7 Tough Lessons For The Next Generation

sevenMartin D. Weiss: From my years advising investors and businesses since the late 1920s, I’ve learned many important lessons.

Please don’t relearn them the hard way. Instead, seek to take advantage of my experiences to better your life.

Lesson #1. Politicians Cannot Truly Rescue our Economy

If the hot air from politicians could power cars and trucks, we’d never have an energy crisis in America.

Time and time again, politicians from both parties have promised to bring prosperity in the midst of difficult times.

And in each case, we had to relearn this simple, fundamental lesson: Ultimately, the government can’t do it. The only power that can rescue our economy is the hard work and sacrifice of millions of Americans.

Any attempt to mandate the level of wages or prices is a joke. Nixon tried wage-and-price controls in 1971, and the end result was the greatest explosion of prices in modern history.

Everyone knows that price ceilings create shortages that are damaging to the economy. And everyone also knows that price floors create surpluses that are equally damaging. And yet politicians of both parties continually seek to tinker with both.

What’s worse, the Federal Reserve frequently manipulates the one price that has the most sweeping impact on all goods and services — the price of money.

In a desperate attempt to create an economic recovery, the Fed pushes interest rates down far below where they should be to balance the supply and demand for money.

Sure, this can help stimulate the economy and drive up stock prices. But it also has more pervasive and perverse impacts. It punishes savers. It rewards speculation. It creates massive shortages of the savings and capital that our country needs to sustain real growth. And sooner or later, those shortages drive interest rates dramatically higher.

Prudent fiscal policy, one of the few things that could put America on the right path for the long term, is another joke.

Every opinion survey I’ve ever seen has shown that people think the government should live within its means — just like any household. In response, almost every Congress and every President promises deficit reduction. But I have yet to see them fulfill that promise.

The only way they know to get the federal budget deficit down is with smoke and mirrors. And their biggest smokescreen is artificial stimulations for the economy. That jacks up income and income tax revenues to the government for a while. And that gives politicians a chance to take credit for a reduction in the deficit. But as soon as the stimulus is taken away, the economy sinks again and the red ink comes back in a flood.

Just look back at all the promises we’ve heard about fiscal restraint.

In 1974, procedural changes were made to the budget process to help balance the budget.

Senators Ernest Hollings, Phil Gramm and Warren Rudman. The promise of their
Senators Ernest Hollings, Phil Gramm and Warren Rudman. The promise of their “Balanced Budget and Emergency Deficit Control Act of 1985″ has been broken decisively and repeatedly.

So did the Omnibus Reconciliation Acts of 1990 (under Bush) and of 1993 (under Clinton).

But emergency spending bills followed on the heels of every hard cutback. Impoundment procedures were tried — and failed. Spending was capped — and promptly uncapped.

And despite all the efforts, they left one of the major causes of the deficit — automatic, out-of-control spending on entitlements — mostly untouched. It doesn’t matter if you’re a Republican or a Democrat or an independent. This is bad news for anyone who wants to see our country embark on a true, lasting recovery.

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