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Double Trouble for the Economy
How the low-government era morphed into the big-government era

By Bob Stokes
Thu, 19 Apr 2012 16:00:00 ET

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1913 was a pivotal year in the life of our national economy.

In the decades before, the U.S. economy boomed as it never has since.

This was the Gilded Age, which obviously did display ostentatious wealth: Newport mansions, luxurious yachts and over-the-top parties -- the extravagance of which would make Croesus blush.

On the other hand, the man who earned the title "world's richest" had a more enlightened philosophy, as explained in his 1889 article The Gospel of Wealth. Steel magnate Andrew Carnegie meant what he had written, and eventually gave away much of his fortune.

Indeed, the era when Carnegie, Rockefeller, Vanderbilt, Morgan and Harriman flourished was a time of real wealth creation -- and unprecedented advances in manufacturing, transportation, and communication.

It was also a time of low-government. But that era morphed into big-government with two acts of Congress in 1913: the income tax and the central bank. They proved to be double trouble for the economy.

[The chart below] shows one of the results of setting up these twin pipelines transferring money from people's pockets to the government: Suddenly the government could afford wars. U.S. involvement in World War I, World War II, the Korean War, the Vietnam War, the Gulf War and the Iraq War, not to mention all the bombing going on today in Afghanistan -- has been funded almost entirely by income taxes and the monetization of Treasury debt by the Fed.

Elliott Wave Theorist, January 2012

Here's more from the January Theorist:

The numbers in [the chart], by the way, are not telling the whole truth. Government has spent trillions more dollars than it has collected in taxes, by borrowing. Every penny of its debt is another burden on taxpayers...the federal government gobbles up 25% of the entire Gross Domestic Product. And GDP includes government spending. Take it out, and the feds spend one-third of all production. The true cost of government, however, is even higher than that, because state and local government spending, which is huge, is excluded from the chart.

....The bad news is that results of the shift to big government are on the brink of getting much worse.

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Tags: Bob Prechter, central banks, debt, deflation, gross domestic product (GDP), history, inflation, U.S. Federal Reserve (the Fed)

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