Politicians often find scapegoats for America’s economic woes. It is rare – if ever – that they point the finger at themselves. Yet, the basic cause of the current severe economic problem lies in the machinations of government.

It is clear to even a casual observer that Congress has abused its power to tax and spend. It has taxed success to subsidize failure. It has purchased votes by enacting an unending stream of entitlement programs, financed by taxation, foreign debt and a progressive degradation of the U.S. paper dollar.

This cynical boosting of consumption at the expense of production has resulted in the American consumer now accounting for some 70 percent of United States GDP. By consuming three times what it produces, America has become the largest debtor in history. The Administration now forecasts annual deficits of trillions of dollars for the next decade. This is all the direct responsibility of Congress.

The executive branch is also to blame. Under President Bush II, the United States entered a Global War on Terror, with a mission so ambiguous it was almost sure to bankrupt its executor. To this day, and despite campaign pledges to the contrary, President Obama continues to waste massive amounts of blood and treasure on two fatally flawed wars in Iraq and Afghanistan and on maintaining over 1,000 military installations in 135 countries abroad. No one should forget that the assumption of an international military role depleted the wealth of Rome, Great Britain and the former Soviet Union.

But at least the Republican president slashed domestic spending to compensate, right? Actually, Bush II passed cherry-picked tax cuts for special interests and spearheaded a new prescription drug program for Medicare recipients, at a cost of some $40 billion per year. This was a capstone of sorts to a century-long experiment in entitlement and intervention.

This federal spending went from a drag on the economy to a true albatross by the 1970s. After former Fed Chairman Paul Volcker and Ronald Reagan courageously bought our currency a new lease on life, Alan Greenspan was given the helm at the central bank. Colluding with Presidents Clinton and Bush II to simulate economic growth for political gain, Greenspan, and his chosen successor Ben Bernanke, unleashed a torrent of new dollars into the banking system, where they were leveraged to finance the largest asset boom in history.

We are now in the process of deleveraging from this boom. It is painful, but it represents an opportunity. A government genuinely interested in economic restructuring could be focusing on cutting spending, lowering taxes, and reducing corruption, instead of playing ‘pin the blame on the capitalists.’

Today, we are likely heading into the second wave of massive recession. There is a concerted effort by the government to blame the fallout from their schemes on the free market. You, the educated observer, should recall that the most rabid capitalists – Peter Schiff, Doug Casey, Jim Rogers, Lew Rockwell, Ron Paul – were the only opponents of the bubble economy while it was occurring. Meanwhile, those that seek to pass judgment on capitalism – Bernanke, Greenspan, Tim Geithner, Jim Cramer – celebrated the artificial boom and were shocked at the resulting bust. Why does anyone even listen to these fellows anymore?

No, this crisis is not a failure of capitalism, but the result of a sustained attack upon our capitalist system. If we allow it to be used as a pretext for more government control, we will endure a ‘lost decade’ like the 1990s in Japan.

To avoid this fate, taxes must be lowered, especially corporate rates. Instead, we are increasing taxes on businesses and individuals. The government must cease its corporate bailouts which subsidize failure at the expense of success. Instead, we are now giving away money not just to failing giants, but to reward those with less efficient vehicles – when they didn’t even ask for it.

Most importantly, the Fed must be controlled. Presently, in addition to its ‘open market operations’ that subsidize government and industry, the central bank is paying interest on the bank reserves it holds. This encourages banks, borrowing at nil percent, to lend at zero perceived risk to the Fed rather than accept the higher risk of lending to small and medium sized businesses – thus snuffing out any remaining embers of economic vitality. Meanwhile, the massive Fed-enabled borrowing by the U.S. Treasury is crowding out healthy American companies from debt markets.

It takes years to dissect the myriad ways in which the federal government cripples the economy. After all, politicians spend most of their time obscuring their true intent. Do your own research if you have the time and interest, but at the very least, do not uncritically accept the party line. Capitalism is to blame for the government’s financial crisis like a house is to blame for an arsonist setting it aflame. Congress, the Executive, and especially the Fed, have meddled in the market with impunity for thirty years. Now that the consequences – about which they were fairly warned – have brought our economy to its knees, don’t let them shift the blame.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff’s new book “The Little Book of Bull Moves in Bear Markets.” Click here to order your copy now.

For a look back at how Peter predicted our current problems read his 2007 bestseller “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

More importantly, don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com. Download Euro Pacific’s free Special Report, “The Powerful Case for Investing in Foreign Securities” atwww.researchreportone.com. Subscribe to our free, on-line investment newsletter, “The Global Investor” at http://www.europac.net/newsletter/newsletter.asp

John Browne
Senior Market Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: jbrowne@europac.net
website: www.europac.net

If you enjoyed this post, please make a donation to help keep this website active:

Click Here for the Free Populist Party Newsletter

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc. Mr. Brown is a distinguished former member of Britain’s Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher’s government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown’s advocacy, Thatcher famously pronounced that Gorbachev was a man the West “could do business with.” A graduate of the Royal Military Academy Sandhurst, Britain’s version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

In addition to careers in British politics and the military, John has a significant background, spanning some 37 years, in finance and business. After graduating from the Harvard Business School, John joined the New York firm of Morgan Stanley & Co as an investment banker. He has also worked with such firms as Barclays Bank and Citigroup. During his career he has served on the boards of numerous banks and international corporations, with a special interest in venture capital. He is a frequent guest on CNBC’s Kudlow & Co. and the former editor of NewsMax Media’s Financial Intelligence Report and Moneynews.com. He holds FINRA series 7 & 63 licenses.

Copyright © 2009 Euro Pacific Capital, Inc.

More Articles from John Browne

The most dramatic image, which involved a water torrent sucking away the sand beneath a stoutly built six-story hotel, struck me as an apt metaphor for the current economic environment. As the hotel’s foundations became exposed, the building toppled over like a massive domino. It was a vivid reminder that no structure, no matter how mighty, is safe if its foundation is weak.

Since the financial deluge erupted last year, the authorities, at least in the United States, have concentrated their repair efforts on the upper floors of our economy, and have virtually ignored the rotting foundation beneath.

Since 1971, when President Nixon broke the last link between gold and the U.S. dollar, American politicians have unleashed an ever-increasing number of entitlement projects designed to boost consumerism. With some 70 percent of our economy now based on consumption, we can safely say they accomplished their aim.

Following Alan Greenspan’s financing of the largest asset boom in the history of the Fed, America now faces massive deleveraging and a severe recession. However, it is becoming increasingly clear that neither the Obama Administration nor Congress have the slightest appetite for the political costs of deleveraging. Instead, the government has decided to lavish unprecedented trillions more of borrowed dollars on preventing a natural deleveraging from taking place.

Today, the official U.S. Treasury debt stands at a shocking $13 trillion, or 100 percent of the (declining) total wealth created in the United States each year (GDP). But total federal debt amounts to an almost unimaginable $56 trillion, or 4.3 times GDP.

Notwithstanding this precarious state of affairs, the government intends to spend trillions more dollars on wealth-consuming entitlement projects such as education, health care, auto sales, and the pursuit of fruitless wars in Iraq and Afghanistan.

America still has the largest economy in the world, but that doesn’t mean that it is the richest. Although Americans enjoy one of the world’s highest standards of living, they are also its largest debtors. As a result of the debt, which is subtracted from output, the worldwide rank of U.S. GDP is not first, as most would expect, but fifteenth!

For many years, two factors have prevented rank-and-file Americans from perceiving the weakness of our economic foundation. First, the international reserve status enjoyed by the U.S. dollar has delayed severe price erosion and allowed Americans to buy imports at a falsely advantageous price. Second, American living standards have long been heavily financed from abroad, most notably today by China.

The Chinese have recently expressed grave concerns about depreciation of their dollar-denominated assets and openly challenged the reserve status of the dollar. As Chinese support is vital to our currency’s continued viability, these threats are bound to exert downward pressure on the price of the dollar. In short, China is increasingly unwilling to finance America’s falsely high standard of living. If the Chinese pull out, where else can the U.S. turn?

Last week, in response to questions about the sustainability of Washington’s spending spree, Tim Geithner uttered one of the more ambiguous phrases ever from a sitting Treasury Secretary, saying, “the government will have to do what the government has to do.” His comments went unexplained and could have referred to massive future tax increases. More ominously, they could have hinted any measure from an extended “bank holiday,” to currency exchange controls, or even to a massive devaluation of the U.S. dollar (similar to the 75 percent devaluation instigated by Franklin Roosevelt in 1934).

Increasingly, it appears that the government is aware that its reckless expenditures will be financed less by foreigners and increasingly by current, and more importantly future, U.S. taxpayers – and potentially by a severe devaluation of the dollar.

It does not take a student of architecture to grasp that America’s very structure is becoming more and more vulnerable to the shifting sands of economic policy being made in foreign capitals, and blowing upon our shores.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff’s new book “The Little Book of Bull Moves in Bear Markets.” Click here to order your copy now.

For a look back at how Peter predicted our current problems read his 2007 bestseller “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

More importantly, don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com. Download Euro Pacific’s free Special Report, “The Powerful Case for Investing in Foreign Securities” at www.researchreportone.com. Subscribe to our free, on-line investment newsletter, “The Global Investor” at http://www.europac.net/newsletter/newsletter.asp

John Browne
Senior Market Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: jbrowne@europac.net
website: www.europac.net

If you enjoyed this post, please make a donation to help keep this website active:

Click Here for the Free Populist Party Newsletter

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc. Mr. Brown is a distinguished former member of Britain’s Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher’s government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown’s advocacy, Thatcher famously pronounced that Gorbachev was a man the West “could do business with.” A graduate of the Royal Military Academy Sandhurst, Britain’s version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

In addition to careers in British politics and the military, John has a significant background, spanning some 37 years, in finance and business. After graduating from the Harvard Business School, John joined the New York firm of Morgan Stanley & Co as an investment banker. He has also worked with such firms as Barclays Bank and Citigroup. During his career he has served on the boards of numerous banks and international corporations, with a special interest in venture capital. He is a frequent guest on CNBC’s Kudlow & Co. and the former editor of NewsMax Media’s Financial Intelligence Report and Moneynews.com. He holds FINRA series 7 & 63 licenses.

Copyright © 2009 Euro Pacific Capital, Inc.

More Articles from John Browne

America is more than a country; it is the ideal of liberty. In economic terms, liberty translates into the entrepreneurial spirit of hard work, risk taking and self-reliance. And this spirit has made America rich beyond compare.

Unfortunately, over the past four decades, much has been undone.

Under the guise of a new, “social” justice, political leaders have turned our native ethics upside down. Profit-taking is now seen as gouging; success is greed; businessmen are predators. This creeping socialist transformation of our culture has finally broken the back of the American economy. FULL ARTICLE