Why The Stimulus Hasn't Worked. And Won't Work. Ever.

"We've got to keep spending, to keep from going bankrupt."  — Vice President, Joe Biden

Brilliant observation, Joe. No wonder the economy is on life support.

Think of the U.S. economy like a household. If you were in trouble financially, how would you be FORCED to behave?

1. You'd cut spending dramatically.
2. You'd stop all borrowing immediately and pay down existing debt as fast as possible.
3. You'd refuse to lend anyone money.
4. You'd stop all charitable giving until you got back on your feet.
5. You'd try to be as productive as possible, perhaps taking on a second job or starting a new business to bring in more money.

The U.S. government doing the EXACT opposite, isn't it?  Borrowing isn't being curtailed. It's increasing exponentially. Spending isn't being cut. The bigger the hole gets, the more the politicians keep digging. 

If borrowing and spending what you don't have won't rescue your household from financial ruin, how can it possibly remedy the economy's predicament?

It can't, because unrestrained borrowing and spending is the antithesis of financial security.

The economy, we're told depends on credit. That's exactly backwards, and is no more correct than if you'd said your own prosperity depends on credit. It doesn't.

Credit depends on the economy and the existence of capital, which is only accumulated through savings, not spending. The only way you can truly stimulate the economy in a lasting way is to cut the burden of government immediately, dramatically and permanently.

The U.S. government is destroying value by increasing spending astronomically. That's why the U.S. dollar is in a free fall. A conceptually bankrupt plan cannot work, and President Obama cannot reach his stated goal of halving the deficit by 2013 on the current track. Our economy will not soon spring back to health. The more the government spends and the more it interferes in the financial system, the riskier every entrepreneurial or investing endeavor becomes.

We only have to look to Japan for an example of the folly of blindly embracing the desperate delusion that it's possible to borrow your way to prosperity with stimulus by running deficits of over 200% of GDP.

After 10 stimulus packages, Japan had little to show for its efforts. It was what economists call a "Lost Decade." Make that TWO Lost Decades! 

During the '90s, Japan's economy grew a paltry +0.5% a year — way down from a +3%-plus average in the preceding 20 years. And its net wealth plunged by -$16 trillion, more than three times the size of the Japanese economy.

Japan does have one lingering legacy from this: a Total Debt of roughly 200% of GDP, the developed world's highest. This has and will continue to hinder Japan's economy and, along with aging demographics, slow economic and productivity growth for the rest of this century. 

Two decades of borrowed and spent stimulus have failed miserably in Japan, which is now drowning in debt.

Are we wise enough to learn from Japan's mistakes or foolish enough to follow Japan down the road to fiscal and financial ruin?