by Jack Lee
The two primary ingredients for a depression are debt and fear – we have too much of both!.
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The United States has been locked into massive debt accumulation from increasing under funded entitlements and mandates that go back 40 years or more. During this time, both the Democrats and Republicans were guilty of a failure to manage. Both feared addressing the enormous problems like social security and instead they ignored them. Nobody in Congress or the White House had the courage to advocate austerity because it might be unpopular with voters who had become too accustomed to getting “something for nothing” from government. Americans they thought, feared the pain of treatment too much! So, as absurd as it seems now our past leaders (and some of our current) were inclined to let this economic cancer go untreated.
Time is up! The Piper is here and he wants to be paid, but we’re broke. The pattern of spending has been far in excess of our revenues. We’re currently spending well over two billion dollars a day more than we take in! You must know this can’t be sustained. Our legislators certainly do, but the collective will to fix is STILL not there. They would have too make deep cuts and deal with 3rd rail issues that could cost them their next election. Self-preservation has dictated they stall on the fix as long as possible, but the days of stalling are over and we approach the day of reckoning. . . and brother are we in trouble!
We started the year at 9.7% unemployment and we’re now at 9.8% – this is progress? This is why we spent trillions?
It was thought by most Democrats currently in Congress that by extending the unemployment insurance benefits it would see us through the crisis, but they were wrong, woefully wrong. To extend unemployment benefits any longer is to spend more money we don’t have. (UPDATE: 12/06/10 Congress approves 13 more months for unemplyment benefits for nearly 10 million people) This has the effect of encouraging about a 30% of those on unemployment to not take a job, paying equal too or less than, their current unemployment benefits or so says a recent study.
“We are still in the middle of this crisis and there is more trouble ahead of us… If you don’t address the issues, you risk having a double-dip recession and one which is at least as severe as the first one.” Economist Mouriel Roubini
The situation in Europe is even worse thanks to a prolonged experiment with socialism that led to an even higher unemployment than the USA. Europe can’t easily reverse course with a bailout of a few trillion in Euro’s and a few cuts here and there. A true recovery across the pond will require drastic spending cuts, radically lower taxes, more personal savings and less restrictive government regulation so business can survive. Many of their old entitlement programs will simply have to go and this means the end of European style socialism as they know it.
Given the degree of overspending by imprudent nations their course change will happen either by a well thoughtout plan implemented under their tight control or no plan and no control and let fate be their rudder. Half measures won’t work when you are this far into the red. Unfortunately, we don’t see any good plans taking shape yet.
The trade unions in Greece are applying too much pressure on the government and every indication is Greece will eventually go back to spending money it doesn’t have until it implodes. The current crisis in Greece is threatening the Common Market unity, and this begs the question will the Euro even exist is another 3 or 4 years and what impact will it have on the global economy? It now looks like Spain could be the next nation headed for bankruptcy and looking for a massive bailout. Spain says no, but economist say its true. We’ll see.
“Dealing with a banking crisis was difficult enough, but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there’s no backstop.” Bank of England’s Governor, Mervyn King
Cuts alone can’t solve this problem. In fact, just cutting could easily bring on an immediate double dip recession. This is why we’ll need a thoughtful, comprehensive plan that includes tax reduction, less onerous government regulation on businesses, spending reductions of 10-30% for most fed programs and the complete elimination of wasteful fed programs, the shoring up retirement systems, increase in our personal savings and overall government must do everything it can to stop the job exodus, help the private sector save jobs, create new jobs and let us compete fairly in the global market place. Remember this: The less business there is, the less people who will be employed, and the less employment the less spending, less spending means less commerce and less income for everyone. This is economics 101.
We’ll have to do our part too, government can’t do it all for us. So, do what you can to get out of debt and reduce your expenses. Try to develop more income and this might sound over the top, but start storing up food and supplies. It couldn’t hurt. Too many of us start preparing once the disaster has arrived and if you wait that long this time you will be in serious trouble.
To get an idea of how rapidly the commercial real estate market is unraveling, just check out this chart. Double click on picture to expand it.
The situation is dire. We have borrowed so much that our national deficit is dangerously high and our currency is at risk of being devalued. It is completely out of balance with any notion of a gold standard. Our financial picture is akin to the perfect storm, we have a multitude of financial problems all coming due at a time when the U.S. national debt is experiencing exponential growth.
The debt is now over 13.9 trillion dollars (updated Dec. 2010) and it is rising at a rate of about 3.8 billion dollars per day. Imagine if you spent one dollar every single second of every single day, it would take you over 31,000 years just to spend one trillion dollars.
In 2007, Peter Schiff published a book called, Crash Proof: The Coming Economic Collapse. He predicted the collapse of the sub-prime mortgage market and he predicted that the collapse would spread to the general mortgage market and then become an economy-wide credit crisis. That’s exactly what happened.
In a more recent book, the same author says that the borrow-and-spend economy cannot be sustained, and that the U.S. may well be headed eventually for hyperinflation and economic collapse. He compares the U.S. economy to a “house of cards”–an economy built on a “phony foundation of debt-financed consumption”. The Little Book of Bull Moves in Bear Markets.
Arthur Laffer is warning us, the nation is headed to an economic collapse potentially in 2011. Laffer is one of the world’s top economists and he’s authored several popular books on economic theory including his latest, “Return to Prosperity: How America Can Regain Its Economic Superpower Status” Laffer was an adviser to the Reagan Administration during the 1980s and a member of the Economic Policy Advisory Board. His economic models have been proven to work and have withstood the test of time. Laffer is not a doom and gloomer and when says we’re in trouble – you better believe it.
This table lists how congress spends your money: (double click on picture to enlarge it.
We don’t know exactly how long it will take for an economic collapse to hit us, which is even more reason for us to act prudently and sooner than later. However, the collapse is almost an absolute certainty if we do nothing.
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