Levi Strauss & Company is number 469 on the Fortune 500 list of corporations. Levi holds $3.135 billion dollars in assets and generated profits of $156 million in 2011 out of $4.411 billion in revenues. Levi operates in 110 different countries and employs 16,200 people world wide. Why am I telling you about Levi’s financial information? Because the asset value of this Fortune 500 corporation is roughly equivalent to what the U.S. government incurs in new debt every single day.
This past fiscal year, the Treasury has increased the net debt of the federal government at an average rate of $3,699,744,466.56 per day. That works out to an annual increase of $1,354,106,474,762.13 in new debt. This is the fifth consecutive year that the government has spent a trillion dollars worth of new debt into existence.
To put that in perspective, if the U.S. government did not incur that debt, the private sector would have the resources at its disposal to create an entirely new enterprise the size of Levi every single day. And since Levi is a private firm, it must operate a sustainable business model that focuses on wealth creation. Levi must produce a product that people are willing to voluntarily pay for in order to sustain itself. The resulting products they create directly improve the human condition. If Levi did not improve the human condition with its products, people wouldn’t pay for them. Thus, they would be run out of business by the market, and those resources would be freed up for other entrepreneurs to utilize.
We know that private businesses directly improve the human condition because of their voluntary nature. All private businesses must face a profit and loss test in a competitive market place, where individual consumers decide what products should be produced by voting with their pocket books. In contrast to this, the state faces no such test with any of its spending. The state forcibly takes physical resources from the private sector either through debt spending or through the spending of taxes it has seized.
It is important to realize that the production of physical resources has a finite limit within the economy. The economy has a finite amount of labor and a finite amount of production capacity. When the state spends money, it redirects the limited resources of the economy into unproductive tasks that are not governed by a profit and loss test. Thus, instead of those $3.7 billion dollars worth of resources going into things like the production of jeans, they are directed into the production of prisons, weapons, bureaucratic administrative waste, NSA data centers, bailouts of private politically connected corporations, etc.This leaves precious few resources left for the production of goods that improve the human condition.
Taxes and debt are not necessarily directly harmful to the U.S. economy. The harm comes when those tax dollars and debt are spent into the economy, which thereby redirects resources away from productive activities into destructive ones. Every form of state spending is simply wealth redistribution. Wealth redistribution cannot lead to a greater expansion of economically productive activities than would otherwise naturally take place within a free market system of private property and private entrepreneurship.
If we take Levi as a simple model, we know that it is possible for $3.1 billion in assets to sustain the creation of 16,000 productive jobs. Does anyone think that the state is able to create 5,840,000 productive jobs a year, that improve the human condition, with its present levels of spending? As I stated in a previous article, Just during Obama’s presidency alone, each tax payer has been made responsible for paying back $64,219.88 worth of new government debt. If each tax payer were forced to pay off the entire debt, each would owe $193,989.72. And that doesn’t count unfunded liabilities. If we count unfunded liabilities, each one owes $1,221,147.51.
All that debt must eventually be repaid. In the private sector, corporate debt is repaid through the building of a sustainable business model. When a corporation takes out new debt, it typically does so in order to expand its productive capacity. Thus, the resulting increase in productive capacity is then used to repay the new debt. However, this is not the case with state spending. The state is not expanding the productive capacity of the economy with the new debt it issues, which means it will not have the means to pay back the debts it is creating in the future.
Given the obvious fact that America doesn’t have the resources to meet its future financial obligations, its sovereign credit rating is eventually going to be downgraded substantially. And when that happens, interest rates will sky rocket. And when that happens, the state will no longer have the tax revenues necessary to meet the interest payments on its existing debt obligations. And when that happens, people aren’t going to lend us any money or sell us anything in exchange for our money. They will demand payment in “things,” rather than paper money. And when that happens, our standard of living will drop to that of a third world country.
To gain a better understanding of our present debt situation, listen to this interview by economist and CEO of Euro Pacific Capital, Peter Schiff.