Note: The issues listed below are in alphabetical order and not by importance. Also, if you click on an issue and do not see the page change, scroll down.
Neither government nor corporations or households can be exempt from the basic rules of accounting. Revenues should match or exceed expenditures, excessive debt should be avoided, and some funds should be kept in reserve for future “rainy days”.
Deficit spending is acceptable only in times of economic crisis or war. Practices such as unfunded mandates, pork-barrel spending, or cutting taxes while fighting wars are unacceptable. The recent economic crisis was the result of excessive borrowing by gigantic financial institutions for the purpose of engaging in unregulated betting on the value of derivatives backed by dubious mortgages. Post-crisis financial reforms must include: limits on leverage, the regulation of derivatives trading and most important of all, the break-up of financial institutions that are “too big to fail” (TBTF), so that no one entity can bring down our entire economy unless bailed out by taxpayer money.
A properly-functioning market economy should not require taxpayer bailouts of private companies in the first place! We view the recent financial reform legislation as a missed opportunity to address the TBTF issue and avoid future bubbles. Over the last twenty years improper regulation and deregulation may have contributed greatly to the current economic crisis. We must learn from mistakes of the past.
I agree with the vast majority of this policy but I wonder if you haven't ignored the positive economic impact of maintaining a large national debt (though not one as enormous as it is presently). We have to remember that the bond market plays an important role in our economy. Basically, if the bond market wasn't as huge as it is, all the money currently invested in bonds would likely end up sitting in bank accounts awaiting the next bank collapse. Right now the federal bond market sits at around $15 trillion. I can't imagine how bad the recent catastrophe would have been had any significant portion of that been a more liquid asset which a bank could have "invested." And though many people disagree with the concept of monetary policy, both bond issuance and re-purchase by the government are immensely helpful tools in managing monetary supply.
All that said, our debt right now is growing far too fast relative to our economy, and is closing in on 100% of GDP, an unfortunate milestone. I would think our policy should be to slow debt growth as much as possible, perhaps even pay a little of it off, while pursuing growth policies until we reach a more manageable level, perhaps somewhere in the 60%-80% of GDP range.
I agree with the majority of this statement.
It does seem as though, in the days of old, many banks generated income by encouraging their customers to create and maintain savings accounts, the payment for doing so was a modest interest rate payed to the customer for allowing the bank to use the customer's money. In turn, the money from those savings accounts could then be utilized for loans to persons and businesses at a fair rate of interest.
Clearly, the system today seems to take the stance that paying interest on savings is not the best monetary practice to adhere to. Rather, it is easier to make money in the form of interest payments on loans, at least from the bank's perspective.
My point is, unless banks shift back to their earlier methods of generating income for themselves, then without the income generated by the massive debts of their customers, they could cease to function; a certain balance must be maintained between debt and income.
~peike
Don't forget about commodities speculation.
The level of debt to the GDP needs to get significantly below 50%. We can't afford to continue to offer our country up as collateral!!
Well, 50% is a long way from here and most would agree we need to get to somewhere close to 50%. Before we even *think* about paying the debt off, we need to stop accruing more first. This should be our focus NOW. Baby steps that the bought and paid for Congress can't get done. Our revenue should cover the debt payments so we not "negative compounding" the debt by payign interest on interest. Which we are. And if you asked 100 members of Congress what that meant, how many could actually answer it?
Re: Commodiites speculation, for sure the CFTC Act of 2002, which was a total Wall Street bonanza, bought and paid for, needs to be put in the recycle bin.
Deficit spending should only be acceptable in times of war, when an actual nation declares war on us. Said spending should also require a congressional declaration of war. Even so, the deficit spending should require term and monetary limits... and passed by both parts of Congress, signed by the President.
I was also hoping for abolition or reform of the Federal Reserve.
I agree, but think there are excellent comments here that should be considered for modification.
Governments are right to be concerned about any intitution that is "too big to fail" because no institution is really too big to fail. All institutions will fail some day. The only question is when and how much damage will society have when they do. The recent American Airlines bankruptcy shows that few people can properly predict when an institution will fail.
The costs of such failures can be huge. We can best see that in history and in other countries. For example, today UBS, which is headquartered in Switzerland, is many times larger than the GDP of their whole country. When it fails, and it will some day, the citizens of that country will face decades of poverty much like the citizens of Iceland are facing today after their banks failed.
Look at Reading PA. At one time, the largest company in the world was headquartered there. It failed. Today, 41% of the population is under the poverty rate include almost 50% of those under 18. It has the highest poverty rate of any large city in the country. Likewise, before 1860, Mississippi was the wealthiest state in the Union and they celebrated their large institutions. Today, it is on the other end of the spectrum.
Yes, we need some large institutions, but we also need their competitors and diversification so that when the large institutions fail, they do not bring down the rest of our society.
I disagree with this somewhat. We're trillions of dollars in debt. If Congress was more responsible, some deficit spending would be fine. But it never is, not even in good times. At almost $16 trillion in debt and counting - with government spending accounting for half of gdp "growth" - the US is rapidly approaching our borrowing limit. We need a balanced budget amendment. And not that "cut, cap and balance" BS the GOP was pushing either.. A genuine amendment. We also need to End the Fed. Yes the "too big to fails" are criminal enterprises and should absolutely be broken up. I absolutely agree on that much. But continuing to have a private monopoly/cartel of bankers that can print out trillions of dollars secretly to bail out all their buddies - keeping us perpetually in debt - prevents all that. They are absolutely the problem. Beyond that, raising capital requirements and allowing competing currencies like Ron Paul suggests (so you have a choice, instead of being FORCED to use "paper") would probably help a lot too.
http://www.deptofnumbers.com/blog/2011/02/gov-expenditures-gdp-fraction/
I second that we need to end the Federal Reserve. Thomas Jefferson and even Andrew Jackson saw the evils of similar institutions. Americans should have the right to keep the fruits of their labor. What occurs now is that the Federal Government ever increasingly takes our money (or jails us) and gives it to a private banker(s). Under Keynesian economics, our money is then only worth what an uber-rich guy allows us to be worth. Our money is practically worthless and not backed by hard wealth. The Constitition states US money is gold, but of you try it you will be arrested. The FED is printing trillions in unbacked paper money to bail out their super rich buddies, which has dramatically driven down the value of the USD. The FED (and the CIA) have become unregulated branches of government without checks and balances... or seperation of powers; half government, half private.
I see this as unamerican and an enemy to our finances and liberty.
I disagree that government borrowing is only acceptable in times of war or emergency. Fiscal responsibility is about borrowing responsibly, not refusing to borrow at all.
Most states with balanced budget amendments actually have two budgets--the one they're required to balance is the "operating budget," which covers the day to day operations of government. The other one is the "capital budget" which covers such things as long term infrastructure projects which will hopefully pay for themselves over time. States can and do borrow money to fund such projects. Good roads, bridges, water purification and delivery systems, flood control projects, etc. do have a positive effect on economic growth, which leads to higher tax revenues that pay off the debt.
This follows similar procedure in the private sector, most firms of any significant size will borrow money to expand their businesses. Most individuals will borrow for college, buy a home, start a business, or acquire other forms of productive capital.
In short, borrowing money for GOOD investments is responsible fiscal policy.
We should not, however, be borrowing money just to pay for routine government expenses. Salaries, benefits, rent, and other ongoing operating costs need to financed by matching revenues. The exception to this is would be war, national emergency, or recession. Government services need to provided regardless of the economic situation, and borrowing through a recession is better than raising taxes or throwing more people into the job market, which is currently what most "balanced budget" states are doing. Austerity measures don't work, they only make a bad problem worse.
What's really needed is to separate the unified federal budget into separate operating and capital budgets, and place a borrowing limit of a set percentage of GDP--say 3%
It would also be a good idea to replace the current annual budget with a two or five year plan.
Also, governments should NOT run a surplus for more than a few years. If they are, they should either rebate the money (a dividend of sorts) or put it to use--preferably by investing in something useful, like education, scientific research, a strong military, or infrastructure.
As to those who would eliminate the Fed and return to a gold standard--Horrible idea. The gold standard leads to vicious deflationary cycles, which make recessions much more severe and longer-lasting than they need to be. Low, targeted inflation is annoying, but a cycle of deflation is true nightmare I would not wish on any country.
Preserve the Fed, protect it from annoying politicians trying to enhance their own reputation by attacking something they (and most other people) don't even understand, and leave monetary policy to actual economists. That way lies prosperity.
On "The Fed".
Reading U.S. history shows that even without the wanting to have a "National Bank", events would generate one. The real question is: will that bank be privately owned or will it be run by politicians or will it be run by public servants with limited scope? If it is privately owned, at some point, it will fail. If it is run by politicians, it will be used to reward their friends and to buy votes. If it is run by public servants, it will tend to become inept. I suspect that the antipathy to the Fed comes from it having too much power, not that it is evil.
When we did not have a Fed, we had both foreign banks and currencies running our economy along with State Banks. I think that allowing outsiders to control our economy is not good for us.
The current problem with the Fed is that it has two mandates that are at cross purposes. The Fed is supposed to work for "maximum employment and stable prices". Those two purposes are contrary to each other. If I had a choice, I would suggest dropping the maximum employment mandate. Keep the Fed more limited.
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