Where are we going, and why are we in this handbasket?
It appears President Obama is heading down a road to total disaster, and that road is being paved by Summers and Geithner. So far the proposals for TARP, the recovery plan, and the foreclosure prevention plan, are all heading in a direction that will accelerate our fall off the cliff. Every effort so far is an effort to revive a dead financial system and to resurrect an economy who’s life blood was the poison of excessive debt.
Make no mistake, the republicans, through their reckless tax cuts for the rich, their laissez-faire policies, and their anti-government rhetoric have killed our country. But the one thing they have right, is that the government balance sheet can not take on any new debt. President Obama has a chance to breath new life into our country, but instead of bold new approaches, he is relying on the bad advice from people who think we can spend our way out of this depression as if it were 1932 all over again.
The shifting of debt from the private sector to the government balance sheet at a time when government debt (thanks to republicans) is beyond anything ever seen in history, has started us on a path to hyperinflation, which will lead to the end of the United States as we know it and will have us begging to go back to a great depression.
Using government deficit spending to build demand and provide employment in the 1930’s was the right policy. The U.S. had a very manageable debt, a currency pegged to gold, and a positive trade balance so we could export our way out of the debt. Today, our debt and deficit is of historic proportions and every indication is that as GDP falls during the depression, government revenues will fall and the deficit/gdp ratio will climb to levels where finding financing for the debt will be very difficult . But beyond that, taking on the private debt through the programs outlined by the presidents economic team, will force the deficit/gdp ratio beyond a point of no return that leads to the federal reserve printing dollars to finance the everyday expenses of government.
We look back with anger at people with sub-prime mortgages who borrowed way beyond their ability to repay and helped plunge us into this crises. Not even the most dishonest mortgage broker would give a loan to a borrower who not only had no disposable income, but had credit card debt of 4 times their yearly income and was adding to that debt at the rate of 50% of their yearly income every year. This is America today!
Almost every country, in the past 50 years, where the deficit/gdp ratio has exceeded 7% has tumbled into hyperinflation. This year the U.S. deficit/gdp ratio could reach 13%.
As the deficits rise, vicious unstoppable circles begin to form.
- As the trade deficit drops and assets depreciate, fewer foreign reserves and private dollars are available for financing, and more Federal Reserve financing becomes necessary.
- As state revenues drop, more demands are made on the Federal government which raise deficits further and demand more printing of dollars.
- As unemployment rises, more jobs programs are demanded.
And on and on and on.
The resulting hyperinflation will destroy the dollar, savings will be wiped-out, imports will become unavailable, barter will become the method of "buying" things, civil unrest and crime will become rampant, unfriendly foreign powers will fill the vacuum left as we become a 3rd world country . This will far exceed any pain that can be caused by a depression alone. There are ways to reduce the pain and suffering caused by a depression, but once you’ve crossed the hyperinflation line, there’s no turning back. The 232 year experiment we call America, will be over.
The outrageous policies of the Republicans that got us to this place have been so discredited, it will take voices from the left to warn President Obama of the serious disaster his economic policy team is leading us into. It is not too late to stop this from happening. But if we do nothing, our children will curse us for stealing their future so we could have another SUV and a big screen TV.