James Pethokoukis over at Reuters has the best short description I’ve seen of our economic plight in light of the CBO numbers showing that our debt burden is rapidly becoming unbearable. He also points out that growth is the only way out and suggests a couple ideas (cutting taxes on business and capital flow) which are excellent, but also don’t fully cover our peril, nor provide what is needed to get out of this economic morass.
Our problem is debt – there is too much of it. Too much private debt, too much government debt. The cruel fact of the matter is that even under the best of circumstances and with the best of intentions, we may not be able to pay it all off – at least not in the current time frames for the debt. But if we are to manage this debt of ours then our only hope is to so rapidly grow American wealth that our debt burden becomes first manageable, and then discharged. Even with good luck, its going to be a little while before growth starts to kick in – so, step one is to stop piling up new debt.
That is the hardest thing for almost all liberals and even some conservatives to swallow. Liberals because they are still living in a fantasy world where the government can create economic growth by spending borrowed and/or printed money. It can’t. It is not possible. It never worked – the Great Depression was not cured by New Deal spending, but made longer and deeper because of it. We must balance our budget over the next few years – and, yes, that will be very painful.
The initial economic dislocation of a 25% reduction in government spending (which is the amount we’ll have to cut to even start getting things under control) would be severe. But it would also be relatively short-lived. And the good effects would start almost immediately – first by taking us out of the class of nations at risk of sovereign default (and thus making us a genuine safe haven for foreign capital), secondly by freeing up funds for investment which would have been quite pointlessly expended in buying US government debt.
Those funds so freed up will have to be used wisely. So, we also have to make some sort of action to prohibit State and local government from issuing new debt. No point in freeing up money only to see it wasted on government all the same. We need that freed up money for the initiation and expansion of wealth-creating private enterprise. To encourage this use, we should issue a moratorium on taxes for any new or expanded business which makes things, mines materials or grows food. For such companies already in existence and not able or willing to expand, a significant reduction in business taxes. Remember, we will borrow about $1.5 trillion this year – imagine if even 50% of that were used next year to start up factories, open up mines or create new farms.
Kill the debt. Encourage genuine wealth creation. Eliminate all spending which does not directly provide defense, food, housing and health care – and even in those areas carefully scrub spending to eliminate as much overhead and waste as possible. It will hurt, but it will be over in a couple years.
Or, we can just continue on, spending our way in to complete oblivion and have a complete economic collapse – and this time without any ability to borrow money so instead of a voluntary spending cut of 25%, we’ll have a 50%+ spending cut forced upon us. It’ll also take us years longer to recover, the longer we delay taking the actions necessary for growth.
Its our choice – our window of opportunity is small and getting smaller. We might only have 6 months left to make a good start on this – we might, indeed, already be out of time. But while there still appears to be time, we should take action. This November gives we, the people, are chance to start the ball rolling.
We’ll see how it comes out.
UPDATE: Pending home sales plunge 30%, unemployment claims rise “unexpectedly“, Dow slides.
Blogs For Victory 