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Tuesday, January 22, 2008

When America Sneezes

Disaster was narrowly averted today by swift action of the Federal Reserve and Federal Government.

In the past week, concerns have been expressed over the potential of the United States entering another recession. At first, response was weak. Over the weekend it found reinforcements, causing several major foreign exchanges to plunge in value and causing the New York Stock Exchange to drop almost 500 points in the first hour or two of trading.

It was only after the Federal Reserve dropped a primary interest rate by 3/4 point, the largest such move in years. Additionally the U.S. Federal Government pledged to spend $150 billion to stimulate the economy.

Is this necessarily a good thing? Maybe, but maybe not.

The Federal Government spending to encourage consumer and business spending is hypocritical. Why? Because they are spending our money taken through taxation instead of letting us spend it ourselves. This is, essentially, the point of the broken window fallacy.

In the broken window fallacy, a young boy breaks the window of a baker who, naturally, has to replace the broken pane. His neighbors get to talking about the issue, debating whether the young boy should be punished. On one hand the broken pane creates work. The glazer to make and install the glass is the first beneficiary. The money then passes to the glass supplier for the materials, to the clothier when the glazer buys a new shirt, and to the grocer when the glazer buys food for his family.

This is the way the government thinks. Giving money to welfare for example improves the income for the grocery merchants and maybe the landlords if they are given cash benefits for such.

The other side of the coin is this. The baker has to shell out the money to pay the glazer and thus has less to spend on supplies for his business, clothing for his own family, and even food. This is also the effect that government taxation has on the average citizen.

Government action over the years has not effectively lowered the taxes on the poor, only those who are already well off (of which virtually every politician is before they ever enter politics) and has very little to no effect on overall poverty. Why? Because, in truth, the poor have no more money than they did before. Some of them are just fed a little (and I do mean a little) better.

The problem in our society is not lack of government spending. It is bankers siphoning off profit for themselves by making economic slaves out of everyone else. A slave is forced to labor for the comfort and profit of another. The bible describes this relationship well when it says the debtor is slave of the creditor.

An example of this is overdraft fees. It costs the banks around $2 to process the average overdraft. The bank then charges the consumer $30-50 for covering the overdraft. If they return the item, most of them still charge the fee of $30-50. It is completely up to the arbitrary decision of a faceless banking bureaucrat who is seldom accountable for his/her decision.

Another example is the banks charging higher interest rates the lower the economic level of the borrower, allegedly because of the higher risk indicated by a lower credit rating. The net effect is the bank makes more money on low income citizens per dollar loaned than lending to "more worthy" borrowers.

The government spending programs are also frequently financed by borrowing from these same international bankers, making the government itself slave of its creditors. The fundamental base of economic problems is not consumer unwillingness to spend, it is their inability to spend because they are paying so much of their income in taxes, bank fees, and interest rates.

Word to the wise, think for yourselves. The government, big business, and banking industry stopped being our friends before World War II. Until we wake up to the truth and start working on things ourselves things are only going to get worse.

By the way, I will be returning to more frequent posting starting tomorrow. I had some financial issues and am having my Internet connection restored tomorrow morning.

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