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Localize Our Economy

Economics / Economic Theory Aug 20, 2011 - 05:30 AM GMT

By: Barry_Elias


Best Financial Markets Analysis ArticleTwo centuries and a decade ago (in 1802), the third president of the United States, Thomas Jefferson, stated:

 “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property — until their children wake-up.”

Prescient words, indeed.

During a White House meeting, President John F. Kennedy said to his highly esteemed and brilliant advisers:

“This is perhaps the assembly of the most intelligence ever to gather at one time in the White House with the exception of when Thomas Jefferson dined alone."

Since the inception of our federal government 220 years ago, as a percentage of GDP (income), total government expenditures rose 19-fold (2.2% divided by 40.0%), annual government deficit grew 17-fold (O.5% divided by 8.8%), and total government debt more than tripled (34.5% divided by 110.3%).

Refer to the graphic below for detail.

Year GDP Gov Gov/GDP Deficit Deficit/GDP Debt Debt/GDP
1792 $223 mil $5 mil 2.2% $1 mil 0.5% $77 mil 34.5%
2011 $14.66 tril $5.8 tril 40.0% $1.293 tril 8.8% $16.172 tril 110.3%

Graphic Notes:

1.  Government represents all levels of government (federal, state, and local).
2.  The deficit is an annual figure for all levels of government
3.  Debt represents total outstanding government debt for all levels of government.

Since the inception of the 2008 financial crisis, the U.S. federal government and the Federal Reserve Bank have increased monetary aggregates (e.g., physical money stock, loans, guarantees, and debt issuance) by nearly $10 trillion.

This increase in supply of U.S. dollars, along with its highly uncertain economic prospects, have reduced global demand for the U.S. currency.

The world has been reducing the level of assets denominated in U.S. dollars for some time.

Ten years ago, U.S. dollar reserves represented 72% of total global currency reserves. Two years ago, this figure fell to 64%, and today it is roughly 60%.

Demand for financial and economic stability has increased significantly.

The long term value preservation of gold has been recognized, and it is reflected by the market price. 
Gold is currently trading over $1,800 per ounce, a six-fold increase in 10 years. During this period the Dow Jones Industrial Average (DJIA) was virtually unchanged.

As Jefferson suggested over two centuries ago, large, centralized bureaucracies can ill-serve society. Important issues tend to be dealt with more effectively and efficiently by those most directly affected by them. This implies strong local authority and administration.

From 1792-1902, government revenue was generated primarily from import tariffs and excise taxes. In 1792, more than 90% of government revenue resulted from tariffs. By 1902, more than 80% of government revenue came from an equal distribution of tariffs and excise taxes. In 1913, the formal income tax was instituted.

The graphic below describes government expenditures as a percentage of GDP (income).

Year Federal State Local Total
1902 2.37% 0.56% 3.98% 6.90%
2101 23.58% 8.97% 10.71% 39.55%

Graphic Notes:

1.  Total government expenditures are  less than the total of federal, state, and local expenditures due to
     intergovernmental transfers.
2.  State and local government expenditures were extremely small from 1792-1902.

The paramount insight from these data:

In 1902, local government expenditures represented more than 50% of total government expenditures (3.98% divided by 6.90%), while federal expenditures were one third of the total.

More than one century later, in 2010, local control was halved to 25% (10.71% divided by 39.55%), and federal control nearly doubled to 60% (23.58% divided by 39.55%).

During the past century, local control has eroded significantly, while federal control has grown substantially. The transfer of authority from local entities to those federal have had a devastating impact on our socioeconomic foundations.

Individual involvement is the key transformational force to improve our quality of life: economical, financial, social, political, and psychological.

By Barry Elias,

Barry Elias provides economic analysis to Dick Morris, a former political adviser to President Clinton.

He was cited and acknowledged in two recent best-sellers co-authored by Mr. Morris: “Catastrophe” and “2010: Take Back America - a Battle Plan.” Mr. Elias graduated Phi Beta Kappa from Binghamton University with a degree in economics.

He has consulted with various high-profile financial institutions in New York City.

© 2011 Copyright Barry Elias - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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