There are things that are so obvious they shouldn’t warrant discussion…but they do. For there are blockheads out there whose brains are so soft they don’t know obvious from Adam’s off ox. Experience tells us that common sense is remarkably uncommon. Nowhere is this more spot-on than when it comes to money and politics.
For example, a majority of voters believe they can live off the expense of others. This is utter nonsense. Yet it’s a popular notion among the broad flock of ballot casters. In fact, politicians have promised them something for nothing for generations.
Incredibly, politicians have appeared to make good on their promises over the last 70 years. They had the advantage of a strong tailwind. The economy was expanding and fiscal gaps could easily be papered over with debt.
Your average third grader knows this can’t go on forever. Nonetheless, your average voter thinks they’ll still get their checks before the entitlement system breaks down. The next 5 years will crush this delusion from them…the breakdown has already begun.
Here’s what we mean…
Free Drugs and Retirement Checks
Pete Peterson and other party-poopers at the Concord Coalition warned over twenty years ago that compounding budget deficits would bring ruin. No one listened. Promises to reduce benefits and entitlements were a proven stump for losing elections. Politicians all know that to win elections they must do the opposite…they must make big promises and increase government payouts.
More entitlements are what people have always wanted. They voted for free medicine and retirement checks with gusto. Politicians who promised these goodies were rewarded with reelection.
Everyone wants free drugs and a comfortable retirement from the government. Though few understand – or care – that to deliver these promises of largesse, politicians have pledged the future productivity of the unborn as security. This has been going on since the 1930s…and something’s got to give…
A child born today comes into the world under the bondage of owing nearly $50,000 to the national debt. Factor in the accrued debt of households, businesses, state and local governments, and financial institutions, and the amount owed spikes to over $180,000. But that’s nothing…
The newborn’s portion of unfunded liabilities of social security, prescription drugs, and medicare is about $375,000. Is it any surprise that individuals just entering their working years, whose productivity was spent before they were born, have reservations about paying into a bankrupt system?
Now the old tricks no longer work…
Set the Children Free
The U.S. economy and most western economies have reached total debt saturation. That’s why piling on more debt through massive fiscal stimulus and monetary easing over the last three years has failed to produce an economic recovery. Suspending the problem of too much debt by adding more debt has surpassed the economy’s debt capacity…the addition of new debt now only weighs the economy down.
When the financial system cracked and the economy slipped in 2008, the government wagered they could return growth to the economy through borrowing gobs of money. That gamble has resulted in a big fat goose egg for the economy. Additionally, politicians and voters have painted themselves into a corner. There’s no way out. The amount owed is too massive to ever be repaid outright.
The only solutions are default or inflation. Thus far the government is pursuing the expedient…they want inflation. But even that’s proving difficult to achieve.
The consumer price index, the broad measure of inflation, was flat in November after slightly decreasing in October. Moreover, despite 10 Year Treasury yields at historic lows of 1.9 percent annualized gross domestic product for the third quarter of 2011 was at 1.8 percent.
To successfully manufacture inflation, interest rates must be below the rate of growth. What this means is even with heavy intervention into credit markets to artificially suppress interest rates, the Fed and the Treasury have been unable to spur inflation and reduce overall debt levels.
If the money creators don’t get their act together soon, the U.S. government will default outright. They’ll stiff their creditors at home, lenders abroad, and their older citizens in one fell swoop…and they’ll set the children free.
for Economic Prism