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2013 Economic Predictions Revisited

It’s time for the mid-year audit of my 2013 economic predictions. I learned from last year and throttled back a little this year. While luminaries like Marc Faber predicted a great economic collapse in 2013, I decided the government has a lot of energy to keep powering through a bad plan. It would be almost better if things did collapse so we could learn our lessons and start the actual rebuild; but government isn’t going to learn anything, and its ability to ease the economic pain is sufficient to keep many believing the economy is is some kind of recovery mode.

That is, in essence, what I said at the beginning of the year, and six months I hold to it. Republicans and Democrats are still caught in exactly the same foray while nothing really gets much better. Obama has as much vision as muddy goggles, and Republicans would rather make sure that anything he tries doesn’t succeed than actually do something to save the country. Belief in trickle-down economics maintains its religious fervor. Never mind that the results after a quarter century are obvious. The queen banker is very, very fat. Too fat to fall. One percent of the hive gathers around. These are the queen’s guards – the politicians and Wall Street wonders who are too fat to fly. They are  dripping with honey brought in by the other 99% who are drones. The drones, on the other hand, have tattered wings, but they keep letting the queen’s guards have all the honey breaks. They say, “Please continue to give yourself huge breaks on the honey tax so that you, the worthy ones, can have more … so that we can hope some of your honey will drip upon us. We wish for you to succeed in order to feed our dreams that we may someday be as fat with honey as you.” They live for a dream they never experience; but seeing that some do givens them hope that they may, too.

If there were another banking collapse, we’d bail out the same banks all over again, even though it accomplished nothing the first time … as would be obvious by the fact that we had a second time so soon after the last bailouts. So, the citizens of the country learn nothing. They are cast in the Democrat and Republican divisions.


My economic predictions at the start of 2013

The leaders of the world would continue to believe they could resurrect the dinosaur economy by trying to pump it up with debt. It is what worked before and what worked before that, so it is all they know, and all they’ll try. They will do all they can to save the economy through low interest rates, designed to entice people to to buy homes and take on debt again.


In January, I said,

Since quantitative easing has never righted the situation for good, it should be evident that is nothing more than a prop … a crutch…. I have said from the time the first quantitative easing was promised by the Fed, that it would fail to have any lasting result, and each round has failed as soon as it stopped…. So, I predict the dinosaur economy I have written about will continue to breathe awhile longer, but this kind of economy will never again thrive.


And, so, it hasn’t. It is flatlining right now. It is doing exactly as I predicted at the start of 2013. The second the Fed breathes a word of backing off on the Q.E. accelerator, the economy begins to stall. What appeared to have been gained begins to roll back at the mere hint of easing the Easing. The past month has seen interest rates escalate and the stock market falter all because Ben Bernanke said there was a slight chance that Q.E. III could begin to taper sometime this year.

What we have seen in recent years is not a recovery at all. It merely the intoxicating effect of trillions of dollars mainlined into banks for free. It lasts as long as the drug lasts and is not, in the least, sustainable. Time and again, over the last couple of years, we have seen the Fed start to back away from Quantitative Easing and immediately seen the economy go right back into decline. Take the patient off the feeding tubes, and he begins to die.

So, my first 2013 economic prediction was that we’re going to live with this half life we have for some time because “No one is willing to give up the candy of newly minted money.” That restricts the Federal Reserve’s ability to stop creating the flood of new money because the illusion of recovery is over when they do. Thus, there will be …


No spectacular end in site for the economy in 2013

Nouriel Roubini, and Jim Rogers also predicted an economic collapse in 2013. The three parties mentioned all believed it would be triggered by the “fiscal cliff” we would slide off of at the start of the year. I believe they are right that greater economic collapse is coming, but I did not believe their timing. Instead, I predicted, “we are more apt to see a long and worsening economic malaise than an imminent crash.” I still think that’s the smartest bet on the table.

I noted that the Fed will continue Q.E. until the job market recovers and that job market had faltered every time the Fed backed away from the Quantitative Easing it had been doing:


I have believed and said for years now that Q.E. will always fail to bring us out of this Great Recession, no matter how many times it is tried because it is the wrong solution. So, the Fed will hit its end limit, and it’s repeat failures to accomplish anything that sustains itself are solid evidence that I am right.


I think people favor a spectacular end over a long malaise toward inevitable death. I know I do. It’s not just the drama of it, but who wants the bad drawn out. In this case, though, the banks and governments that work together in nearly fascist cooperation have a lot of power and a lot of incentive to keep sustaining the economy that brought them great wealth.

We are out of recession only because quantitative easing continues at a huge level. As said above, that locks the Fed into continuing it. They may try to taper it, but when they do the results will cause them to accelerate it again. Another reason the Fed is stuck buying U.S. debt is that the U.S. government would have to start paying higher interest to attract enough buyers, and it has a whole lot more debt to pay interest on now than it did before the Great Recession. The Fed is already acting as the United States’ funder of last resort. Others have left the table. So, if the Fed backs away from Q.E., interest rates on the national debt will climb. The exception would be if Europe falls or other great economies fall, so that money flees those countries and takes even a faulty refuge in buying U.S. bonds over no refuge at all.

There is a high chance that failure elsewhere will keep the U.S. government from having to pay high interest on its towering debt:


My second economic prediction for 2013

I stated that the the next decline — the second major dip of the Great Recession — would be seen first and foremost in Europe. If there is a crash, it will begin there, where the banking system is most fractured and independent states are less cohesive than the United States. I said that governments will not change their misguided courses, and they certainly haven’t. They are all still desperately trying to make the solutions of the last five years work. Good luck with that.

We saw the first serious ruptures this year in Cyprus. The European economy continues to slide deeper into recession all across the E.U., as I said it would. Even Germany is sliding into recession. The decline of Europe will negatively impact the U.S. economy, yet will help sustain comparatively lower interest on U.S. debt if the Fed does try backing out of Q.E.


2013 predictions for the Iranian reaction

While the New York Times, at the end of last year, was saying there were signs Iran was beginning to concede on nuclear regulation, I considered The Times “surprisingly naive.” I said Iran will continue its course. It has, and it will, even with a more moderate president.


Islamic prophecy teaches that the 12th Imam will return and set up his global Islamic caliphate when the followers of Islam are engaged in a holy war against the Jews. Naturally, they need that to be a war they can win. For a believer of such prophecies, the religious hope of a global Islamic caliphate clearly outweighs what would be regarded as the righteous suffering of one nation in order to bring that long-aticipated event about.


People need to realize that Iran’s move toward nuclear weaponry is religiously driven, not politically or economically. Iran is far more interested in a grand destiny, given to it by Allah, than it it is in forever towing the line to keep the U.S. happy. I ventured the following at the start of the year, and I think it is still the most likely scenario:


2013 is almost certain to be the year when war with Iran does happen because the president of the United States has stated emphatically he will not allow negotiations with Iran to extend beyond 2013.


The election of someone believed to be moderate (compared to Ahmadinejad) is giving hope to some that Iran will change course — probably the same some who worked at the New York Times when it thought Iran’s conversion of some of its nuclear material to medical spoke of a political conversion in Iran’s drive for nuclear military strength. The hope people see in having a somewhat moderate president coming online will give nuclear negotiations a little more life, but Iran isn’t going to capitulate to the United State’s demands.

(If you’re new to the site and want to read more about the prophetic beliefs that guide Iran’s top leaders, read “THE IRANIUM REACTION: Is Jihad Rising?“)

Finally, I said that war with Iran could be a trigger that would cause more rapid economic collapse than the slow malaise I described above.


In conclusion about my 2013 economic predictions

While war or some other massive event could bring rapid economic collapse, I still think the most likely scenario is continued economic malaise — long, slow death of an economy that never gets itself off the ground again without continuous life-support. Expect economic decline to malinger. Expect the government and the Fed to struggle their best to keep pumping the economy along at its present laggardly pace.

War with Iran would be a shock to the system, but not as much of a shock as it would have been, had it broken out when I first started writing about the Great Recession. The U.S. has found a new and vast source of oil and has begun tapping it. We’ve had time to mitigate the possibility of Iran blocking oil in the Persian Gulf. There’s a chance we could weather such an event better than most of the developed world; but we’d certainly feel its impact.

Every possible effort to keep the bankers rich and to save the banks that are too big to fail by merging them with others to make them bigger still, to reinflate the dollar, to lure consumers to buy things on credit … will be employed. We will not take the remedial action that would avoid another economic plague like the present one by dividing large banks into organizations that are no longer too big to fail because we are addicted to bigness. We will not stop the tax breaks for rich bankers and brokers. They will continue to keep a lower capital-gains tax rate. They make all their money off of capital gians, not from their salaries like the rest of us poor dopes, so those gains will continue to be sheltered by a government that favors the wealthy as a path to creating jobs for the rest of us by giving them better tax rates.

Saving banks at all costs will continue to be the general drift of government. A spectacular collapse into financial ruin would have a lot more spectacle about which I could speculate and cash in on with exciting articles, but I’m keeping my money on continued government and central-bank efforts to revive the dinosaur economy.

I predicted more of the same for 2013. That’s what we’ve had, and that’s what we’ll continue to get.


[amazon_link id=”111855017X” target=”_blank” ]The End of Ethics and A Way Back: How To Fix A Fundamentally Broken Global Financial System[/amazon_link]

An economic plan that might have brought recovery from depression

Anyone can criticize while having no better ideas.  In fact, I would argue that, if you cannot put forward reasonable alternatives, you might not be qualified to criticize those who are, at least, trying something. In that spirit, I want to scope out a new economic recovery program vastly different from the economic plan the U.S. adopted under Bush and Obama or the German austerity program. While it would have created a much rougher ride at the outset, I believe it would have worked to rebuild a sustainable economy that we would now be experiencing. It may be too late, for we have already squandered what little reserve capacity we had — all of which this plan would require — on efforts that have already proven unsustainable. The haunting question is Do we have enough time and reserve capacity at this point to do it?


The German austerity plan is the right economic plan in the wrong season

Austerity can never cause an economy to grow. Even those who despise Keynes, who argued that government spending stimulates economic growth, are unlikely to argue convincingly that austerity creates growth. It has no creative power at all. What austerity can do is prevent the kinds of debt that kill growth. Austerity, in other words, is a brake, not a gas pedal. It can never create acceleration; it can only arrest decline.

The lack of austerity, however, (or, at least, lack of prudent spending) can certainly stack up enormous debt that kills economic growth. The car won’t accelerate when you hit the gas pedal if it has already flown off the road. So, the Germans are only half right. Lack of prudence (called “austerity” when taken to the extreme) certainly killed Europe’s economy; but they will not get the economy back by practicing it now. It’s odd but true that austerity can create poverty as easily as prudence can protect wealth. Germans are a staid bunch who love rigidity and austerity, though, so they keep pushing that lone idea as if it can solve the problems that were created by lack of prudence. Germans, after all, like to eat sour things like rotting cabbage in great quantities 😉

Economist Paul Kruegman is right to argue recently that austerity is what should be practiced during times of plenty. I argued the same thing for years in letters to the editor, but nearly everyone in the U.S. wanted to enjoy the feelings of prosperity on the backs of their children. (Tough medicine to hear, but that is exactly what Americans did for decades, and we are a people who should know better than to think that way … being sons and daughters of pioneers who knew austerity all their lives.) Reaganomics never provided true prosperity for the one simple reason that we were never paying for the good times we enjoyed. We were enjoying the good times by making certain that our children paid for them later on. It is easy to have the world’s most powerful military and to enjoy a juiced-up economy with rocket-like performance when no one is paying for it! We bought our good times by stacking up monumental debts. We did not practice prudence (a better word than austerity, which leans too far to extreme action.)

I argued for years that the United States should be paying down its debt (as it did briefly in the Clinton years) when times were good. Good times are for paying off debts, not compounding them because, if you cannot pay down your debt in the good times (or WILL not), then you certainly cannot and will not during times of shortage. If we’re enjoying times of plenty and are NOT paying down our debt, we can be assured of two things: 1) We’re not paying for our own pleasures, so we don’t deserve to have them. They are truly guilty pleasures, for we’re enjoying them at someone else’s expense down the road. 2) We’re using up our available credit to live high on the hog so that we will not have available credit when we need it. That is where we have now landed. No surprise to me.

If a nation ran a prudent budget when its economy was healthy, it would not buy yachts before paying down debts. In the converse: if a nation can only experience a robust economy by expanding its debt, then its whole economic model is flawed. Common sense would tell you that endless expansion of debt is not likely to be a good longterm plan. Debt is properly managed when it is used to expand the economy in lean times and to decelerate boom economies by paying down debt. Debt is a way of evening out the load. The U.S. miserably failed its obligation to pay back its debts when it had the chance, and that is a lesson we need to carry with firm understanding into our future if we want to avoid repeating the worst of our history.

Now we find ourselves in a situation where we need to juice the economy, but our debts are so high that credit agencies are all saying they will lower our credit ratings if we take out any more debt. Some scoff at that because lowered ratings have not hurt the U.S.; but that is as foolhardy as the profligate living we engaged in over the last forty years. The only reason the downgrade of U.S. credit ratings has not hurt us is that Europe has handed us an unexpected windfall exactly when we needed it most. Money is fleeing from Europe, so the U.S. looks like the lesser of other evils financially. It provides the least-rocky shore for a safe-haven landing during the present storm. In other words, the U.S. got lucky — or blessed. At any rate, it was none of our own doing.

That buys us a little time. If we use this windfall wisely, we will stop adding to our debt now and will finance our entire existing debt on longterm bonds to the fullest extent we can move it in that direction while we have the lowest rates we’ll ever see. That will save us from a world of hurt down the road. If we squander this, too, by thinking we can continue in our profligate spending, we’ll find our interest rates go way up on a mountain of debt that moves far beyond our management the day after Europe recovers from its problems. We have so maxed out our debt over the past decades, and especially recently, that we need to use this windfall with utmost prudence … and we are not doing that.


Here is an economic recovery plan for sustainable economics

I believe we would already have a sustainable recovery in process if we had followed a much different path. I use the word “sustainable” because the word “recovery” doesn’t work without it. An unsustainable recovery eventually becomes no recovery at all. It is the kind of “recovery” that is talked about endlessly today. The present so-called “economic recovery” is created only be government props, such as quantitative easing and enormous debt spending. As soon as the government/Fed support ends, we see the recovery begins to falter. It has no legs under it, and it never will because it does not require exercising legs in a way that builds strength. The current government economic plan is creating another stock market bubble that will pop like all the past ones as soon the government runs out ability to kick in increasing amounts of support.

Here is proof that the Bush-Obama recovery plan is not sustainable: the stock market surges every time it hears rumors about more quantitative easing; it goes flat every time it hears that the Fed plans no intervention right now. Though nothing changes, except what the government says it is going to do, the market surges or plunges. That means the market is addicted to Q.E. and other forms of government economic intervention. They are the air without oxygen that fills the present bubble. Q.E. has become like candy to a baby. The market cries for more and more and always will so long as we keep giving it more and more. It throw a tantrum when the goodies stop, causing the parent (government) to want to give in to more monetary relief. The present stock market is unsustainable without endless talk by the U.S., China or Europe of more quantitative easing or similar measures.

There was one and always only one way that we could have run the deficits we are have been running during the Great Recession without dooming ourselves down the road. Having accumulated a foreboding overhang of debt over the past thirty years, it was/is essential that we make certain any additional debt delivers a clear payoff to the next generation to give them any hope of balancing their books. There was a way of doing that. Instead of spending money bailing out banks, which gives the next generation nothing tangible, the U.S. government should have spent that money on building the kind of infrastructure that government does best. Here’s why:

Infrastructure is the one solid asset we can buy now with money that people in the future will have to repay while giving the future a way to manage its debt. Repairing infrastructure now saves people in the future from having to make those repairs by extending the life of existing infrastructure. Likewise, building infrastructure now (so long as we focus on infrastructure that will be necessary to accommodate the growth of our cities) saves people in the future from having to build that infrastructure. Thus, we would have been handing future generations valuable assets that we built at today’s cost in exchange for today’s debt. We would save them enough in their own time that they could manage the debt we hand them. We’d benefit from the new infrastructure and so would they.

This would hugely goose the present economy as government construction creates all sorts of supply jobs and support jobs in the areas that surround major construction projects. Our job problem would now be completely over if we had started down this path four years ago as there would be so many projects in the works by now. Instead, we bailed out the rich people who caused this mess. It would also lay a sustainable foundation for a good economy in the future, as good infrastructure makes for efficient economic performance.

The other thing we should have done was pay attention to what we were saying and live by our own wisdom. We bailed out banks that were “too big to fail,” but what did we do in order to save them? We made them even bigger! Therefore, again, we have accomplished nothing that is sustainable in our reconstruction of banks. The Fed lured and even coerced banks like Bank of America to swallow ailing institutions like Merrill Lynch. We constantly chose to solve the problem of banks being “too big to fail” by staying with our old ways of thinking and turning them into even bigger failures. Its a sickness we have in our thinking that blinded us from finding real answers. We also didn’t want the pain that would be involved in restructuring into smaller banks.

The right solution was structured bankruptcy. We should have parted down the failing banks into their units that were profitable enough to continue while letting the cancerous parts of the organism die. Instead, we added the cancer of dying banks to banks that were comparatively more healthy, turning the relatively healthy ones into the next ailing patients. We have created ever bigger monstrosities to tower over us and threaten us when they fall.

How absurd is that? We’re not very smart. We don’t even listen to our own wisdom.

There would, of course, be an incalculable cost to an economic recovery program that allows the leviathans to die. No one can know how many depositors would be damaged by their fall, which would cascade into many other banks collapsing. That would put many in the banking industry out of work, and it would leave depositors at those banks without their money. But it would rebalance society, and that is the only sustainable path. The FDIC, for example, would not cover the losses of the rich because its limit is far below what they have in deposits. Just as the government has created money out of thin air to give liquidity to banks, it could have done for depositors once banks failed without creating any inflation because it would not really be injecting any new money into the system. Instead, it would be getting monstrous failing banks out of the way and recreating those deposits in accounts at better-run institutions.

We created money out of thin air anyway and are talking about doing it again with more Q.E. Why do it to save the bankers who created the mess? That was nothing but cronyism and the worst expression of Reagonomics, which believes we are all indebted for our jobs to the rich “job creators.” How would it have created any inflation if we had let the bad institutions crumble or pare down to their only profitable parts and then replaced the lost money in the accounts of depositors at better-run, smaller, more manageable institutions? The money supply would remain the same. It would only be the institutions that would fail while the deposits were entrusted to more worthy parties. Was our government too blind to see that or was it simply more interested in protecting rich bankers?

We could have completely reshaped our banking industry into a leaner machine by letting the fittest survive with the new deposits, and we would have created room for new banks to sprout up and attract these deposits, creating more banking diversity. There is one caveat here, we’d have to mandate that no FDIC insurance money would go to any bank that hired an executive from the failing banks. That would not be just for the sake of being punitive. It would prevent the greedy people who created this mess from simply starting a bank in a new name with the same players. Let them die careerwise. Who cares? They can man a shovel on the road-building jobs of the new infrastructure program.

At the end of the day, we would have transformed our economy, instead of run a dying economy on endless life support. With the implementation of a few regulations, we’d have banks that were no longer too big to fail. Instead, we have created an even less diversified banking structure by keeping the oversized dinosaurs alive.Democrats and Republicans have utterly failed to restructure our economy because they were too busy looking out for the interests of the big banksters. We have more oversized reptilian banks that are too big to fail than we ever had. How is this a transformation of our economic fundamentals into something healthier? In four years, we have accomplished nothing that will prepare us for a better future.

Would there have been catastrophic problems to sort our way through under my sustainable economic development plan? Absolutely. But there are continual catastrophic problems to sort our way through on our present path, too, and what do we have to show for it but endless troubles still in sight? Likewise with Europe on its austerity plan. We have no economic reformation to show for the enormous outlay and risk we’ve taken and no better foundation for the future. We are giving CPR to dinosaurs, rather than seizing the day to evolve more adaptable economic structures.

Had we engaged in such a bold plan, we would never have nationalized the failures of capitalists. George Bush would not have had to announce, as he did, that he was putting his capitalist principles aside. We would have worked in the capitalist way to correct our failures, and we would not have caused the moral risk that is created by rewarding people for stupid and greedy practices. (The fact is, most politicians and business leaders don’t care at all about capitalism. What they care about is money … and lots of it. We ditched capitalism in order to save the rich as soon as capitalism’s failure-correction mechanisms kicked in because we didn’t want to face the austerity of correction.)

The only people we would have bailed out under my alternative economic recovery plan would be the more-or-less innocent individual depositors, not the people who created this disaster, given that the FDIC does not adequately insure the rich. Many retirement funds would have lost a lot of money, but many retirement funds lost a lot of money anyway … and may still lose more because there is no recovery yet in sight — no problems actually resolved for good. If we had let the dinosaurs die, we would have smarter bankers today because those still living would have learned something from seeing their colleagues fall into the ditches. The rapacious and foolish bankers would also be out of their way … no longer competing for limited nourishment. Banks would be much more careful in their practices even ahead of new regulations if they knew the federal government was not going to save their scaly necks.

How would we have survived this terrible fall? Infrastructure. We’d put unemployed bankers to work under the huge expansion of business created by massive development of improved infrastructure. We’d pay for that job-creating infrastructure by applying those trillions of dollars of deficit spending we’re presently engage on. It would cost the future generation the same fortune, but they’d have something to show for it at a price tag would likely seem cheap twenty years from now … just as it always seems cheap when we look back twenty years and see what we could have built a rail system for compared to what we have to pay now. They’d have the rail system, moving their economy at high speeds! They’d have improved school buildings so they could concentrate their money on teaching. They’d have new roads and less economic gridlock. They’d have alternative energy production facilities to power their economy. Etc.

The Keynesian are right, but so are those who disagree with them. There is a time for government spending to stimulate the economy, but it has to be done on construction of things the next generation will need in order to build a foundation for the future. Economic stimulus and austerity both require application at the right time to be effective. The time for Keynesian stimulus (vs austerity) is now. However, we already consumed our credit. The time for austerity was during all the seemingly flourishing economic times of the past thirty years so that we’d have ample credit available today. Had we paid down ALL of the national debt during those roaring times, we’d have the capacity we need now to build a new economy without the slightest risk to our credit ratings or interest rates.


An economic transformation plan

What I’ve outlined above is far more than the economic stimulus plan we have now. It would completely rejuvenate our capitalist economy. Instead, we have a badly patched old economy. It would provide a president with the opportunity to redirect the course of a nation if the president had vision, and that is clearly what our president has lacked. He has known we needed change but has had no idea what change we needed. In exchange for our huge deficit spending, we’d end up with alabaster cities … or, at least, shining infrastructure to leave behind for our grandchildren. We would have done something for them and not just to them for ourselves.

That’s what FDR did once he finally got it right and moved away from the austerity measures that initially deepened the Great Depression. He put people to work building vital assets that we have benefited from throughout our present lives, and the bill for those massive projects and for the huge military build-up seemed entirely manageable when the time came to pay it. We could have learned that from our history, but our polarized way of Democrat-vs-Republican thinking kept us from seeing what worked in the past and applying it today. Instead of learning from history, people spent their time arguing against it in order to retain their political beliefs. The religion of politics.

The projects that led us out of the Great Depression were built well so they have lasted (with normal maintenance and repairs) nearly a hundred years — high schools, dams, the parks and trails that we enjoy. We in the present got something for the debt that our parents handed to us. We benefited from it the entire time we grew up, AND we would have been able to pay down that debt had we be been less profligate, less greedy, less willing to live high at the expense of our grandchildren.

It may be too late now, for we have squandered what little remained of our reserve economic capacity. Still, I think what I’ve presented remains the one solution that does not push the entire problem ahead to the next generation. It still pushes the cost ahead, but, at least, but it solves problems for them by giving them something for their money, and that could have made the cost bearable for them. Using debt for other things like bailing out banks really gets the future generation nothing it needs. They can always create banks out of their own money … if we leave them with any money to save after they pay our bills.

Using debt on huge infrastructure projects would enable us to build around better energy practices. It would also enable us to strengthen old energy practices for the time being, such as by building safer pipelines. The remaining financial institutions would be the smart ones, rather than the big, dumb, rapacious dinosaurs that nearly brought the end of the world as we know it because of their stupid gambles. The downsized institutions that grew out of their remains would no longer threaten to crush the nation if they fell.

But we did not have either the courage or the vision for that kind of economic recovery program. Is that what we want to be remembered for? The people with no vision who lacked courage to create genuine transformation of their society?

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I encourage your feedback and ideas below, and here is some additional reading on sustainable economics and economic transformation:

[amazon_image id=”1849713235″ link=”true” target=”_blank” size=”medium” ]Prosperity without Growth: Economics for a Finite Planet[/amazon_image][amazon_image id=”B0056C1V5U” link=”true” target=”_blank” size=”medium” ]The End of Growth: Adapting to Our New Economic Reality[/amazon_image]

Deficits, Debts and Democrats vs Republicans — US national debt in graphs by year and president

As you read this article on Democrats vs Republicans when it comes to who did better or worse with the U.S. national debt, bear in mind that I am an independent voter. I cast my virgin vote for Ronald Reagan. I voted for President George II … but only the first time! After installing Bush 2.0, I repented. I refused to reboot the Bush administration and laid down my voting rights for awhile so as not to inflict more damage on America. I consoled myself by saying, “At least, I’ve learned not to do it again. I was not a hanging-chad voter.”


In fact, I’ve voted Republican more often than Democrat. I did not vote for Clinton or Al Gore. Bear all of that in mind, as you read the following, for I am writing against my own bias and was surprised by what I learned.


Personal income under Republicans vs Democrats

Here is a stunning fact in a simple graph:



(Graph used by permission of Catherine Mulbrandon, https://VisualizingEconomics.com )


This graph goes against what I think would be conventional wisdom — that Republicans do a better job with the economy than those taxing, government-worshipping Democrats. Surprisingly, if you look at personal income growth over the last fifty years under each kind of president (Democrat vs Republican), you discover that no matter which income percentile you fall into, you saw your income grow more during Democratic presidential administrations than during Republican administrations.

The other telling thing shown here is that the amount of income growth under Democrats gets better as you move to poorer segments of the population, even though ALL groups experienced greater income growth under Democrats (except for the top five percent) than under Republicans. Here’s what Slate.com has to say in their summary that accompanies the graph …


Did the United States grow more unequal while Republicans were in power? It sounds crude, but Princeton political scientist Larry Bartels has gone a long way toward proving it. Bartels looked up income growth rates for families at various income percentiles for the years 1948 to 2005, then cross-checked these with whether the president was a Republican or a Democrat. He found two distinct and opposite trends. Under Democrats, the biggest income gains were for people in the bottom 20th income percentile (2.6 percent). The income gains grew progressively smaller further up the income scale (2.5 percent for the 40th and 60thpercentiles, 2.4 percent for the 80th percentile, and so on). But under Republicans, the biggest income gains were for people in the 95thpercentile (1.9 percent). The income gains grew progressively smaller further down the income scale (1.4 percent for the 80thpercentile, 1.1 for the 60th percentile, etc.).

But here is the aspect of these facts that shines the brightest for Democrats:

In all income categories except the 95thpercentile, income growth rates under Democratic presidents exceeded income growth rates under Republican ones. That suggests greater income equality can coexist with (or even help create) greater prosperity.

Just the facts. Possibly unsettling to some, but facts all the same. The graph shows even the 95th percentile as seeing more income growth under Democrats vs under Republicans, but the article notes that the difference is less than the statistical margin of error at that point, so not significant. From the 95th percentile up, individuals saw equal growth under either party. Both parties, you see, always look out for their richest supporters!

Seeing that graph caused me to wonder in defense of Republicans, “Did individual income under Democrats do better because Democrats blew huge deficit holes in the U.S. budget and, so, stimulated economic growth that led to income growth … by burdening the next generation with enormous debt? Did they cause the US national debt to balloon so that people gained this income at the government’s expense? After all, this income growth did not just happen down in the welfare section; it happened throughout the middle class and even above.


Escape the Coming Debt Crisis: Emigrate While You Still Can!  Learn more…


Republican vs Democrat on the US National Debt


The next US national debt graph is equally telling in its Democrat vs Republican comparison, year by year:


Republicans vs Democrats on US national debt

( Graphic provided by The Creative Commons and found on Wikipedia at: https://en.wikipedia.org/wiki/File:Federal_Debt_1901-2010.png )

 (Click on graph to enlarge, or zoom your browser window.)

Studying this graphic, you can clearly see that US government debt by year after WWII (1945) declined as a percentage of the nation’s gross domestic product (GDP) continually all the way until the Reagan years. You can also see that most of those post-war years were under solid Democratic control in both houses. Throughout the years of Reagonomics, however, the United State’s national debt as a percentage of GDP — after decades of decline – grew rapidly and continued to do so under President George Bush the First. Then U.S. debt plunged for the first time throughout the Clinton years (when taxes on the wealthy were raised) and finally began to rise again during the Bush II years (when taxes on the wealthy were cut again … even more than they were cut by Reagan).

So, while individual income grew better for everyone during Democratic administrations, the U.S.A. national debt grew much better for everyone under Republican administrations.

You might have already noted that the debt soared in proportion to GDP under President Obama, but the Obama years do not afford a fair comparison of Republican vs Democrat on the national debt because we entered what may eventually be called the Great Depression II during the Bush II years. Let me put it another way: I don’t believe for a second that Republicans, who presided over the creation of this global depression, would have fared any better than Obama when it comes to US deficits for the following reason: Obama has carried out exactly the economic policies that Bush switched to in his final year.

If you don’t think he has, it’s time to remember that, when the so-called “Great Recession” began, George W. Bush said he had to “give up on my Capitalist principles” and approved a 900-billion dollar bailout to be followed by ANOTHER 900 billion later if necessary. This second 900 billion was already scheduled to happen during the next administration (whether the next election turned out to yield a Republican president or a Democrat) and amounts to almost half of Obama’s accumulated debt. With his first bailout, Obama merely carried out what had been established in the final Bush year. From there, Obama has used the same resident “experts” Bush was relying on, such as Ben Bernanke, and has continued more of the same bad economic programming on his own. So, Obama doesn’t get to wipe his hands clean of these failed policies, as he has been utterly uncreative, but they are no different than what Bush began. Don’t let Republican leaders beguile you when it comes to Obama’s deficits. Almost a trillion dollars of the Obama deficits were planned and approved by Bush before Bush left office.

The Great Recession is too much of an anomaly to compare how Democrats do versus Republicans in a head-to-head match on US deficits and the US debt. Even the Bush tax cuts that started the U.S. back into deficit spending remain in place under Obama. So, there has been almost no real change in economic policy. Q.E. continues. Bailouts continue. Even the Obamacare medical program has yet to begin.

In case you are thinking that looking at the debt as a percentage of GDP skews the facts, let’s look at what the gross national debt has done, regardless of GDP.


US national debt by year and by president

Here’s an interesting timeline of Republican vs Democrat presidents in relation to growth of the national debt:

1980: Ronald Reagan runs for president during a recession in which the national debt as a percentage of GDP held completely flat. (Prior to those Carter recession years, the gross national debt grew slowly (top of graph below), yet slightly decreased as a percentage of GDP (bottom of graph)).


( Infographic on national debt from Wikipedia, https://en.wikipedia.org/wiki/File:US_Debt_Trend.svg , provided for public domain use by its author, Dejo)

The biggest plank in Reagan’s platform, which he presents with poster infographics and considerable zeal is the promise to balance the budget against deficits that he claims will soon destroy the nation’s prosperity. Carter, he claims, is running the nation toward economic bankruptcy.

1981-1989: With full support from congressional Republicans, Reagan begins the worst annual deficits the nation has seen since WWII. During the Reagan and Bush I years, the gross national debt quadruples as a result of huge Republican military spending increases combined with Democrat refusal to cut social spending in order to make room for Reagan’s massive military spend-up.

1993-2000: As seen above, Bill Clinton inherits a national debt that is now ballooning at an alarming rate, but he gets an economic plan through congress that eliminates deficit spending entirely. (The Gingrich congress deserves partial credit here, too.) He does this largely by raising the taxes that had been cut by Reagan (which Republicans oppose) but to a point that remained a lot lower than taxes were before Reagan. Apparently, he strikes exactly the right balance in taxation because the recession of the Bush I year ends, and the country returns to growth. For the first time in decades the U.S. runs a surplus budget so that the gross national debt actually declines as we start paying it down with the budget surplus. It declines as fast as it had grown under Reagan … in part due to military cutback. At no time since WWII had the nation actually paid down its debt! The debt had declined as a percentage of GDP after WWWII only because GDP grew a lot after the war, but the actual debt, itself, grew continually after WWII (though only a in a trickle as the top graph shows). Clinton was the only president to reverse that.

2000: George W. Bush runs for president, inheriting the dot-com crash at the end of the Clinton era (a market correction of a bubble, something far less significant than the core collapse of an economy that we have today) … and something that would have righted itself as all stock market corrections do.

2001: At the very end of the Clinton administration, the CBO shows the United States is on track to pay off the entirety of its national debt within a decade! It’s practically a miracle after living with debt for many decades.

2001-2009: With full support from congressional Republicans, Bush begins running enormous deficits again as a way of pumping the economy back up from the dot-com crash. Bush hits the accelerator hard enough to double the gross debt that had already been quadrupled during the Reagan-Bush I years. Most of the new annual deficits that add to the debt are due to the Bush Tax Cuts, two wars, and the expansion of government. Bush manages to break the United States for the first time since the Great Depression just as Reagan broke the Soviet Union … by drawing it into military spending that it obviously could not actually afford. Same plan. Even Republicans like Representative Boehner freely announce the United states is “broke.” (A sentence any American would be deeply ashamed to say if it were not a fact that has to be admitted.) The entire world economy goes down the toilet due to sloppy credit rules and deregulation of banks that went way too far. This is not the crash of a bubble, but the collapse of the United State’s economic core. It’s a core meltdown! (That’s why I begin telling friends that we have entered another economic depression, not just a recession. Few believe me, but  four years later we have no real recovery and none in sight.)

2009: Barack Obama inherits a $1.3 trillion deficit from Bush. It’s a simple fact that most of this deficit was already budgeted during the Bush years; yet the Republicans immediately condemn Obama’s fiscal irresponsibility.

There is no getting around the fact that the Republican track record for deficit spending is abysmal or that the Great Recession began for the entire world in the eighth year of their watch under George Bush II. Not only has personal income for ALL segments of the population (except the top 1%) done worse during Republican administrations over the past fifty years, but the United States’ gross debt has skyrocketed under every Republican administration from the beginning of Nixon’s second term onward. That’s a numerical fact, and their feet should be held to the fire for it. Moreover, the top five percent of the U.S. populace pays a lower percentage of income taxes in proportion to their total wealth than do the bottom ninety-five. (See “Bush Whacked by the Bush Tax Cuts.”)

So, that’s why I haven’t voted for Republicans in some time, even though Democrats currently are carrying out the same lame bailout economics that Bush began. I didn’t change the facts in the presentation above to match the way I vote. I changed the way I vote to match the facts.


I particularly invite Republican debate in the comments section below. Correct me with facts … if you can!


For more on the US national debt and ways to end it, I invite you to read/watch one of the following:

[amazon_image id=”B005PRF5SK” link=”true” target=”_blank” size=”medium” ]White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You[/amazon_image][amazon_image id=”0071543937″ link=”true” target=”_blank” size=”medium” ]One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe[/amazon_image][amazon_image id=”B002PBWJAQ” link=”true” target=”_blank” size=”medium” ]I.O.U.S.A.[/amazon_image][amazon_image id=”B007X5PWZI” link=”true” target=”_blank” size=”medium” ]No More National Debt[/amazon_image]


For more reading on Republicans vs Democrats:

[amazon_enhanced asin=”0300198213″ /][amazon_enhanced asin=”0143124218″ /][amazon_enhanced asin=”140224410X” /]

Bushwhacked by the Bush Tax Cuts for the Rich

“Tax the Rich, Tax the Rich!” cry the protestors who occupy Wall Street. Overwhelming social disparity lies at the heart of their cries. Democrats want to correct that inequity by adding more taxes to the rich while conservatives protest against taxing the rich. The result is an impasse in the U.S. when it comes to solving its budget problems even as the budget committee’s deadline draws near. A sharp ideological divide has assures continued gridlock. No one is likely to give on these cherished beliefs until the country suffers catastrophic failure.

Do the rich really pay more taxes under the Bush tax cuts?

Republicans seek to extend the Bush tax cuts indefinitely by preaching their gospel that adding more taxes to the rich is an injust form of taking and of redistributing wealth. In face of rising pressures against their tax ideology, conservative Republicans like to point out that, in the United States, the top twenty percent of the populace already pay eighty percent of the taxes!

Sean Hannity recently argued against an Occupy Wall Street member by quoting a statistic that the top one percent of the population pay forty percent of all the income taxes gathered. In other words, the rich already pay more than their fair share, so keep your hands off their money! Pity the benevolent billionaires who are already forced to be generous to where it is nearly killing their hopes of a seventh mansion and a replacement for their private jet this year.

The notion that the rich are already paying more than their fair share of taxes has been an ALMOST winning argument for extending rich tax cuts, but dig deeper into the numbers to find the truth (if you are brave enough to accept the truth when it flies in the face of your ideology): When you do, you find that the top one percent of the U.S. populace holds more than fifty percent of the nation’s private wealth. In other words, they make more money than all of the bottom 99% combined! So, if they are only paying forty percent of the income taxes, they are grossly UNDERpaying.

This is WHY we actually do have a one percent and a ninety-nine percent as talked about by the Occupy Wall Street movement. We have a one percent that makes more than half of all the money made by individuals in the U.S. It also turns out that the top twenty percent make eight-five percent of the nation’s wealth. So, even the top twenty percent are clearly underpaying, as they should be paying a full eighty-five percent of the nation’s individual taxes just to be equal with the burden the middle class is shouldering. (See this study by Michael Norton and Dan Ariely.)

What sounded like a great argument from Hannity, Limbaugh and other conservatives turns out to be nothing but a half truth that really illustrates just how bad things are when you dig out the other half of the truth. While the rich have higher nominal tax brackets that help them appear to be paying progressively more, they also have vast tax breaks, exclusions, write-offs, credits — whatever you want to call them — that bring their final tax bill lower as a percentage of their income than people in the middle class. The full truth is so bad that people hearing the Hannity argument do not stop to think that maybe the top one percent are paying forty percent of the income tax because they are making more than fifty percent of all the income!

Because the full truth is almost inconceivable, the half-truth argument has been winning. That the disparity in income is THAT bad just doesn’t occur to anyone — not even the average person in the Occupy Wall Street crowd. So, when Hannity makes the statement that the top one percent pay forty percent of the income taxes, it does not occur to them that he has really just told them how much the top one percent are currently underpaying because of the Bush tax breaks.

With one percent of the populace making more than the other ninety-nine percent combined, we have a more inequitable distribution of wealth today than was seen even in the days of the infamous robber barons that preceded the Great Depression. As if that is not bad enough, today’s robber barons also get an inequitable break in their taxes because of the Bush tax cuts. Just to make the tax burden equitable, the taxes of the rich should be raised another five percentage points for those in the top twenty percent so that those who make eighty-five percent of the wealth also pay eighty-five percent of the taxes; and the taxes on the top one percent need to go up more than ten percentage points just to make their taxes EQUAL to what the middle-class taxpayer is doling out.

Half truths have always been some of the strongest lies.

The decaying results of the George Bush tax cuts for the rich

When the middle class eroded during the Bush years to widen the gap between rich and poor, far more of the middle settled to the bottom than rose like cream to the top. If we could look at a smaller middle class at the end of the tax-cut era and see that it happened mostly due to more people becoming rich, the Bush cuts could be heralded as a huge bonus to the country. What we see, however, is that few have risen, but many more have fallen.

A more evident effect of the Bush tax cuts is the U.S. debt swelling to the worst it has ever been … even before the Great Recession began. Prior to the Bush cuts, the U.S. was running a surplus budget and paying down its debt for the first time in decades as a result of the Clinton tax increases. The Clinton increases did not negatively impact the economy at all. We clearly had a lot more jobs then, so they did not discourage jobs. The economy grew even faster for nearly eight years under Clinton’s tax increases than it did under Reagan’s tax cuts for nearly the same amount of time. And it did so while paying down its debt!

While current taxes for the rich are lower than they were under Reagan, they clearly are doing nothing to create jobs in the U.S. The falling and now stagnant employment  numbers during those wealthy tax breaks speak for themselves. These are just tax-cut facts. Yet, Republicans continue to preach that tax cuts for the rich are essential to create jobs. We have had ten years of the Bush tax cuts. During that time, the economy died and unemployment soared. How can anyone think that extending the Bush tax cuts will do anything different than what we’ve seen for the last decade. The definition of insanity is to keep doing the same thing and expect different results.

The Bush tax cuts left the nation crippled in debt when it had been paying off its debt prior to George Bush II — crippled to the point that it no longer has the resources to spur economic growth with new infrastructure projects because it has no room to take on more debt. If it tries to take on more debt, its credit will be downgraded more than it already has, and the cost of its interest will go up. That’s the situation deficit spending got us into, and it is incontestable, that the U.S. deficit began anew as soon the Bush tax cuts began.

The Bush tax cuts are, in short, one of the dumbest moves this country ever made, taking us in just one year from a surplus economy back into a deficit economy. So, more tax cuts for the wealthy? Why, when they already pay lessthan an equal share?

So, why do poor Republicans fight for rich tax breaks?

Wealthy tax cuts are argued for on the basis that they create jobs, but where are the jobs? We’ve tried that program for almost a decade, and each year appears to show fewer jobs than the year before! When you try something based on promises of jobs for ten years and it yields nothing, it is way past time to stop! The wealthy do not ever create jobs because they get tax breaks. They create jobs because they find markets they can exploit. Markets create jobs. Yes, the tax cuts made the wealthy wealthier, but the wealthy moved the jobs in their companies overseas. (A somewhat separate issue related to free trade.)

Blue-collar Republicans also buy into the tax breaks for the wealthy because they hope that someday they will make good money themselves. Having struggled all their lives, they don’t want to see their good fortune taken partially away from them when their ship comes in. This is the same reason poor people often give large donations to churches run by pastors who drive black Cadillacs. They are told that God will pour out a blessing for them if they give sacrificially. Thus, they are willing to live on even less, just as poor Republicans are willing to pay more than their fair share of the taxes so that they can hope someday to keep more of their share if they make it wealthy.

It never works out that way. The churches do not become full of rich people, even though the televangelists at those mammon-loving churches get richer.

Poor and middle-class Republicans also vote against repealing the Bush tax cuts because they believe Reaganomics worked. In a sense it did, but not in the way they are told by people like Rush Limbaugh. It is true that cutting taxes is bound to stimulate the economy by leaving more money in it. However, it is not true that this works better when the tax cuts are for the wealthy. That money would do even MORE if all of those tax breaks went to the poor. Much more. When the rich get tax breaks, they buy more stocks, which does almost nothing to drive the economy or they buy a new home in a foreign land, which does nothing for local workers, or they buy a football team. When the poor get tax breaks, they buy more clothes, and that is how you create jobs.  You create jobs by creating markets for the rich to exploit, which results in new factories and in jobs for the poor. Tax breaks do more for everyone when they start at the bottom and bubble up.

No rich person ever said, “I’m going to go build a factory because I have more money in my pocket.” Rich people have only said they are going to build a factory when poor people have more money in their pockets and want to buy things with it. The rich are always more than happy to build factories to supply markets. The economy hates a supply vacuum. Markets will be filled by the enterprising wherever a profit can be made.

Moreover, when corporations are given tax breaks to expand that happens by taking and redistributing the wealth of the middle class upward. It is a shift of wealth from the middle class so long as the middle class is paying more in taxes per dollar earned than the upper class, as is the case. So, an argument to raise taxes on the rich only is an argument to stop the transfer of wealth from the middle class to the upper class. This can be done by knocking off all the special subsidies and tax breaks that only the rich enjoy.

Reaganomics worked because you can enjoy one amazing thrill ride when you are buying everything on credit. The national debt soared under Reagan because we were not paying for all that we were enjoying. Not even close. We were buying it now and letting some future generation pay for it. Well, we are now the future generation that has to pay for it. We have come to the end times for the game of play now, pay later. While Clinton turned the game around, George Bush II extended it again with his tax cuts for the rich. You cannot forever accelerate any economy by expanding its debt. Sooner or later you have to start paying off the bills you created in order to make the good times roll, and that brings the good times crashing down. That’s what burst our bubble recently. We now have loads of debt to pay off. We can no longer accelerate our economy with deficit spending. Those days have finally ended.

Along with the end of those days, the end of Bush tax cuts would be a refreshing step forward for the U.S. economy by ending the tax cuts wealthy people alone enjoy. Voting to extend the Bush tax cuts is voting to extend social disparity.


For further reading on the Bush Tax cuts:

[amazon_enhanced asin=”0393339467″ /][amazon_enhanced asin=”0385518277″ /][amazon_enhanced asin=”0230615872″ /][amazon_enhanced asin=”0743246470″ /]

DOWNTIME Part 5 – The Great Snow Job

The Congressional Budget Office recently announced that the United States will be running its first trillion-dollar deficit this year — $1.2 Trillion if we count the pocket change. That’s about three times more than it’s been in any other year. Most Americans seem ready to agree with congress that this is necessary in order to save the economy from becoming totally frozen. After all, George Bush recently explained that he had to give up on free-market principles in order to save the free market because he had been warned by his experts (who never saw any of this coming) that we were facing an economic peril “greater than the Great Depression.”

Everyone Wanted Good Times, No One Wanted to Pay

America has enjoyed a long ride on the bull with few interruptions since the Reagan days. But those glory days of high living were mostly because we didn’t pay for most of it as we went. The government learned special charm where it became unnecessary to pay for economic expansion with real money if you endlessly strip those burdensome regulations off of the credit market and free it up to create money. But magic, it turns out, always has a dark side.

The reason Reaganomics, once called voodoo economics by a wiser Bush, worked like a rocket is quite simple: it’s easy to make the good times roll when no one is paying for them. The federal government rolled back taxes and started pushing mountains of debt forward. There is no question that you can put an economy on high throttle by buying much of what you want on credit. Just as households can live high and mighty for awhile that way, so can governments. You can only clear the road ahead so long by pushing a snow drift forward becomes too high and too packed to push, and then you’ve really blocked the road for good. That’s what we did.

The government piled up record drifts of national debt in order to enjoy a time of prosperity at the expense of future generations, while individual households did the same thing. Nearly everyone accepted the mass delusion that housing could go up steeply in price every year forever. Thus, no matter how much debt one took out, one could always sell his home for more than he bought it for and cash out in a personal crisis. The government fostered this denial of economic reality by constantly cutting back more of the restraints on the credit market so people could keep increasing the drift of debt ahead of their own little plows. Eventually, there was no additional unrestraining that could be done. The little plows all reached their limit, and there was no way to lighten the load, so the prices of homes could not go up any further.

Because people will mortgage their lives to buy a home, the price of houses rose as fast as the government and the banks found ways to raise individual debt ceilings by stripping away the regulations that imposed ceilings. It was a national pyramid scheme where everyone had to know there would be a limit to how much debt each individual could manage and, therefore, how high the price of a house could go. In 2008 we learned where that limit was for individuals. We pushed our little plows ahead until they could push the drift no more. Now we’re in for a loooong, cold winter.

That’s when George Bush made his penetrating observation that “the thaw needed unthawing.” As the credit markets froze up, he did the only thing his gurus knew to do and urged congress to pass the biggest snow-job ever brought upon a nation. The snow job was this: we needed to “unthaw” the frozen credit markets so that people could get more debt by Christmas time in order to keep pushing the snowdrift a little further forward. There’s still a load of denial in there that wants to believe the snowdrift can keep moving forward. People were automatically doing the thing they naturally do when they hit their debt ceiling, they stopped buying and started to hunker down by saving. George Bush wanted to make sure they kept buying so the delusional economy could continue.

The British government came up with its own solution. Since people who were saving were clearly no longer participating in the bubble economy, the government proposed a tax on savings “to force people to spend or invest, rather than just sit on their money.” God forbid that people should stop buying things they really don’t need and often don’t even enjoy all that much.

It also turned out that none of the possessions people had amassed, such as granite countertops, represented an accumulation of wealth because they were all matched by an equal or greater accumulation of debt. Now, if the problem was created by loose credit, how is loosening up credit going to solve the problem? Most of the populace, apparently already in winter hibernation, did not even ask that question.

To unthaw the frozen credit markets in the U.S., the Bush Administration got out the big government cheap generic zolpidem plows so we could start really moving some debt. He decided to push all the bad debt of businesses and bankrupt individuals out of the way by nationalizing it. But where does all that debt drift to when you just push it ahead? Obviously, it becomes a greater burden piled into the future. While individuals have found the top of the drift (which you can also translate “bubble” or “pyramid”), government believes that it has not. It maintains the delusion that the laws of economics that the masses have already run up against do not apply to governments.

How long can the government drift?

As if it were an omen, the National Debt Clock in Times Square reached its numeric limit in September of 2008. In order to make room for more debt, the keepers of the clock did what government is doing with the debt. They removed the dollar sign in order to clear room to add another digit to the capacity of the debt clock. When the National Debt Clock was conceived twenty years ago, it was unimagineable that we’d ever get buried this deep in debt. By October the national debt (the amount of money the government owes from all of its combined years of deficit spending) reached $10.2 Trillion. This year’s projected deficit will add another 10% to that. The mountain is piling faster all the time.

Let’s put those numbers in perspective. The interest in the national debt right now is about $412 Billion a year. That’s more than the first phase of the bailout program every year spent just on interest. We have reached the avalanche point where we must borrow the full amount of the interest every year to keep rolling the debt along. There is a heavy cornice of snow right over us, however, that is ready to crash on us: Thanks to the failure of the stock market, U.S. bonds are selling cheap right now than they aver have — at yields of 1-2% interest. People are practically giving their money to the federal government as a place to park it outside of the stock market. If the stock market recovers, however, those rates will have to double or triple to get back to the price the U.S. historically has had to pay to get private investors, corporations and nations to finance the annual overspending. As soon as the interest the government pays returns to its normal levels, the interest on the debt alone will be $1 Trillion a year.

Yet, the situation is even more grim than that. Right now we’re financing a deficit of $438 Billion a year. As we look at tripling that this year, we know we will have to pay higher interest just to sell a much larger supply of bonds. You cannot increase the sales of bonds without creating a matching increase in demand. At the same time, major bond buyers, like China, are talking about running away from U.S. bonds because the U.S. looks like a stinking bad credit risk.

Snowed Under?

We’re now in a catch-22 situation: if the stock market recovers, the nation will be unable to even finance the interest on its debt. Recovering stocks always result in having to pay higher interest on bonds. If the stock market doesn’t recover, we’re snowed in there, too. We’re no longer plowing against a snowdrift; we’re plowing against an avalanche in motion. That is why Bush has said he had to give up free market principles because the nation was facing an unprecedented economic disaster. Unfortunately, you cannot solve a debt crisis by adding more debt.

And talk of tax cuts to stimulate the economy? I’m afraid you cannot help the morbidly obese by throwing them candy. Tax cuts, in this case, would just accumulate on the mountain of debt that has to be paid off in the future because they’re not going to stimulate the economy and produce more revenue. The last tax cuts barely even nudged the economy, as it is now too fat to roll over.

The time to pay the piper on debt spending has arrived. Most of the government’s efforts are an attempt to correct the problem by postponing the correction. Some of us have been predicting this day when Reagonomics first came into play … if the game of buying on loose credit continued. It was from that time forward that the national debt began to grow out of control. Did Reaganomics create a huge boom? Of course. It is amazing what roaring times a nation can enjoy when not a soul is paying for them. But eventually the play day in the snow is over, and someone’s got to start lifting a shovel and taking down that mountain one shovel at a time so that we can all get back home. The prices on houses need to fall significantly to where people can afford them without taking on absurd debt loads. Consumer spending needs to slow down to where it is not happening all on stacked-up credit cards. All the things government is trying so hard right now to avoid.