2010 California Election Forum

Spending, borrowing, printing and devaluing our money

One of the greatest economic evils is inflation—an economist’s term for the rising prices of goods and services.

Inflation robs everyone, because as prices rise, the money in your pocket, paycheck and bank account buys you fewer goods and services. And it especially hurts the poor and those on fixed incomes—it’s an immoral transfer of wealth at the expense of the average person and business.

As the government engages in historic spending—whether for yearly federal budgets or for extraordinary measures like bailouts and stimulus packages— they have only 3 options to pay for it: Raise taxes, sell Treasury Bills (like putting it on a credit card with an interest rate to pay it back) or print money.

“Can they just print money out of thin air?” you may be asking. They can, and do. It’s basically legalized theft by the government caused by an increase in the money supply…which in turn causes the value of the dollar to fall and prices to rise.

Little notice was given to one of the greatest massive expansion of power—and the money supply—by the Federal Reserve System (also known as the Fed) last month.

Government is the problem

“These United States are confronted with an economic affliction of great proportions. We suffer from the longest and one of the worst sustained inflations in our national history. It distorts our economic decisions, penalizes thrift, and crushes the struggling young and the fixed-income elderly alike. It threatens to shatter the lives of millions of our people.

“Idle industries have cast workers into unemployment, human misery and personal indignity. Those who do work are denied a fair return for their labor by a tax system which penalizes successful achievement and keeps us from maintaining full productivity.

“But great as our tax burden is, it has not kept pace with public spending. For decades we have piled deficit upon deficit, mortgaging our future and our children’s future for the temporary convenience of the present. To continue this long trend is to guarantee tremendous social, cultural, political, and economic upheavals.

“You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we’re not bound by that same limitation? We must act today in order to preserve tomorrow. And let there be no misunderstanding: We are going to begin to act, beginning today.

Many readers were surprised by the last issue of Reality Alert—specifically, the lead article about Ronald Reagan’s inaugural address (click here if you missed it).

They didn’t know that when Reagan took office:

• The economy had been in a recession for about 1 year.
• Unemployment was 11%.
• Inflation was over 10%.
• Interest rates were 18%.
• The media was full of stories about the worst economy since the Great Depression.
• Credit markets were in a mess.
• Business and consumer borrowing were out of control.
• Bankruptcies—personal and business—were growing because no one could afford their debt and high interest rates.
• Politicians were calling for greater federal regulation and spending as well as higher taxes on the “wealthy.” The media and politicians said capitalism had failed and that massive government intervention and spending was the only thing that could save America.

The national unemployment rate is 7.2%. Expect it to climb even higher until:

1. Taxes are lowered. That’s right, lowered so businesses can grow and people use their money however they choose.
2. Regulations lessened. For example, Hilton Hotels is moving its corporate operation out of state, resulting in the loss of 500 high-paying jobs, because it’s too hard to do business in California.
3. Antibusiness legislation is stopped. For example, the Los Angeles Port Authority is putting more than 1,000 trucks and small businesses out of business with their fees and regulations.

And what about counties? Los Angeles County’s tax rate is 9.9%. The difference? Pro-business and growth vs. antibusiness and growth.

Are you thinking of leaving California? Email me at This email address is being protected from spam bots, you need JavaScript enabled to view it .

Linda Bowles says it well...

"The massively cruel and ruinous communistic experiment of the Soviet Empire would not have been necessary if philosophers and intellectuals had not ignored a basic truth about human nature: Human beings, as a derivative of the instinct to survive, are innately driven to act in their own self-interest.

"Notwithstanding propaganda, conditioning or brute force, any government or institution which runs head on against the grain of this basic human drive is doomed to fail.

"We seem not to have learned a basic lesson of history: Capitalism harnesses human self-interest; socialism exhausts itself trying to kill it.

"The bureaucrats, who seize and dole out other people's assets, initially see themselves as humanitarians. Eventually, they conclude they are indeed superior to others, and treat themselves accordingly.

"They make laws to which they are not subject; they vote themselves and their wards privileges and benefits. Then, they no longer serve--they rule a nation of the government, by the government and for the government."

—Linda Bowles

“The fact that the market is not doing what we wish it would do is no reason to automatically assume that the government would do better.

“There are too many examples of government interventions that made things worse, the Great Depression of the 1930s being the most tragic.

“Those on the Left love to believe that the stock market crash of 1929 showed the failure of the free market and that the New Deal interventions in the 1930s saved the day.

“But the stock market crash of 1987 was just as big and Ronald Reagan resisted loud calls for him to intervene. The result was not another Great Depression but the beginning of a decades-long period of prosperity.

“Before Presidents Herbert Hoover and Franklin D. Roosevelt came along, there was no expectation that the federal government would intervene when the stock market crashed or when there was a downturn in the economy.

“Previous stock market crashes and previous downturns in the economy worked themselves out faster and less painfully than the Great Depression of the 1930s, just as the 1987 crisis did.

“The track record of government intervention is far less impressive than its rhetoric.”

—Thomas Sowell, economist, author

Economists estimate that each dollar of broad tax cuts leads to $1.26 in economic growth. Head of the National Bureau of Economic Research estimates that a $1 tax hike costs the economy 76 cents in output. That explains why the economy jumps each time there's a tax cut.

The federal government is continuing to grow. And, it has huge, negative implications.

For example, as government grows several negative consequences occur to the economy:

• Taxes increase, hurting families and a growing economy.
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• Inflation increases, costing more to live, a hidden, immoral tax.
• The economy begins to choke as incentive and entrepreneurship is choked out.
• Plus, people on the government payroll tend to want that payroll to increase, creating a powerful voting block for bigger government.

Freedom is threatened as choices decline. And, a big government bureaucracy in a secular world would becomes increasingly hostile to entrepreneurs and business growths, individual freedom and choices and people of faith and morals.

So look at the trend:

• 28.3% of the population relied on the government for a substantial portion of their income in 1950. It rose to 55% in 1980, but Ronald Reagan cut that so by 2000 it was 49.4%.
  
  Sadly, by 2004 it grew to 52.6%. I'm afraid today it's most likely over 55%.
• Nearly 1 in 5 people work for the federal, state and local government or their company depends on government contracts.
• More than 2 million people receive housing assistance
• 19 million are receiving food stamps
• 1 in 5 receive social security or a federal pension

It's time to reduce the size of government, not increase it. Listen closely to those candidates who go beyond a pledge not to increase spending, but who actually favor cutting spending, taxes and regulations.

To fight poverty, we don't need economic tax and regulation policies that hurt business growth. We need fewer taxes and less regulation to increase economic prosperity and opportunity.

Thanks to President Bush's tax cuts, the nation's poverty rate has declined according to the U.S. Census Bureau. The 12.6% rate of 2005 fell to 12.3% in 2006.

As Christians, we must be concerned about taxes, government debt and inflation as they impact our economic well-being.

A growing economy means less poverty and more wealth. It's what differentiates a free-market economy where everyone is lifted to better living conditions versus a government-controlled economy where class warfare, an economic elite and widespread poverty exist.

But the poor in the United States and everyone else are facing great economic turmoil if we don't follow God's principle of living within our means.

Some problems:

• Social Security currently has a liability of over $13.4 trillion.
• Medicare is more than $70.5 trillion.
• Interest to finance the growing debt is money wasted on bankers at $2.4 trillion.

One of the things that's needed to save our economy is the establishment of private retirement accounts for those under 60.

Without a big fix, expect a financial nightmare in about 4 years.