FedUpUSA

Archive for the ‘budget’ Category

The American middle class is furious and this is reflected in how people perceive their failed government but also a financial system that has largely profited from the failures of millions.  A recent Gallup poll shows that only 13 percent of Americans actually approve of Congress and the way they are handling their job.  This is a record low.  Of course the financial system for those too big to fail banks is doing just fine thanks to years of accommodative policy, taxpayer bailouts, and politicians that basically collect payroll checks from the HR department of these large financial institutions.  As we have noted and the media fails to report, the average per capita income in the United States is $25,000.  What is even more disturbing is that a recent poll found that 64 percent of Americans would not be able to shoulder even an unexpected expense of $1,000.  If a transmission on a car goes down or additional medical expenses hit, it will cost well over $1,000.  This is simply another reflection of how the crushing collapse of the middle class will not be televised.

$1,000 enough to crush many Americans

Source:  National Foundation for Credit Counseling

The fact that $1,000 of unexpected expenses would leave many Americans gasping for financial help is troubling enough but the even more disturbing methods of how families would deal with issues that go to the debt addicted psychology of the nation.  9 percent said they would take out a loan (assuming they could) to deal with the expense.  17 percent would borrow from friends or family.  Presumably these family members fall in the 36 percent category that actually have savings to deal adequately with a $1,000 unexpected expense.  Another 9 percent would take out a cash advance on their credit card which is one of the worst things you could possibly do.  12 percent would sell or pawn current assets assuming it had value enough to cover $1,000.  If that isn’t troubling enough, 17 percent would flat out disregard other monthly expenses.  Welcome to new reality for the working and middle class in our nation.

How in the world did we get to a point where $1,000 would be a crushing blow to most families?  All this coincides with the new gilded age mentality of our nation where financial oligarchs are protected at the expense of the middle class.  The media simply keeps singing their songs of praise.  We have another 46,000,000 Americans that are living day to day with food stamps, the highest percentage of Americans ever.  This does not sound like any sort of recovery to me.  To the contrary this sounds like a banking and government system simply trying to keep the public comfortable enough so they don’t realize the scandal that has taken place over the last decade.  It really has been a robbery.  The facts showing the top one percent income growth and no subsequent growth in the real economy highlight a twisted new system that we live in.  These large banking systems abjectly failed but were socialized into existence by taxpayers.  When I hear politicians ranting about working and middle class Americans needing to deal with austerity what about the financial system?  Why don’t we claw back some of the trillions of dollars the U.S. Treasury and Federal Reserve funneled their way?  Every time you hear that line think of this chart:

Read More At My Budget 360

Are you ready for part two of the global financial collapse?  Many now fear that we may be on the verge of a repeat of 2008 after the events of the last several days.  On Friday, Standard & Poor’s stripped the U.S. government of its AAA credit rating for the first time in history.  World financial markets had been anticipating a potential downgrade, but that still didn’t stop panic from ensuing as this week began.  On Monday, the Dow Jones Industrial Average dropped 634.76 points, which represented a 5.5 percent plunge.  It was the largest one day point decline and the largest one day percentage decline since December 1, 2008.  Overall, stocks have fallen by about 15 percent over the past two weeks.  When Standard & Poor’s downgraded long-term U.S. government debt from AAA to AA+, it was just one more indication that faith in the U.S. financial system is faltering.  Previously, U.S. government debt had a AAA rating from S&P continuously since 1941, but now that streak is over.   Nobody is quite sure what comes next.  We truly are in unprecedented territory.  But one thing is for sure – there is a lot of fear in the air right now.

So exactly what caused S&P to downgrade U.S. government debt?

Well, it was the debt ceiling deal that broke the camel’s back.

According to S&P, the debt ceiling deal “falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”

As I have written about previously, the debt ceiling deal was a complete and total joke, and S&P realized this.

Forget all of the huge figures that the mainstream media has been throwing at you concerning this debt ceiling deal.  The only numbers that matter are for what happens before the next election.

The only way that the current debt ceiling deal will last beyond the 2012 election is if Obama is still president, the Democrats still control the Senate and the Republicans still control the House.  If any of those things change, this deal ceiling deal is dead as soon as the election is over.

Even if all of those things remain the same, there is still a very good chance that we would see dramatic changes to the deal after the next election.

So in evaluating this “deal”, the important thing is to look at what is going to happen prior to the 2012 election.

When we examine this “deal” that way, what does it look like?

Well, Barack Obama and the Democrats get the debt ceiling raised by over 2 trillion dollars and will not have to worry about it again until after the 2012 election.

The Republicans get 25 billion dollars in “savings” from spending increases that will be cancelled.

The “Super Congress” that is supposed to be coming up with the second phase of the plan may propose some additional “spending cuts” that would go into effect before the 2012 election, but that seems unlikely.

So in the final analysis, the Democrats won the debt ceiling battle by a landslide.

25 billion dollars is not even 1 percent of the federal budget.  The U.S. national debt continues to spiral wildly out of control, and our politicians could not even cut the budget by one percent.

Somehow our politicians believed that the rest of the world would be convinced that they were serious about cutting the budget, but it turns out that global financial markets are tired of getting fooled.

It has gotten to the point where now even the big credit rating agencies are being forced to do something.  Not that they really have much credibility left.  Everyone still remembers all of those AAA-rated mortgage-backed securities that imploded during the last financial crisis.  The reality is that the big credit rating agencies are a bad joke at this point.

Several smaller credit rating agencies have already significantly slashed the credit rating of the U.S. government.  But a lot of pressure had been put on the “big three” to keep them in line.

But now things have gotten so ridiculous that S&P felt forced to make a move.

Sadly, our politicians are still trying to maintain the charade that everything is okay.  Barack Obama says that financial markets “still believe our credit is AAA and the world’s investors agree”.

Once again, Barack Obama is dead wrong.

The truth is that the credit rating for the U.S. government should have been slashed significantly a long time ago.  This move by S&P was way, way overdue.

Moody’s might be the next one to issue a downgrade.  At the moment, Moody’s says that it will not be downgrading U.S. debt for now, but Moody’s also says that it has serious doubts about the enforceability of the “budget cuts” in the debt ceiling deal.

This crisis is just beginning.  It is going to play out over time, and it is going to be very messy.

The following are 8 more reasons why you should be deeply concerned that the U.S. government has lost its AAA credit rating….

#1 The U.S. dollar and U.S. government debt are at the very heart of the global financial system.  This credit rating downgrade just doesn’t affect the United States – it literally shakes the financial foundations of the entire world.

#2 As the stock market crashes, investors are flocking to U.S. Treasuries right now.  However, once the current panic is over the U.S. could be faced with increased borrowing costs.  The credit rating downgrade is a signal to investors that they should be receiving a higher rate of return for
investing in U.S. government debt.  If interest rates on U.S. government debt do end up going up, that is going to make it more expensive for the U.S. government to borrow money.  The higher interest on the national debt goes, the more difficult it is going to become to balance the budget.

#3 We could literally see hundreds of other credit rating downgrades now that long-term U.S. government debt has been downgraded.  For example, S&P has already slashed the credit ratings of Fannie Mae and Freddie Mac from AAA to AA+.  S&P has also already begun to downgrade the credit ratings of states and municipalities.  Nobody is quite sure when we are going to see the dominoes stop falling, and this is not going to be a good thing for the U.S. economy.

#4 10-year U.S. Treasuries are the basis for a whole lot of other interest rates throughout our economy.  If we see the rate for 10-year U.S. Treasuries go up significantly, it will suddenly become a lot more expensive to get a car loan or a home loan.

#5 The current financial panic caused by this downgrade is hitting financial stocks really hard.  The big banks led the decline back in 2008, and it looks like it might be happening again.  Just check out what CNN says happened to financial stocks on Monday….

Financial stocks were among the hardest hit, with Bank of America (BAC,
Fortune 500) plunging 20%, and Citigroup (C, Fortune 500) and Morgan Stanley
(MS, Fortune 500) dropped roughly 15%.

#6 China is freaking out. China’s official news agency says that China “has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets”.  If China starts dumping U.S. government debt that would make things a lot worse.

#7 There are already calls for the Federal Reserve to step in and do something.  If the U.S. economy drops into another recession, will we see more quantitative easing?  It seems like we have reached a point where the Fed is constantly in “emergency mode”.

#8 The U.S. national debt continues to get worse by the day.  Just check out what economics professor Laurence J. Kotlikoff recently told NPR….

“If you add up all the promises that have been made for spending
obligations, including defense expenditures, and you subtract all the taxes that
we expect to collect, the difference is $211 trillion. That’s the fiscal
gap”

Dick Cheney once said that “deficits don’t matter”, but the truth is that all of the debt we have been piling up for decades is now catching up with us.

The United States is in such a huge amount of financial trouble that it is hard to put into words.  The days of easy borrowing for the U.S government are starting to come to an end.  We have been living in the greatest debt bubble in the history of the world, and it has fueled a tremendous amount of “prosperity”, but now the party is ending.

A whole lot of financial pain is on the horizon.  Please prepare for the hard times that are coming.

The Economic Collapse

Rick Santelli of CNBC, the man who ignited the fire for the Tea Party, vents his spleen about the blame game going on in Washington….and he’s precisely right.

Let’s start with whose fault it is not: S&P.

To recap:

• S&P warned early in the year that there was a risk of a downgrade.
• S&P, when the debate was entered in May, said that they needed to see $4 trillion in actual deficit reduction and that this was a “down payment” on the problem, not the entire solution (they’re right, incidentally.)
• S&P then re-iterated the warning when the debate got contentious.

That’s (at least) three separate warnings that were intentionally ignored.  S&P was not ambiguous nor did they blindside anyone.  They told the government exactly what they needed to see and when in order to avoid the downgrade.  They’re blameless.

So who’s to blame?

• CONgress, for it’s willing refusal to either clearly state that it didn’t care if the downgrade happened or complying with S&Ps demands. Pick one.  When you have a firm saying “do X or we do Y”, and that’s a legal act, you either do X or you expect Y.  It is the height of arrogance to try to shine someone on like this – yet Congress did – on both sides of the aisle. If you’re in Congress and you’re “offended” or “surprised” by this action, STFU.  You have no right to complain – you knew exactly what you had to do in order to avoid it, and you failed.  Eat your (rotten) peas.

• President Obama, for his belief that he could simply bully an independent business into not doing a lawful thing. Again, he is a President, not a King.  Go back to Chicago Obama where you belong, and where “kneecap politics” are the way of the world.  Illinois deserves you.  Once again, eat your own damn peas.  You too knew exactly what you had to do as a leader to avoid the downgrade, and you failed.

• We the people, for our refusal to accept that we cannot have services from our government we refuse to pay for in the present tense. This is a fact, whether we like it or not. Our incessant demands for that which we refuse to pay for do not make those goods and services magically appear forever.  We are acting like spoiled little brats and deserve the spanking we are receiving this evening (and over the last two weeks) in our 401ks and IRAs.  Worse, the damage tonight is a “love tap” – the belt of cold hard economic reality, applied with extreme vengeance, is headed toward our butts if we don’t cut our behavior out right now.

We have all squandered the three years of forbearance we received after the 2008/09 crash.  Instead of doing the right thing we did the wrong thing.  Instead of closing bankrupt institutions we turned formal accounting fraud (“mark to myth”) into a legal and accepted practice.  Instead of accepting that we had a bloated Federal government that was not being funded with tax revenues we insisted on “more free cheese” to “help people” without any means to pay for it.  We listened to people like Biden and Obama who claimed we had to “stimulate” the economy, when in fact we’d been deficit spending to the tune of about $500 billion every year since 2003.  In other words we were already massively distorting the economy – and in no small part that was why we had a housing bubble.  Our nation is addicted to debt and we’re all in denial.

We must either face our addiction and break it or it will break us.

Never mind the “supply side” delusion.  Oh sure, it sounds good.  It even looks good – initially.  But explain to me this – if you’re a supply-sider, then how come the debt addition and GDP addition chart, if it works to produce sustainable economic growth, looks like this?

There’s the outcome of “supply side” economics: It’s a scam and a fraud – the math always shows exactly what you did, no matter what you claim happened.

Here’s the question before us tonight folks: Are we ready to accept reality?

While the markets are down a good bit, they opened down much more.  The rebound has been reasonably impressive.  But it can all disappear – and a lot more – by morning.  It will too, if not tomorrow then in the coming weeks and months if we don’t cut the crap.

You’ve already seen your 401ks and IRAs get trashed.  The next time it will not bounce by 100% in 18 months – it will go down and stay down because we already played all the “new fraud” cards to create the pop we have just “enjoyed.”  This time there is no ability to bail out the banks – irrespective of political will.  We either do the right thing – now – or events will overtake us in a disorderly fashion.

The G7 and ECB statements today were quite weak.  Oh sure, the Fed and the rest of the Central Banks will point their “bazookas” at the “evil speculators” and blast away with more liquidity (debt) in the firehose.  But there’s no meaningful uptake.

The credit report last Friday was especially alarming.  It showed, for the first time in a long time, an uptick in credit card debt.  This would be thought of as good rather than bad except that the consumer income and spending were down.

So we have consumers who are not getting more money and not spending it – they’re shifting spending to add more debt and it is reasonable to assume that this shift is forced rather than voluntary.

That’s very bad folks.

As I have said a few times of late I do not think it’s September of 2008 – yet.  I think the analogue is more like Bear Stearns’ time.  This means we still have some months left before the various governments point their mighty bazookas (the most-powerful of which is simply their mouths) at the market and get a “click” rather than a “whoosh!” and “boom!”

But that day is coming folks – make no mistake.  I see no evidence from either political party in the Sunday shows today that either accepts what happened and why – nor any responsibility.  Instead we have everyone pointing fingers claiming the “other guy” did it.

Well, go back and read the top of this Ticker.  The terms for avoiding the downgrade were clear, they were published, they were consistent, and they were given with four to six months of warning, reiterated several times.  Congress and President Obama both gave the finger to S&P.

That’s fine – but they gave the finger back, and they had every right to do so on the objective facts.

We either face facts and fix what’s broken or we will have another Lehman 2008 moment, and much sooner than you think.

Since I do not believe the infestation in Washington DC are capable of acting like adults, as demonstrated by the fact that they just proved their inability for the entire world to see, I suggest that you be prepared for what is, in my opinion, the inevitable outcome.

By: David Thomas
Chief Executive Officer
Equitas Capital Advisors LLC

The U.S. Congress sets a federal budget every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms. Let’s put the 2011 federal budget into perspective:

• U.S. income: $2,170,000,000,000
• Federal budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000 (about 1 percent of the budget)

It helps to think about these numbers in terms that we can relate to. Let’s remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family.

• Total annual income for the Jones family: $21,700
• Amount of money the Jones family spent: $38,200
• Amount of new debt added to the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Amount cut from the budget: $385

So in effect last month Congress, or in this example the Jones family, sat down at the kitchen table and agreed to cut $385 from its annual budget. What family would cut $385 of spending in order to solve $16,500 in deficit spending?

It is a start, although hardly a solution.

Now after years of this, the Jones family has $142,710 of debt on its credit card (which is the equivalent of the national debt).

You would think the Jones family would recognize and address this situation, but it does not. Neither does Congress.

The root of the debt problem is that the voters typically do not send people to Congress to save money. They are sent there to bring home the bacon to their own home state.

To effect budget change, we need to change the job description and give Congress new marching orders.

It is awfully hard (but not impossible) to reverse course and tell the government to stop borrowing money from our children and spending it now.

In effect, what we have is a reverse mortgage on the country. The problem is that the voters have become addicted to the money. Moreover, the American voters are still in the denial stage, and do not want to face the possibility of going into rehab.

To: David Thomas
From: Catherine Austin Fitts, Solari Inc.
Re: Federal Budget 101

David:

Thank you for your comments. I believe you may want to add a few items to your marvelous presentation:

• The Jones family numbers presented are not reliable. They have refused to produce audited financial statements as required by law for fifteen years. Mysteriously, their bankers continue to operate their account and credit card companies continue to extend credit despite this absence of proper accounting and disclosure.

• The Jones family bank accounts do not balance. In fact their banks have reported undocumentable adjustments of over $40,000 and no one knows where the money went. The banks have promised it will not happen in the future, but have made no effort to find out what happened or to return missing funds.

• There are significant allegations of collateral fraud in their mortgage borrowings. It appears their covert revenues have been far in excess of what has been reported and their debt as a result of fraudulent mortgages may be greater by many multiples than their stated mortgage payable. It appears the fraudulent mortgages may have been packaged into securities by their banks and sold to the Jones pension plan.

• Over the last two years, the Jones made gifts and loans to their banks of $270,000 as a result of threats that their finances would otherwise collapse. They did not get a report or accounting on how the funds were used.

• The purchasing power of the Jones savings and income dropped by approximately 50% from 2003 to 2008, and probably by a similar amount since then. Their banks are able to print money that debases them. They have no power to stop it.

• The Jones’ banks have used the lending power from their deposits in combination with gifts and loans to finance the shift of the manufacturing base abroad to profit from cheaper labor and to hire lobbyists to ensure that tax rules are such that they do not have to be pay taxes in the US. As a result, it is anticipated that the Jones are likely to lose their jobs in the reasonably near future. Given the possibility of cutbacks in unemployment and other governmental programs, it is not clear how they will fund their daily expenses no matter how much they reduce their budget.

Is the problem that the Jones need to cut back or that the entire financial ecosystem needs to be illuminated and reengineered, including a return of funds stolen and misappropriated by the banks?

Catherine Austin Fitts
Solari, Inc.

That didn’t take long….

United States of America Long-Term debt rating lowered to “AA+” on political risks and rising debt burden; outlook negative.

And so it begins.  With the outlook, it is clear that S&P believes this is not a one-step “and done” move either.

Why?  Oh, they were rather expansive on that point:

· The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.

“We said $4 trillion and we meant it.“

· More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

· Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.

Granny cannot have her two new hips and Gramps cannot have his quad-bypass.  We cannot pay $100,000 for every man who gets Stage IV prostate cancer to have four more months of life.  We cannot have 1 in 6 families on food stamps and half the working population paying no income tax to buy their votes, yet at the same time spend $750 billion on wars (half of which is really about securing oil supplies; ergo, we cannot spend $300/bbl on imported oil and $200/bbl on all oil on average while claiming it’s only $100) nor can we spend $15,000 a year “educating” kids who do not understand nor care about the basic function of exponents.

And we cannot sit idly by while both political parties lie about:

• Cuts that are not actually cuts. Spending less than you intended to, but more than last year, is not a “cut.”  This is like a 400lb man going to the Chinese Buffet every day and eating five plates instead of six, claiming that he’s “dieting.”  Ok, in a year he’ll weigh 500lbs instead of 600, but that’s not a “cut.”
• “Stimulus” that is nothing more than demand replacement. We’re now up to more than 12% of GDP.  This is not a “bridge” to tide us over either – we’ve been doing it for three straight years and will be four by the end of the year. This is a major problem as once this becomes part of what the economy “expects” it is no longer stimulative and results in people doing less work and expecting more “cheese.”
• The promise to reduce spending (and raise taxes) “tomorrow” and “on someone else.” There’s a 30 year history on this – spending decreases come never, tax increases usually do occur.  But this time tax decreases that were allegedly “temporary” (e.g. the Bush Tax cuts) wind up permanent (even among those who say they won’t support it, ala Democrats) and they even get added to – such as the FICA tax reduction!

We suffer from the utter inability of either political party to stand at a podium and tell the truth. We cannot have $100,000 in income and spend $170,000+ a year.  Yet we have and we are.  Try this in your household and see what happens.  More to the point it is mathematically impossible to sustain any economic system where debt rises at a faster rate than actual productive output does. This is fifth-grade mathematics and yet we have intentionally and willfully ignored it for thirty years.  There is not one politician from either major political party who will stand before the public and tell the truth on these matters.  Not one.

· The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

In short: Stop lying, right now, or else. “We said $4 trillion, we meant it, and oh by the way that was a down payment, not the total amount of reduction.  Care to try our patience again?”

To the “Tea Party” that was crowing about how they were “successful”, how does that success taste? Half of your members in fact defected when it came time to vote, and despite the crows of “success” (which was really nothing more than glee over “beating the Democrats desire to increase taxes”) the bad outcome that you claimed to be trying to avoid happened. Now what?

To the Democrats who said this was a “good bill” or even one “we can support”: How does abject failure taste? Your refusal to admit that you cannot spend more than you take in on a perpetual basis and your incessant demands to spend more and more without any plan to pay for it, despite screeches of “tax the rich” and “fair shares” has gone nowhere.

To the “mainstream” Republicans who said this was “the best we could do” or even “a good bill”: How are you feeling this morning? Got out of town in seconds after that vote did ‘ya?  Well gee, that worked out real well eh?  Now what?

Some more facts – and you’re not going to like any of them:

• Within hours of the passage of the bill more than half of the authorized increase in the debt ceiling (the first tranch) was blown and gone as Geithner unwound all the screwball theft games he had played for the previous two months.  More than $200 billion instantly vanished.  The scale and price of his deception was instantly laid bare upon the table, as was our fiscal trajectory, since June is one of the heavy tax receipt months (estimated taxes.)
• In calendar year 2007 GDP was $14.3 trillion, more or less.  The actual borrowing increase was $548 billion.  The Federal budget was $2.73 trillion.  To balance our fiscal house we would have had to cut 20% of the Federal government – in 2007.

• In the last year GDP was $14.8 trillion, more or less.  The actual borrowing increase was $1,700 billion.  The Federal budget (which was never actually passed and signed, a rank violation of Constitutional requirements) was $3.8 trillion.  To balance our fiscal house we would have had to cut 45% of the Federal government – more than double the 2007 figure.

• To bring the economy into balance debt must not grow faster than GDP.  In a time when GDP is shrinking debt must shrink faster, not grow faster. This is basic exponential mathematics.  15 minutes with Excel will prove this to anyone’s satisfaction.  This has been the foundation of my perspective on the economy and our errors since I started pontificating in public on it in the 1990s while running MCSNet, and has been the foundation of The Ticker as well.  Twice in the last month or so I have posted links to Google spreadsheets for those too lazy to do it themselves, making it even easier to visualize what I’ve been talking about.  Anyone arguing otherwise must be able to demonstrate why the laws of mathematics do not apply and prove they are correct, and if they’re unable to they must be ejected from the debate on the path we take as a nation.

So for exactly how long did CONgress think it was going to get away with this?

Washington DC has turned into a bunch of sodomites and the American public and our currency are the victims of their serial abuse.  The alleged filibuster threat on the debt ceiling bill, which would have delayed passage (oh no!) turned out to be a bunch of hot air.  Sure, they had the votes for cloture but those threatening to force the vote never did so, so the threat was simple hot air – political theater.

Vote-buying with entitlements and other spending is an easy sport to engage in but it ultimately fiscally dooms a nation.  I have warned of this path for years, going back to the earliest Tickers, and pointed to how companies like Washington Mutual (and others) were doing it as well, paying dividends out of money they didn’t have.  This always ends in disaster, as it simply must – it is a matter of mathematics that when you continually spend more than you make you will eventually go broke.

To those in the economics “profession” who say that a sovereign that prints its own money cannot go broke, you’re technically correct and factually lying, and you know it.  Yes, we can print as many dollars as we wish, but doing so makes each dollar worth less in terms of goods and services.  The same outcome as if we didn’t print the money is inevitable – the “free shit” ends because the recipients all starve due to the fact that their “money” doesn’t buy anything any more.  When you’re in an economy that is reliant on the import of various goods (especially energy) this sort of destructive cycle is akin to sodomizing puppies and claiming that since they’re not people your sin (and crime) doesn’t count.

These very same “economists” all laud the “virtue” of free trade.  In fact it’s trade with economic slave-holders and there’s nothing “free” – or fair – about it.  China’s whining about the downgrade last night and this morning needs to be met with one response: Die in a fire – and if you try anything hinky, we’ll ignite the fire. There is nothing innocent or victim-like about their role here; they were not only willing participants they have been exploiting the imbalances, stealing our intellectual property and abusing their citizens the entire time.  Bluntly: China deserves the skullfucking it is about to receive.

We must rebuild our labor force.  This means wage and environmental parity tariffs.  Yes, this means that Giganticus Corporatus will have a 15% pretax operating margin instead of 30% and its stock price will be $40 instead of $400.  So what? There will be actual income generated by actual people here in the US building actual things instead of conspiring with one another on how to steal another $15,000 from a homeowner through serial refinance fees.  The former is a productive enterprise; the latter legalized extortion and theft.

We must fix the tax code.  Rip the damn thing up!  There are two rational choices: A flat tax with no more than three or four brackets and no zero bracket or deductions and The Fair Tax.  In either case capital formation must not be penalized and borrowing must not be incented. This means that dividends must be taxed once.  Taxing short-term capital gains as income is fine (speculators should not be able to get a free ride) but the long-term capital formation (e.g. pick a period – 3 years sounds about right) must not be deterred.  The government could have taxed away the roughly $60,000 in cash that formed the base of MCSNet.  If it had the many millions in revenue, spending, payroll and taxes ultimately resulting from the formation of that capital would not have happened.

We must eject the illegal aliens in this nation.  I know neither side of the political aisle wants to, but that doesn’t matter.  At a time when we have a huge percentage of citizens out of work it is an outrage that illegal Mexicans are taking any jobs in this country. Make our policy clear: Leave voluntarily right now, or we will find you, will lock you up, make you break rocks for five years and repave our freeways as your work while imprisoned, then deport you.

We must fix the health care system, not “Medicare” or “Medicaid.”  I have written on this extensively and it features prominently in Leverage (the book) as well.  This means an immediate end to the cost-shifting by providers, drug and device makers.  It means an honest debate as to what, if anything, society owes people in this regard and that subsidy must be transparent and paid for with current tax revenues. If it cannot be, it cannot be provided.  Period.

We must have that same honest debate about all other government programs.  For each program the people want, they must be able to fund it with current tax revenues, and nobody can be exempt from paying something toward it. Yes, some people will get more benefit than they pay in taxes – that’s the nature of such things, but those benefits that are intangible (e.g. national defense) are different than those that are direct and personal.  Nonetheless, no program may be funded and operated that we refuse to fund with present tax revenue. Period.

Stop talking about “growth” being able to fix this mess. It cannot.  From 1990 onward our average GDP growth has been under 5% and since 2000 approximately 4%.  But in fact all of that was false, as this chart conclusively shows:

We didn’t produce any of the so-called “economic growth” since the 1980s.  We borrowed more and more money to cover up the offshoring and shrinking of our productive enterprises here in this country!  That borrowing allowed us to continue to pretend we were making economic progress when in fact we were not.  Consider this: The 1980s and 1990s, which were all about the great “productivity improvements of the Internet and computers” we all heard about, were pathological lies enabled by leverage abuse.

We must stop this crap – right now, right here.

Our politicians must stand and tell the truth: You were promised great things by government, but those promises were lies.  We didn’t impose taxes sufficient to pay for these great things, and worse, the tax money we did collect was spent buying votes instead of providing what we promised you.  We are all collectivity responsible for this – you for demanding that which you were unwilling to pay for, and we in continuing to lie to you for thirty years and enabling the fraud and leverage abuse that made the illusion of prosperity possible, along with bailing out the so-called “captains of industry and finance” that conspired with us to delude you.

Yes, this will result in a monstrous economic contraction.  That was unavoidable in 2000, but it was reasonable in size.  It was unavoidable in 2007 too, and was worse than in 2000.  Now it’s even worse than in 2007 by a considerable degree and the longer we wait to accept reality the worse it gets.  I’ve now got more than ten years of consistent, every-single-year history on my side – the claims of the “supply-siders” and “Keynesians” have not translated into a reduction or elimination of these imbalances, they have made them worse!

Stand up politicians, tell the truth, and deal with the consequences.

We are dangerously close to running out of options in this regard.