Financial Responsibility

This blog post is in response to the article in the New York Times titled "I.M.F. Chief Chastises Policymakers" from August 27, 2010 by Jack Ewing. In the article, Christine Lagarde is quoted as saying "'The risk of recession outweighs the risk of inflation'" and Jack Ewing paraphrased her as saying "banks, whose fragility is a key element of the crisis in Europe, should be recapitalized [aka keeping more deposits as cash], forcibly and with public funds if need be."
Those statements sound a little off to me. She's suggesting that the public policy makers in Europe and the United States have somehow dropped the ball by not committing enough funding to the financial crisis by handing money to the banks to offset their debt obligations. Obligations, I might add, that are the responsibility of private corporations and private individuals who have made their own ill-advised investment decisions by investing in risky assets. This is not to mention that the U.S. government has already made the poor decision of committing hundreds of billions of dollars in the way that Lagarde suggests, yet she says we need more.
At least in the United States, it's not the responsibility of the government to run private corporations. Moreover, the government shouldn't own any stakes in such entities, although it does. You can't have the same people who make and enforce the laws by which corporations must adhere to, be part owners in those same corporations, and expect them to behave in a fair and ethical manner. Doing this becomes a conflict of interest for governing entities.
The comments of Christine Lagarde and company sound like those of people who think they know what’s best for people more than the people themselves. She talks about how we need to force the banks to capitalize, for the good of our collective countries, and that we should do it on the backs of taxpayers. But who would these actions really benefit? Not the people paying taxes. Will saving these banks miraculously recover the life savings lost by all of those soon-to-be-retirees and give the rest of the people their jobs back? No it will not.
The fact of the matter is that capitalizing the banks with the assistance of public funds will continue to put money into the pockets of the very people who have created all of the financial catastrophes that we’ve experienced in modern times. It will take money out of the pockets of those who work and pay taxes and those who are responsible with and save their money. It will inflate the money supply and devalue the currencies by which we all store our collective wealth. It will make the central bankers more powerful and it will allow governments to gain even more control over than they already have. And if an economic recovery happens at all, it will be in spite of, not because of, the actions of these governments and central bankers.
The banks and the private investors should take responsibility for their own problems, and act accordingly. The banks should capitalize themselves, or they should go out of business. Private investors should manage their money more wisely (including soon-to-be-retirees) or they should go broke. Nobody should be bailed out of their own private financial obligations. They should pay the consequences of their actions themselves, period.

Why Higher Taxes Will Destroy Our Economy

For any product that you sell, there is a pricing strategy involved in which you raise the price to a certain point. The place where you want to stop increasing the price is the point at which it causes reduced sales volume to such an extent that it reduces profits. This is a basic economic principle.

The same principle can be applied to taxes. The government needs to collect a certain amount of taxes to provide the income necessary to build and maintain an infrastructure for businesses to function within. After a certain tax level, however, the amount of money taken out of the economy actually reduces the amount of tax revenue that can be generated.

This is the current state of things in our country. Our government entities (municipal, county, state and federal) long ago increased taxes to a point at which it became prohibitive for businesses to thrive and in effect caused a reduction in potential tax revenues, in effect cannibalizing the system.

What happens when individual states increase their taxes? A great exodus occurs like the one in my home town Buffalo-Niagara region to other states with more business-friendly tax structures. I am seeing a similar trend in California in the few years that I've lived here (My old roommate lost his job because the company moved to Nevada for its lower taxes).

What do you think happens when the federal government raises taxes in the same fashion? Our jobs get shipped overseas. Lower wages in third-world countries are partially to blame for this outsourcing trend, but the problem is exacerbated by the relatively high taxes and prohibitive regulatory framework that companies and workers encounter in the United States.

In a short while, our Senators and Representatives are going to attempt to once again increase taxes. This will do nothing but worsen economic conditions with a return to the downward spiral that started in 2008. This is exactly what happened at the beginning of the Great Depression. Let's not let history repeat itself. We, as the people of the United States of America, need to create such an uproar against increasing taxes that our Representatives and Senators have no choice but to reverse this trend. We actually need to cut taxes to stop the cannibalization of our economy by its government.