Is The World Going Broke?

A bit of a tongue-in-cheek response to a set of articles recently published by FOXNews:

Fox is actually doing a whole series, an “in-depth” look to determine whether or not we will all be broke and destitute in a few years. While I say it somewhat in a humorous manner, there is some truth behind what they are portraying, or prophesying. The gist of it is that various world governments attempt to “spend us out of a recession” is causing world debt to grow to such a huge amount that we will not be able to sustain the recovery, or even have a hope of paying back the debt.

So, how did we get here? Obviously, silly-minded politicians who adopt the attitude that “We can spend us out of a deficit” are the ones who cause us to have at least some of the problem (read that President Obama). But, there is some notion that the government, and collectively, world governments must work together and continue spending on the private sector, when it won’t spend on itself. In plain English, what FDR discovered and gave us in the “New Deal” is that government must be involved in spending in order to prevent catastrophic failures in financial markets.

How does that help the guy on the street – namely, you and me? Not much. But, it does help some. Prior to 1929 – the “Crash” was never predicted to be able to happen. Right, and the Titanic was unsinkable too, eh? When we let things get out of hand, as they clearly were a couple years back, then we set ourselves up. Does that mean that there is no culpability in what’s happened? Absolutely NOT! There are crooks right and left.

As I was trying to explain to my son earlier today, I told him that a few years back a study was conducted that showed that 100% of CEO’s of large corporations cheat on their golf score. What does that say about “free enterprise” solving the world’s problems? It’s certainly not a very good sign. But, there was a time prior to the Great Depression where businesses gave freely to support the poor. The poor and widows and orphans were cared for under the auspices of The Church. Make that churches and you get the point. During the Great Depression, the usual mechanisms of caring for the needy and the poor were overwhelmed, and things quickly got out of hand.

That doesn’t mean that churches weren’t still trying to deal with the problem. Many organizations rose up to help deal with the problem. Soup kitchens were run by both churches and others, and the poor at least got a mouthful to eat once or twice a day. As in the current financial downturn, jobs were scarce, and many were unemployed, and became unemployable in the “jobs” they had once held.

The “New Deal” provided a way out, because FDR and his advisers reasoned that if the government “participated” in private spending, then more jobs would be created, and those who had jobs would in turn consume more resources that would in turn create more jobs. Thus “turn over” in the economy is something the government counts on these days. There are many levels in our economy, and it all depends to a great degree on the ability of marketers who convince people to keep spending their hard-earned money, rather than saving it. The more folks spend, the more turnover there is, the more the “demand” cycle keeps going.

Unfortunately, what happened was people were spending too much money they didn’t have, and lenders and realtors were getting folks into houses they should not have had. The “mortgage crisis” that precipitated our current financial meltdown, started with folks who cheat, very much like those CEO’s who cheat on their golf scores. You see, in an environment where cheaters are promoted rather than punished, we have every reason in the world to keep cheating, because cheaters “get ahead.” They even run big companies.

So, what’s our real prognosis? The diagnosis is that we have overspent, we must tighten our belts. By definition, when entities at the top stop spending (businesses) then the “trickle-down” effect is that everybody spends less. So, government will have to spend less. Eventually, we’ll bottom out (hopefully) and the spending cycle will start again, thus triggering more hiring and a healthier economy. The collective world governments have gone about as far as they can go, however, and they won’t be able to continue spending us out of this present cycle much longer without causing massive inflation. They have already leveraged the tax-paying ability of my grandchildren to get us out of this predicament. Let’s hope they don’t tax the 7th generation.


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