Current financial news suggests the economy is deteriorating. Many institutions are in damage control mode. If an entity is facing an impending bankruptcy, why announce it early? Collect a few more paychecks. People tend to hide problems. Sweep this under the rug and maybe it will go away. The real picture of our predicament is probably still well hidden. Nothing is a clear as it seems. No set of facts describes the whole story. And when you mix and match news reports, there is room for the error of interpretation
People talk about helicopter Ben throwing money out everywhere. It makes a great newspaper story, but it’s way out in left field. All he can do is make the money easier to borrow. The damn problem is you can’t force people to borrow money. If you want to blame Ben for what Congress has spent, be my guest. He is being groomed to take the fall.
Congress is the main player in this game as it unfolds. To get elected they promised the moon and pretty much delivered. This group repealed laws written in the 1930’s that could have kept a lot of this from happening a second time. The country is headed into a deflationary recession but our elected “Cesspool of Irresponsibility” could change all of that. Congress assumed (with good reason) that the tax receipts would increase each year. Even with inflation, they will probably drop next year. Fixed Costs are the real headache. The amount spent on social programs is pretty much set in stone (it isn’t going to get smaller) 56% (See diagram). As tax revenues decrease, the pie gets smaller; the share devoted to social programs increases. A 20 percent decrease in revenues would make the fixed cost rise to 70 percent of the budget.
Congress will have some very unpleasant decisions to face\avoid (choose one) in the near future. Don’t expect them to cut Social Security or Medicare; they want to get re elected. Congress is held accountable for fixing present problems, but responsibility for the future problems doesn’t even enter the equation. From there it is quite simple; the Treasury writes the checks to cover the fixed costs. This is where the money is printed. It’s kind of like a Visa card with no limit on it.
Where will Congress cut when things get worse? There is no answer to that question yet. When FDR was elected, there were no social programs, and by 1948, these programs consumed 10% of the budget. Now where are we? Entitlements are where the cuts will have to be made. To a Congressman, that’s an incredibly stupid suggestion especially come election time.
We are looking at several things in decline; credit, housing, banking and a shrinking tax base. Just think, you got all this, in time for Christmas!
Merry Christmas everyone.