Government Makes Good Financial Decisions?

Government Makes Good Financial Decisions?

The country is moving through an uneasy and unexpected post-Cold War period.  Many have commented on the hyper-polarized world we live in, and the fast pace of events which surround us.

It is also an era of empowered individuals … while government continues to intervene and control, we also see the tools of capitalism spreading information, wealth and prosperity like never before.

Nonetheless government can, and still, does big projects on a big scale … for better and for worse.  Considering the size and scope of government action in relation to our money involves taking a look at our top 5, best and worst, government actions involving your tax dollars.

I. Top 5 Government Financial Decisions That Were Great For Our Money:

  1. Jackson’s closing of the first federal bank”: President Andrew Jackson may not have been a man of the people, but he was surely a man for the people.  Enduring a nasty mud-slinging campaign that would make modern campaign consultants blush, Jackson was elected as a “populist” (sound familiar) and went on to dismantle the second national bank and allow the charter to expire without renewal.  This was described in the historical record as the “Bank War”, as Jacksonian populists did not want the country to be beholden to the “bankers and the speculators.”  This is considered a great decision because it reduced, at the time, volatility in the value of the US currency, as the national government was rife to print money on a regular basis.
  2. Kennedy tax cuts”: President Reagan wasn’t the first to endorse the “Laffer Curve,” or rather – “supply-side economics.”  Democratic President John F. Kennedy cut the tax rate 20% and was quoted as saying:  “The paradoxical truth is that the tax rates are too high today and tax revenues are too low and the soundest way to raise revenues in the long run is to cut rates now.”  Tax revenue and GDP soared after Kennedy’s tax cuts.
  3. “Stealth Bomber Project”: A defense project … spending money … really?  Yes, stealth tech made its way through the commercial economy and its 1980s technology remains state of the art some 30 years later.  Stealth allowed less expenditure on more costly systems and the overall investment made us save money, advance technology, and protect America at a lower cost.  That was a great investment.
  4. “The Apollo Program”: Yes, again, spending money, not saving … but the return on investment has been extraordinary. Velcro … microwaves …. microwavable food … LED lights … ear thermometers … anti-icing technology for planes … radial tires … firefighter equipment … enriched baby food … cordless vacuums … solar energy cells and technology … the list goes on and on.  The public prestige of a “can-do” America was easily matched by the practical commercial gains from the project.  Tax money invested wisely, with a significant rate of return.
  5. “The Reagan Tax Cuts”: No political philosophy, no policy prescription, nothing in the field of economics matched Ronald Reagan’s historic tax cuts in 1981 and his Tax Reform Act – passed with Democratic support – in 1986.  By reducing marginal tax rates from 70% to 28%, Americans kept more of their money, jobs exploded, GDP exploded, economic growth exploded, businesses expanded, American businesses were infused with entrepreneurial spirit and vitality, and … tax revenues increased as more economic transactions and wealth creation led to more money to tax!  Minus the crash in ’87, and the recession of ’92 caused by George H.W. Bush’s tax increase, and you had essentially 18 years of uninterrupted wealth and economic growth.

 

II. Top 5 Government Financial Decisions That Were Terrible For Our Money:

  1. “Going off the Gold standard”:  Inflation, rising interest rates, economic stagnation, “stagflation” … going off gold and letting the American dollar float relative to every other currency was the Nixon Administration’s last gasp at funding the Vietnam War AND domestic spending at the same time without fiscal restraints.  The recessionary 1970’s were proof of how bad the decision was … our modern $20 trillion debt is confirmation.
  2. “2009 Stimulus Package”: Almost $1 trillion borrowed US dollars, passed without a single bi-partisan Republican vote in the House, was to help the economy recover from the “Great Recession” which started in 2007 but was best known from the 2008 banking collapse.  However, it quickly became known for what non-Keynesian economists predicted:  a boondoggle of a failure.  “Shovel Ready Projects” were not so shovel ready … Solyndra payouts to Democratic Party donors … sub-2% growth … this should have been the final nail in the coffin for Keynesian economic theory.
  3. “Smoot-Hawley Tariff Act”:  While the Great Depression seemingly started from varying economic events leading up to the Stock Market Crash of 1929, the consensus view among economists was that “The Tariff Act of 1930,” commonly known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, greatly expanded and exacerbated the effects of the depression, and most likely extended the economic pain and misery for the years that followed.  The act raised U.S. tariffs on over 20,000 imported goods and reduced the US Gross Domestic Product by more than half.
  4. “George Bush’s TARP Bailout”: Some of you are reading and saying to yourself – “worse than Smoot-Hawley?”   TARP (Troubled Asset Relief Program) bailed out bankers who advanced products to clients that were not credit-worthy, knowing they had the implicit guarantee of a government bailout through the Fannie and Freddie underwriting of mortgage notes.  The government encouraged, and in many cases required, the bank’s loan to risky borrowers.  The bailout took taxpayer money – borrowed from China – to salvage failing banks and not one bank President or leader lost their jobs or were held accountable.  We never changed our banking practices, and we simply borrowed our way out of a crisis.   Moral Hazard on steroids …. debt well into the future … no one held accountable … we have yet to learn, or pay the price, for the banking collapse of 2008, and TARP covered up everyone’s bad decisions.
  5. “Creating the federal income tax”: Federal income taxes existed in the 19th century primarily to fund the Civil War.  But they expired after the conflict.  Another income tax was passed in 1894, but in 1895 the Supreme Court ruled the tax unconstitutional (Pollock v. Farmers’ Loan & Trust Company, 157 U.S. 429 (1895), affirmed on rehearing, 158 U.S. 601 (1895)).  So, in 1913, the public and the Congress finally passed the 16th amendment, allowing for a Federal US Income Tax.  How did society and government function before they had an income tax?  Needless to say, federal income taxes have led to a lessening of personal wealth, and a limiting of personal freedom.  Combined with our current debt load, the evidence has shown it has simply empowered leaders incapable of balancing a check book.

Our current Congress and President passed needed tax reform.  And as we know, cutting taxes has always brought in more revenue to the government.  At the same time, tax reform without government reform – cutting Congressional staff, cutting Congressional pay, reducing executive branch costs, streamlining government – it is only one half of the fiscal equation.  We are enjoying a record stock market and high-flying consumer sentiment.  But our structural fiscal problems, and debt load, is not being addressed.

The good and bad of government decision making will have profound affects on the market, and on your portfolio.  One way to avoid that volatility is utilizing principal protection products … safe, simple, and reasonable rates of return.  Call now! 877-912-1919

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