What Can Be Done To Turn The Economy Around?
December 4th, 2011Reading a report at the buisnessinsider.com “Steve Keen, We’re already in a second great depression but just don’t know it yet”, will give you pause. Keen was one of a handful who predicted the Great Recession, along with others I have been studying. Wedemire, Wedemire, and Spitzer predicted the collapse of the housing bubble back in 2005. I highly recommend their new revised second edition of “Aftershock” surviving the next global financial meltdown. These people have earned the right to be heeded.
Keen accurately predicts that it is debt that must be driven down to acceptable levels before there can be a recovery. Until then the best we can hope for is stagnation similar to Japan’s lost decade, however Keen estimates it will take twenty years to pay down the current debt to a level that allows recovery.
The Aftershock authors are predicting the final popping of the real estate bubble, which they estimate is only half deflated, when investors slow the purchase of US debt (bonds) driving down the value of the dollar which will lead to double digit inflation. That will result in the bursting of America’s debt bubble, which means we will no longer be able to borrow to pay for running our bloated government, and welfare state.
When the debt bubble bursts, not if it bursts, America will have only two options to fund government, print money exacerbating the fall in the value of the dollar, and economically stifling taxation upon all Americans.
Milton Friedman wrote in his book ‘Money Mischief’ of scenarios we are living today. Inflation is a strictly monetary phenomena. Friedman shows historically when governments print money, when there is no demand in the economy for those dollars, to either provide liquidity, or to pay back debt with cheaper dollars, inflation takes hold about eighteen months after the government stops printing the excess dollars. That is followed by a twenty-four month period of high interest rates, negative economic growth, and high unemployment while the government gets inflation under control. You who lived as working adults in the 1980’s will recognize this pattern.
The Fed and Bernanke ended QE2 at the end of June which means the inflation train will arrive at the station in the first quarter of 2013, unless Bernanke launches QE3 which is highly probable around the second quarter of 2012. This is when John Ransom Finance Editor for TownHall.com estimates a recession will be declared. The QE3 dollars will be added to an already increased money supply Bernanke has inflated by 300% since 2009. This will deepen the following financial meltdown with even higher inflation rates.
That’s just the monetary side of our problems, when excessive spending and debt is the monster in the room. Obama has deficit spent $4 trillion in less than three years increasing American debt to $15 trillion representing 100% of our GDP. Time to look at the real world ramifications of this level of debt. All you need do is look to Greece. The socialist welfare state could not support itself and has collapsed after reaching 110% of GDP. The same will be true for America, because you can’t fool the laws of economics. You can’t spend 40% a year more than your income in your household without going bankrupt, and neither can government.
America’s interest payment on debt for fiscal 2011 was $454,393,280,417.03(TreasuryDirect.gov), at near zero percent interest rates. The CBO estimates that our interest payment will rise to $900 billion by 2020 with the projected $9 trillion in additional debt from proposed Obama spending plans. Once again at today’s interest rates. When the dollar bubble pops, inflation takes off, it would only take a rise in interest rates to about 6% for our interest payments to consume 100% of total revenues going to government.
That means there will be no money left for any government function including the military for national defense, medicare, social security, welfare, food stamps, infrastructure, law enforcement, and the labyrinth of bureaucracies with hundreds of thousands of federal employees. This is not a pretty thought, but the reality of what we are facing as a nation. We are broke but continue to deficit spend.
The problem is too many people are in denial holding out hope that things will turn around because they believe in the government as providing the solutions, or that we are in a down market cycle that will turn up. Both those are false conclusions. We are now in an evolved economy that reflects the true financial implications of the debt, tax, and regulatory burden upon the private sector.
The debt burden is compounded by big government. New entitlements like Obamacare add trillions in cost and eliminates jobs. Energy policy due to radical environmentalism based upon a theory has caused the highest food inflation in twenty years before inflation has really hit, along with higher fuel and energy costs impacting every American. Obama policies are in fact preventing recovery and job growth.
What can be done to turn the economy around? It will begin when our elected leaders are honest about the situation and tell the American people. It will begin when we have a renaissance in journalism. The influence of the left within the media prevents the truth from being discovered and reported. Today’s media are nothing more than cheerleaders for whichever side their owners come down on, which is mainly liberal.
If we are to have any chance to lessen the misery of the coming downturn we must get the economy growing again. Growth is the key to increasing government revenues to throw at the debt and welfare state. Higher taxes will only depress the economy further. The Obama administration has implemented the exact opposite policies needed for growth. To allow growth Obama must be defeated and his policies repealed and reversed.
Electing a new fiscally conservative president won’t be enough. We need to replace every big government statist of both parties with fiscal conservatives in congress. In addition to reversing the destructive Obama policies the bureaucracies need to be reigned in. We are no longer a people that have representatives we elect writing the laws that govern our society, and economy, we have become a bureaucratic state. Unelected unaccountable bureaucrats bypass congress with dictates that have adversely impacted not only our economy but our individual liberty and freedoms.
Our government has led us to this point in history, both political parties are guilty, and the media are their enablers aiding and abetting by failing to perform their duty to protect the people from the powerful.
What can be done to turn the economy around? An informed citizenry marching to the polls in historic numbers in November of 2012 holding their elected officials accountable. Replace the Obama administration who will only dig our debt hole deeper, shackle the private sector preventing growth, and empower bureaucrats to implement an agenda that the people’s representatives would never approve.
How do we get this economy to turn around? A revolution at the polls that will elect people who will take the fiscally responsible steps to free the private sector to grow again, by cutting spending, paying down the debt, and eliminating over zealous regulation. By electing people who believe in our Constitutional Republic protecting property rights and the individual liberty of our citizens. The American people freed from the shackles of a big progressive government will do the hard but necessary work to rebuild the economy from the ruins of this government created disaster. We will not prevent the next global meltdwon but we can lessen the impact if we are free from government oppression.
Government is not the solution, government is, has been, and always will be the problem. That’s why our framers of the Constitution intended for government to be limited. Time to limit it.
The opinions expressed here are solely those of Fritz Pfister or identified sources, and not necessarily those of RE/MAX Professionals of Springfield or RE/MAX International.
