Get Your Buckets Ready...

This blog was originally posted about a month ago which I wrote regarding current economic woes...

With all that's going on in the news today, I decided to jump on the bandwagon to talk about the biggest event happening at this moment: The proposed 'bail out' of the financial industry. Here are my thoughts…

Two reasons why it's a terrible, TERRIBLE idea:

First – it will cause an inflationary spike. What happens when the government decides to put $700 Billion into a bail out plan? Well for starters, it adds $700 billion into the US currency circulation which in turn, will devalue the money that is already in existence – ALL of it; all the money you save, earn, or spend will buy less than it does now. You will immediately take a pay cut; the number of dollars you bring home will be the same, but they will purchase less. This is extremely important for people to understand because it is the fundamental concept behind a currency system that is based on government promise. Our currency used to be based on gold, but that was changed in 1970 so the government would have the ability to create money as they saw fit. Being able to create money gives the government the ability to invisibly move wealth from the people back into the hands of the government without creating additional taxes. This bail out plan would take $700 billion of value that the American people currently hold, and move it into the hands of the government to redistribute back to the largest and most profitable companies of our time. Does that sound fair?

Second – a bail out plan sets the stage for government favoritism for certain businesses. One of the risks of business is that one day, you might go out of business. 80% of businesses in this country fail in the first 5 years. Out of the 20% who survive only 80% of them make it an additional 5 years. Going out of business is part of business. Our country was founded on free enterprise. Giving or loaning money to a big company just so it can remain a big company is un-American at its very core. Why is it, that CitiGroup got a multi-billion dollar bail out 6 months ago because it was in 'such grave trouble' and now only yesterday it was in good enough shape to purchase Wachovia? The answer is that CitiGroup was never in as bad trouble as we thought, but they were able to get the favoritism of the US government to give them an unfair advantage over other financial service companies. Again, this is about as un-American as it gets.

Large companies should not be immune to failure. The government never stepped in to help my dad's small photo business pay for a machine that he got a bad loan for – he was on his own to figure it out and fight through the courts.

If large companies never failed, then when would newer and more innovative companies be able to rise to the top? What's the reward for a company that does everything the RIGHT way?

I think the government should focus on fixing the true problems behind the nation's current economic woes:

• Large corporations give huge sums of money to congressmen and other lawmaking officials in exchange for preferential treatment, tax breaks, and laws that specifically give them advantage over their competitors. It keeps the little guy down and stifles invention, innovation, and the general propagation of new ideas. It should be stopped completely.
• Include financial education classes mandatory for school system accreditation. American citizens get no financial education in the K-12 mandatory schooling we are all supposed to have. Teaching young people how loans, credit cards, saving, and investing work would give them a fighting chance when it comes time to make decisions. They would no longer have to just assume that the banker, loan officer, or car salesman is giving them the right information.
• Add taxes to companies who utilize overseas labor to equalize the cost-effectiveness of outsourcing. Outsourcing lowers the wages of jobs here in America. Low wages are the main driving force behind much of our economic problems. 45 years ago, the average middle-class American family owned 1 house, 1 car, 1 TV (the highest form of consumer technology at the time), paid for childrens' college, saved for retirement, and took yearly vacations – and it was all done on a single income with no credit cards, no car loans, and no student loans. Today, the average middle-class American family relies on 2 fulltime jobs, 1 part-time job and owns 1 additional car. They also have loans on both cars, a 30 year mortgage (45 years ago it was a 10 or 15 year mortgage), student loans, and about $10,000 of credit card debt.

So that's my deal for now. Maybe if the cost of living in the past 45 years had gone up by the same 1000% that incomes had, we'd be fine. But the solid truth is that it has gone up by about 10 times the rate of our incomes. If our incomes kept up with the cost of living, we as a nation, would not rely on credit cards, car loans, student loans, or indentured servant-ish 30 and 40 year mortgages on our homes.