Skip to main content

The Cascade Effect, the collapse of the US economy.
How did it happen, and how do you stop it.

September 17, 2008
Sean Lewis

I have been writing about this since before the Iraq invasion.

I had hoped that if I wrote about it, someone would have
heard the warning and avoided this financial collapse.

The bottom line the Bush Tax Cuts are the main cause.

The US government needs income to run.

Without the income the US government must borrow funds
from other sources.

The more the US borrows, the higher the US Debt goes and
the larger the payment on the Debt Interest becomes and the
more money the US needs to borrow.

The double edge is that as the Debt grows the faith in the US
Economy and the US Dollar declines.

The US dollar has fallen by almost half against every major

The Bush Tax Cuts did not fulfill any of the claims promised.

More money to the rich did not stimulate the economy, did not
create 15 million jobs, did not balance the budget or lower
the debt and did not increase revenues.

When people make more money than they need they keep it,
they do not give it away. Greed creates Greed.

The increase in revenue came from the increased profits from
abroad either from exports to foreign countries or profits from US international companies taking advantage of the US currency drop and padding their Earning Reports with profits made overseas.

Add to this mix US companies exporting not only jobs but
entire industries overseas to maximize profits at the cost of US
citizens and you have the second leg of the collapse.

The American middle class, the true engine of the US economy was
under siege.

Americans were losing their jobs at the same time interest rates were
rising and core inflation WITH food and fuel were exploding higher.

Interest rates were rising so that Foreigners would buy the US Treasuries
to finance the DEBT. Unfortunately the American middle class had Adjustable Rate Mortgages tied to the interest rates. So American Mortgage payments increased beyond their ability to pay.

Foreclosures began, and created a falling real estate market. The more
foreclosures the more home prices fell. Middle Class Americans had to
make a decision, sell their homes at a lost or hold on in hopes that things would turn around.

Unfortunately not only did things NOT turn around, things became worst.

The Fuel from Food program accelerated the decline of the economy. It
created a spike in grain prices and food costs and did little to reduce the price of oil products.

The new law making bankruptcies harder and also no longer protecting
people from losing their homes, which means Americans could not
attempt any financial remedies to restructure their debts.

Financial institutions looking for a new way of making money, linked
up with mortgage brokers to securitized loans in early 2001 to 2003
with creative vehicles such as no money down, interest only, 5 year
balloon ARM's.

Everything looked good on paper but was hinged on one thing, the continued
strength of the Middle Class, which I have shown was under heavy siege.

As Americans fell behind on their payments the securitized mortgages were
not receiving payments so began to lose value. As the housing market
continued to collapse so did the securitized instruments.

So here we are. I streamlined this, there were a few other issues,
irresponsible spending, off budget expenses of two wars and Katrina.

How do we fix it?


There is no easy fix.

The US Debt most be reduced. The economy must be stimulated.
The middle class most have jobs. The long term costs of Medicare
medicaid and social Security must be addressed.

The tax cuts must be rescinded.

Government spending must be reduced and pay/go instituted.

The age at which retirees can claim benefits must be extended by one
month a year and benefits will have to be means tested.

The alternative minimum tax must be raised to exclude individuals who
are single at $120,000 and Couples to $200,000. (middle class tax

Social Security taxes need to be raised to 12.5% split between
employer and employee and also raised to include the first $200,000.
(I need to double check this percentage it may be less)

Businesses will receive tax breaks equal to the gross expense of
bringing US jobs BACK to the US for 7 years of continuous employment
of the position as long as the net jobs of employed are increased by
the same number of jobs at the job site.

Health Care should be bottom up.

$10,000 of health credits per tax payer for preventative care. The individual Must get a physical check up each year or lose a portion of the benefits. Give the Taxpayer a lifetime Budget of $250,000 for medical care of their choosing. Pro rate this by age 18 to 72 at the start of this program.

The way to keep medical costs down is early treatment. If a person does not address a medical problem reduce their benefits.

This is not to REPLACE medical insurance but to give a minimum level of medical care.

All of the above is the medicine to get the country back on track.

Ending the tax cuts to the rich will lower the debt, which will
strengthen the US dollar, which will mean oil will cost less, which
means inflation will go down, which means core inflation including
food and fuel  will diminish, which means the economy will become
stronger because US workers will be able to afford to buy
discretionary products, which will employ other Americans who will now
have jobs so they will not lose their homes which means the housing
market will stabilize, which means banks will be more solvent, which
means money will once again become liquid which means loans for
investments will once again become available which means industry will
grow which means increasing GDP growth and more jobs.

Originally posted to VirtualTruth on Wed Sep 17, 2008 at 10:53 AM PDT.

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site