Congress just passed the debt ceiling bill. In two years, they get to raise the debt ceiling 2.5 trillion dollars for which they promise to cut the budget by 2.5 trillion over 10 years. What would you say if a College professor announced that he had struck an agreement with the college chancellor; If allowed to molest two students now, he promises to cut down his future molestations by two students over the following 10 years. The analogy is rather obtuse, but Congress needs to stop borrowing. Has anyone accuse Congress of being responsible for inflation? Hell no! The remark “We have always had inflation” sounds more like the punch line to a blond joke. You can’t lose an election pumping printed dollars into the economy.
This increase in the debt ceiling was kind of like an 80 year old man successfully struggling to have a bowel movement. He’s happy, but nobody else knows why, and tomorrow he faces the same problem all over again.
Let’s look one year down the road. Figure a 20 to 40% reduction in taxes collected this year. Of course the States are just doing peachy-keen; California is going to have to start growing pot just to pay their bills. People aren’t buying anything on credit; they are too busy paying off their cards with 20 to 30 percent interest rates. Figure the Federal government will pay out 20 to 30 percent more in benefits next year in unemployment, SSI and other goodies. What does that leave Congress to cut? Put a different way, you have two slices of pie and you need three.
Congress is probably confused about our new bond rating of double A. A triple D is something they can get their hands around; unfortunately credit ratings have little to do with bra sizes.
Monday things may start to deteriorate. Greece is in the cross-hairs; the country is about to implode. Not much of a problem with that, but investors everywhere bought insurance on the impending Greek collapse. The trouble is, the insurance isn’t going to pay; too many policies were sold on that event. From here, insurance on future events could fall apart (Google “Panic 1907 Bucket Shops”). This 50 trillion dollar betting parlor has been writing business worldwide. “Trimming the Hedges” on Wall Street, in the following weeks will not be referring to yard work.
The government references to a possible future double dip recession is to keep everyone from panicking. Yesterday, someone stated that our present housing crisis has surpassed that of the Great Depression. If you read between the lines, they are passing out hand baskets and we have just won a free trip to nowhere or somewhere thereabout.
Things are bad and far worse than any recession of record. Who are we fooling when Congress farts into a bag and claims to have solved our financial problems? People are not stupid, the trouble is, they will all arrive at the same conclusion at the same point in time. This could be shipwreck-week on Wall Street; where everyone tries to sneak for the exits (sssh--don’t tell anyone, it’s a secret).
15 comments:
Hi Jim, met some American friends today and have told me they have just paid $29K for a five bedroom house,(Ohio) and have several houses that are rented, the total rent does not equal my weekly rent! Who would have believed this a few short years ago? Not much I can say here except I think that we are about to get what we should have got in 2008 ...
A "correction" into misery !!
Many of the people in Congress have never had a job in the private sector. Many of my neighbors (teachers, police, firemen) fall into the same catagory, and talking to them about government cutbacks is like talking to a brick wall.
They are used to annual raises, cost of living raises, and free medical care, for the entire family. Their solution is a parcel tax on every house, on top of all other taxes.
Mr. Correction (or Mr. Market) is going to teach everyone a very painful lesson. Americans will now be punished for what they've allowed their "leaders" and Congress to do over the last 80 years. We took the wrong exit off the freeway when we allowed the Federal Reserve to enter in. And then we went off into a ditch off of a remote back country road with FDR.
You know the AA+ rating is a farce... and is more likely to be A or less. All appears to be a political sham when now congress critters are blaming Tea Party supporters for this mess.
The country has never been more divided... is this all part of the government's master plan?
The only way I see a way out of this mess is a 90% tax rate, a national federal sales tax and hyper inflation to nullify the debt... unfortunately, there goes my military pension as it will be worthless in two years.
I guess on the positive side, we will be witness to the greatest fiscal disaster in history and will have quiet a tale to tell our grandchildren.
ATP
It made me smile when I read the comments from the Chinese media re the U.S lack of responsibility on their burgeoning debt:) China has conservatively the same debt to GDP ratio as your country, and some reckon it upwards of 150% of GDP. China has also steadily increased U.S. gov bond buys over the past few years, so what can one say!! Jim things must be getting better, Alan Greenspan is back in the media giving predictions on all things economic, don't you love the irony :)))
Actually, the U.S. consumer got another $15.5 billion in debt in June 2011. $10b of that being non-revolving, $5b of it revolving.
http://www.bloomberg.com/news/2011-08-05/consumer-credit-in-u-s-rose-by-15-5-billion-in-june-most-in-four-years.html
"now congress critters are blaming Tea Party supporters"
I had to look that up to believe it. You are correct. How crazy.
http://www.washingtontimes.com/news/2011/aug/7/democrats-seek-to-pin-credit-downgrade-on-tea-part/
Does congress really expect the American public to be that plain ignorant? Last I knew, the Tea Party did not create all this debt. Its like a wife maxing out all the credit cards, then blaming small business owners.
Hi Drewbert
Not to belittle the 15 billion in consumer credit debt, but after comparing it to the national debt, the amount looks like parking meter change.
Real people have a rough time raising their credit card limit. The jokers in Congress don't seem to have that problem.
Thanks for the link.
Hi Angry Taxpayer
I think after the dust settles, military pensions and Social Security will continue.
Once the national debt is reset to zero, it sets your bank deposits to zero; your entitlements should still be good as gold.
Hi Frakrak
Greenspan has me worried when he says we can't default, because we can print more if we need it.
As for housing prices, I met a couple that bought a home in Michigan for 28K on one acre. Sounds hard to believe, but I guess there are some deals out there. Michigan is not a place I would move to, too much snow and too cold in the winter.
I think that people are finally realizing that the economy is really screwed up beyond what they could ever imagine. It's just a recession, kind of like the 1930's type. We wouldn't want to be reckless and call it a Depression with a capital D; now would we?
Hi AIM
I agree, we are going to pay, and pay now.
It started with FDR and I think it will end with Obama. The bills are too big to ever pay.
Hi Jim,
What I meant by worthless is by devaluation of the US dollar. I'm currently living solely off my retired pay and have lost 25% of its value in the last 3 years.
I fully expect to loose another 20-30% in the next two years... if not more. I'm convinced the Fed knows exactly what it's doing by killing the value of the dollar.
A strong dollar is not in the government's best interest when it owes trillions of dollars in current and future liabilities.
ATP
Jim. I guess he's right about the Fed and Treas not wanting a strong dollar with all of this debt and the need to make more money through exports.
If that is the case the best thing to do is make as much cash as you can and everytime the cash comes in you turn it into assets as soon as you get it (rental property, gold silver). Keep doing so until inflation makes the dollar worthless. Once that happens, if you have accumulated enough assets, you may be ok.
Do you agree?
Hi ATP
What I was suggesting is that AFTER it hits the fan, Veterans and retirees would be first in line for benefits. I really don't see this fictional financial book keeping lasting much longer. We are all screwed under the present system.
With a clean national debt slate, the government can afford to pay Veterans benefits as well as Social Security. Right now the government is paying 500 billion in interest on the national debt each year. So with the debt "gone" there is more than enough money go go around.
The big caveat here, is I could be wrong on how this plays out.
Hi Anon 8:37
Gold and silver aren't a real buy right now. Investment real estate in some parts of the country doesn't look bad, you need 20% down, which isn't a bad thing.
I would seriously entertain the idea of buying what you need at these low financing rates.
You could get very good deals on power boats and small airplanes right now. Be prepared to buy what everyone else is selling.
Bear in mind that real estate is highly visible and is taxed royally by government.
The thing most people don't take into consideration is how age will affect their retirement plans. And it is their biggest mistake. If you are young the plan you suggest could work quite well, if you are retired, I would give it a second thought.
I might have to fly to Colorado to repaint the inside of my rental soon. I don't think at my age, I'm going to enjoy it, let alone survive the task.
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