The wages of profligate spending is economic death

The Bible famously teaches us in Romans 6:23 that the “wages of sin is death.” Given the warnings we have received recently from Wall Street and the International Monetary Fund, we should now realize that the wages of profligate spending is economic death.

In an unprecedented move last week, Standard & Poor’s downgraded the long-term debt outlook for the United States to “negative.” S&P noted that the lack of adults in the room willing to deal with ever-increasing national debt and long-term budget problems, such as unfunded liabilities represented by entitlement programs, could result in a lowering of long-term debt rating “within two years.” As you can imagine, Wall Street did not react well to the news as stocks fell by 1 percent the day the S&P released the statement.

Such an action would compound an already dire situation, for example, by increasing the costs associated with borrowing to finance debt. Perhaps even more troubling is that we may soon be overtaken by China as the world’s next economic superpower; a country that is also, and not coincidentally, America’s largest foreign creditor.

Two days ago, another economic bombshell fell. Brent Arends of MarketWatch noted on Monday that forecasts from the International Monetary Fund (IMF) anticipate China’s booming economy will “surpass that of America in real terms in 2016.” He calls the report the “end of the Age of America.” It is neither easy nor pleasant to digest such a profound statement; and many political observers will be quick to dismiss the prognosis as exaggerated or politically motivated. The fact is, such a warning is serious business, and is sloughed off at great peril.

Arends also notes the report, “provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.”

While the IMF itself chose not to highlight the report, there is no getting around the fact it underscores what fiscal conservatives, including many now in the majority in the House of Representatives, know to be true. The fact is, the American economy which, since the close of the Second World War has largely driven the world’s economy, has become a house of cards resting not on a sound, market-based economy, but on the porous sands of runaway deficit spending.

This is more than a wakeup call; and there’s more than sufficient blame to go around. In recent decades and with only a few brief exceptions, both major parties have repeatedly and openly refused to address the disastrous situation presented by so-called “entitlements” with locked-in benefits that have become essentially untouchable. They also have continued to fund virtually every major wish of the Pentagon; afraid otherwise to be labeled “soft on defense.”

The American people — long-accustomed to having the federal government as the option of first resort to address all manner of society’s needs, from education to road building and from the environment to health care — are equally to blame for this looming economic train wreck.

Whether there is even now the will to change course in order to avoid this slide to economic mediocrity — or whether there is even sufficient time to do – is unclear. Early signs are far from encouraging. The strident opposition to the GOP’s “Ryan Budget” by the Democrats in the Congress and the Administration indicates that party remains locked in its New Deal feet of concrete. The fact that already some Republicans in both houses are voicing hesitancy to support the tough-love measures in the Ryan Plan is even less encouraging.

The last, best hope for salvaging America’s once-bright economic future – which will dictate also our political future – will come from three sources: the grassroots of the American electorate, a handful of new governors who understand like Washington does not that a government cannot survive living beyond its means, and whoever the Republican Party puts forward as its standard bearer in next year’s election. Heaven help us if any of these three elements falter.

By Bob Barr – The Barr Code

62 comments Add your comment

poison pen

April 28th, 2011
1:09 pm

Jefferson

April 27th, 2011
1:04 pm
You cannot have a country of “haves” and “have nots”. The greed and money worship of the GOP is killing the great ole USA.

Jefferson, are you cognizant of the fact that Obama has more money in his warchest than any other President? Where do you think he gets his money, from Welfare recipients? DUH!

poison pen

April 28th, 2011
1:12 pm

Krugman’s got some credibility as you know…that Nobel Prize for one

Yes, and Tucker has a Pulitzer, DUH!

RGB

April 28th, 2011
1:18 pm

What I’ve learned today:

If you are running a company whose cost structure is uncompetitive with global competitors, you should maintain your high cost structure, “keep jobs in America”, and just go on with life. Damn the torpedoes…..

When your shareholders ask [post-bankruptcy] “why didn’t you respond to low-cost competitors by lowering the company’s cost structure?” you can square your shoulders, smile broadly and say: “Because keeping jobs in America is (was) the right thing to do.”

Then you can proceed to fire your distribution staff, sales and marketing people, finance folks, etc. and ALL the associated U.S.-based companies who supply goods and services to them. Your bondholders, creditors, suppliers, shareholders, etc. will be left with nothing.

Your foreign competitors will then suck up your market share and retain their non-U.S. based support people and will actually hire more people as a result.

The support folks you fired will go on unemployment or welfare. The government will respond by “raising taxes on the rich” to pay for the government benefits. As a result, the U.S. corporate tax rate will surpass the only nation heretofore with a higher tax rate (Japan) which will raise the breakeven point for even more businesses. Then we can tax the rich again so we can pay for the “benefits”–which causes more companies to close.

We can then elect another liberal to the presidency who blames everything on the rich as we suddenly realize life and prosperity as we’ve known it changed forever. And it’s all the fault of “corporations and the rich…and the Republicans.”

That’s good thinking and I’m so glad you shared it with me.

Gordon

April 28th, 2011
1:27 pm

RGB – great post.

roughrider

April 28th, 2011
1:38 pm

I wish the political hacks who include medicare in their list of entittlements would wake up and smell the roses. The people paid in enough social security taxes to take care of medicare. We can’t help it if the politicians stole it and spent it on other programs.

carlosgvv

April 28th, 2011
2:10 pm

Old Dawg – “we have allowed”

Unfortunately, the average American can do nothing to stop all these things you correctly point out. We can only vote for those on the ballot. If you know of a way we Americans can undo all of this, please tell us.

Halftrack

April 28th, 2011
3:09 pm

The wages of profligate spending & QE printing of money is economic death. The QE has robbed every citizen by approx. 20% of value so far. The cost of a barrel of oil now cost us more in dollars by 20% or more. It is our own government that is causing the problem and Congress is too scared & weak to say STOP. The debt ceiling must not be raised.

carlosgvv

April 28th, 2011
3:19 pm

RGB

As an alternative, we could change our political election process and free our politicans from corporate dependence. Once corporations understood Congress would no longer take care of them they could make the effort to keep jobs here and learn how to compete with foreign countries. There are certainly many other countries who DON’T ship jobs pell mell overseas. Of course, for this to happen, Congress would have to give up a great deal of corporate bribe money and Big Business would lose all those political perks Congress gives them. I learned a long time ago that these actions, which would help our country so much, will never happen.

WOW

April 28th, 2011
5:10 pm

“Please tell me what you are drinking so I can order a case. There are times when I would like to be out there in la la land where you are.”

You have a really low IQ, don’t you.

Retta

April 28th, 2011
11:55 pm

The Iraq war was about oil; oil companies should have paid for it–the American people already have–we just paid it to the oil companies rather than the government.

Dr David Hill

April 30th, 2011
7:06 pm

Although my Swiss S&T Foundation has been warning of the developing economic might of the East and its social and economic effects on the West for two decades now, western economies are now forewarned that China has now entered its fourth phase of its economic blueprint and where the head of the their central bank has advised their government to offload some US$2 trillion of reserves – or in other words US$2,000,000,000,000. Indeed the bank advises that they invest at least this amount of the US$3.04 trillion they presently hold in reserves, into technologies and investments that will enhance the nation’s future prosperity further. Not many economists warned at the start of the 1990s of the dire effects that this massive balance of economic power transference would have on the West and only in relative recent times have they come to realise this (no more than a decade ago). This enormous buying power, that is increasing at around US$200 billion a quarter in further Chinese reserves, will see vast numbers of western corporations and therefore western jobs fall into the hands of the Chinese (and other eastern corporations). This is just the start of the fourth phase of the Chinese blueprint and where China’s ultimate goal is to capture the dominance in global innovation that will provide for them an unassailable lead in global wealth in the 21st century. Our charity has known these facts for years but no western government has taken any notice. Now this sheer complacency on the part of our politicians and industrialists will simply reap absolute havoc on western economies and their people. But the big question is, when will these same pillars of our western establishment realise that the only way to stem this vast economic and social threat to our people, is to develop and put in place the creative infrastructure where all the people’s thoughts can bear down onto this great economic imbalance. Again our Swiss charity has been stating to governments for two decades to implement this world-leading pre-eminent thinking but where again unfortunately, they simply have not listened. For it is the only way to turn the tide and create whole new industrial global bases. In this respect we need the ideas people to be fully harnessed and allowed to flourish. If we do not understand this, we shall simply see over the next two decades a vast unprecedented decline in our living standards. Therefore our politicians have been advised and warned again, but where this time if they do not listen, they will see their people impoverished like never before. Wake up western governments to the realities that reside on the horizon for us all if we do not change our economic thinking radically.

Dr David Hill
Executive Director
World Innovation Foundation

Koi Scrubs

May 2nd, 2011
8:24 am

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