As the old song says, “I am living in a daydream and am happy as a king”. As you look around the world, the American economy is still the envy and dream of the world. However the daydream can turn into a nightmare if our political leaders don’t address a couple of issues.
The first issue is entitlement spending which is the culprit of our current crisis. The problem with entitlement spending is real simple. The government promises more than it takes in. We have three choices. We can tax people more and leave the promises the same. With an aging demographic this doesn’t have an outcome that is appealing. Our second options, we can break the social contract that our country has made with millions of our citizens. Our third option, we can meet somewhere between option one and two. No one likes any of the three option choices. However, there is a fourth option. We can hold fast to our positions and not do anything. This will option will destroy the American economy, in my view.
Our second dream-stopping problem is the hyper-activity of the Federal Reserve. Our current monetary policy is an experiment whose outcome is unknown. In a recent article, a writer pointed out that at the end of World War II, the Federal Government owned the same amount of debt as a percentage as the current Federal Reserve balance sheet. Their point of the article is that we have been in this situation before. There is only one huge difference. At the end of World War II, we were the last major economy standing. This translated into the U.S. being the major exporter to the world which translated into a prosperity for our people that cannot be matched in this environment. In addition, the financial system was completely different. We were basically a closed economic system with a populace who were net savers. We are now in a global economy with a populace who does not save enough.
Will we make it past the current stalemate? I believe the answer to be yes. However, if we don’t start looking past the next election, we will not be happy as a king.
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