Categorized | US Dollar Collapse

Economic Reasoning; A Two-Faced Coin

What benefits a ‘part’ but devastates the ‘whole’ is ultimately detrimental to all components of the entity. A government policy that benefits one group of society while undermining the economy as a whole is destined for failure. To understand economics all interactions among all groups must be accounted for; the impact of a policy on one group cannot be emphasized at the expense of the other components that form the whole.

The destructive nature of quantitative easing programs are clear at the macro level. At the micro level, however, such programs clearly do benefit some portions of society, and largely at the taxpayer’s expense. The burden of extra money in circulation is left on the taxpayer as extra debt is assumed. Precisely because this debt needs to be payed back with interest, additional revenue from the government must be created in order to offset the higher interest payments. The result: government must grow and the private sector must shrink accordingly. Real growth in an economy requires the elimination of superfluous government programs and unnecessary taxes. Let the free-market decide where capital should be invested, as it is a proven source of sound money and efficient economics.

When the allocation of capital is left largely in the hands of government, great tragedies occur. Let us examine one instance of how a set of government programs and policies can undermine an entire economy: the example of education. Government corporations like “Sallie Mae” (SLM) have given the carte blanche to banks to loan money to students, qualified or not, because the government provides a kind of insurance policy should these very students prove unable to repay their loans.

Through Sallie Mae, the government has created a situation where students, who should never have been given such sums of money based on their probable inability to repay their loans within a reasonable timeframe, were lent money; these very loans are insured by the government, so that Sallie Mae takes little risk. With this ‘free’ money, students can continue to attend the universities of their picking. With such a constant flow of eager freshmen every year, the universities feel no need to take a closer look at their overinflated tuition rates; in other words, these new loans pave the way for artificial stimulation into college tuitions. The stimulation which, if these government corporations did not exist, could never have been.

The real-estate bubble has bursted; the college tuition bubble is next. Many victims of this government-insured scheme in America are mostly young Americans who have graduated with debt levels almost unimaginable and largely unrepayable for a multitude of reasons.

The financial leaders given credence by the media promote the continuing printing of money and produce destructive economic policies that benefit few. On one side of the coin, the positive side, students are going to college and being educated; a lofty aim, indeed. But on the flip side–and this is the side hidden from the public gaze–there is the problem of severely artificial stimulation in college tuitions, rendering it increasingly expensive for fiscally realistic students to go to college and thus, creating a vicious circle of more demand for such student loans.

In the end, these government corporations which should, theoretically, be helping students, are actually causing inefficiencies in the market, creating a massive bubble which, should recent history serve as our guide, will inevitably end in a crash.

If individuals do not have a good credit rating, they should not be lent money by the banks. Worse yet, governments should not be acting as their guarantors.

All individuals should be accountable for their mistakes and be reprimanded for irresponsible financial decisions; individuals who are not in a position to attend expensive (read: overpriced due to artificial stimulation) universities should not be given free rein to capital from government-backed loans; otherwise, this ultimately shifts the problem to the taxpayer in the event of default.

Of course, while the immediate responsibility lies with the individuals who have eagerly sunk their teeth into their piece of the university pie, the higher accountability rests with the government which, through false hopes, ephemeral illusions, and irresponsible policies, have led the believing public in such a downward spiral.

Sallie Mae is a government-made institution, designed “for” the people; and anyone who has partaken in its services was following a course set about by this higher authority, the government.

Before any polices are carried out, economic reasoning should be examined for all groups. Due to the short-sightedness of many of our leaders, however, when a policy is seemingly working for one group within society, they think that if it creates a “good” for the group that they are targeting, then it is good for the whole economy. The repercussions of their actions not only on the rest, but also on the group they are supposedly helping, are not carefully examined beforehand. This fallacy is what destroys any real economic growth and creates future problems in an economy as a whole.

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