America’s and Europe’s Ability to Grow and Compete in the 21st Century

It is almost laughable that the Euro currency, battered by its leaders’ inability to keep their financial promises to one another, and for the past year by its inability to save either Greece or Italy from the real threat of government bankruptcy, is worth $1.37. That’s right, the US Dollar is worth 0.73 Euro today. Even Europeans find it rather hard to understand.

The most often given explanation is that instead of investing in Eurozone economies, the European Central Bank is investing its funds in China and Brazil, thereby earning real returns. This, they say, explains why the Euro is stronger than the Dollar - because it is earning returns on its investments, while the Dollar is paying others, mostly banks, who thus earn returns on their investments. How?

In the United States, the Federal Reserve is selling US Treasury Bonds and letting the money (proceeds) stay in banks in the US monetary system instead of sweeping the proceeds up into the Federal Reserve itself. Those extra Dollars being pumped into the US system makes the Dollar worth less because there are more of them in circulation. The banks use the Dollars to buy Treasuries and earn the interest the Federal Reserve pays. Critics of the Federal Reserve policy say that this is the main reason for high unemployment and inflationary pressures.

The Great Depression of the 1930s was caused, as analysts have agreed in hindsight, by placing high protective tariffs on foreign goods coming into the US, which was answered by other countries placing their own protective tariffs until goods were not moving freely enough to support any of the world’s economies. The Depression was also caused by taxing capital at too high rates (by increasing taxes on the rich), and by creating a climate of uncertainty because of President Roosevelt’s efforts to drastically change banking rules, the court system and regulatory schemes.

It that sounds oddly familiar, it is because we are witnessing much the same pattern today.

Whether it is President Obama’s attack on the rich in the name of “paying their fair share”, or his heavy-handed regulatory reforms and tack-on rules that have left business wondering what will be the next shoe to fall, or his Obamacare law that fundamentally changes the way American individuals and employers purchase medical care.

We are seeing the same pattern in Europe, where the latest idea is to tax banks on capital transactions, something which many experts point out would serve only to reduce the availability of money for those who want to use it to create jobs and products.

Until the American Congress acts to cut back on regulation, take back its constitutional duty to control the value of the Dollar, and reduce taxes that punish job-creating businesses, nothing will change very much in America.

In Europe, the problem is the expensive one-currency-for-all Euro (no matter how much it is killing jobs and economic growth) that has driven Eurozone countries to lie about their real government debt profiles, tax citizens at levels above their ability to pay, and seek more and more regulation to solve the problem.  

And, the real worry now is that so many people in the US and Europe are receiving welfare benefits of one sort or another, that they will vote to continue on the present path. This is the shortest road to destroying what is left of America’s and Europe’s ability to grow and compete in the 21^st century against the emerging Asian and South American economies.