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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Tuesday, September 30, 2008

Passage of the Day....

From a year-and-a-half ago....
America’s gaping current account deficit didn’t just appear out of thin air. It is an unmistakable outgrowth of an extraordinary deficiency of domestic US saving – a net national saving rate that plunged to a record low of just 2% of GDP over the past three years. Lacking in national saving, the US, with its penchant for strong growth, had no choice other than to import foreign saving from abroad – and run massive current account and trade deficits to attract the foreign capital.
A trade deficit is the mirror image of the savings deficit. As savings fall, the trade deficit rises. So, America's tax policy that is punitive against savings therefore encourages consumption and the accumulation of personal debt. this is where we are now. As we have seen in the recent 12 months, the implosion of the credit markets will cause a drop in consumption greater than the decrease in income. Savings will increase and the trade deficit will decrease dramatically. Unfortunately, due to bad government policy over the past 70 years, the markets were unable to make the small adjustments necessary and now the markets will make the adjustments necessary without government intervention.


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