Be very wary of snake oil salesman dressed as politicians who are promising a return to deficit reduction and balanced budgets. This election cycle it is the Republicans crying about government deficits and national debt. If you think things are bad now just wait until the government starts to tighten its belt. Don't think the Democrats are any better - in fact they're much worse because they will claim that in order for the government to return to fiscal discipline taxes will have to go up. Of course they will claim only the filthy rich will be affected by their tax hikes. Don't believe it. The Republicans will promise to cut taxes, and they might actually deliver but they will also be glad to turn the economy over to the same businesses (the giant Wall Street banks and the Fed) that have caused so much misery.
Right now government spending is all we have. Until legitimate businesses stop being freaked out by Barack Obama (and rightly so), jobs will not be coming back. Only when average folks are back to work and feeling good about the future will lending return and new money enter our cash starved economy. The uncertainty borne of the Obama/Pelosi regime has caused business to literally sit on more than a trillion dollars rather than invest, expand and hire workers. Obviously when people are working and spending and businesses are selling and expanding then government (all governments) will experience increasing revenues. At the risk of sounding like Paul Krugman, honestly, until these things happen only government spending can tide us over.
As much as I admire the sentiment of the Tea Party movement they are wrong if they think this is a good time for the government to slam the wallet shut. The idea that the national debt is a burden on future generations is based on the false premise that the national debt must some day be paid off by the private sector. In reality, the government will pay itself to redeem its debt securities as they mature, using funds obtained by selling new securities to the public. The fact that no one – apparently the politicians included – understands how this works is not surprising. The truth makes for dull rhetoric and boring TV. For all intents and purposes this "rolling over" of the national debt can be continued indefinitely.
WE ARE DOOMED...
So are we doomed to be crushed by government debt now and for the foreseeable future? Yes and no. No for reasons stated above. Yes, if we continue to allow the banks and the Federal Reserve to have exclusive control of the money supply. We’ll end up pouring billions down the debt rat hole serving no one but the big money bankers. It is the government that grants the power to commercial banks to "create" all the money circulating in the economy by issuing loans. Why then does government borrow money from these same banks only to owe them massive amounts of interest? It really makes no sense. Think about it for a minute...
Honestly it shouldn't take but two seconds to realize that it's completely insane. Yet that's exactly what's going on. Instead of having the government (remember, we are the government) in control of the money supply we allow it to enrich a handful of multi-billionaires in D.C., New York, London and Switzerland. So we all get mad at Wall Street and we should, but they can only do what the law allows. It's the government that sets the rules and they have set them to favor the Wall Street money changers and not the citizens.
Today each time a bank makes a loan it actually creates new money out of thin air. The more the banks lend the stronger the economy, but as soon as they stop lending the economy is starved of new money and it literally grinds to a halt. Every economic bubble that bursts puts caution into the banking system, loans stop, new money stops and another possible recession looms. It makes the economy entirely unstable. It's crazy, frankly it's absurd.
Simply put, this process – the creation of "new money" by commercial banks - is the actual cause of this and every financial crisis' over the past 100 years. Each time we endure a financial crisis without a fundamental policy shift we are only assured of a worse one next time.
WHAT TO DO?
In simple terms we have to take back our economy from these erratic cycles, end the concept of too big to fail and force the banks to make their money fostering wealth creation instead of playing us all for suckers and serfs. Only the government has the power to do it. Neither Republicans nor Democrats have the will or the backbone to accept their responsibility. Instead we hear rumblings of austerity. That will make today's economy look like a boom town...
I've seen a few different plans describe that it might be as simple as preventing banks from having the sole power of creating the nation’s money supply by making minor changes to the rules governing bank accounts. It would restore the right to the Treasury - an agency of the government - to create the nation’s money instead of a privately-owned central bank. This would cause the newly created debt-free money to reduce our tax burden, free up private capital for economic expansion and fund the public services we already pay for but don't get because of the billions going to the giant banks in the form of interest payments.
The risk is of course that politicians being political and having control over the Treasury will pervert the process and throw the economy into a tailspin. That's different from what we have now exactly how? Politicians we can vote out of office - Wall Street bankers we can't.
The way it is now we have the entire global economy constrained by a handful of greedy pigs who win whether the economy prospers or not. We worry about radical Islam and Shariah law threatening the Western world (which I'll admit scares me too) but we are experiencing something far worse by our own hand. The potential for the betterment of all humanity is circling the drain because we have no leaders who have the will to stand up to the big time money changers. Oh, and don't fool yourself into believing that the the financial reform bill making its way through Congress is anything more than window dressing that will probably hurt the average Joe and the smaller banks even more.
All of this is not to say that the way government spends money today or that the slippery path to socialism is good or desirable. I don't favor out of control spending by anyone - especially the government. At the heart of the problem is the way the government is funded. It is currently held hostage by the way the monetary system it set up. Eventually, left unadjusted, all of our tax money will go to paying debt. This is good for whom exactly???
So when the campaigners come a knockin' this fall ask them what they plan to do to bring stability to our economy and foster job creation. If they start talking about deficit reduction and fiscal discipline look at them with a wary eye. It's just not as easy as that. Money needs to spent for wealth and prosperity to return and if you and I can't and if businesses can't then the government has to. Austerity is a bad idea, a very bad idea.