Posted on 06/26/2012 3:56:44 AM PDT by Kaslin
America is on track to go bankrupt. Just like Greece. The signs are all around us. We've lost our AAA credit rating. Trillion dollar deficits are the new normal. The Fed is buying 61% of our own debt. Barack Obama's 10 year budget will leave Americans with “more debt than has been accumulated by all previous Presidents in American history combined.” Nobody on the Left or Right seems to believe we'll ever pay off all of the money we owe. Life as we know it is very close to ending and yet Americans seem to be infected with a tragic stoicism. Like turkeys being led to the slaughter, most Americans seem content to put their necks down on the butcher's block and wait for the ax to fall. There are reasons for this puzzling inactivity in the face of an avertable catastrophe.
1) They're being misled by people with bad motives: What do you think would happen to Paul Krugman if he were to tell everyone that he is still a liberal, but the Tea Party and Paul Ryan are right about the deficit and Barack Obama and the Democratic Party are wrong? His column at the New York Times would be gone within six months. Do you think Nancy Pelosi and Harry Reid would continue leading their caucuses after 2012 if they insist on serious deficit reduction? Not a chance. What about a Democrat running in a liberal district who talks like Jim DeMint on deficits in a primary up against another Democrat who wants more spending? Who do you think would win? The big spender, right? Unfortunately, there are a lot of people in this country whose personal welfare depends on encouraging as much government spending as possible and even if the country goes bust in the process, they're hoping to have enough money in the bank to be able to move somewhere else by then anyway.
2) They think it's far off in the future: Most people think bankruptcy is a problem we'll be leaving to our kids after most of the people reading this column are dead and gone. That's not so at all. If you were a betting man, 5-15 years would be the likely timeframe on a default with it practically guaranteed to happen within 25 years without major changes -- although that may be far too optimistic. America is already stretched to the breaking point and who knows what sort of unexpected event could push us over the edge in the next few years? Maybe the crack-up of the EU, a European bank collapse, an organized effort to keep other nations from buying our debt, another, even more devastating 9/11 style attack, a dramatic surge in oil prices caused by an Israeli/Iranian war, etc., etc. Just as the mortgage crisis caught us flat footed and caused much more damage than we expected, a new crisis that occurs while America's economy is still puttering along as it has been during the Obama years could lead to a much deeper economic spiral than we anticipate.
3) Crisis fatigue is rampant: This is the most important election ever! Tune in at 6:00 P.M. to find out which ordinary product you use will kill you! George Bush is Hitler! Republicans want you to die! Racism today is as bad as the sixties! If you oppose gay marriage, you want to drag homosexuals to death behind your truck! If you disagree with Obama, you're a racist! Your freedom is at stake! Global warming is going to kill us all! Modern Americans are deluged with phony crises and ginned-up outrages all day long. That's why it's not a surprise when a real crisis as serious as anything we've ever faced in our nation's history comes along, many people have trouble distinguishing it from the fake dangers they hear about on a daily basis.
4) It's too confusing to comprehend: Most Americans don't even remotely understand the scope of the problem. They think we can raise taxes on the rich, cut a few bucks off foreign aid, and everything will take care of itself. When you start talking about unfunded liabilities, GDP, and trillions in debt to people who don't know much about economics and don't follow politics very closely -- which probably describes more than half of the American electorate -- you might as well be explaining the ins-and-outs of heart surgery. In other words, they may get it in the most general sense, but they don't really understand it, and they probably aren't going to opt for it unless they become convinced they're going to die otherwise.
5) It's painful to stop and easy to continue: It doesn't matter how reasonable the spending reductions you're suggesting are, if you want to cut ANYTHING in D.C., it will set off squawks of protest from the vultures who are having meat snatched out of their greedy mouths. However, if you really want to make people angry, start hacking money out of the three biggest expenditures in the budget: defense spending, Social Security, and Medicare/Medicaid/CHIP. We MIGHT be able to get by without cutting defense significantly since it's a relatively stable expenditure, but unless significant changes are made to both Social Security and Medicare/Medicaid/CHIP, both of which are rapidly increasing in cost, this country is going bankrupt. That's reality. Of course, it's also reality that making changes to both of those programs is unpopular, easy to demagogue, and scares most politicians more than a special prosecutor talking to their favorite hooker.
6) We still seem to be a rich country: America is a like a guy who lives in a five million dollar mansion with a dozen servants, drives a Ferrari, and hands out hundred dollar tips to waitresses and bellhops. The only problem is the mansion and the Ferrari aren't paid for, he's borrowing the money for the servants and the tips, and he has no hope of ever paying off the debt he's accruing while he lives a lifestyle he can't afford. Superficially, he looks to be very rich, but when the bill comes due, life is going to change for him in a hurry.
America is that guy and the bill is going to come due.
7) They don't see how it will affect them: Most Americans don't have the slightest clue how a default would change their lives for the worse. They don't understand that it would lead to another Depression, their life savings could become worthless almost overnight, their taxes would skyrocket, their standard of living would drastically decrease, Medicare and Social Security checks could stop, and we could have widespread disorder. In Greece, some government workers haven't been paid in months, government road projects are being abandoned, healthy businesses can't get credit, and medicine is in short supply. Unless something changes, Americans won't have to imagine what that will be like because we'll be living it soon enough.
I have pondered this question since the late '70's. My theory is the following:
computers,
In past history, governments always, eventually... hit SOME kind of hard limit that forced reality back into the system. You could only mint so many coins, print so many bills, etc....
With the advent of computers, world leaders now have the ability to create virtually infinite supplies of money.. thus, creating the illusion that "all is well".
Reality still settles in on SOME countries... those that lack the ability to compute their own money... places like, Argentina, Iceland, Greece, etc.... But, not us... not yet.
I'm still not sure: Can the game go on forever?
I think, "No".
Our ability to inflate faster than ever simply has meant that our balloon has filled up BIGGER than anytime in the past. But, eventually... this too shall pop.
The bubble has moved through various parts of the world's financial system. Now, it has landed on sovereign balance sheets... That's the last stop.
Ths only thing missing now is, the initiator.
THANKS! This one of the best articles I have read in a very long time.. This guy REALLY NAILS it.
Military spending is the origin of a country's future wealth. The military is the first user of new technologies, mainly because they are the only customer willing to pay the initial price. The U.S. Military today is funding the development of robots and all kinds of "cutting edge" technologies. Later these robots will be put to civilian uses. Their work output is the only thing that could possibly pay the bill for today's welfare spending. If we gut the historical driver of technology to keep bloated welfare spending afloat then we're really in trouble.
Most of the people over 65 have their medical bills paid for by the State. Take that away, and all heck will break loose.
We don't have the money to pay for it. Either on the family scale or the State scale, we don't have the money.
I will take my parents in, and my mother in law. That is my duty, and I will sacrafice to do it. But take a good, hard, look around and ask how many can or will do that? There are a good many nearing that 65 mark who are taking care of their parents, and their kids.
And the charities are a in a bad spot. Since the State has taken over the role, most charities function as an arm of the State. Look at the religious adoption agencies (those that remain), or what has happened to the religious medical institutions. They are more and more secular, to the point they have to act like a state agency not a religious institution.
It will be much worse than in the 30’s.
Well, the military is for fighting and its obviously better to fight on someone elses territory than your own, but I take the point. From an economic pov it would be better to abandon a lot of US bases overseas. Saving 300 billion is certainly well worth doing, but bear in mind its chickenfeed compared to the US debt mountain.
We station troops all over the world, at enormous cost, without any economic benefit to us. If we want to play the Empire game, we need to play it to the hilt.
Otherwise retreat to the continental borders and let the world police itself. We can't afford to keep this game up.
And the military pension system needs to be overhauled. We can't afford to have three armies, with only one fighting. That is why we are using mercs now.
The ONLY people who will miss the economic disaster are those in nursing homes - in their late 90's - and the lucky ones who die early... The rest of us will be here for the meltdown.
——But take a good, hard, look around and ask how many can or will do that?-——
There won’t be any non-violent alternatives.(I can foresee violence in the cities, if the collapse is rapid.)
I think we’ll be better off than in the ‘30s, simply because medicine has improved so much since then. Heroic, life-extending measures will most likely be unaffordable, but they didn’t exist at all during the depression.
Overall, I see a return of the family clan, largely for the good of society.
As for medical, who will pay for it? Do you know how much the charge is for a baby? A check up? Anything? If we had to pay out of pocket, there would be little to no health care.
You're talking about the same thing using different words. It's "not possible politically to do," because it's to the personal advantage of some Republicans to do nothing. As a result, many Republicans talk tough when they lack the power to do something meaningful, but when they have the numbers, they do nothing because that's what's in their best interest.
Here's a good example: Right after the RATs and a few RINOs passed Obamacare, the Republicans in Congress from the top down promised to repeal Obamacare as soon as we take back Congress, take back the White House, blah, blah, blah. But now that we are on the verge of doing just that, the Republican leadership has turned wishy-washy on the issue and had even started a whisper campaign to preserve some parts of Obamacafre in the event the SCOTUS does what the Republicans will never actually do, and effectively strike Obamacare from the books. In other words, Republicans talk tough, but when the vote is on the line, way too many of them refuse to to what is right for America at the risk of their policital careers.
Immigration is another example. So is tax reform. Same with entitlement reform.
>>”The Fed is buying 61% of our own debt.”
That’s one reason why I’m stocking up on toilet paper. Get it while it’s still affordable. (I’m only half joking).<<
It’s even worse than it looks because the debt the Fed is concentrating on purchasing is composed primarily of the longer maturities. Thus, while the U.S. Treasury is able to brag that they are extending the maturity of the debt (to a whopping 6+ years in average—but still lower than it was several years ago), the Fed has more than offset that strategy by purchasing most of the longer maturities that the Treasury has issued during Obama’s presidency.
Since the Fed is part of the government, this means that the maturity of the government debt held by the public has decreased significantly, not increased. Furthermore, if interest rates really jump, on the order of Spain or, heaven forbid, Greece, the Fed will find its holdings massively underwater, on the order of hundreds of billions of dollars underwater, not millions...billions. Meanwhile, the publicly-held debt will need to be rapidly rolled over at significantly higher interest rates, blowing a massive hole in any of the current budget predictions.
That said, the eventual outcome might not be a massive inflation (though that would be my best guess); it could be a serious depression instead, accompanied by deflation. Essentially, the current Fed chairman has no clue about how to extract himself from the mess he’s created, but that extraction isn’t likely to be pretty. A soft landing is the least likely outcome.
——As for medical, who will pay for it?——
We will, as we do now. It will be fee-for-service, as it used to be, rather than third-party payment, as it is now. Prices would drop significantly.
But extraordinary care will probably be unaffordable, in most cases. I don’t see any better path.
If few have money to pay for healthcare, doctors will___
Charge remaining customers 5 time normal rates?
Pout and stop practicing?
Adapt and take food, guns, ammo in trade for health care?
I’d hate to be a lawyer seeking health care in a post SHTF scenario.
I read the whole thing. (:
I share many of your emotions.
That is exactly what I see happening as well. Mankind and the family structure will be reorganized back to the living the way that they lived for most of mankind's history, before everyone fell for this stupid Great Fiction that we can all live at everyone else's expense.
Who will make the supplies? There are fixed costs than can only be lowered so much.
A doc may take chickens to set a bone, but Merck won’t to sell you the drug you need to keep alive.
The doctor in my home town growing up would treat you no matter if you could pay or not. But he didn’t control the drug supply.
Of course the military is a legitimate expense and function of the Fed Gov.
I am not lumping it in with entitlements at all. I understand it is categorically different. But it is one of the biggest single line items on our budget, and the cost needs to be contained.
Absolutely I am in favor of tariffs.
Exactly right....well said.
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