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Monday, July 12, 2010
Making Amends Part 2: The Writing On The Economic Wall
Fran here. I hadn't planned to add anything to the earlier Making Amends essay; its doom-and-gloom seemed adequately complete. But that just goes to show you...well, me...what unpleasantnesses can lurk in the email-box, their unsettling power unleashed by a simple click of the mouse.
The Washington Post, hardly a standard-bearer for limited government, reports today on the doings of the Debt and Deficit Commission:
BOSTON -- The co-chairmen of President Obama's debt and deficit commission offered an ominous assessment of the nation's fiscal future here Sunday, calling current budgetary trends a cancer "that will destroy the country from within" unless checked by tough action in Washington.The two leaders -- former Republican senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under President Bill Clinton -- sought to build support for the work of the commission, whose recommendations due later this year are likely to spark a fierce debate in Congress.
"There are many who hope we fail," Simpson said at the closing session of the National Governors Association annual meeting. He called the 18-member commission "good people with deep, deep differences" who know the odds of success "are rather harrowing."
Bowles said that unlike the current economic crisis, which was largely unforeseen before it hit in fall 2008, the coming fiscal calamity is staring the country in the face. "This one is as clear as a bell," he said. "This debt is like a cancer."
The commission leaders said that, at present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. "The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans -- the whole rest of the discretionary budget is being financed by China and other countries," Simpson said.
"We can't grow our way out of this," Bowles said. "We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can't tax our way out. . . . The reality is we've got to do exactly what you all do every day as governors. We've got to cut spending or increase revenues or do some combination of that."
Bowles pointed to steps taken recently by the new coalition government in Britain, which also faces an acute budgetary problem, as a guide to what the commission might use in its recommendations. That would mean about three-quarters of the deficit reduction would be accomplished through spending cuts, and the remainder with additional revenue. [emphasis added]
You may take it as written in the stars, Gentle Reader, that Barack Hussein Obama will refuse to sign any bill that significantly reduces federal spending, but will immediately sign any bill that raises federal tax rates. However, as we're already past the maximum point on the Laffer curve, an increase in tax rates would result in a decrease in tax revenues. We'll see a demonstration of this effect when the "Bush tax cuts" expire at the end of 2010.
In short: Whether or not the Democrats lose their current, absolute control of Congress in November, the deficit, which is now a combination of entitlement spending and newly created, newly funded federal agencies, will be with us for a minimum of two more years -- that is, for long enough to bring our aggregate federal debt well past our Gross Domestic Product.
America will become un-creditworthy, whether by defaulting on its existing debt, by repudiating that debt, or by going the Weimar route -- i.e., to the printing press.
Do you think China will lend to us quite so willingly after that?
It isn't just the Debt and Deficit Commission that's sounding the alarm about our economy's prospects. Hearken to the response of American investors to all the Obamunist-created uncertainty:
Home mortgage interest rates are the lowest in history, but house sales are plunging. Banks can make money easily because of the Federal Reserve's low interest rates, but they're not making many loans. Major corporations are sitting on something like $2 trillion in cash, but they're not investing.Unemployment is running at 10 percent, rounded off, for the 11th straight month, but few employers are hiring and a million people have stopped looking for work in the last year. Small-business hiring is at a nine-month low, and retail sales are tailing off.
Government policies designed to stimulate the economy seem to be having the opposite effect. Consumers aren't buying, businesses aren't hiring, and those fortunate enough to have some cash on hand don't seem to be investing.
I call it the mattress economy.
People seem to be following this investment strategy. Step one: Go to Mattress Discounters and buy the biggest mattress you can find. Step two: Take it home, and stuff all your money in it. Step three: Lie down, and get some rest.
This hurts the economy, but it's a rational response to the Obama Democrats' public policies. And that's not just the view of their political opponents.
Were Washington to pitch in constructively, by reducing federal spending and taxation and halting the issuance of new regulations, the large pool of unemployed labor, much of it college-educated and well skilled, would attract venture capitalists and investors in quantity. But the last time an administration responded thus to an economic contraction was 1921, when Warren Harding commanded -- and achieved -- a 40% reduction in federal spending in response to the Depression of 1920. (See Paul Johnson's Modern Times for details.) Today, additional spending, taxation, and regulatory interference in business are all odds-on, and no one knows where or how they'll strike. That makes the mattress the safe harbor of choice.
A confirming datum emerges from the market for home improvements. Americans who have some money and want to upgrade their living conditions, but who fear to assume higher mortgages because of an unpromising real estate market, will renovate instead of moving. The general contractors might not be building a lot of new houses, yet they, their subcontractors, and handymen-for-hire generally have more business than they can handle. (My own favorite contractor now keeps his cell phone turned off for all but an hour a day; he dislikes having to tell potential customers that he has no time for them.)
Along with that, companies that sell to the do-it-yourself market, such as Home Depot and Lowe's, are doing exceptionally well, even if it doesn't show in their stock prices. This might sound purely positive, yet it has its gloomy aspect. We can make ourselves better off with our "sweat equity," but we make ourselves and others better off only when we trade. To the extent that we "do it ourselves," we refrain from trade.
But what of the prospects for after January 3, 2011? Perhaps not as rosy as you might prefer:
WASHINGTON (AP) — President Barack Obama’s party could lose its House majority in this fall’s elections, his spokesman said Sunday, perhaps trying to jolt Democratic voters with the specter of GOP lawmakers rolling back White House policies.“I think there’s no doubt there are enough seats in play that could cause Republicans to gain control. There’s no doubt about that,” press secretary Robert Gibbs told NBC’s “Meet the Press.”
Democrats now hold a 255-178 edge in the House, with two vacancies in the 435-member chamber. Anywhere from 40 to perhaps 60 House seats could be competitive by the fall. Republicans would need to take back about 40 seats to slip into the majority, placing the current GOP leader, Ohio Rep. John Boehner, in line to replace Rep. Nancy Pelosi, D-Calif., as speaker.
Those House Democrats who won election for the first time in 2008 in conservative leaning districts as part of the Obama wave are particularly vulnerable this fall, given that the president is not on the ballot.
Gibbs said retaining House control would depend on strong campaigns by Democrats. “I think we have to take the issues to them,” he said, adding that the primary argument would be how Republicans would govern as the majority party.
His remarks could be intended to light a fire under Democrats who are dispirited after about 18 months of Obama’s presidency and motivate them to work hard to maintain their majorities in both the House and Senate.
In a separate blurb of commentary, the Daily Caller adds: "White House official hints that Obama hopes Republicans will absolve him from having to sign anything for two years ...While Gibbs was stony on the outside, on the inside, he was smiling like a special-needs kid in a store that sells only puppies and Barbasol shaving cream. The White House cannot wait until Nancy Pelosi is not in charge of running the country anymore."
Though there's a good chance that the GOP will retake at least one house of Congress, there isn't even a mathematical chance that it can attain veto-proof supermajorities in both houses. Thus, Obama can preserve the spending and interferences he's already established by wielding his veto pen. New spending and new interferences would (hopefully) be off the table, but our current, disastrous level of profligacy would barrel on toward fiscal Armageddon.
On the economic front, the alarms are sounding from every corner of the nation, but the prospects for correction appear slim. I'd love to see our nominal Republican rescuers prove me wrong, but the drums are beating a much less pleasant message.
Foreign holders of our federal debt will not fund Washington's insatiable appetite for credit for much longer. Nor will private enterprise begin to flex its muscles while a rapacious Administration, perfectly willing to seize private corporations and give them to their favored supporters, remains in power to any degree. Therefore, I continue to advise anyone with enough flexibility to do so to brace for impact:
- Eliminate your debts.
- Buy gold and silver, enough to cover at least six months' expenses at current levels and rates of exchange.
- Lay in a store of emergency foodstuffs. Unless you have a private well, be sure to keep some bottled water on hand.
- Stockpile batteries and at least some fuel. If you don't have a portable gasoline-powered generator, consider getting one.
- If you depend on some range of medicines, try to stockpile six months' worth of those as well. If you have pets, make sure they're in the best possible health, and that you have a good store of whatever they need.
- Make sure all the machines you rely on are in good working order. Consider stockpiling spare consumables for them.
- Arm yourself. Get properly practiced up. Lay in a store of ammunition, gun cleaning supplies, and (if you have the equipment and the space) reloading supplies.
- Get onto the friendliest possible terms with your neighbors. If things get really bad, they will be your best defense -- and you had better be theirs.
Many of the above recommendations are troublesome and costly. However, if I prove to be wrong -- please, God, let me be wrong -- they won't amount to a large net expense over the long run. On the other hand, if I prove to be right...
More anon.
UPDATE: The dirge continues here.
Comments
Even if the Repubs get a majority but not a veto-proof one, know that they will still be utterly gutless by failing to mandate that no funds may be used to implement Obamacare or otherwise limiting spending. Even if they do mount a feeble attempt to block spending, Obama will veto whatever they come up with and in the ensuing game of chicken the Repubs will fold like a cheap suitcase, to steal Don Imus’s simile.
Posted by Col. B. Bunny on 07/12/2010 at 05:15 PMExcellent.
I gave your advice to my readers in my article The Coming Economic Collapse.
Posted by bernie on 07/12/2010 at 09:43 PMRepublicans don’t seem to have learned that nothing says I don’t believe in what I say like constant backpedaling. Barton was correct in describing the BP $20 billion shakedown, and had to quickly retract because no one had his back.
If you do not vigorously defend a well thought out position, you must be French. That’s what we seem to have; the Russians and the French. Both parties seem foreign as time goes on.
Posted by on 07/13/2010 at 12:48 AMFran, the urgency that you have expressed about a potential collapse can be felt across the country.
Too many peoples’ “weather sense” is tingling, the storms a brewing and only the dense can’t see it.
Our government is robbing the treasury. For decades they have been selling us, our children and our grandchildren down the river without so much a pause in their greed.
We’re doomed to pay for this, one way or the other.
If you are wrong, and I, too, pray that so many of us are wrong, this isn’t a bad plan even in the most rosiest of times. It should be the default for all Americans at some level or another. I know we have been trying to get all that implemented, but it takes time and I worry we are running out of it.
But I do have a quibble about “college-educated and well skilled”. Granted, this is merely my observations over the past 10 years or so, but too many college graduates are neither educated nor skilled.
Posted by Russell on 07/13/2010 at 01:07 AMLinked you twice:
http://washingtonrebel.typepad.com/washington_rebel/2010/07/evening-cap.html
http://washingtonrebel.typepad.com/washington_rebel/2010/07/of-heritage-and-modesty.html
Posted by Irish Cicero on 07/13/2010 at 11:09 AMYour suggestions for preparation are excellent, many have been around for some time especially since September 11, 200l as preparation for future terror attacks on US soil. They are also good preparation for natural disasters like earthquakes, tornadoes, floods, etc.
Good luck getting a 6 month prescription for all your medications filled at one time, and be sure your insurance company will probably not pay/reimburse for more than a month at a time. I take that back, I believe some will fill 3 months at a time.
Nominated your article for the Watcher of Weasels Council non-member submission this week.
Posted by Debbie Right Truth on 07/13/2010 at 07:52 PMThe number 1 item should be food, preferably food that will store for more then a few years. As for a generator, not such a good idea. What will you be running after a collapse? This isn’t going to be a 2-7 day power outage. If we have a collapse it is likely that many public utilities will be intermittent or worse. Where are you going to get the gasoline and what exactly do you think is worth powering? A refrigerator? Forget it. Eat the frozen food in the first few days and use the fridge for a smoker. Forget the TV and most other electronics. If you want light or the ability to listen to a radio get a very small PV system. By the way, number 2 should be toilet paper!
Posted by on 07/14/2010 at 07:44 PM
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