Without Profitable Businesses, Governments Will Fail
Businesses try to earn profits. If they don’t earn a profit, they eventually fail.
Governments do not earn profits. They tax and consume business profits and individual incomes. If businesses do not earn a profit, governments cannot tax business profits. In other words, business profits must come first and then governments can feed off the successful businesses.
If a government wants to spend more money than it brings in through taxation, it can borrow money from savers and pay the borrowed money back with interest. In short, they may borrow against future tax revenue. That works until they are no longer considered to be credit worthy. They might lose their creditworthiness if the debt grows to a point where they can’t pay it off. This point has been posited by some economists to be when the debt is 90% of GDP. The U.S. government’s debt is now roughly 120% of GDP, and climbing rapidly.
If a government wants to spend more money than it can borrow, it can print more money. (If it can’t print it, it will have to beg for a handout from a government that can print it.) If it prints more money than there are goods backing that newly printed money, the value of each currency unit drops. This is reflected in the higher prices one must pay when using that newly printed money. Taken to excess, the printed money eventually becomes worthless…slowly at first and then suddenly. When the printed money becomes worthless, the government can’t buy things, and businesses fail.
Bottom line: The money that governments need to fight wars with antiquated equipment, support welfare recipients, bail out banks, and shuffle paperwork comes from profitable businesses. It doesn’t do any good to have the world’s largest military if the businesses that support the military fail because the money they use becomes worthless. In other words, there is a limit to how much governments can print/spend. The U.S. government is beyond that limit. Bad things will multiply from here on out.
Robert F. Sennholz