Gene Inger…..We Ain’t Seen Nothing Yet!
Posted By thestatedtruth.com on May 19, 2010
We ain’t seen nothing yet. There’s an old story of a guy who, when asked how he went broke during the Great Depression, responded: ‘slowly; then all at once’. We’re in a new era; which while there will be snapbacks and melancholy attempts to restore the past excesses (whether consumerism or governmental spending levels); they will fail. Because there is no choice. While the U.S. is better-able (not being wedded to a monetary union such as the Eurozone situation) to cope; it must address challenges, a whole lot smarter than the way they have approached it heretofore (stopgap efforts) with respect to misdirected stimulus, higher taxes, and no willingness to revolutionize the approaches to government spending, much less tackle tough entitlement issues.
They spend like crazy; they tried to restore with ‘free money’ and ‘official’ low rates, in essence the era was a throwback to a former reflation effort, which we warned could not succeed, albeit it could buy time (and it did!). In 2002, for the first ‘great reflation’, new members should know we were totally bullish, more so than anyone really, and stuck by our upside guns for a solid 4-5 years; rightly so after calling the secular 2000 top. I think you might ask does that mean ‘this time is different’. I do hate the term but yes it is. It’s worse now, as the borrowing capacities are really hampered because of the misdirection in stimulus funding we identified, not just because of a political bias, but because of what was best for the USA. That’s the only reason we pointed it out.
America can be the ‘mother of all debt tsunamis’; not Greece, not peripheral Europe, and not even Japan or the UK, though every one of them has significant issues also. It’s a global challenge; and it’s not easily resolvable no matter who’s in political office.
The industrialized nations of the world, carrying unimaginable and growing burdens of debt, are not going to be able to get out of this mess without savage reductions in living standards over the coming years, not months. If we don’t have cheap energy it will be even worse (Oil is particularly an enigma now because aside lower demand, a degree of ‘risk premium’ has to be factored-into pricing as well, which limits the floor. Do not believe the nonsense about Iran shifting nuclear materials to Turkey; already they followed-that-up by saying they’re increasing the number of centrifuges in use.)
Essentially we’re at the leading edge (not trailing edge as those arguing recovery that is orthodox and conventional as underway) of a long descent, from the heights of the past, and the profligate lending and spending we warned of for years being bullish at least 80% of the time, but warning that the ‘piper had to be eventually paid’. We saw what was happening in early 2007, and concluded that time was rapidly arriving.
All the misdirected stimulus has done is shift funds around, failed to repatriate jobs to the U.S. (lots of political talk to that end, but absolutely no action to counter what has in fact been a protectionist policy by China, and others, essentially through currency and other manipulative practices… that if we did it they’d holler about; but we are quiescent as we owe them too much money, so the pillaging of the USA is allowed to continue), and few American politicians (much less reporters) will tell the truth on this.
Given the ‘multiplier effect’ (of interest-on-interest as rising deficits, with considerably shrinking income including tax revenues provides, at virtually all levels of governance unless rates are jacked-up to such onerous levels that is truly politically and socially unpalatable..aka the EU as an example) you do NOT have the luxury most politicians typically presume about not having to confront this until the ‘outlier’ years (say 8 or 10 ahead of us); and in fact could double (or worse) the Federal deficit within four years (or so). To address that requires immediate remedial actions, and that has untoward potential effects not only on the level of governmental services but the ability of what is presumed, a necessary forthcoming increase in Federal bailouts of state budgets.
It is simply untenable, if not optimistically giddy, to look at this reality confronting the United States as a whole, or individual states as well, to proceed trying to dismiss it by saying ‘economic growth and recovery will offset the challenge’. It will not even as and if we recover at the most optimistic rates the most bullish of all analysts suggest (and they are wrong by the way). That is why the crunch time is sooner rather than in later years, and why there is no solution aside cutting spending, and relative austerity in Europe, and unfortunately here with respect to governmental services at least. By the way, the Administration does not accept this, as just this week they argued for a ‘speedup’ of governmental hiring, which is exactly the wrong thing to do (note they’re doing this ‘speedup’ while talking about fiscal responsibility…again; they talk the talk about trimming spending, but then go ahead and do it anyway). It is thus a short-term palliative at best, sort of a symptomatic relief while letting serious underlying illness not only fester, but metastasize. Let it occur long enough, and a cure is far tougher.
America’s once-broad tax base (they don’t tell you the truth about who is paying and they don’t tell you the truth about unemployment levels overall, or that around 40% of the middle class making under $50,000 during the 1990’s is now unemployed; that is a horrific destruction of the American middle-class, which is what had contributed to a fantastic admiration of the United States throughout the world, no matter what else is heard; because there is no nation in the history of mankind that built a larger middle class, without a class system per se; and without complex apprenticeships or so on).
As our tax base erodes and you get away from millions of ordinary people working so hard to earn a decent living wage and paying a fair share, you contribute to what has been another quiet secret; the ‘globalization’ of the Western world, which has meant to level the playing field to their (other parts of the world) level (bringing them up not in a benevolent way, as fair-minded leaders always desired in the post-World War II era), but rather at the expense of destroying the great vast American middle-class in a way that not only outsourced our manufacturing jobs, but made citizens dependent on government, as well as a complex ‘cycling’ of funds based on what I have called a ‘petrodollar’ formula (that still works, but empowers terror incidentally), but created a vicious cycle with trading countries, which did something the ‘petrodollar’ cycle didn’t do for the most part: destroy American jobs. Inflation or not, higher prices or not; the jobs remained and salaries adjusted. Trying the petrodollar approach with China has worked, from a monetary perspective; while it destroyed the fabric of middle America which will takes years to rebuild, and only helped China’s industry; surely not the US. Add to that the ‘protectionism’ they employed (while pretending it’s us) and you got it.
The currency recycling with China and others of manufacturing revenues, was a jobs ‘destroyer’, and was expanded upon by those seeking ‘one-world’ governance (to wit: reduced the idea of military conflict conceptually years ago, but what they didn’t count on was how it all tied together to bring the world up or down concurrently with all risks economically; eliminating significant cushion at times of need).
Further, it contributed in my thinking to a perception that they could simply continue this, and leverage artificial debt even more persistently, at the expense of forgetting that even Keynes (who is still dead as I say, and unable to explain what I am quite absolutely sure about) never suggested the use of such stimulation to be other than for temporary measures, and by creditor not debtor nations. What has been done in his economic name has proselytized history in a way that threatens to lay-prostrate our society if we don’t get back control fairly fast. I said this for a long time; just look.
Finally; what some politicians will argue in the declining scale of cost-benefit analysis will take years, has an historical capacity to accelerate when the populace realize the deception that is afoot (such as talking about deficits, and not overall debt). That too is a reason businesses hold-in-their reigns; take homage at those who distain Cisco being bold enough (until they modulated their tone under pressure) telling the truth about declining business overseas), and probably next Hewlett Packard saying more or less the same. One can say that this will be resolved by debasing our currency of course; and eventually that probably happens. But not yet; and not while Deflation is the order of the day, which as I’ve noted makes servicing debt even more onerous.
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