As the EU economic melt-down continues there is more and more dialogue on the matter centered around the ultimate query: Why?
For most of us who live on a budget, we know the “why” for what lies behind the notice you receive form you Bank: “NSF” ! Simply, Non-Sufficient Funds! You are spending more than you have. You also know that if you go to the bank or a friend and borrow money to cure the NSF that all you’ve accomplished is to delay the inevitable and there are only two options: Increase your income or default! Mathematics is simply wonderful in the way it seems to clear the cob-webs of ambiguity; 1 +1 always = 2 and that’s just how it is.
The problem of course seems to be that Government and the FinancialServices Industry (The Federal Reserve Bank) prefers its own mathematical theorem which look something like this: 10,000 x 0 + $1,000,000,000 ! I’ve got to get my hands on one of their presses! How about you?
To the point at hand, I admire Dr. Paul Krugman. He’s a noted Economist and frequent contributor to the New York Times. I read his papers and articles and though I truly do not agree with much of his prognostications, I do admire his sclerotic agility. That is to say, the uniformity that he applies his theories to a variety of circumstances even if I disagree with his assessment, he is consistant – I like that.
The following is a contribution I made to a recent “piece” of his and considering the topic of the day, I thought it was appropriate to share my comments with you.
“Dr. Krugman, yet another great topic. I hope one day you’ll read the Blind Vision 3 Part Series, it addresses much of what you query. Here are my thoughts in response to your commentary.
First, I’m not entirely sure that it is a cart before the horse causal force. I believe it may actually be two horses pulling the same cart in the opposite directions. One horse being Enterprise, the other being Government. The cart is the “native economy” which is largely ignored and is the genesis for all economic activity, i.e., “demand in search of supply.”
What the IMF dare not attest to is the simple fact that the reason for the growth in both “structural deficits” and “advanced economies” inability to spend their way out of it is, in my opinion, a function of the following points:
1. Degradation in domestic (“native”) economic development.
2. Over Taxation of non-corporate interests. (Corp. Tax Revenues have been plummeting for years while Individual Tax burdens have exploded.)
3. Diminishing “Household Incomes” due to #1 above.
4. Increased “non-discretionary” spending directly related to #1, #2 and #3 herein.
5. Hyper-currency creation directly related to fiat monetary policy and fiat capital creation.
6. Over-reliance on the Global-Economy Theory of expanded market = expanded wealth modeling. To name but a few.
The summation might appear this way: As Corporate interests have moved away from domestic financial stewardship, concurrently, they’ve effectively rallied the Government to enable the same. The result of which has been diminishing Tax Revenues on the Corporate level in exchange for increased burden on the household sector. As Corporations have become less nation-state conscious, they have also managed to exchange their productive capacity for effective-profits based largely on their ability to avoid taxation as there is no documented evidence to authenticate that corporate profit growth is based on the “cheep-labor” argument. The net affect of this is the near simultaneous convergence of an economic malaise brought about by the disincentive of productive “wealth creating” (domestic) practices.
An appropriate example of this is to consider U.S. GDP: Approx $14 Trillion yet only $3 Trillion of it consists of true “wealth creating” practices, i.e., Agriculture and Industrial output. Compare that to nearly $12.7 Trillion the Services Sector of which $6.7 Trillion is Government Spending (consider of course that excludes unfunded entitlements, off-book expenditures etc) and we can quickly see the source of the problem. In other words, the productive component of the U.S. Economy is being over spent by a factor of at least 400%. And it will get worse!
By the way, you will discover very similar numbers in the major EU economies as well, many far worse.
Quick point: On the subject of China, this is largely an economic ruse, i.e., the notion that China is integral to the economic foundation of the U.S. It is much more the case that it is the opposite. The fact of the matter is that China doesn’t need the U.S. economy, it possesses a population mass sufficient to both create and sustain its own demand and simultaneously monetize it. As I see it, it is largely a rush for western banking interests to gain a foothold in the domestic Chinese economy before the door firmly shuts.
The U.S. Economy has moved away from a self-sustaining model to one of global predation by financial-market vice. The idea that wealth can be sustained solely by market movement and not by productive capacity is further evidence of the paradox.
Just as one cannot sustain themselves on photographs of water, neither can an economy sustain on the imagery of wealth by fiat. This is the key component to which the FED and the IMF dare not confess.
So long as Governments continue to rely on deficit spending and its accomplice, Government Debt enabled by Central Banks, the inverse relationship will continue which of course is the inevitability of a mathematically unsustainable economic model.
All the best to you and yours! ”
Curtis C. Greco, Founder
