13 September 2011

Five Reasons the Government Shouldn't Spend Money

We all know it's true, government, especially the Federal Government wastes a ton of cash.  There's stories all over the media about how the government spends 3 to 5 times what the private sector spends to create equivalent Jobs, and how they overpay for... well EVERYTHING!
With all this evidence of government excess though, even the good folks at Fox News say that in a downturn, when no one else is spending, the government should step in and fill the gap, so to speak.
Here are 5 reasons why those voices are mistaken, and should not be listened to:
  • Number One:  Taxation reduces available Capital.
This is probably the most obvious.  If a small business needs to pay the bare minimum 35%, not counting State taxes, it not only reduces capital available for expansion, but additionally neccesitates higher prices to the consumer, reducing available spending power of the consumer, thereby also reduces jobs in that there are less opportunities for the consumer to buy other products either from the same company, or any other company.  As an example, before elected, when Reagan was asked what he would do to reduce rampant inflation back in the late 70's, he said he believed that reducing taxation would stimulate economic development and lower prices. He believed that ordinary people, free to pursue their own goals without undue interference, would creatively shape a booming economy and he was right.
  • Number Two:  Corporations Prefer Government Debt in uncertain times.
There's so much talk about corporations "sitting" on nearly 2 Trillion in cash.  They're not that dumb.  They're not going to sit on Cash, they're going to sit on tax free T-Bills.  Again, if that option wasn't available because the government wasn't spending so much and taking on so much debt, they might be more apt to move that cash back into growing their business or at least investing in something that creates jobs.
  • Number Three:  Banks prefer government debt.
Why take a risk when you can go with tax free government guaranteed profit?  Again, why bother investing in the private Sector when the Government hands you all the tax free guaranteed profits you need?  There are THOUSANDS of small businesses around the country starved for credit, because the banks don't want to give them even a short term loan, required to buy some inventory.  Many of these businesses could readily increase sales and profitability with decent inventory levels, but credit is hard to come by.  Reduced government spending will have Banks actually LOOKING for business again, instead of lazily sitting back and pressing a couple of buttons to buy all the T-Bills they could possibly ever want to gobble up.
  • Number Four:  Printing money depreciates savings.
The value of the Dollar, has been reduced by over 30%, just in the past 7 years.  Gasoline alone, costs over 30% more than a year ago.  The same can be said for basic food items, like Corn.  If the value of our money is devalued, then once again, it reduces what we're able to buy.  We then have less to spend at the corner store, the movies, vacations, cars and so on.  We have to keep things longer before replacing them.  This reduced spending on items causes companies like HP, to shut down whole divisions and lay off thousands.  This malaise spreads across the nation causing untold misery.  To put it bluntly, Printing money like they did in QE1 and QE2, is akin to stealing money from each and every one of us.

  • Number Five:  Currency Manipulations causes Job Losses.
The President talks a lot about how China keeps manipulating their currency to keep Chinese currency on par with U.S. currency, right at their current levels.  What he never mentions is how they manage to pull this off.  Normally when a country's exports are greater than another country, the exporting country's currency rises to reflect the stronger economic position of that country.  It's what happened to the U.S. after World War One and Two.  We continued to exports massive amounts of products to the Europeans and so our currency rose dramatically.  Later, when the Japanese started their export machine, the U.S. Dollar lost ground to the Japanese, and their products became so expensive to export, that they moved many of their manufacturing plants here, thereby providing Jobs to U.S. Workers (who were the ones buying their products anyway).  The reason this hasn't worked out with the Chinese, is because as our money flowed to the Chinese State Run companies, their government ordered those companies to buy U.S. Bonds, thereby sending the cash right back to the U.S.  This allowed them to "get rid" of their U.S. reserves, which in turn kept the Chinese Dollar from rising vs the U.S. Dollar.  The Chinese Government then turned around and issued low cost loans back to these same companies, deflating the value of their money and keeping the standard of living of the average Chinese very low.  Unlike in Japan, where the average family saw real gains in their standard of living.  The average Chinese citizen barely see's their standard of living rise.  The U.S. thereby is not only subsidizing the destruction of manufacturing jobs here in the U.S.  They're also subsidizing the destruction of any sort of advancement opportunity for the standard of living of the average Chinese citizen.
If the U.S were to stop issuing new debt, it would rob the corrupt Chinese Government's ability to continue to so easily manipulate their currency as effectively as they have.  Sure they could resort to printing even more money, but not without the risk of hyper inflation  A risk the Chinese Government would not be willing to take.  Instead they would do as Japanese companies did back when their currency began to rise, they started buying U.S. companies and investing in the U.S.  The difference is that at least the latter created jobs for U.S. Workers.

So the next time you hear the politicians talk about "Investments" or any other spending, deficit or otherwise, you'll understand that by supporting any spending whatsoever, they are killing jobs one way or another.  This is the reason why the Government MUST remain small, and must only spend where it's absolutely necessary.

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