Use access key #2 to skip to page content.

Spending Our Way to Prosperity



July 06, 2009 – Comments (0)

Originally written on February 28, 2009.

It is laughable that with a proposed $1.75 trillion deficit in 2009, there can be any serious discussion of fiscal responsibility from government officials. The basic principle, if you can call it that, that you can regulate yourself out of a problem is questionable at best. We’ve tried to defy the laws of economics before to get out of trouble, most notably in the Great Depression. Taxes, public programs, government intervention, and spending were all increased by leaps and bounds in the 1930s. It did nothing to lessen unemployment and only prolonged the depression. It wasn’t until Truman took over and pulled back many of FDR’s policies that the economy began to recover.

I have never heard of an economy that collapsed because of too little government intervention. Throughout all of history, government intervention and central planning have done nothing to save an economy and increase prosperity. Rather, they have led to the economy’s destruction and demise. The Roman Empire fell largely due to devaluing its currency and overextending its quest for world empire. I ask you for just one example in history where a troubled economy was saved from central planning and government intervention, that otherwise would have perished had the marked been left undisturbed to deal with the problems.

As hard as we might try, you cannot spend record amounts of money, inflate the currency like never before in recent U.S. history, drastically increase regulations, and expect to create lasting wealth and economic strength. The Federal Reserve has used its monopoly over money and credit at increasing levels over the past 30 years or so, which has done nothing but worsen the boom/bust “business” cycle. Central planning from the Federal Reserve, with next to no oversight from Congress, has brought the U.S. to this situation more than any other factor. The fact that the Fed is getting through our current situation with hardly a speck of blame ought to be very disturbing to the majority of the citizens of the U.S., or at the very least somewhat discussed in the mainstream. The whole concept of the Fed itself completely contradicts a free society.

Looking at basic history of interest rates over the past 10 years, as controlled by the Fed, shows us that there is a close connection to low interest rates and a subsequent period of short-term, unsustainable economic growth. When the bubble economies reach their full height and the begin to unravel, the Fed immediately goes to the printing presses as the calls for lower interest rates abound to keep the economy strong. What caused the problem in the first place is seen as the ultimate solution just a few years later. The Fed lowered interest rates sharply in 2000 through 2001 to help re-inflate the economy from the bursting tech bubble.


Today the Fed’s taking the same road as it did in 2000, only at even greater extremes. The more the Fed inflates the dollar, the larger the bubble will be, and thus the inevitable correction will be that much worse.  In an effort to prevent the correction, interest rates are lowered even more, once again. Essentially, as the correction becomes more delayed through money and credit manipulation, the economy continues to build up on the unstable, wildly inflated foundation. So, while in the short-term it may sound like a reasonable solution, it will not solve a thing over the long run.

This is why I cringe when I hear about trillions of dollars being thrown at the economy in an effort to create a ripple effect of job creation and wealth. The main problem I see among many is that there is very little sound reasoning for this “stimulus” plan. Government debt and deficits will continue to skyrocket at unbelievable rates, the Federal Reserve certainly will not be slowing down its expansion of the money supply anytime soon, yet somehow this is supposed to be a longer-term solution to these problems. Just the fact that there is no source where this money can come from should be a major concern. All that is happening here is a delaying effect, but one must wonder how long the government and Federal Reserve can delay a recession that the economy is pleading for. Government shenanigans and central manipulation work well for a time at delaying the inevitable in the short-term, but as history has masterfully shown us time and time again, it will not delay the correction forever.

0 Comments – Post Your Own

Featured Broker Partners