What the Current Debt Ceiling Debate Is Telling Us!

I am a firm believer that there is a message in most things,  it is just a matter of being willing to see it.  The world has entered an era where debt levels, at every level of economic activity, have taken on a  new focus and level of importance.  Everyone, everywhere is now concerned about debt.  The financial crisis of 2008 has resulted in a world wide de-leveraging process.

This has been a long time coming as politicians at every level have attempted to bribe voters into believing that they could have their cake and still be able to eat it.  This has been by spending far more than they receive in tax revenue.  World wide politicians have been on a dangerous fiscal bender by ignoring the 1st Rule of Economic which is that there is no such thing as a free lunch.

The hard truth of the matter is that despite what the liberal politicians may try to tell the public about the need to raise taxes;  the Federal Government has never succeed in consistently raising tax revenue above 19% of GDP.  Basically politicians can raise tax rates to the moon, and tax revenue is still never going to get above 19% of GDP.  What adjusting the tax rates will do is effect the level of economic growth and level of the misery index.  But then again,  for most liberal politicians tax rates are not about economic growth,  they are a means to achieve social engineering.

I am an equal opportunity critic. There are still Republican politicians who believe in Keynesian economics, or think the key to their political careers is to spend now and tax later.  Shame on them as well.

The bigger picture that helps explain the severity of our current problems is that for far too long,  too many politicians have believed that the solution to all our problems involves adding more debt to everything!  Too many local politicians (state, municipal, and county) believe that the solution to everything is to add more debt to governmental entities!

In my opinion it gets even worse at the Federal level.  At that highest levels of our government the all too popular solution does not simply include increasing the level of our Federal Debt through deficit spending,  but to enact policies that encourage the American Consumer to increase their personal debt levels!  Not only are these politicians loading the Federal Government up on debt,  they are encouraging the American citizens to load up on debt!

This is done primarily through spending more than we receive in tax receipts; and by enacting policies that raise the cost of everyday items and drive jobs outside of this country.  This is done through excessive regulation and government meddling in an attempt to engineer or fine tune our society.  Even worse some politicians have no problem giving payoffs to special interest groups that result in higher costs for all taxpayers.

I believe that a lot of politicians are comfortable with this because they do not see debt as being a bad thing.  Think about it,  the focus of their financial regulation is on barrowing  not on raising equity, they constantly go on television and complain about banks not lending, but fail to grasp that most small business owners are terrified by the prospects of having too much debt and what they really need is more shareholder capital.  They have no concept that tax rates effect business decisions!  This isn’t rocket science,  if you raise taxes on a business then the after tax earnings will be lowered.  Lower corporate earnings leads directly to lower economic growth!

Think about it,  most politicians have never ran a business or raised money for a company.  Most politicians do not understand how to run a business or what it takes for a business to raise money!  They have no concept of shareholders equity!  They are soley foccussed on debt, because as politicians they can only issue debt.  They have created a perverse situation where they have convinced a their shareholders (taxpayers) that the greater the debt level for the company (country) the better.  If they ran a business this way it would be bankrupt in very short order!

This debate in Washington is real simple.  One group is focused on raising taxes and hurting economic growth;  the other is focused on reducing expenses and creating growth.  If we were talking about a company;  one group would be talking about returning a troubled company to profitability while the other would be driving full speed ahead towards bankruptcy!  Which company would you rather be a shareholder in?

The answer to that question is obvious,  so should the answer to which political party we should be supporting in this debate!


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