America: More Socialist Than Canada?

For years, many Americans have smiled and chuckled at their poorer Canadian neighbors and their quaint ideas about government and economy. Things are so different up north—with all the funny-colored paper money, national health care and the amusing accents. Then there are all those inefficient, government-owned “Crown Corporations.” And how do all those good-natured citizens put up with tax rates so high they would send most other North Americans into deep depression?

Even Canadians living in the U.S. often crack jokes about conditions in the land of great northern expanse. Most Canadian conversations eventually get down to two things: the weather (an important topic in a land where one bad choice means you can end up with your tongue frozen to a metal pole or lose fingers to frostbite—yes it happens), and the Canadian economy—specifically how it would be so much better if it wasn’t for such big government and high taxes.

So it is quite astounding to see so many Americans now looking to Canada as a model for America’s economy!

The most recent example of America’s move toward Canadianomics was the federal government’s decision to nationalize Fannie Mae and Freddie Mac, the country’s two gigantic—and heretofore private—mortgage holders.

Uncle Sam is now the proud owner of almost half of all mortgages in the nation. Did you get that? The government owns one out of two mortgaged homes in the country—and all the extra debt too.

Never mind Canada; this situation invokes visions of Russia.

Over the past couple of years, U.S. officials have cried foul over Vladimir Putin’s state-orchestrated takeovers of the private sector—repeatedly criticizing him for grabbing oil and energy companies and military manufacturers. But in a way you have to give Putin credit. At least he seized companies that boosted government revenues. Fannie and Freddie have the potential to become a black hole sucking up hundreds of billions of tax dollars.

The $5.2 trillion takeover of Fannie and Freddie is “the greatest nationalization in the history of humanity,” reports Nouriel Roubini’s Global EconoMonitor (September 9). Although that assessment is a bit sensationalistic, the seizure so far dwarfs anything Putin ever did, and makes socialist Hugo Chavez’s asset grabs look like peanuts.

For the last two decades “after the collapse of the ussr, the fall of the Iron Curtain and the economic reforms in China … the world economy has moved away from state ownership,” says Professor Roubini. “This trend was aggressively supported by the United States that preached right and left the benefits of free markets and free private enterprise” (ibid.).

But this year, the “free market for all” rhetoric is questionable. In America it seems more like socialism for the rich—where the profits go to capitalists in the good times, and then in the bad, the government comes to the rich people’s rescue, and taxpayers get stuck with the bill.

No, America isn’t just becoming more Canadian. It is going a huge step further, according to Roubini. Federal officials “have now turned the usa into the ussra (the United Socialist State Republic of America). Socialism is indeed alive and well in America …” (ibid.).

But it is not just the fact that the Treasury is putting the taxpayer on the hook for massive fallout from corporate greed, while giving domestic and foreign bond holders a trillion-dollar free ride.

It is not just the fact that the Federal Reserve Bank has swapped hundreds of billions of U.S. treasuries for practically worthless junk subprime mortgage-backed securities with banks like Morgan Stanley and Lehman Brothers to try and keep them afloat. It is not just the fact that the Federal Reserve itself provided the money for J.P. Morgan Chase to buy failing investment bank Bear Stearns either.

And it is not just the fact that for the first time since the Great Depression the government has created a whole host of other bailout facilities (taf, tslf, pdcf) to socialize the losses of non-bank financial institutions, or the fact that the government has become the insurer for all individual bank deposits up to $100,000.

Now a whole other host of industries are lining up for government lines of credit too: $50 billion for GM, Ford and Chrysler, billions more for the airline industry. Going forward we will see the line of billion-dollar handout-seekers stretching on into the distance.

Legendary investor Jim Rogers calls it “madness.” “[T]hey have more than doubled the American national debt in one weekend,” Rogers says. He believes there are now clear comparisons between America and Communist China, where it is common for big companies and banks to be state-owned or have state partnerships.

Where does it stop? This past weekend, the government allowed Lehman Brothers to go bankrupt, but this was expected. Coming so soon after the Fannie and Freddie rescue, a nationalization of Lehman might have had investors questioning the credit-worthiness of the U.S. government itself. But if the damage spreads much further, the government may decide it has no choice but to step in and rescue more firms.

The funny thing is that while the U.S. is trying to become more Canadian, Canada has actually become less socialist of late. For example, Canadian politicians sold off the nationally owned oil company—right before the biggest run-up in oil prices in history. Similarly, they sold off the national gold reserve—at the time gold was reaching multi-decade lows. Ditto for many of the other provincially owned Crown Corporations.

But Canada is hanging on tight to its socialized health care. And that is something Canadian that the U.S. wants too—only America doesn’t want to pay for it. At least the average citizen in Canada knows the costs of national health care. They are reminded every time they see how little remains for them on their paycheck. But in America, politicians make promises—to the tune of tens of trillions of dollars’ worth of future Medicare and Medicaid services—and then borrow money from the Chinese and Japanese to “pay” for it. It is an unsustainable situation that can only go on for so long. The only question is whether Canada’s or America’s will crack first.

It will probably be the system that is most inefficient and corrupt. Take your pick.

I am reminded of a medical event that took place in Canada last year. A Canadian couple had quadruplets, but because a couple of other people had premature babies, not a single neonatal facility was available anywhere in Canada. So the mother was flown 500 kilometers in a twin-prop airplane to Great Falls, Montana, to be cared for. “There you have Canadian health care in a nutshell,” wrote Canada-born author Mark Steyn. “After all, you can’t expect a G-7 economy of only 30 million people to be able to offer the same level of neonatal intensive care coverage as a town of 50,000 people in remote, rural Montana.”

The point is: As much as Canadians like a national health care program, which forces everyone to pay into a system that lets parents take their children to the doctor for “free” every time they have a sniffle, Americans should be careful what they wish for. That said, the U.S. system that ends up with thousands of people going broke each year over unexpected medical conditions isn’t so hot either.

But perhaps the most compelling evidence that America is trying to follow the Canadian socialist model is found in the employment reports.

As told by Steyn, last year one of Canada’s monthly employment reports announced that the economy had created 56,100 jobs. Of those 56,100 new jobs, 13,100 were private sector, and the remaining 43,000 were on the public payroll. “In other words, 77 percent of the new jobs were government jobs and paid for by the poor slobs working away in the remaining 23 percent. So it wasn’t good news, it was bad news about the remorseless transfer of human resources from the vital dynamic sector to the state” (Imprimis, January 2008).

The latest U.S. government employment statistics show that the economy is shedding jobs. But get this: Of the seven sectors tracked in the report, it is only in government and education/health care that employment is rising! That is not a cherry-picked example. Michael Hodges reports in his Grandfather Economic Report that in 1946, there were 2.3 state and local government employees per 100 citizens. Today there are 6.5—a new record high (May 2008).

What does this all mean for the average American? It means that the once-vaunted beacon of capitalism is in serious trouble—and the recent trend toward socialist policies is a dangerous and frustrated grasp for straws in a system that is failing almost as fast as its leading financial institutions. Taxes are going to go up, and the standard of living for most people is going to go down—and so will the dollar.

The sad aspect about this whole mess is that it could have been avoided.

When America was founded, the economy and society in general were based upon the principles outlined in the Bible. As a result, blessings that came as a natural consequence of following those biblical principles compounded the national blessings God gave America in fulfillment of a promise He had made to the patriarch Abraham (which you can prove from our book The United States and Britain in Prophecy).

An economy cannot function for long once trust is broken, and it is pretty hard to trust your business partners when greed has become the motivating factor in high finance. And that is the problem with capitalism. The primary focus is on increasing profit margins. Pretty soon that is all everyone thinks about: money and getting more of it.

The solution for America’s economic problems is something much more simple and far less expensive than the multi-billion-dollar bailouts and rescue packages flooding Wall Street. You can read about it here and here.