How Can One Fix An Economy That Is Not Broken?

In the U.S. the Democrats and Republicans each claim they can "fix the economy," as they argue over who should receive tax cuts. There is talk of more Fed "intervention" and of relatively modest cuts in government spending to "reduce the deficit." But these half-hearted attempts to "fix" the economy will fail for the economy isn't "broken." Reality is the U.S. and global economies are no longer viable in their current forms.

They are based upon governments spending vast sums of money they don't have and borrowing or printing the difference. Manufacturing powerhouses such as China and Germany can only sell their products by loaning some of the purchase price to the buyers, so the buyers buy products they can't afford. China's massive sales in the U.S. is an excellent example of cheap labor and cheap credit allowing U.S. consumers to keep buying what they otherwise could not afford.

The U.S. government is so dependent upon credit, that without China and other investors buying its rapidly mounting debt, it could not pay its bills RIGHT NOW!

Now what financiers call "de-leveraging" has begun, as Greece, Spain, Italy and other major nations are beginning to default on their debts. But to create the illusion this isn't happening, the European Central Bank and other global lenders are discussing further bailouts, and as usual, with money they don't have.

Already, manufacturing in China, Germany, the U.S. and elsewhere is declining and firms such as Federal Express and UPS that ship goods all over the world are warning everyone that their business volumes are falling sharply. But few people seem to be listening to them.

For the U.S. and global economies to become viable again is going to be very painful and will require sacrifice on the part of everyone. As in the Great Depression of the 1930's, we are going to have to buy only what we can afford and use cash or a trade of services to do it. And unemployment levels will be staggering as they already are in Greece, Spain and Italy. This unemployment combined with frugal shoppers, will send many businesses into bankruptcy.

What we will soon witness is the conclusion to the irrational exuberance that led to out of control global speculation on real estate and on other financial instruments and to a financial collapse that actually began four years ago. All that has happened since is politicians and bankers trying to keep the system afloat a little longer.

The good news is that as happened with the Great Depression, we will eventually come out of this financial collapse, as we all work together to solve our immense financial problems and to take care of one-another. We can then rebuild our economies with proper safeguards including restrictions on government spending. And as we rebuild, hopefully in this ever shrinking world, we will practice a greater level of compassion for one-another rather than wasting our valuable resources in fighting wars and killing each other.

Dick