The Fiscal Cliff; are We Too Big to Fail

The 'Fiscal Cliff' seems to be the same as the 'Too Big to Fail' crisis that was created for the banking and some manufacturing industries. It seems to me that the only reason we have this problem is our Federal Government and its subsidiaries (states and local government) has gotten to the size where it impacts not only our own, but global economies, by every little twitch they make. To the astute observer one can easily see that they've become the elephant in the room. Government total spending now makes up over 40% of the national GDP (

The difference between 'Too Big to Fail' (TBF) companies and government, which now still owns part of those TBF companies, is who controls them and how they get their money.

A private concern, whether private or publicly funded, receives their investment to build by voluntary participation of stock holders or financial organizations with the expectation of a return on their investment through increased equity value or interest payments. Their stock holders control the direction and exposure to risk in an attempt to gain greater returns for themselves. If an individual or organization finds the risk too great they can divest themselves of the risk through sale or conversion of their position.

Governments are ostensibly owned by the people they serve. For most of us this is an involuntary position simply predicated by where we choose to live. Many of us choose to put our roots down for reasons other than the governmental bodies that have jurisdiction, be it climate, proximity to water, family and friends, or the myriad of other choices. Certainly some of that choice is created by government provided amenities such as public schools or safety, but much of our choice has comes from other aspects. We are also somewhat constrained by simply being born in a particular country as to where we may reside. Lastly, governments have been given the ability to tax. This is, again, an involuntary fee to those individuals who feel the risk is too great or the outcome is subject to failure. It is very difficult to divest yourself of government actions.

When the TBF companies faced failure they looked to government to bail them out of their precarious position. This was accomplished in many instances with loans, loan guarantees, and other investment vehicles from our Federal Government with some participation at state and local levels. While some individuals agreed with government bail-outs, others found the risk unwarranted. The governments simply borrowed money to cover their investment with little or no risk assessment thereby driving their balance sheet much deeper into the red with only a marginal chance of recovery.

Our government has increased its size and hunger to the point where it controls economic activity by the percentage it plays. Its only source of income is its ability to tax. Borrowing or creating more money is not income and only adds to the need for more income. There will be a point, more likely sooner than later like a house of cards stacked too high, it will eventually crumble under its own weight. Due to its size, far larger than any of the TBF companies combined, its financial collapse will create unprecedented global chaos. There is a limit to the amount of income available through taxation. 100% is the limit and we are progressing there steadily every year as public debt climbs.

The only long term solution is the reduction of government both in size and economic participation. This isn't a 4 year plan, a 10 year plan, but a much longer vision that needs to be addressed now. Unfortunately those voted in power at our highest government levels by in many cases slim margins don't have the will, creativity, or foresight necessary to return us to self-determination.