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Our Federal Government Is Twice as Bankrupt as DetroitBy
Wednesday, July 31, 2013
Detroit declared bankruptcy a few days ago.
I've written, for years, about how Detroit should serve as a stark warning to Americans who believe in liberal social policies, like highly progressive taxes and expensive social safety nets.
These socialist programs don't cure income inequality. They merely destroy wealth by reducing incentives for building businesses and encouraging dependency. That's why societies with lots of government spending typically have few civil institutions and a small middle class.
Here's the message our politicians on both sides of the aisle seem to miss: 50 years ago, Detroit was one of the largest and wealthiest cities in the world. Nearly 2 million people lived there, and it enjoyed the highest per-capita income in the United States.
Then, in 1960, everything changed.
Liberal Democrats came to power (and have held power since). Their ideas about using the government to build a "Great Society" – using the government to provide a cradle-to-grave social safety net – have slowly transformed Detroit from the wealthiest city in America to a hellhole.
Detroit's population has declined by almost 70% since 1960. Roughly half of the people who remain are functionally illiterate. More than 60% live below the poverty line. And roughly half of all adults don't work. Only about one-third of the city's ambulances are in working order. Almost half of the streetlights don't work. It takes the police an average of 58 minutes to respond to emergency calls. The violent crime rate (no surprise) is five times higher than the national average.
It is shocking to realize that only 50 years ago, Detroit was the shining example for the world of capitalism and civil society. It doesn't take long to destroy wealth.
Now consider this... Detroit went bankrupt with total debts of around $20 billion. That's roughly $28,000 per remaining citizen. That's nothing. The debts that the U.S. government has amassed over the same period (the last 50 years) are vastly larger.
Today, all Americans owe more than $16.7 trillion on the federal level – that's nearly $54,000 per citizen and nearly $150,000 per taxpayer. How many Americans do you think realize that our federal government is twice as bankrupt as Detroit?
Detroit is a living case study of why government efforts to redistribute wealth don't work. But instead of recognizing any of the lessons of the catastrophe, OBAMA! promises more of the same policies.
Meanwhile, his government is in far worse shape than the city. The only real difference is the president and the federal government are still able to print their way out of trouble, using the Federal Reserve's ongoing manipulation of the U.S. Treasury market.
But no nation in history became wealthier by printing money and buying its own government's debts. In every case, inflation soon destroyed the economies and wiped out private savings. Rates on the U.S. 10-year Treasury bond have recently moved from 1.6% to 2.6% – in the face of continued Federal Reserve buying of $85 billion a month.
The dream that the government could provide prosperity to the residents of Detroit has come to its inevitable end. The dream that the federal government can provide prosperity to the entire country is even more delusional. It will come to a far worse end.
Printing trillions in new dollar bills to facilitate the madness won't prevent the inevitable bankruptcy of our country. It will merely gut the middle class of its savings and its wages first.
Believe me... this will come to pass. It will not take another 50 years. Maybe 10.
Regards,
Porter Stansberry
Further Reading:
Porter has been following the crisis in Detroit – and the rest of the country – for years. In 2009, for example, he told his readers how the Motor City's history of socialist experiments laid waste to what was once among America's most vibrant metropolises. Read more of his commentary on America's related challenges right here:
This Is Why There Are No Jobs in America
"If you're one of the rare, lucky, and hard-working people who can create a new company, employ lots of people, and satisfy the public... you'll end up paying me more than 75% of your income over your life. Thanks so much." (You'll also find a visual presentation of this idea in this brief video.) Market NotesTHINGS AREN'T ALL THAT BAD... JUST ASK RETAILERS Another week goes by... and the American consumer still lives.
Over the past few years, we've featured running commentary on how the U.S. economy is doing better than the pessimists would have you believe. We've pointed out the soaring profits and share prices of hotel and home improvement chains as evidence. Today, we provide an update on another key idea... retail.
A useful way to track retail stocks is with the S&P Retail Fund (XRT). This fund is comprised of consumer stocks, like Netflix, J.C. Penney, Best Buy, Whole Foods, Tiffany, Macy's, Saks, and Men's Wearhouse. It rises and falls with America's shopping habits.
As you can see from the chart below, America is still shopping. Last summer, this fund traded for $57 per share. Over the past 12 months, shares have climbed past $80 to reach a multiyear high. Sure, the American economy has problems, but as long as XRT is soaring, we have to say things aren't all that bad.
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