fuels business. It requires more than a gallon of fuel to produce a gallon of ethanol. The windfall profits for farmers gave them incentive to grow only corn. This led to rising prices for other commodities, higher feed costs which led to higher meat costs, and a frenzy of ethanol plant construction. Now that oil is $43 per barrel, ethanol makes no financial sense. Ethanol plants are closing by the hundreds. The government is now selecting which banks will survive and which will fail. They are practicing protectionism by pouring at least $15 billion into failing American carmakers, at the expense of Honda, Toyota, and Nissan. These three companies employ hundreds of thousands of Americans, make better cars, and are profitable. We are punishing them for running their companies well. Jim Rogers again hits the nail on the head. “They’re taking the assets away from the competent people, giving them to the incompetent people and saying to the incompetent: ‘OK, now you can compete with the competent people, with their money.’ I mean, this is terrible economics.”
The FDIC has been pushing for modification of loans to stop mortgage foreclosures. The latest data shows that 50% of all the homeowners that received modified mortgages are in default again. People that cannot make their mortgage payment must be foreclosed upon. They should become a renter. If the government uses TARP money to delay foreclosures, the housing market will not recover for a decade. Ten percent of all homeowners in the country are either in foreclosure or in default on their mortgages. Letting foreclosures run their course will contribute to lowering prices and will lead people to buy homes again. The twisted form of capitalism we are currently practicing is summed up by Winston Churchill, “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” The bankers on Wall Street received the blessings of millions in compensation, and the taxpayers are experiencing the misery of bailing their companies out.
RISE AND FALL OF ROMAN EMPIRE – CRITICAL CROSSROADS Marcus Tullius Cicero 106 BC to 43 BC:The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and assistance to foreign lands should be curtailed, lest Rome become bankrupt.
Even Rome had politicians with some common sense. Decisions we make in the next decade will determine whether the American Republic follows the path of the Roman Empire or can reverse course and fulfill the noble dream of our Founding Fathers. Thomas Jefferson and George Washington foresaw the hazards ahead.
Thomas Jefferson:
Yes, we did produce a near-perfect republic. But will they keep it? Or will they, in the enjoyment of plenty, lose the memory of freedom? Material abundance without character is the path of destruction.
Thomas Jefferson:
I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
George Washington, Farewell Address, September 17, 1796:
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