I believe that due to American Exceptionalism, the United States is on the verge of another dramatic period of economic growth. Our nation is far from perfect; but we learn from our mistakes, change dramatically, and move on. After three years of failed socialist efforts by governments around the world to deficit spend their way out of economic recession; America is re-embracing our exceptional belief that sovereignty belongs to the individual and not our political ruling class.
America’s new commitment to deficit reduction was made clear by the stark contrast this morning between President Obama’s address to the American people on negotiations with Republicans to cut $4 billion in budget deficits through spending reductions or tax increases; versus the anarchy of Europe’s efforts to address the Greek sovereign debt crisis. Just as the President was emphasizing that debt reduction was important for U.S. jobs growth; Athens rioters were burning down the Greek Finance Ministry as punishment for their socialist leaders accepting another $150 billion bailout from Germany and France, after Greece squandered last year’s $100 billion bailout.
The protests are being led by Greek Communists affiliated with PAME, the consortium of 280 trade unions that dominate Greek politics and whose member’s salaries are being paid by the bailouts. The protestors erected gigantic banners on the Acropolis hill overlooking Athens, stating: “People Have The Power and Never Surrender – Organize – Counter Attack”.
To an American outsider, watching the trade unionists bite the hand that has been feeding them at the rate of $300 million per day seems like a bazaar sense of entitlement. But an examination of the consequences to German and French banks if there is a default by Portugal, Italy, Ireland, Greece or Spain (the PIIGS of Europe); demonstrates the socialist borrowers have achieved “too-big-to-fail” dominance over their German and French lenders. As compared to U.S. banks below; leverage is twice as high for French banks and two and a half times for German banks:
IMF Estimates Average of Bank Leverage by Country
Nation U.S. Italy U.K. France Germany
Banking System Leverage 13 18 24 26 32
There are really only two sets of policies nations adopt in the hope of generating economic growth; trust in the chaos of markets to create more supply and reliance on government management to create more demand. When given the choice of betting their future on go it alone “trust in chaos” versus the communal “reliance on management”; the vast majority of people around the world will choose management over chaos. Once citizens accept that increased government spending is good; politicians will answer with more and more spending is better. This communal reliance on the skills of government managers to create economic growth germinated the egotistical over-reach now playing out in European debt crisis.
The situation America faces today with no economic growth, failed government stimulus programs, credit contraction, stagnant real estate prices, and fear that communists will over-take us is shockingly similar to the grim economic environment of the late 1970s. Shortly after President Ronald Reagan was elected in 1980, he famously stated his strategy for economic and military victory in the Cold War: We win, they lose.” Critics screamed his rhetoric discouraged compromise and reeked of an arrogant attempt to revive “American Exceptionalism.”
Reagan would have actually agreed with his critics. He knew the term American Exceptionalism was coined by the American Communist Party in the 1920s to explain their deep frustration with the hostility of the American worker toward socialism: “thanks to its natural resources, industrial capacity, and absence of rigid class distinctions, America might for a long while avoid the crisis that must eventually befall every capitalist society”. Reagan understood that Americans share an ideology of egalitarianism, individualism, populism and laissez-faire. His economic policies sought to shrink the growth of government spending, reduce income tax and capital gains tax, cut Government regulation, and control the money supply to reduce inflation. These policies vanquished the Soviet Union and rekindled two decades of strong economic growth.
America is exceptionally ahead of the rest of the world in beginning to shrink our bloated budget deficits. American politicians from both ends of the political spectrum are swearing off their pathologic addiction to leveraged debt. Congress is debating cutting the corporate tax rate, which is the second highest in the world. President Obama announced he instructed 30 federal agencies to repeal or modify regulations to reduce reporting requirements and save businesses billions of dollars in compliance costs. Fed Chairman Ben Bernanke recently stated, after withering criticism that his QE2 stimulus created inflation, that he has no plans to further leverage the U.S. government’s balance sheet.
This change in attitude by our political leadership is directly traceable to a voter rebellion against $5 trillion of failed deficit spending, determination to avoid a European type financial collapse, and a demand for a return of the American Exceptionalism of We Win!