I Hope You’re Prepared. Really.

I know, I know, the market was up something like 800 DOW points this week, with two huge spikes – one probably on the back of a leak that Bernanke and pals were going to intervene, and the second (about 50 S&P handles) when they actually did.

Here’s the problem: Desperation is not a good reason to buy a market.  In fact, it’s a good reason to sell it.

And we were, my friends, talking about desperation here.

Anyone who thinks otherwise has rocks in their head.  And if you think what was done was a “bazooka” you’re dumber than a bag of hammers.  In point of fact the change in the swap rate did a gigantic effective nothing!

So why do it?  Confidence, basically.  No other reason.

Let’s not kid ourselves though.  The people who made the correct bet — that this was going to blow up in everyone’s face — got rammed last week.  That means their liquidity that they provided to the market is now gone, as it was lost to the handful of insiders who were told first before it happened, just like Paulson told his buddies that Fannie and Freddie were going to be destroyed.

So once again we have had liquidity taken out of the market by an attempt to lie, cheat and steal.  This is bad, not good, but if there was some fundamental change in the sustainability of the situation it might be worth it.

Unfortunately nothing at that level has changed.  And what needs to change is quite simple: Governments cannot continue to spend more than they take in via taxes.  That’s the beginning and end of it.

The discussion that must take place — here in the United States, in Europe, in Japan, everywhere — is the same.  Whatever services the people want they must pay for with current taxation.  Not taxes tomorrow (e.g. “Payroll tax cuts paid for over 10 years”) but right here, right now, in taxes, and that which the people refuse to pay for in current taxes government must not spend.

That is, these governments must not only stop deficit spending they must cut spending below parity with taxes because tax receipts are going to decline when the deficit spending stops and the artificial support ends!

I don’t think most people have any idea exactly how bad this really is.  In 2000 we could have cut the size of government by something like 10 or 15% and been ok.  In 2007 it was about 20%.

Today it is approximately half.

That’s bad.  Now let’s talk about what’s worse.

Federal “Health Care” spending for FY13 will be about $920 billion.  This on a cost-adjusted basis will likely go up about 10% annually.  Think it won’t?  Nice try: In FY 2012 the claim is $866 billion; the projection is for about a 7% increase.

Let’s use their projection – a 7% increase forward.

Now let’s run those numbers out 30 years.

Doing so puts health care spending at the federal level at $7 trillion in 2033.

Do you actually believe that anything approaching that can happen?

If so, you’re nuts.

By the way, if you think this is unrealistic in terms of the actual path we’re on let me point something out.  In 1980 the Federal Government spent $55.3 billion on health care.  That’s 33 years of time to FY2013 and an acceleration of cost to the Federal Government by a compounded annual rate of about 9% for every single year since 1980.

If you ignore the FY2012 and 2013 numbers and go off FY2010 it’s a bit worse — 30 years to get the same advancement works out to about 9.5%.

This is the point I made at Southerland and Miller’s Town Hall earlier this year: There is a more than 30 years history that says that this roughly 10% increase in cost is about what everyone is getting hit with and it is going to destroy the Federal Government unless we stop it right now.

Not 30 years from now, not 20 years from now, now.

That 50 year old person is not going to get his Medicare as promised. The government can’t provide it.

Why not?

Because when you’re half way to the maximum amount you can pay for something you have one doubling time left before you’re dead and at a 10% growth rate that’s 7 years.  We’re spending much more than half of what we can afford on health care at a federal level — we’re probably spending 75-90% of the maximum we can afford right here, right now, today. 

If we’re at 75% of what we can afford we have just three years before our government blows up.

And this, my friends, assumes that there are no external shocks such as, oh, Europe blowing up first.

Which it will.

We have to stop the insanity now.  Not in five years, not in ten, not 20 years down the road.  We cannot “bend the curve” on medical costs over a decade or more.

The mathematics control what can happen and what will happen if we do not act today — here and now.

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