An Open Letter to Congress

Dear Members of Congress:

In recent months, we have seen numerous comparisons made between our country's current economic crisis and The Great Depression. Unfortunately, I believe these comparisons are too narrow in their historical scope and discount the scale and the urgency of the situation we face as a nation today.

While the lessons of The Great Depression should never be forgotten, a more appropriate comparison to the United States today is the economic mismanagement that caused the downfall of the Roman Empire. Like Rome after the death of Augustus in A.D. 14, the United States today faces the serious combination of slowing economic growth and mounting government liabilities.

How Rome chose to address its economic issues ultimately sealed its fate and it's important that we learn from its mistakes and not repeat them.

As you may recall from history, the fall of Rome stemmed from the overextension of the empire's resources and the consequent suppression of individual economic freedom. The decline in moral values, political corruption, and the rise of the barbarians, which are three oft-cited explanations for Rome's demise, are only corollaries to the root problem of flawed economic policies.

Following the conquest of Britain by the emperor Claudius (A.D. 41-54) and the final geographic expansion of the empire by Trajan (A.D. 98-117), Rome no longer generated additional revenue from new territories. Going forward, it would need to finance its mounting expenses from existing lands.

This was a strange and new reality for Romans, who had become accustomed to a near-constant influx of gold from conquered lands to fuel their gluttonous consumption habits. Once that influx stopped, Rome was forced to reevaluate its economic principles.

But rather than become more fiscally responsible or encourage economic freedom as Augustus had done a century earlier with great success, subsequent Roman emperors instead took the easier political route. One after another, they debased their currency by reducing the precious metal content of the coins in circulation. This artificial increase in the money supply only encouraged the insatiable consumption of the people at the very moment it was so critical that it be impeded. Moreover, the gradual devaluation of the currency only served as a backdoor tax for the people since it watered down the value of their wealth; Roman merchants responded to the devaluing of the currency by raising prices, thus fueling inflation.

Another political strategy employed by the emperors was to increase taxes on the wealthy and even confiscate their lands. Unfortunately, once the wealthy Romans could no longer shoulder the tax burden and the economy dried up, the heavy taxes were shifted back onto the already-suffering lower classes.

This tragic process of mismanaging the empire's fiscal and monetary policies snowballed for two centuries so that by the time of Diocletian (A.D. 284-305), inflation was out of control, the currency was essentially worthless, and the economy was at a standstill.

Within 150 years after Constantine's death in A.D. 337, the Roman Empire was split into two: a Western and Eastern Roman Empire. Rome was then sacked by Visigoths, and the Western Empire was ultimately destroyed in A.D. 476.

While the American economy is far more dynamic than that of ancient Rome, the similarities between our current economic crisis and the events that led to the fall of Rome are many and equally as dire and urgent, if not more so. How we decide to address this issue will resonate for generations to come.

First and foremost, we must learn from the Roman mistake of further debasing our currency. The government's short-term solution of printing and spending dollars it doesn't have breeds dangerous long-term consequences for future generations of Americans. Using $700 billion in fake money to bailout financial companies like Bank of America (NYSE: BAC  ) , Wachovia (NYSE: WB  ) , and Citigroup (NYSE: C  ) that took on too much risk, homebuyers that bought too much house, consumers who racked up mounds of credit card debt, and poorly run automakers like Ford (NYSE: F  ) and General Motors (NYSE: GM  ) simply masks the underlying problems we face, does nothing to solve them, and creates a culture of dependency on the government.

The government handouts may seem innocuous enough in the short-run, but they can have far-reaching and unintended costs. Lincoln once said, "You cannot build character and courage by taking away a man's initiative and independence." Setting a precedent for dependency on the government would take away both, at the expense of the spirit of hard work and the optimism that built this great country.

Not only will more bailouts hinder economic growth and compromise individual liberty, with our national debt now over $10 trillion and still growing we simply can't afford to take on any more dependents. Moreover, as we learned from the Roman demise, you can't sustainably sacrifice the productive members of a society for the benefit of those who do not produce. At some point it's no longer in the productive group's best interest to produce. This is what effectively happened in Rome: Economic incentives disappeared and eventually so did the tax revenues and later the empire itself.

Fortunately, we are not bound to the same fate as the Romans, but we nevertheless have an important decision to make at this critical juncture in our country's history. If we are to return this country to sustainable economic health, we must encourage innovation, empower the individual, eliminate wasteful government spending, and simplify the tax code.

Will we as a people acknowledge our economic excesses and accept the responsibilities that come with them, or will we, like Rome did, deny them and push the consequences of our actions onto future generations of Americans? This is the fundamental question that must be answered. I hope we choose the former. For as we learned from the downfall of Rome, the wrong choice may ruin all that this country has worked and fought for in its 232-year history.

Sincerely,
Todd Wenning

Todd Wenning does not own shares of any company mentioned. Bank of America is a Motley Fool Income Investor pick. The Fool is investors writing for investors.


Read/Post Comments (31) | Recommend This Article (114)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 19, 2008, at 3:19 PM, mdtopper wrote:

    Very well thought out. And exactly on point.

  • Report this Comment On November 19, 2008, at 3:26 PM, CaseyCook wrote:

    Finally someone sees the handwriting on the wall.

    Every action taken to affect a system causes a reaction. The actions taken by Congress in the past several years have led us to this quagmire but our Congressmen are not willing to admit it. The actions taken since then may stave off a deeper recession temporarily, but the long term ramifications will damage our economic system.

    Today I read an article concerning how to help our economy. (http://www.realclearmarkets.com/articles/2008/11/the_steps_n... One of the telling recommendations in the article was to pass the FairTax legislation. Reduce the overhead of running a country and business. Eliminate the disadvantage our businesses have in competing with overseas companies.

    Todd, I had not thought of the Roman Empire in relation to our problems. You analysis is interesting and compelling.

  • Report this Comment On November 19, 2008, at 3:33 PM, BillDaCat wrote:

    GM, as an example, didn't die in this country due to only mismangement, they had plenty of help from our government.

    We set up our economy so that retirement pensions and healthcare became the legal obligation of the companies and then allowed foreign competition to come here without having to pay any of those social burdens. In effect, we have put our own companies at a competitive disadvantage and if they fail, these social costs will be put directly onto the US taxpayer. You are not going to just shove a couple of million retirees under the rug. WE would be much better served by providing loans to the domestic three than watching them die due to a short term credit crisis which would then become a longer term problem.

    GM beats toyota in sales in 9 of the top 10 countries in the world. GM doesn't get the credit it deserves.. it is suffering from the credit crisis and needs a fairly short term bridge loan to get to better times.. the alternative is a huge drop in consumer sentiment that could spark the great depression part 2.

    Only a managed economy is truly successful... if we let other countries play trade tricks on us as they have with the auto industry, we won't be building ANYTHING in this country in the near future and to me that is incredibly dumb and short sighted.

    We basically won world war 2 because of our auto industry...Now we assist foreigners in killing it...

    There is no such thing as free trade because there are taxes and regulations in every single countyr in the world.

    Ask Mexican farmers what they think about free trade as we ship taxpayer subsidized crops to mexico and wipe out their farmers...free trade.. right.. If you believe in free trade, then you probably also believe in the tooth fairey. Some of these countries ahev got to leave the trade negotiation table laughing at the incompetence of those who make trade deals on our countyr's behalf.. our trade deals are truly pathetic.

  • Report this Comment On November 19, 2008, at 3:35 PM, chadplusplus wrote:

    Who's John Galt?

  • Report this Comment On November 19, 2008, at 3:52 PM, pberardi wrote:

    Who is John Galt? Here Here....where is John Galt? We need his speech more than ever.

    Well written article.

  • Report this Comment On November 19, 2008, at 4:07 PM, MoPicks wrote:

    BilldaCat ... if you think free trade is bad, then you must like paying more for just about everything you get. That lumber you buy down at HD is imported. So is the coffee you drank this morning, the shoes on your feet and that shirt on your back. If you set up tariffs, the American consumer pays more, no one else does. AND it encourages your trade partners to set up their own tariffs, driving up the cost of American goods elsewhere. When things rise in price, the demand for those things almost invariably falls.

    We need more free trade, not less. Protectionists will make our problems worse.

    On the whole, the US has benefited tremendously from NAFTA and its other free trade agreements.

  • Report this Comment On November 19, 2008, at 4:21 PM, Brettze wrote:

    I am very proud of our American style capitalism because there is a constant injection of liberalism in there to grease up better and more responsible prosperity we are enjoying here in America! There is still so much naked capitalism still ongoing that are sorely in need of injection of liberalism.. It is like having an engine and adding a transmission to it in order to get you somewhere wonderful for all to benefit...

  • Report this Comment On November 19, 2008, at 4:25 PM, Brettze wrote:

    Back in Rome, we lacked so many inventions that we enjoy now in America. I always dread historians making refernces back to the Rome times or as recently as the Great Depression.. I enjoy history , but I never believe that we should look back there in time for problem solving reflections.. That is full of bull! We have so many new resources either physical, intelligentible, spiritual, financial, technological, sustainability, that Rome never dreamed of nor even the speak easies of Great Depression.. Use them or lose them. Liberalism is here to stay and Capitalism is to be a horse not a rider !!

  • Report this Comment On November 19, 2008, at 4:27 PM, Brettze wrote:

    One of every 100 or even 1000 wanna be Capitalist finally made it to riches... That is why Communists call Americans as Capitalist's running dogs.... Those dumb dogs with ever hopes of getting rich and gettting none without any help by liberals.!! Thank God for liberalism!! I am not a lazy bum wannabe communist, thankyou!! I am not stupider than a stupid Capitalist!!

  • Report this Comment On November 19, 2008, at 4:30 PM, pondee619 wrote:

    "GM beats toyota in sales in 9 of the top 10 countries in the world"

    Then why does GM need help and not Toyota?

  • Report this Comment On November 19, 2008, at 4:30 PM, Troer727 wrote:

    Well written letter that will get completely ignored.

    This generation of American believes that printing money and a huge, growing government is the "answer".

    There is no room for fiscal discipline, responsible government, of liberty.

    Fortunately, the baby boomers will live to see the results of their collective "mooching".

    Sadly, it is left to future generations to fix the problem.

  • Report this Comment On November 19, 2008, at 4:31 PM, Brettze wrote:

    Before liberalism, everyone is dirt poor and lack human rights. LIke what you saw in the movie Scrooge! Our lifespans were short like Africans are today... Many ideas were suppressed because the few successful filthy Capitalsits dont want to pay taxes... Capitalists dont want new ideas to take over his business or add layers on his business. Capitalists want everything simple and worry free to the demises of our masses... Penny pinchers to no ends... STupid rich people without any idea of what to do with their money besides paying taxes. Liberals just decide that the rich and successful are too stupid or incapable of spending money...

  • Report this Comment On November 19, 2008, at 4:37 PM, Brettze wrote:

    Our economy is suffering from HP disease!!! Look,,, we seem to be losing money on hardware but not on ink cartridges.. Same parallel goes for oil and cars... Oil is ink cartridges and cars are hardware that we are too happy to shut down... Anything fluid is highly profitable like body lotions, Coca Cola, booze, condinents like salad oil, soups, medicines, chemicals, etc is profitable,,,, anything that has todo with bolts and nuts, we are happy to allow to go bankrupt!!! It will be all fluids left in America !!! maybe we ought to tax fluids to subsidize hardwares to protect our jobs for everyone... Oh I forgot software which is not fluid but well almost .... Oh hell!

  • Report this Comment On November 19, 2008, at 4:39 PM, Brettze wrote:

    Maybe we will develop new software that runs on nanofluids.. bizarreee!!

  • Report this Comment On November 19, 2008, at 5:09 PM, chadplusplus wrote:

    I don't understand why there are so many anti-corporate liberals on an investing site. Guess we corporate lackies/dogs/fools/idiots/idealists will have to hold our secret meetings somewhere else.

    More on topic... Many years ago, and I would speculate about the time that a certain president who is commonly referred to by initials was elected, the feds began building a house of cards. As each successive congress came and went and as each successive president came and went, regardless of party affiliation, the feds added more cards.

    This is, after all, what the populace wanted. They liked the big pretty house of cards and wanted it to be bigger and taller. Unfortunately, only a small minority of economists and capitalists started pointing out that while it is a nice house of cards, it is still only a house of cards, doomed to eventually fall. The building, however, continued.

    Occasionally, the house of cards would shake, maybe a few rows on top would even fall off, but the whole thing continues to stand, even today. But most of the populace still doesn't care about its instability and unsustainability - they just want more cards, so any politician wanting to trim the size of the house of cards is simply and completely unelectable. Contrariwise, the politicians who do get elected want to stay in office, so they continue to give the people what they want and go home to pray that the whole house of cards doesn't completely crash during their lifetimes.

  • Report this Comment On November 19, 2008, at 5:48 PM, adams76 wrote:

    Sorry but your position reminds me more of Hoover's than any other historical figurre.

    GM & Ford are very competitive in many parts of the world. Did they stay too long at the party meeting the (stupid) demands of the US consumer? Yes. As did the financial sector....and the FED who really parcipitated the current implosion.

    Does this mean we should let them sink? Of course not if we can help them. And offering assistance would be totally consistent with the historical relationship between government and business in this country. Anyone who really believes that we have had a "free market" in this country needs to read some history books .......other than the ones written to promote American myths.

    Finally, if you must to use the Rome analogy as a way of avoiding that empire's fate, stick with the empire theme and advocate for the US to stop spending a half trillion dollars each and every year on our military.

    There are lots of ways out of this mess..........I reject yours.

  • Report this Comment On November 19, 2008, at 6:51 PM, Aquagaliente wrote:

    Everybody is begging the Government for money. Whose money - the Taxpayers money. Is it the time that the employees of Ford, GM and Chrysler take hand of the situation and save their jobs.

    For the next 2 years we all have agreed to following:

    Top management reduces their wages with 30 pct, middle management reduces their wages with 20 pct and the employees on the floor reduces their wages with 10 pct.

    In the same period we all abstain from bonusees, stock options and other benefits. No dividend will be paid to the stockholders.

    We furthermore promise that we within above 2 year period will change our production line and only produce cars which can do at least 28miles per gallon on Highways.

    I believe that the Government would be more willing to give the 3 Companies a helping hand if the staff is willing to help themselves.

    The new salaries would still be much better than the unemployment benefits handed out by the Government.

    Good luck.

  • Report this Comment On November 19, 2008, at 8:51 PM, TMFBent wrote:

    What we've got now is a lot more analogous to the Mississippi Scheme of John Law and the South Sea Bubble than anything else. Going all the way back to Rome?

    Like the two panics above, our current one is the fallout from a good, old-fashioned credit bubble based on the largest Ponzi scheme the world has ever seen. It will be very tough on a lot of people, but not those who caused it: The Angelo Mozilos, etc., have already moved on with their millions.

    In real life, as in the movies, the best con artists know how to get out of town before the scheme falls apart.

  • Report this Comment On November 19, 2008, at 9:29 PM, TMFTomGardner wrote:

    I think there are pieces of truth in many of the comparisons. I like Bent's reference to Scotsman John Law. The book "Millionaire" by Janet Gleason is a wonderful explanation of currency management gone very very wrong, and its resulting decimation of the French economy.

    At the same time, I believe Todd's reference also has rings of truth to it. While I supported (and still support) aspects of the TARP plan (particularly as regards equity stakes to provide liquidity to ailing banks -- though the Treasury could have gotten a far, far better deal for taxpayers), the slippery slope of bailouts puts an economy on its rear end for a long time.

    Remember that if the automakers get a pre-bankruptcy, bridge-loan bailout, you can expect the newspaper industry to come next. If the bailing out provides cheap money with a downside far less painful than bankruptcy of common stock and corporate restructuring, then failing organizations will line up to claim it hand over fist.

    Unless a company or industry presents true systemic risk, there should be no pre-bankruptcy bailout. . and government support following a CH. 11 filing should place demands necessary to ensure a functional, competitive, lean, and forward-thinking smaller entity (or industry).

    With the taxpayer money saved from not throwing it down insolvency, we can deploy capital to retrain workers and preserve the long-term value of our currency. All of this is to say that I think Todd's comparison has true value.

    Finally, I also think William & Mary professor Scott Reynolds Nelson provided a useful comparison to the Panic of 1873 in this Fool article:

    http://www.fool.com/investing/general/2008/10/20/1873-americ...

  • Report this Comment On November 20, 2008, at 3:04 PM, MSUMACOMB wrote:

    GET YOUR FACTS CORRECT....!!!!!!

    Interesting premise and then you lose everyone with your lack of knowledge on the Roman Empire...hope you never speak in front of Congress, Todd, because a point is usually based on a premise that comes from facts...and yours are simply, wrong!!!

    1. It was Dioceltian that split the Roman empire into two and then into four called a "Tetrarchy" and this happened when Constantine was about 18 years old...not "within a 150 years after his death" (as you attempt to factually state) and that Roman Empire was "destroyed."

    2. The Roman Empire was at its largest in 117 AD and you assume that the devaluation of the currency was because they couldn't expand the empire...Wel, how far did you want them to go...?

    To the West was the Atlantic Ocean, South was the african desert, the Souteast so more desert in Saudia Arabia and to the East was Russia...that would have been great and Persia just wasn't as interesting as it was during the days of Alexandar the Great.

    First of all, there was more than one coin aureus (gold), the denarius (silver), the sestertius (bronze), the dupondius (bronze), and the as (copper).

    Sure, the mineral content was diluted as time passed, however, this was due to the risk of carrying around coinage with a high-mineral content, the movement to a more "market-based" economy and what they could mine more of at any given time.

    Heck, the US and every majjor currency used to be gold, silver and copper "Bullion" (meaning 99% pure) then it became based on the metal to whereas there is little if any copper silver, gold, etc. in any coinage nowadays. Why, I will give you X product for Y coinage is market-based.

    Canada mints a gold bullion coin (the Gold Maple Leaf) at a face value of $50 containing one troy ounce (31.1035 g) of gold — which is actually worth over $1000 p - but the world does not market money in that way and hasn't since B.C.

    3, The only fact you have correct is that 476 is generally accepted as the formal end of the Western Roman Empire; whilst the Eastern Roman Empire lasted until Muslims sacked Constantinople in 1453.

    There are many theories as to why Roman Empire collapsed, but obbviously you really know nothing about the Roman Empire so....I assume you know little about the auto industry as well.

    Daniel David from the MSU Spartans

  • Report this Comment On November 20, 2008, at 6:14 PM, MSUMACOMB wrote:

    Thanks Todd. I'll have a read on that article and I apologize for my tone in the last comment.

    Again, I like your proemise a lot..but the key issue in the arguement is that nearly all major empires/kingdoms/dynasties etc. really had GREED, STUPIDITY and STUBORNESS as the underlying factors leading to their demise.

    This is where I agree with you totally!!! From Egypt, Alexander the Great, the Chinese Dynaties, Persia and the Ottoman Empire, to Napolean to British Commonweath...all have fallen on thier sword.

    The greed and corruuption in congress along with plain stupidity of the administration and stuborness of George Bush has launched the beginning of the end of our once greatly admired nation.

    Lets see our Dems:

    You have Sandy Berger (Clintons NSA advisor) stuffing his socks with classified doucments from the archive,

    Chris Dodd (chairman of the senate Banking) getting preferential treatment from banks and a VIP mortgage,

    Charlier Wrangle (also chairs the House Ways and Means Committee - the panel that oversees taxes and entitlements) yet he doesn't pay taxes on rental income he gets and he rents subsidized housing in NY that he is not entitled to get

    Jefferson has $70,000 in his refrigerator

    And our Reps:

    Sen Larry Craig of Idaho is in a Minessota bathroom playing footsie while his counterpart, Sen. Stevens is building a $300m bridge to no where and now is guilty of violating ethics so should be on his way to meet up with our war hero ex-Congressman Duke Cunningham who is jail for corruption.

    WE'VE GOT SOME REAL WINNERS RUNNING OUR GOVERNMENT!!!!

    YET... ARE THE AUTOMAKERS ANY BETTER? What kind of an idiot shows up asking for money to savfe his company by getting to the meeting on a Corporate Jet....STUPID!!!!!

  • Report this Comment On November 21, 2008, at 3:25 AM, Daretoth wrote:

    So...what you are really saying is "RON PAUL WAS RIGHT! AGAIN." Thanks for the article. Maybe someone will read it and glean some common sense.

    The solution to our current crisis is simple, yet painful:

    1. Cut all taxes on corporations and idividuals to zero.

    2. Cut government spending to match.

    3. Raise interest rates as high as fesible.

    And most importantly

    4. Stop government interference in the markets and let a truly free market work on its own.

  • Report this Comment On November 21, 2008, at 5:50 AM, ajeffersonian wrote:

    First the government rewards failing financial institutions and now they're going to do the same with failing auto manufacturers. And who pays? The successful.

    Meanwhile, the governments of other countries are liberalizing - unshackling their people who are in turn creating wealth.

    Assuming the government isn't going to change it's ways we can just watch and witness history. The empire is indeed ending. There's no question it will happen. The suspense is only in how it happens, and how soon it happens.

  • Report this Comment On November 21, 2008, at 1:45 PM, Donmac17 wrote:

    Re: MSUMACOMB - "To the West was the Atlantic Ocean, South was the african desert, the Souteast so more desert in Saudia Arabia and to the East was Russia...that would have been great and Persia just wasn't as interesting as it was during the days of Alexandar the Great."

    Before you put on airs and criticize, first, check your spelling and capitalization, and in this specific quote of yours, 'Russia' did not exist at the time of the Roman Empire. That land was open to anyone who could take and occupy it. Also, anyone knowing of the lucretive trade routes - and money to be made - from the Persia-to-India commerce lanes and ocean ports, would want to control this territory - if they had the military resources to do so. Even mighty Rome could not do what the Great Khans later did.

  • Report this Comment On November 21, 2008, at 9:54 PM, sciwrite wrote:

    To review what went wrong- The Gordon Geckos of Wall Street decided to assemble an army of mortgage pushers, to ram variable rate mortgages on all the real estate speculators wanting to ride the housing bubble, and the AIG's, Fannie Maes, and Freddie Macs jumped in to share the greed,. The Hedge funds jumped in to share the greed, and bundles of high risk mortgages were sold as low risk investments thruout the world.

    Then reality set in when the morgage payments doubled and the default bubble began, taking out all the fools above, and rending our total economy in ruins. Part of the blame is the primary mantra of the Republicans, " No limits on the Markets ". Even

    Greenspan was enamored of it. And the last eight years of the

    Administration helped by putting no limits on the national debt or on the accumulated unbalanced foreign trade. And many citizens wound up their personal credit card debt to the limit. Are there any more fools to mention. God Bless

  • Report this Comment On November 25, 2008, at 1:48 PM, Brad8888 wrote:

    Please feel free to comment on and discuss the following economic bailout proposal. I look forward to your opinions!

    First, I am a small business owner with a bachelors degree in economics. I also consider myself to be conservative with libertarian leanings. I would like to submit the following proposal for consideration:

    Why not stimulate consumption by encouraging people and businesses to buy vehicles? Use the government bailout money to give "rebates" to the end purchasers of the vehicles. For $25 billion, a rebate of $5,000 per vehicle could be given to the first 5 million vehicles sold.

    Recognizing that a lot of people need to buy cheaper vehicles, this money could be used to make the monthly payments for the first year to two years on the purchased vehicles, or to reduce the purchase price from the final negotiated level.

    Another option could be to allow people to take the rebate money in the form of a check. Then, people would be able to use the money in the way most beneficial to them.

    This stimulus could actually be a tax windfall to the nation due to the large increase in economic activity that would occur throughout the nation. If you assume an average vehicle purchase price of $20,000, and that 50% of the purchases would not have occurred without the rebate, the initial increase in vehicle sales of 2.5 million units at $50 billion. The additional flow of this money through the economy is normally around 5 circulations prior to the flow stopping. That would be another $250 billion in economic activity, for a total of $300 billion, prior to the spending of the rebates by those who choose not to put the money towards the vehicles.

    If half of ALL 5 million vehicle purchasers spend on things other than their vehicles, that additional 2.5 million people times $5,000 equals an additional $12.5 billion on an initial basis. Given the same 5 additional circulations through the economy, the additional stimulus from this spending would be $62.5 billion, for a total of $75 billion just from the rebates.

    The total of all of the economic activity that could be generated would be around $375 billion. If you assume that 33% of all of this activity is taxable wages or profit, that would mean that tax roles would increase by $125 billion. Assuming a 20% tax rate on this amount, the tax generated would end up being $25 Billion! The government would be "paid back" the stimulus money it spent!

    Additionally, these companies likely would actually show profit, as well as many others. The stock prices of many companies would jump, and overall the stock market would recover, thereby allowing more people to invest in real estate due to having more money available for downpayments. Housing construction then picks back up and we are better off than we have been for several years!

    Obviously, there are many assumptions in this post. I do believe, until ANY significant stimulus actually reaches the end consumers of goods and services, that we will continue the downward spiral that we are currently suffering. Please feel free to pigeonhole this idea as much as you like. I am hopeful that if this type of discussion continues that someone who has actual influence might somehow get reached with this type of plan, as opposed to simply prolonging the current environment by just plugging the holes in the financial dam by stopping imminent defaults and failures.

  • Report this Comment On November 25, 2008, at 5:02 PM, manthor wrote:

    Anyone who understands Commerce 101 -- Labor + Capital = Wealth -- will agree that any stimulus package that stimulates domestic manufacturing is a good plan.

    A vehicle purchase incentives would work only if they were restricted to the the big three Detroit auto manufacturers. A dollar spent on domestically DESIGNED and manufactured goods turns over in the economy at least seven times thereby providing a tremendous leverage. In contrast, the foreign vehicles manufacture in the US are a third world economy. They import over 70 percent of the high labor content assemblies like transmissions, engines and electronics, much of it manufacured at third world wages. The engineering, intelectual properties, management and profits are a property of the foreign entity, thereby siphoning capital - the lifeblood of economic system - on a mega scale out of the domestic economy and putting unfair pressure on the domestic industries.

  • Report this Comment On November 25, 2008, at 6:29 PM, jesterboomer wrote:

    It's all about keeping people employed producing useful services and products. It doesn't really cost the US anything as a society to invest in health care, infrastructure, education, energy and housing - as long as funds are not flying out of the country and efforts are somewhat efficient.

    It is dumb to try and cut "spending" - translation cut jobs. We need to redeploy efforts and labor away from financial services devoted to rotating bits of paper and skimming off cream to waste on enormous homes, exotic foreign cars and luxury travel to doing something more useful.

    In a deflationary spiral, we should print $10T to invest and pay off government debt and allow the $ to devalue by 10%. If every international government were to create 'money' equivalent to 50% of their GDP and invest it in infrastructure, etc - problem solved.

  • Report this Comment On November 26, 2008, at 1:06 AM, manthor wrote:

    What went wrong: Problems of this magnitude are many-faceted -- financial, economic and political -- and occur only when there is a collusion of interests to game the system for financial and political gain.

    The roots of the current economic problems reach all the way back to Nixon's thawing of the U.S.-Chineese relations. Soon after, the GOP politicians began pushing offshoring of the U.S. "smokestack" industries to China. With Regan administration came open season on manufacturing under the euphemism of "service economy," discretely at first, hiding China behind foreign subsidiaries in SE Asian countries, and then openly and with vengeance during the present GOP administration, under the euphemism of "free trade".

    Why this destruction of the U.S. wealth creation engine? (YES, manufacturing is the ONLY means of creating economic wealth.) In a word, the GOP greed for power! The GOP apparatchiks decided that by offshoring manufacturing they would be rid of unions and thereby gain lock-in on political power. They erroneously, and naively, rationalized that the U.S. workforce, absent manufacturing, would then become a nation of non-union "information workers." Instead, the GOP greed for power turned the U.S. economy into a nation of middlemen handling inflow of foreign manufactured goods and outflow of U.S. capital - an economic death spiral. In the process they undermined our engineering capability, because engineering and manufacturing are inherently joined at the hip, and created a huge national security risk with foreign dependence for our defence technology, and devalued the dollar by 86% (since 1973). To hide the damage, and create illusion of progress, the GOP administrations have been cooking books on an ongoing basis by continually doctoring economic indicators, reclassifying industries, and deregulating and inflating the economy in a pyramid-like scheme. This opened the door to catastrophie in the financial markets.

    The picture in the financial markets is still a bit murky, and we wont know all the facts unless there is a formal investigation. Certainly, going off the gold standard enabled administrations to "borrow and spend" unchecked. This is a much worse option than "tax and spend" which limits damage to the taxpayers wallets to the legislated tax rate and the taxpayers tolerance. You pay either way, only more, much more, and risk bancruptcy with "borrow and spend."

    The subprime mortgages get a bad rep, but they are more of a symptom than a cause. They certainly were marketed with vengence, even fraudulent inducement in cases where lenders were concurrently underwriting offshoring of industries in the given market, but the problem is not so much these mortgages as the fact that they were sold ten times over and, as a result, only one in ten has a hard asset behind it, not to mention the fact that they were finally packaged and sold to foreign investors as triple-A instruments. The ongoing offshoring of US jobs, underemployment, erosion of wages, and the fact that the U.S. has been in recession for the last 2 years, by the 1980's economic record keeping, didn't help the consumer.

    The credit default swaps, insurance on the sub-prime mortgages, are equivalent to all your neighbours individually buying insurence on your house with no assets to back the risk. That's a lot of incentives to set your house on fire. The timing of the SEC's rescinding of the uptick rule on short selling is mightily spicious since it enabled short sellers, particularly hedge funds, to pile on on over-leveraged banks. Consequently, when over-leveraged 40-to-1, a 4% loss would put the bank in bancruptcy. The question is, when you sell something 40 times over, where is the money? Lots of folks want to know the answer to that question, including some respected former and present government officials. Apparently lots of money exited the country from both private and public sector.

    Oil and war are a big factor. When oil shot up to $54 a barrel, Barron's quoted analysis indicating our gov't was siphoning 4% of the world supply into the strategic petroleum reserve. That's a huge hit on a fairly fixed supply. Combine that with the fact that it takes 14 tons of petroleum to deliver one ton of payload to Iraq. Add to that the consumption of the return trip, to manufacture the payload, and the recurring delivery of millions of tons every week for five years and you get the picture. And that's just the military side. Add to that the overhead of highly compensated private army of contractors, as large as the military presence, plus Afganistan plus US presence in something like 120 countries around the world, plus all the military foreign aid (borrowed money, of course) and that's a lot of straws on the camel's back.

    Not the least of our problems is the executive compensation. In 1953, for example, executive compensation at publicly traded companies stood at 12.5 time the average employee salary. By 2000, the executive compensation rose to 525 times the average employee salary. That means that in 2000, each publicly traded company, on average, had to reduce its workforce by 512.5 average employees, relative to 1950's, in order to support the higher executive compensation. Compare this to the next highest executive compensation in 2000 in the UK at only 25 times the average employee salary. Peter Drucker, the father of modern management, maintained that CEO, as a general manager, is only worth twenty times the lowest employee salary. Since 2000, executive compensation in the U.S. increased at double digit annually while the average employee salary decreased in real terms. We consolidate corporate power at the general management level and disincent the executives with cushy retirement before they even take on step into the corner office. The consequence of this is that we have created a pool of mercenary executives who only work for themselves.

  • Report this Comment On November 26, 2008, at 4:46 PM, leohaas wrote:

    Good to know that we still have 476-14=462 years to fix the problems! And I thought we needed to do something now...

    By the way, in the mean time, feel free to send me some of the fake money you are writing about

  • Report this Comment On December 02, 2008, at 8:23 AM, FOOLBEFREE wrote:

    Great article.

    There are many similarities to the Roman Empire: over extended troops that we cannot afford to pay, and importing a lot more than what we export. The Romans paid their over consumption by printing coins.

    After visiting Italy in 2002, we watched DVDs on the fall of the Roman Empire.

    What the US is doing is very similar. We have military troops all over the world and paying for imports by printing money. We must start doing two things:

    1.reduce government spending, i.e. reduce troops around the world

    2. Reduce our dependency on foreign oil by producing cars and trucks that run on US natural gas while better alternatives are feasible.

    These two things can reduce hundreds of billions of the trade and budget deficits in 1 or 2 years.

    We must start doing something. Doing nothing is not an option.

Add your comment.

DocumentId: 779220, ~/Articles/ArticleHandler.aspx, 4/16/2014 12:55:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement