Fiscal insanity ensures economic crisis
American democracy is a new creation. We've had our share of growing pains. Most often it's economic crisis that offers us a real opportunity to change-not just to recover economically but build a better system.
We need to change. As consumers, most Americans spend too much. And we know a good percentage of spending can be traced back to consuming too much or,--to be more accurate--our inability to control our impulse to buy. Sure we don't admit that we cave to readily to these desires, crafted by marketers in our subconscious, waiting for external motivators to kick in. The average American views hundreds of thousands of commercial messages; can we say they don't affect us?
We have a political system that advocates Keynesian response--i.e. government as spender of last result. By spending, we create economic activity this is true. We can't however say some improvement in the inexact science of economics isn't needed, as Keynesianism is over 70 years old.
The sheer scale of borrowing justifies additional caution and concern, as well as a fundamental reassessment of government's ability to be truthful. Having been lied to about Iraq, we'd be fools to trust whatever our government tells us. I guess the relative youth of our system of government invites naivete; at the very least political participation is a requirement; without informed citizens it's our government that suffers and in turn our nation.
We need to identify ways to improve our political system. More and more, politics and economics seem intertwined. Any economic system so dependent on government spending--whether for wars, "entitlements," or other forms of spending--becomes politicized.
In our recent case, political power is converted into stimulus spending. Those with the most power and influence in Washington determine through their politicians of choice how federal money will be spent. Judging by the sheer volume of debt, and the inefficiency of government spending vis-a-vis private investment, the monetary system is subsidizing the fiscal spending, which is sustained only by the willingness of private bankers to accumulate Treasury debt to infinity. By lending they stand to make the interest owed them by the Treasury. Still, this process of monetizing the debt has already driven away foreign purchasers of our debt. How soon before they demand more interest to lend to us? Maybe the plan is to let the Federal Reserve replace other purchasers of our debt. This might keep Treasury prices higher than they'd otherwise be. Yet as the total amount of federal debt mounts, the credit quality we can offer and the value of our money itself will decline.
A sovereign debt downgrade may offer us the impetus to change our ways. Yet if borrowing gets more expensive, a contraction of spending will occur. The economy will tank as government spending shrinks in response to much needed austerity measures, not too different from what we're now seeing in Greece. I saw one estimate that put the total amount of government spending cut by the Greeks--if it were an economy the size of ours--at some $800bn already, with an additional austerity package up for debate which would cut some $400 billion more. Could we stomach such a cut?
Tackling our fiscal irresponsibility now involves understanding the impact of so much debt on our currency--the value of our money itself. This link is vital because it will become increasingly difficult to protect our assets. Denominated in dollars, they will decline in true worth even if they look better on paper.
Few Americans are really capable of understanding this impact. The suffering will fall disporportionally on the poor and working classes. Wealthier people meanwhile will enjoy the benefit of higher interest rates which will try to stem the inflationary tide. Unfortunately, cutting wages or even spending won't do enough to keep inflation in check. As it is, we're suffering an unemployment rate that's probably cut average salaries dramatically, if the government is willing to count these things accurately. We do know average wages are flat since 1980. And we also know the vast majority of increases in income since the last (acknowledged) Recession have gone to the corporations and wealthy.
Speaking of predictions, I called the market top a few months ago and the performance of the Dow has been sideways, excepting the last week or so's performance, which saw the major indexes going higher.
I don't give investment advice in this blog so I can't brag about my silver advocacy a few years ago or my more recent, fairly accurate sideways prediction on the stock market. There are valid reasons not to advise people about their wealth that go beyond misleading them. I do my best to bury anything remotely considered giving advice for two reasons; first, I'm wise enough to know I don't know enough to make highly accurate predictions. Second, making big bets on specific investments violates the doctrine of diversification.
Better the tortoise than the hare: better a balanced approach to one that bets too heavily on one truism, whatever its validity. For instance, if one were to think that the very expensive process of unifying Germany in 1990-1 would have been sufficient to devalue the German currency, the Deutschemark, one would have guessed wrong. The Deutschemark rose in anticipation of the medium term trend towards a much bigger and stronger Germany.
Personal experience matters. Those of us who experienced the dotcom boom and bust around 2000-2001 have since gained the benefit of experience in controlling impulsive stock-buying urges. Like lemmings, humans tend to imitate each other and chase hot stocks and high returns then just as eagerly panic-sell into the inevitable correction.
For a private client, I tracked mutual fund sales through that period and saw that investors got out about six weeks to nine months after fund performance declined (the time difference was attributable to the delay in reporting results, typically expressed in quarterly statements.) Once a sector tanks, the funds are forced to sell to meet redemptions, a deep-seated structural problem for mutual funds that can add to whatever losses the fund is experiencing.
Not to predict or anything, I'm anticipating a major market correction, one we know will be coming. It's not if but rather when the correction comes that is the question. Regrettably, I can't say to get out now because the opportunities of the market lie to some degree in weathering these storms. The secret: we can't predict when and therefore can't shun the market. So I guess rather than serve to warn, my advice services the crucial need to keep your money working as hard as possible.
With interest rates on savings at zero, there's no way to come out ahead of inflation. Inflation, I'd read, could be calculated as high as 10% if the same measuring criteria were used now as were used under Fed Chairman Volcker in the Seventies and early Eighties.
It doesn't take a genius to know an inflation rate of 4% (give or take where we could easily be today) requires a rate of return of 4% to stay even. [One important caveat to take into consideration with governmental statistics is its propensity to avoid paying out as much as it has to recipients of Social Security benefits, the so-called COLA (Cost of Living Adjustment.) Similarly, one wonders if Fedgov would acknowledge inflation if it meant it had to pay out more on its TIPS (Treasury Inflation Protected Security) bonds, which pay a rate of return determined by the government's statistics.]
Correction: I'd previously estimated the cost of servicing our nation's national debt at $300 billion in previous post. I just learned that the total cost was over $400 billion in 2010. That number is based on a rate of return of about 3% on holders of our government's debt. Future interest payments on our debt means a bigger percentage of our spending pie must go to service the debt.
Now if inflation infiltrates the system, governmental tax receipts will grow. Then again, everything--I mean everything--that government spends money on will grow more costly.
Rising labor costs have been a large component of inflation, and so government would be expected to pay more to attract and retain workers. Already the average Federal employee makes twice as much as the average private sector employee, according to the USA Today (link below.) I doubt Federal expenditures could shrink in that environment. The nastiest impact of inflation is of course the impact of rising costs. Try as it might to doctor the stats, Fedgov can't deny the epic increases in the cost of medical care, for instance.
There is one advantage to higher outlays: the cost of servicing the debt might grow in nominal terms but not as a percentage of total spending. If Fedgov can increase its tax receipts, it could glaze over inflation's nasty impact on the cost of borrowing, a consequence of interest rates rising in an effort to combat inflation.
Increases in Medicare and Medicaid expenses will be compounded by demographics--one of those "hard limits" I talk about here. No matter how self-important Washington may think itself, it can't hide from the demographic trend. Therefore, budget realists have turned to ways to shrink the cost of health care outlays. There, a mostly GOP-led effort to cut spending has been met by inevitable political resistance.
I'd hesitate to call the Democratic resistance to cuts in "entitlement" spending a hard limit, as the GOP has been able to push through controversial legislation despite Democratic resistance, particularly under Terror War doctrines and the effort to purge America of certain inalienable rights like that to privacy, and against unreasonable searches and seizures first diminished by the Drug War.
As George Carlin said, they ain't rights if they can be taken away. Wherever the legal reality sits, the direction of the Fedgov is towards more, not less, intervention in the lives of its citizens, alongside the accumulation of too much debt. We're in an where perception is reality, though, which makes it easy for politicians to play on the general sense of denial among Americans. Political reality is shaped not by these budget realities but rather the idea of self-interest: the classic Tea Party poster saying "government hands off my Medicare" comes to mind.
Political parties can be compromised. We saw it with the Tea Party. As I said, when they went under the GOP tent, apparently to change it, they ended up being compromised by hardcore social conservatives--long the bane of the free-thinking libertarian left. Gingrich, Bauchman, and Palin began speaking to Tea Party rallies, claiming to be "one of them." Real reform-minded headed for the door, relegated to chat rooms and lonely blogs far outside the mainstream.
So political movements are bound to compromise. And even if they experience some levelof success, they are bound to be co-opted. As I predicted, once those who claimed to being Tea Partiers made it to Washington, the capital would corrupt them. Nonetheless the speed of Mark Rubio of Florida 's conversion from Tea Partier to Establishment insider astounded me. Then again he had a glowing example of pre-/post-election duplicity in our President.
So politics can't be a real hard limit to the expansion of American empire. Laws can be. But we saw that laws can be perverted by legislative bodies who either offer loopholes in exchange for the right campaign contributor, or spew so many laws governing so many aspects of our lives that their enforceability comes into question. The law is only as good as its ability to be followed, which is a function of its utility and viability.
It's not the laws themselves that pose the threat to freedom, but rather the corrupt politicians who service the interest groups, PACs, and corporate lobbyists who dominate the Washington Establishment. As teh Obama and Rubio examples show, most politicians aspire to join the clique, permanently, and enshroud themselves in the many benefits of a system of cronyism and exclusivity, in a system largely devoid of any sense of moral virtue.
Capitals are always the centers of empires, and reflect the attitudes of the empire's elite. Our empire is no different from others in history, despite the rabid exceptionalism that haunts our nation, typically manifesting itself in extremist views on militarism and patriotism.
All empires believed themselves immune from hard limits. It's of course the hard limits that doom them. In our case, we've been borrowing too much--a hard limit. And we have a rapidly aging demographic, and the most politically active one, demanding government services.
The absence of integrity in the capital, and the lack of turnover has let the legal limits on imperial authority wane. Without new politicians able to keep their campaign promises, our leadership serves itself. Its time horizon never exceeds ore than two, four, or six years--the amount of time before the incumbent has to face their next election.
The Republicans have been holding the budget hostage, using the August deadline to force accountability on a system that they created. During the Bush years, spending exploded. Yet now we're to believe the Republicans are the party of fiscal discipline? If there's a hard limit in the ultra-tolerant receptivity of the generally naive American public, surely it must be tested by claims of fiscal responsibility by those responsible for the greatest overspending of any empire in history.
Perhaps the unreality of all these wars and gross mismanagement of the public's finances has spawned other non-realities, other anomalies in time and reason. Under the harsh light of fiscal limits, these minor indiscretions have morphed into outright lies, so entrenched and thick they've formed the underpinning of the relationship of Fedgov to those it governs.
The new fabric of lies advances the fringe of fiscal lunacy as sound reason. Fiscal brinkmanship threatens our ability to pay our bills, but our money has been under attack for some time. The Establishment has concluded it can create its own money machine in the form of quantitative easing, which is really a process wherein the government's debt is purchased in growing quantities by financial entities who know the original principal lent will never be repaid in entirety, what I called a de facto interest-only loan.
In my last post/diary, I advanced the hypothesis that hyperinflation could come here. If the American people remain as ignorant about financial issues, and as uninvolved politically as they've been, the fiscal deterioration will be utter and irrevocable.
Rather than see the coming financial crisis as a single event--an isolated spot on a timeline, like history class--I'd look at it more like a slow motion train wreck. Damage will not be uniform across all sectors of the economy. Some may recover and grow, while other languish indefinitely. Manufacturing springs to mind. I saw a good special on CNBC about China and its predominant role in exports and the future of global manufacturing. The indication is that China will continue to take jobs away from developed economies.
Absent any turn away from free trade, the manufacturing sector here will be decimated, much to the glee of the anti-union neoliberals who run economic policies in Washington. Already, we see the financial sector and service economies being promoted as replacements. We all know service economy jobs aren't enough to pay the bills.
And if you believe they are, please, pleeeaaasse, get out more. Here in the fly-over reaches of the Heartland, we're still in a severe Recession, to the point people come by looking for work just to meet their bills. Many of these people held factory jobs, and were displaced by a lack of forethought as to the impact of NAFTA, which did eliminate most of the American manufacturing sector.
Many libertarians are advocates of free trade, but I don't think they know Walmart is owned chiefly by the Chinese government, not exactly a poster child for individual rights and liberty they claim to be protecting. Likewise, I don't think $200/month sweat shop labor can be considered a victory in the advancement of individual economic success.
Instead we now see in America a crass consumerist lifestyle, one which depends not on hard work and saving but on borrowing. The mantra of spend more has led to an entitlement culture, one in which people demand that government provide for them, an unsustainable nanny state hardly the model independent-minded people should endeavor to attain.
The ideals of the Founders are gone forever. The idea that we can have our own space and freedom at the same time is no longer viable under the current government
We can see the impact of rampant consumerism on our climate. From fossil fuels burning in combustion engines, too much CO2 is being released into our atmosphere. We don't know definitively what portion of climate change is attributable to man-made emissions, but it's undeniable our climate is changing. Storms are stronger, droughts persist, hurricanes worsen.
The libertarian paradise has become a paradox, one where the rights of the individual need to be subordinated to those of the collective. If people aren't willing to learn more about how they can prosper, and assume all responsibility for their future, there's no outcome other than economic collapse.
Already, our ability to to save, and to get ahead have been undermined by our government. These are fundamental property rights. Without the ability to use alternative currencies, Americans will be forced to use fiat currencies with a constantly declining worth.
All the dour prophesies I'm introducing might detract from my premise that there are very reasonable, well established limits on the continuing growth of empire. But blind decisions made to further the accumulation of power by those at the top will be felt far down the ladder. As a matter of fact, it's the manifestation of poor economic planning and policies at the top that ultimately brings the established political order down, given enough popular opinion and political mobilization.
If you can't feed your family, for example, promises to help coming out of Washington don't matter. Then again, attributing the fact you're poorer to NAFTA, or Fedgov, is a far more elaborate intellectual exercise than most are capable of, I'm afraid.
The reaction of the people to the underlying truths presents a marked threat to the existing order. If the people wake up to the injustice of a pyramidal economic system that serves those at the top, they might well be able to change their fate.
This explains the emphasis on dumbing the population down, to control the flow of information just like the days of the old Soviet empire. Americans seem especially prone to believe what their government tells them, which could well make avoiding a reckoning impossible.
Information poses a threat, yes, but it's actually doing something that's necessary to affect change. And as I've said repeatedly, pulling a lever isn't enough. As it is, our two-party system consists of a very limited choice of candidates. The incumbents may get voted out, but as we saw in 2006, 2008, and 2010, they end up getting voted back in. Without any challenges to the two-party duopoly, the two parties end up just transferring power back and forth, in a charade of real choice that makes a mockery of the concepts of change and representation.
So the political system is incapable of providing an impetus for changes in the policies that are hurting us economically. Chief among these is free trade that make no allowances for displaced workers, the environment, or labor rights, which are ultimately political rights because they allow for unionization and an improvement in the quality of life through higher wages and more leisure time.
Millions of Chinese forced to endure atrocious working conditions is hardly a shining representation that American's model of hypercapitalism and over-consumption should offer to the world. Our spending needs to be done on things made by our countrymen, unless of course the ideal of spreading market fundamentalism justifies turning foreign laborers into "automatons of misery." I guess the plan is to further some political goal like exporting individualism or strengthening foreign economies through industrialization abroad--making things there then importing them here.
In time, the Chinese workers will ask for more. They might even explore their right to collective bargaining, and thereby open up new possibilities for the exercise of newfound democratic ideals created not by observing the status quo but by challenging it. A combination of individual dignity alongside economic opportunity can present real change to the political system if it reaches critical mass.
In this respect, globalization is more than an economic force. Yes, it is true that political empowerment is tied to economic conditions. As people are disenfranchised economically, they often become disaffected politically, which typically doesn't encourage further political involvement. Thus economic development does offer the potential for the people to change the course of political development, to refine and improve their system of government.
Outside the US, where living standards are rising, the power of labor can become a force for change. Market fundamentalists view unionization as a threat, but it may be the best method for reaching people excluded from political participation. Bringing all the people from developing nations into the pluralist, globalist worldview might not be that bad for America, as wealthier people are likely more receptive to democratic principles and ideals, once they've attained a certain level of economic security.
Rather than look at democratic forces as a negative, they can be a huge source of energy and possibility. Look no farther than the GlobalRev sweeping the Mideast for an idea of how much difference political participation can make. Rather than try and clamp down, governments might do better to roll with the changes, and cede certain inalienable rights to their people, rather than assume political participation presents a threat.
It'd be an awful shame if the U.S. lost its status as the embodiment of ideals but I'm afraid the current direction of the regime holding power in Washington is on a collision course with the will of the people, which is being underrepresented and underserved by the present system. While populist rallies like that which occurred in Madison, Wisconsin in March could save schools and encourage reform, this is unlikely to happen in Washington in time to save our nation from the monetary and fiscal disaster that is approaching.
Maybe it's only through "creative destruction," that real change can be wrought. At this point, public indifference and political apathy have made change on the scale needed impossible to avert tragedy. However perhaps on the state and local levels of government, fiscal ruin might encourage a new era of fiscal prudence, which might be shaped around the issuance of new currencies not controlled by a recklessly spending, distant capital.
The price of change is much higher the longer we wait because each day our fiscal situation deteriorates. So unlike previous crises, momentum is negative. It can only get worse 'til it gets better. Unfortunately, the time horizon for a monetary recovery might be well past 2025. If we hit bottom sooner, the date of real recovery, based on a new sound financial system will no doubt come sooner. If we dally, the destruction will no doubt be greater.
Like the Great Depression, things could get sufficiently bad to force Washington to take corrective action but by then there will be little Fedgov can do because of their dismal fiscal position. Their ability to borrow will be terminated, meaning they'll run the printing presses to pay their bills. The flow of that money will cause severe inflation and punish savers, diminishing the value of their property and decreasing inflation-adjusted returns on all dollar-denominated financial assets.
Sources
"Overworked America: 12 Charts that Make Your Blood Boil"
http://motherjones.com/politics/2011/06/speedup-americans-working-harder-charts
-See the blue line, Average overall wages, in the first chart, titled "You have nothing to lose but your gains"
"Inflation Actually Near 10% Using Older Measure"
http://www.cnbc.com/id/42551209
"Federal workers earning double their private counterparts"
http://www.usatoday.com/money/economy/income/2010-08-10-1Afedpay10_ST_N.htm
Add-on's (post-writing)
http://www.libertycoinservice.com/images/stories/lcsnewsletter/current/currentnews.pdf
http://theintelhub.com/2011/07/01/how-bankers-own-the-earth-and-then-some%E2%80%A6/
http://www.bloomberg.com/news/2011-07-05/the-sorrow-and-the-pity-of-another-liquidity-trap-brad-delong.html
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We need to change. As consumers, most Americans spend too much. And we know a good percentage of spending can be traced back to consuming too much or,--to be more accurate--our inability to control our impulse to buy. Sure we don't admit that we cave to readily to these desires, crafted by marketers in our subconscious, waiting for external motivators to kick in. The average American views hundreds of thousands of commercial messages; can we say they don't affect us?
We have a political system that advocates Keynesian response--i.e. government as spender of last result. By spending, we create economic activity this is true. We can't however say some improvement in the inexact science of economics isn't needed, as Keynesianism is over 70 years old.
The sheer scale of borrowing justifies additional caution and concern, as well as a fundamental reassessment of government's ability to be truthful. Having been lied to about Iraq, we'd be fools to trust whatever our government tells us. I guess the relative youth of our system of government invites naivete; at the very least political participation is a requirement; without informed citizens it's our government that suffers and in turn our nation.
We need to identify ways to improve our political system. More and more, politics and economics seem intertwined. Any economic system so dependent on government spending--whether for wars, "entitlements," or other forms of spending--becomes politicized.
In our recent case, political power is converted into stimulus spending. Those with the most power and influence in Washington determine through their politicians of choice how federal money will be spent. Judging by the sheer volume of debt, and the inefficiency of government spending vis-a-vis private investment, the monetary system is subsidizing the fiscal spending, which is sustained only by the willingness of private bankers to accumulate Treasury debt to infinity. By lending they stand to make the interest owed them by the Treasury. Still, this process of monetizing the debt has already driven away foreign purchasers of our debt. How soon before they demand more interest to lend to us? Maybe the plan is to let the Federal Reserve replace other purchasers of our debt. This might keep Treasury prices higher than they'd otherwise be. Yet as the total amount of federal debt mounts, the credit quality we can offer and the value of our money itself will decline.
A sovereign debt downgrade may offer us the impetus to change our ways. Yet if borrowing gets more expensive, a contraction of spending will occur. The economy will tank as government spending shrinks in response to much needed austerity measures, not too different from what we're now seeing in Greece. I saw one estimate that put the total amount of government spending cut by the Greeks--if it were an economy the size of ours--at some $800bn already, with an additional austerity package up for debate which would cut some $400 billion more. Could we stomach such a cut?
Tackling our fiscal irresponsibility now involves understanding the impact of so much debt on our currency--the value of our money itself. This link is vital because it will become increasingly difficult to protect our assets. Denominated in dollars, they will decline in true worth even if they look better on paper.
Few Americans are really capable of understanding this impact. The suffering will fall disporportionally on the poor and working classes. Wealthier people meanwhile will enjoy the benefit of higher interest rates which will try to stem the inflationary tide. Unfortunately, cutting wages or even spending won't do enough to keep inflation in check. As it is, we're suffering an unemployment rate that's probably cut average salaries dramatically, if the government is willing to count these things accurately. We do know average wages are flat since 1980. And we also know the vast majority of increases in income since the last (acknowledged) Recession have gone to the corporations and wealthy.
Speaking of predictions, I called the market top a few months ago and the performance of the Dow has been sideways, excepting the last week or so's performance, which saw the major indexes going higher.
I don't give investment advice in this blog so I can't brag about my silver advocacy a few years ago or my more recent, fairly accurate sideways prediction on the stock market. There are valid reasons not to advise people about their wealth that go beyond misleading them. I do my best to bury anything remotely considered giving advice for two reasons; first, I'm wise enough to know I don't know enough to make highly accurate predictions. Second, making big bets on specific investments violates the doctrine of diversification.
Better the tortoise than the hare: better a balanced approach to one that bets too heavily on one truism, whatever its validity. For instance, if one were to think that the very expensive process of unifying Germany in 1990-1 would have been sufficient to devalue the German currency, the Deutschemark, one would have guessed wrong. The Deutschemark rose in anticipation of the medium term trend towards a much bigger and stronger Germany.
Personal experience matters. Those of us who experienced the dotcom boom and bust around 2000-2001 have since gained the benefit of experience in controlling impulsive stock-buying urges. Like lemmings, humans tend to imitate each other and chase hot stocks and high returns then just as eagerly panic-sell into the inevitable correction.
For a private client, I tracked mutual fund sales through that period and saw that investors got out about six weeks to nine months after fund performance declined (the time difference was attributable to the delay in reporting results, typically expressed in quarterly statements.) Once a sector tanks, the funds are forced to sell to meet redemptions, a deep-seated structural problem for mutual funds that can add to whatever losses the fund is experiencing.
Not to predict or anything, I'm anticipating a major market correction, one we know will be coming. It's not if but rather when the correction comes that is the question. Regrettably, I can't say to get out now because the opportunities of the market lie to some degree in weathering these storms. The secret: we can't predict when and therefore can't shun the market. So I guess rather than serve to warn, my advice services the crucial need to keep your money working as hard as possible.
With interest rates on savings at zero, there's no way to come out ahead of inflation. Inflation, I'd read, could be calculated as high as 10% if the same measuring criteria were used now as were used under Fed Chairman Volcker in the Seventies and early Eighties.
It doesn't take a genius to know an inflation rate of 4% (give or take where we could easily be today) requires a rate of return of 4% to stay even. [One important caveat to take into consideration with governmental statistics is its propensity to avoid paying out as much as it has to recipients of Social Security benefits, the so-called COLA (Cost of Living Adjustment.) Similarly, one wonders if Fedgov would acknowledge inflation if it meant it had to pay out more on its TIPS (Treasury Inflation Protected Security) bonds, which pay a rate of return determined by the government's statistics.]
Correction: I'd previously estimated the cost of servicing our nation's national debt at $300 billion in previous post. I just learned that the total cost was over $400 billion in 2010. That number is based on a rate of return of about 3% on holders of our government's debt. Future interest payments on our debt means a bigger percentage of our spending pie must go to service the debt.
Now if inflation infiltrates the system, governmental tax receipts will grow. Then again, everything--I mean everything--that government spends money on will grow more costly.
Rising labor costs have been a large component of inflation, and so government would be expected to pay more to attract and retain workers. Already the average Federal employee makes twice as much as the average private sector employee, according to the USA Today (link below.) I doubt Federal expenditures could shrink in that environment. The nastiest impact of inflation is of course the impact of rising costs. Try as it might to doctor the stats, Fedgov can't deny the epic increases in the cost of medical care, for instance.
There is one advantage to higher outlays: the cost of servicing the debt might grow in nominal terms but not as a percentage of total spending. If Fedgov can increase its tax receipts, it could glaze over inflation's nasty impact on the cost of borrowing, a consequence of interest rates rising in an effort to combat inflation.
Increases in Medicare and Medicaid expenses will be compounded by demographics--one of those "hard limits" I talk about here. No matter how self-important Washington may think itself, it can't hide from the demographic trend. Therefore, budget realists have turned to ways to shrink the cost of health care outlays. There, a mostly GOP-led effort to cut spending has been met by inevitable political resistance.
I'd hesitate to call the Democratic resistance to cuts in "entitlement" spending a hard limit, as the GOP has been able to push through controversial legislation despite Democratic resistance, particularly under Terror War doctrines and the effort to purge America of certain inalienable rights like that to privacy, and against unreasonable searches and seizures first diminished by the Drug War.
As George Carlin said, they ain't rights if they can be taken away. Wherever the legal reality sits, the direction of the Fedgov is towards more, not less, intervention in the lives of its citizens, alongside the accumulation of too much debt. We're in an where perception is reality, though, which makes it easy for politicians to play on the general sense of denial among Americans. Political reality is shaped not by these budget realities but rather the idea of self-interest: the classic Tea Party poster saying "government hands off my Medicare" comes to mind.
Political parties can be compromised. We saw it with the Tea Party. As I said, when they went under the GOP tent, apparently to change it, they ended up being compromised by hardcore social conservatives--long the bane of the free-thinking libertarian left. Gingrich, Bauchman, and Palin began speaking to Tea Party rallies, claiming to be "one of them." Real reform-minded headed for the door, relegated to chat rooms and lonely blogs far outside the mainstream.
So political movements are bound to compromise. And even if they experience some levelof success, they are bound to be co-opted. As I predicted, once those who claimed to being Tea Partiers made it to Washington, the capital would corrupt them. Nonetheless the speed of Mark Rubio of Florida 's conversion from Tea Partier to Establishment insider astounded me. Then again he had a glowing example of pre-/post-election duplicity in our President.
So politics can't be a real hard limit to the expansion of American empire. Laws can be. But we saw that laws can be perverted by legislative bodies who either offer loopholes in exchange for the right campaign contributor, or spew so many laws governing so many aspects of our lives that their enforceability comes into question. The law is only as good as its ability to be followed, which is a function of its utility and viability.
It's not the laws themselves that pose the threat to freedom, but rather the corrupt politicians who service the interest groups, PACs, and corporate lobbyists who dominate the Washington Establishment. As teh Obama and Rubio examples show, most politicians aspire to join the clique, permanently, and enshroud themselves in the many benefits of a system of cronyism and exclusivity, in a system largely devoid of any sense of moral virtue.
Capitals are always the centers of empires, and reflect the attitudes of the empire's elite. Our empire is no different from others in history, despite the rabid exceptionalism that haunts our nation, typically manifesting itself in extremist views on militarism and patriotism.
All empires believed themselves immune from hard limits. It's of course the hard limits that doom them. In our case, we've been borrowing too much--a hard limit. And we have a rapidly aging demographic, and the most politically active one, demanding government services.
The absence of integrity in the capital, and the lack of turnover has let the legal limits on imperial authority wane. Without new politicians able to keep their campaign promises, our leadership serves itself. Its time horizon never exceeds ore than two, four, or six years--the amount of time before the incumbent has to face their next election.
The Republicans have been holding the budget hostage, using the August deadline to force accountability on a system that they created. During the Bush years, spending exploded. Yet now we're to believe the Republicans are the party of fiscal discipline? If there's a hard limit in the ultra-tolerant receptivity of the generally naive American public, surely it must be tested by claims of fiscal responsibility by those responsible for the greatest overspending of any empire in history.
Perhaps the unreality of all these wars and gross mismanagement of the public's finances has spawned other non-realities, other anomalies in time and reason. Under the harsh light of fiscal limits, these minor indiscretions have morphed into outright lies, so entrenched and thick they've formed the underpinning of the relationship of Fedgov to those it governs.
The new fabric of lies advances the fringe of fiscal lunacy as sound reason. Fiscal brinkmanship threatens our ability to pay our bills, but our money has been under attack for some time. The Establishment has concluded it can create its own money machine in the form of quantitative easing, which is really a process wherein the government's debt is purchased in growing quantities by financial entities who know the original principal lent will never be repaid in entirety, what I called a de facto interest-only loan.
In my last post/diary, I advanced the hypothesis that hyperinflation could come here. If the American people remain as ignorant about financial issues, and as uninvolved politically as they've been, the fiscal deterioration will be utter and irrevocable.
Rather than see the coming financial crisis as a single event--an isolated spot on a timeline, like history class--I'd look at it more like a slow motion train wreck. Damage will not be uniform across all sectors of the economy. Some may recover and grow, while other languish indefinitely. Manufacturing springs to mind. I saw a good special on CNBC about China and its predominant role in exports and the future of global manufacturing. The indication is that China will continue to take jobs away from developed economies.
Absent any turn away from free trade, the manufacturing sector here will be decimated, much to the glee of the anti-union neoliberals who run economic policies in Washington. Already, we see the financial sector and service economies being promoted as replacements. We all know service economy jobs aren't enough to pay the bills.
And if you believe they are, please, pleeeaaasse, get out more. Here in the fly-over reaches of the Heartland, we're still in a severe Recession, to the point people come by looking for work just to meet their bills. Many of these people held factory jobs, and were displaced by a lack of forethought as to the impact of NAFTA, which did eliminate most of the American manufacturing sector.
Many libertarians are advocates of free trade, but I don't think they know Walmart is owned chiefly by the Chinese government, not exactly a poster child for individual rights and liberty they claim to be protecting. Likewise, I don't think $200/month sweat shop labor can be considered a victory in the advancement of individual economic success.
Instead we now see in America a crass consumerist lifestyle, one which depends not on hard work and saving but on borrowing. The mantra of spend more has led to an entitlement culture, one in which people demand that government provide for them, an unsustainable nanny state hardly the model independent-minded people should endeavor to attain.
The ideals of the Founders are gone forever. The idea that we can have our own space and freedom at the same time is no longer viable under the current government
We can see the impact of rampant consumerism on our climate. From fossil fuels burning in combustion engines, too much CO2 is being released into our atmosphere. We don't know definitively what portion of climate change is attributable to man-made emissions, but it's undeniable our climate is changing. Storms are stronger, droughts persist, hurricanes worsen.
The libertarian paradise has become a paradox, one where the rights of the individual need to be subordinated to those of the collective. If people aren't willing to learn more about how they can prosper, and assume all responsibility for their future, there's no outcome other than economic collapse.
Already, our ability to to save, and to get ahead have been undermined by our government. These are fundamental property rights. Without the ability to use alternative currencies, Americans will be forced to use fiat currencies with a constantly declining worth.
All the dour prophesies I'm introducing might detract from my premise that there are very reasonable, well established limits on the continuing growth of empire. But blind decisions made to further the accumulation of power by those at the top will be felt far down the ladder. As a matter of fact, it's the manifestation of poor economic planning and policies at the top that ultimately brings the established political order down, given enough popular opinion and political mobilization.
If you can't feed your family, for example, promises to help coming out of Washington don't matter. Then again, attributing the fact you're poorer to NAFTA, or Fedgov, is a far more elaborate intellectual exercise than most are capable of, I'm afraid.
The reaction of the people to the underlying truths presents a marked threat to the existing order. If the people wake up to the injustice of a pyramidal economic system that serves those at the top, they might well be able to change their fate.
This explains the emphasis on dumbing the population down, to control the flow of information just like the days of the old Soviet empire. Americans seem especially prone to believe what their government tells them, which could well make avoiding a reckoning impossible.
Information poses a threat, yes, but it's actually doing something that's necessary to affect change. And as I've said repeatedly, pulling a lever isn't enough. As it is, our two-party system consists of a very limited choice of candidates. The incumbents may get voted out, but as we saw in 2006, 2008, and 2010, they end up getting voted back in. Without any challenges to the two-party duopoly, the two parties end up just transferring power back and forth, in a charade of real choice that makes a mockery of the concepts of change and representation.
So the political system is incapable of providing an impetus for changes in the policies that are hurting us economically. Chief among these is free trade that make no allowances for displaced workers, the environment, or labor rights, which are ultimately political rights because they allow for unionization and an improvement in the quality of life through higher wages and more leisure time.
Millions of Chinese forced to endure atrocious working conditions is hardly a shining representation that American's model of hypercapitalism and over-consumption should offer to the world. Our spending needs to be done on things made by our countrymen, unless of course the ideal of spreading market fundamentalism justifies turning foreign laborers into "automatons of misery." I guess the plan is to further some political goal like exporting individualism or strengthening foreign economies through industrialization abroad--making things there then importing them here.
In time, the Chinese workers will ask for more. They might even explore their right to collective bargaining, and thereby open up new possibilities for the exercise of newfound democratic ideals created not by observing the status quo but by challenging it. A combination of individual dignity alongside economic opportunity can present real change to the political system if it reaches critical mass.
In this respect, globalization is more than an economic force. Yes, it is true that political empowerment is tied to economic conditions. As people are disenfranchised economically, they often become disaffected politically, which typically doesn't encourage further political involvement. Thus economic development does offer the potential for the people to change the course of political development, to refine and improve their system of government.
Outside the US, where living standards are rising, the power of labor can become a force for change. Market fundamentalists view unionization as a threat, but it may be the best method for reaching people excluded from political participation. Bringing all the people from developing nations into the pluralist, globalist worldview might not be that bad for America, as wealthier people are likely more receptive to democratic principles and ideals, once they've attained a certain level of economic security.
Rather than look at democratic forces as a negative, they can be a huge source of energy and possibility. Look no farther than the GlobalRev sweeping the Mideast for an idea of how much difference political participation can make. Rather than try and clamp down, governments might do better to roll with the changes, and cede certain inalienable rights to their people, rather than assume political participation presents a threat.
It'd be an awful shame if the U.S. lost its status as the embodiment of ideals but I'm afraid the current direction of the regime holding power in Washington is on a collision course with the will of the people, which is being underrepresented and underserved by the present system. While populist rallies like that which occurred in Madison, Wisconsin in March could save schools and encourage reform, this is unlikely to happen in Washington in time to save our nation from the monetary and fiscal disaster that is approaching.
Maybe it's only through "creative destruction," that real change can be wrought. At this point, public indifference and political apathy have made change on the scale needed impossible to avert tragedy. However perhaps on the state and local levels of government, fiscal ruin might encourage a new era of fiscal prudence, which might be shaped around the issuance of new currencies not controlled by a recklessly spending, distant capital.
The price of change is much higher the longer we wait because each day our fiscal situation deteriorates. So unlike previous crises, momentum is negative. It can only get worse 'til it gets better. Unfortunately, the time horizon for a monetary recovery might be well past 2025. If we hit bottom sooner, the date of real recovery, based on a new sound financial system will no doubt come sooner. If we dally, the destruction will no doubt be greater.
Like the Great Depression, things could get sufficiently bad to force Washington to take corrective action but by then there will be little Fedgov can do because of their dismal fiscal position. Their ability to borrow will be terminated, meaning they'll run the printing presses to pay their bills. The flow of that money will cause severe inflation and punish savers, diminishing the value of their property and decreasing inflation-adjusted returns on all dollar-denominated financial assets.
Sources
"Overworked America: 12 Charts that Make Your Blood Boil"
http://motherjones.com/politics/2011/06/speedup-americans-working-harder-charts
-See the blue line, Average overall wages, in the first chart, titled "You have nothing to lose but your gains"
"Inflation Actually Near 10% Using Older Measure"
http://www.cnbc.com/id/42551209
"Federal workers earning double their private counterparts"
http://www.usatoday.com/money/economy/income/2010-08-10-1Afedpay10_ST_N.htm
Add-on's (post-writing)
http://www.libertycoinservice.com/images/stories/lcsnewsletter/current/currentnews.pdf
http://theintelhub.com/2011/07/01/how-bankers-own-the-earth-and-then-some%E2%80%A6/
http://www.bloomberg.com/news/2011-07-05/the-sorrow-and-the-pity-of-another-liquidity-trap-brad-delong.html
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posted by jbpeebles @ 9:45 PM
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