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The Price Of “Stability”

6 August 2010 No Comment

Our economy is dependent on constant expansion.  An economy built on debt requires growth in order to continue to be able to service the increasing debt loads.  As more debt is taken on in an effort to continue the game, the risks also increase should the game end – that is should the economy stop expanding.  Welcome to today.

We’ve reached the point where the economy has stopped expanding.  You could make the argument that the economy quit expanding organically long ago, yet has been riding increased levels of debt to continued “expansion.”

As I mentioned above, the risks have increased greatly with our over-leveraged economy.  The risks of a shutdown in our economy are great.  Here are some examples:

  • More Americans are on food stamps than ever before
  • Americans are not nearly as self-reliant as they were in the past – you could apply this to growing food, having hard skills, having savings, etc.
  • Most Americans have far too little in savings to withstand prolonged economic hardship
  • Most Americans have nowhere near enough money to fund a typical retirement

Now, in an effort to keep the economy “growing” – I use quotes because we hardly have organic growth anymore, but instead have inflation-fueled expansion or government-fueled growth – the government has pulled out all the stops.  The government have legislated stimulus and the Fed has created money out of thin air and injected it into the economy.

Millions of Americans, including myself, have a major problem with these policies.  We feel the debt is spiraling out of control, and we feel policies like quantitative easing are purely inflationary and result in a loss of purchasing power.  Now, I do stand by this result, but I’m going to share with you the other side of this coin.  The other side of this coin is that these terrible policies are the price of stability.

Getting back to the risks I discussed above, there are serious concerns with a complete stoppage of the economy – one that would undoubtedly occur should strict austerity be implemented and the Federal Reserve be scrapped (both policies that I tend to support).  With so many people dependent on these measures, there would surely be civil unrest in this country should the economy grind to a halt.  As I said above, people don’t take care of themselves much anymore.  There are fewer things more scary than a mob of people who are hungry and looking for food.  If you think this kind of unrest doesn’t happen in American, just search for videos on YouTube of the L.A. riots in the 90s and from Katrina a few years ago.

These terrible policies are the price of stability.  Does this mean we should continue them indefinitely?  Absolutely not.  But I’m not naive enough to believe that an immediate reversal of these policies are the right approach.  It would be very ugly, and I’m not interested in causing riots in major cities across the country.  However, we’re on an unsustainable path.  Our economy looks eerily similar to a ponzi scheme similar to Bernie Madoff’s.  We have to force people gently, over time off dependence from the government.  We have to move people toward a more productive economy, not a debt-financed consumer based economy.  We have to move people toward self-reliance and toward sound personal finance.

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