Saturday, June 18, 2011

Why A Depression is Inevitable, and Economic Collapse Inescapable

Victor Davis Hanson, certainly one of the brightest stars on the right, has an excellent piece at National Review Online called "How to Turn a Recession Into a Depression".  It illustrates by 10 examples how the policies of the administration are optimized to collapse the US economy.  Why would a president do such a thing?  One would assume so that they can complete the campaign-promised "fundamentally transforming the United States of America".  I've often commented that I don't know that they're trying to destroy our country, I just don't see what they'd be doing differently if they were.   

I won't go into what he covered, suffice it to say go visit and read the whole thing; it's roughly 10 paragraphs long, but information-dense.  It serves to remind, though, that Mrs. Graybeard and I were talking this morning about the fact that no presidential candidate, and no politician on the national scene that we're aware of has addressed one fundamental fact: 

A balanced budget is nowhere near enough to fix our problems. 

The federal debt ceiling, which I contend doesn't even exist (more), since they raise the ceiling whenever it gets inconvenient, is a big topic lately.  Supposedly, in early August we hit a drop dead date when can no longer borrow.  That will either be a disaster of biblical proportions if you're on the left, or a spending cap if you're on the right.  See, if you have debt to pay and things you want to spend money on, but not enough money for both, Geithner and the other Keynesian morons say to default on the debt and spend on your programs.  Anyone who has so much as run a newspaper route, or any business, or anyone even the least bit grounded in reality would say to pay your debts and not spend the money you don't have. 

Faced with this monstrous debt, not one person in the public arena has stated the brutally honest truth that we don't need a balanced budget; we need to run surpluses for as far as the eye can see.  How else can we possibly pay down any of that debt?  A balanced budget just stops debt from piling on, but pays interest and does nothing to reduce the principal.  I'm not even suggesting we need to pay that down to zero; I'm just saying a debt to GDP ratio of essentially 100% isn't sustainable and we can't just cut spending by 45% (what it takes to get any sort of surplus) we have to keep those "draconian" spending cuts in place for generations.  We not only need to cut back or end social security (the world's biggest Ponzi scheme - it makes Bernie Madoff look like Mother Theresa), we not only need to cut Medicare, end Obamacare, throw out books of federal regulations and shutter whole agencies of the;  we need to keep those disciplines in place for a century - or more. 

What do you think the chances of that are?  In a society where around half gets some sort of government benefit?  Without a collapse and everyone realizing we need strict discipline to keep from getting into trouble again?  I figure the odds are someplace between zero and a smidgen.  Inescapable.   And forcing collapse just may be the ultimate purpose of the policies Hanson writes about. 


Borepatch said...

The dismal science, indeed.

Graybeard said...

Only in this case, it's not really economics.

More like accounting, or, at least, addition and subtraction.

Anonymous said...

A few facts.
1) Keynes was not a socialist. He believed capitalism was the best economic system.
2) Keynes did not advocate running a deficit. He believed that governments should, in normal times, run a surplus. It was Glen Hubbard of George W. Bush's council of economic advisors who said that "Deficits don't matter".
3) The one fiscal conservative in the USA in the last 30 years was Bill Clinton.
4)The one party with by far the greatest share of deficit spending run up under their time in power is the Republican party.
5) Keynes was also not a tax-and-spend fanatic. He believed that a government should not take more than 25% of National Income in taxation at most.
6)Business expansion is predicated on real demand. That means you only make enough of x that you believe will be demanded in the market. DO you really believe that if you made ten billion luminous pink garden gnomes that would create a market of that size by virtue of producing it? Besides, if employers were scared from employing extra people, wouldn't they just utilize the employees they have more? But no, the latest figures show that employees are not being utilized, and workforces taking weeks off from production. Why? Red tape! Bah! No, it's lack of demand out there.
7) When America threatened to default on it's debt, it was just the same as you taking a hug loan with a credit card, and refusing to pay. That is right - if you hadn't raised the debt ceiling and defaulted, you would have STOLEN OTHER PEOPLE'S MONEY. That is called theft. I'm sure you like to see a jail sentence for people who hold up a store. Well, it would have been exactly the same thing. But worse.
8) THE US (under Bush) gave the bankers on Wall Street $800 billion. Why? Because of a whole off-the-books shadow banking system that hid the real risk and value of debt off the balance sheet. The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages and dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk. The highest proportion of bad loans for property were in the commercial sector - not private sector for homes, interestingly enough.
9) Geithner isnt a Keynsian. He is pumping money (quatitative easing) into the US economy to make money cheap and stimulate demand. Keynes said this is "like pushing on a string" i.e. not effective. However, it has helped avert a total catastrophe - the sort that austerity would have brought. Just take a look at Greece. There was nothing wrong with the Greek economy, but the government owed lots of money to the banks. It has deflated (which means the economy has shrunk) and guess what? The deficit has got bigger because there are more people out of work and on welfare / not paying taxes.
Anyway, I advise you read a general economic text book (not Austrian - they don't even count as economics and they reject the scientific method plus they have no tools to examine finance - and their model's predictive power is non-existent. And realise that if you get a bunch of austerity nuts in, balancing the budget in a recession - you will have a major depression, and people will die of starvation all over the country.