Government Policies Pushing
Towards Depression
John Browne
Posted Jul 16, 2010
Despite several quarters of rising GDP, and the upbeat exertions
of Administration spokespeople, the National Bureau of Economic
Research (NBER) has yet to announce the recession is over. Their
reluctance is well-founded. It is beginning to dawn on even
the more optimistic analysts that the tepid growth we have seen
over the past three quarters is only an interlude in an otherwise
grave and prolonged recession. Moreover, the respite will cost
dearly as the United States has racked up a generation worth
of debt for dubious benefit.
The paltry number of new jobs currently being created still fall
far short of the 375,000 per month needed to offset the 125,000
new entrants to the job market due to population growth and to
erode the 8 million people laid off in the past year alone. Meanwhile,
house prices continue to fall and credit continues to contract.
With retail sales dropping in June and the Leading Economic Index
(LEI) standing at minus 7.7 per cent, it should be clear that
the US economy is heading back towards recession, following a
temporary distortion created by some $1.3 trillion in federal
stimulus. In short, the stimulus has failed.
While there can be no doubt that an increase in government spending
will result in a boost to GDP figures, the evidence of history
shows that such growth is short-lived. Unfortunately as
leaders around the world look to tighten the reins on out of
control spending, President Obama and his Democratic supporters
in Congress believe that their stimulus actions have succeeded
and should be redoubled. Armed with nothing more than faith in
government and a belief that spending is both a means and an
end, it appears that the US stimulus policy will continue. The
net result of these efforts will not be a more vibrant economy,
but the perpetuation of fear and confusion in the business community
and the continuing expansion of deficits that will lead inevitably
to higher taxes.
The more indebted an economy becomes,
the greater the burden that must be borne by the wealth-creating
private sector. Indeed, at the present rate of government debt-financing,
the private sector will have to contribute some $2 trillion each
year in interest costs alone. This money must be raised by taxation
or inflation.
This week, in response to their fears
of increased regulations, higher taxes, and greater government
stewardship of the economy, discontent among business leaders
flared into the open. Gathering in Washington, leaders of the
US Chamber of Commerce lashed out at current regulatory changes
in healthcare. In other forums, business executives and investors
questioned the efficacy of the freshly passed financial regulation
bill.
Academic economists have identified a
phenomenon they call 'fiscal drag.' Their studies show that each
dollar raised in taxation incurs a government cost (tax collection
and spending administration) or reverse multiplier.
The Administration estimates that the expiration of the Bush-era
tax cuts will raise additional revenues of some $1.5 trillion
over the next decade. In addition, some economists estimate that
the Obama Health Act will raise a further $500 billion over the
same time period. Using the average reverse multiplier of two,
this additional taxation of $2 trillion will suck a further $4
trillion out of the wealth-producing private sector by 2020,
or some $400 billion each year.
By facing the stark reality of the above
factors (as more and more clear thinking individuals are), it
becomes increasingly clear that a continuation of the current
Administration's policies will push America into a depression.
As America is still by far the largest
international consumer, an American depression would likely reshape
the entire global economy. In a world where a huge number of
countries, businesses, and individuals are grossly indebted,
any sustained crash in asset values could be catastrophic. The
dollar would be threatened severely, leaving those who have invested
in gold and silver as financial survivors.
Please note: Opinions expressed are
those of the writer.
###
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Jul 15, 2010
John Browne
Senior
Market Strategist
Euro Pacific Capital, Inc.
1 800-727-7922
email: jbrowne@europac.net
website:
www.europac.net
 John
Browne is the Senior Market Strategist for Euro Pacific Capital,
Inc. Mr. Browne 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 Browne'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.
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