Today, both the US’s credit rating was down-graded and the stock market took a rather swift tumble. Here is a news story (The first found by google on this subject.) to perhaps explain the daily events better than I care to.
This was rather expected. After numerous countries around the world had their stock-markets take serious tumbles since the end of last week when the growth reports for Q2 were released, we have seen rather big drops. Add to this the credit rating downgrade and you get the perfect scenario for a big drop in stocks. This by all means probably shows that the next weeks is going to see overall a near reproduction of this over a 4 day period. The question of the hour then is obviously what is the Government going to do about it?
Personally, I would wish nothing in this case. The recession is gaining steam, as shown by growth and economic indicators including unemployment and inflation which oddly are both heading upward. This means that QE (printing-money) is a bad bet because the effect is likely to just prolong the recession at this point and probably cause massive inflation versus just high as we are expecting.
Anything else has the same consequences, so our best bet is to grin and bear it. It’s not going to be easy and some people are going to suffer. But economic downturns are not understood and poorly studied. Politicians for years tend to try to put recessions off through artificial manipulation, but the effect of this is mostly bad and entails massive consequences later on. Maybe its a part of American Politics to manipulate the economy?
But in any regard, the largest thing holding us back is our current deficit. The deficit has now more than doubled since President Obama was sworn in. That is over 7 trillion dollars added to the deficit in just 3 short years. In fact, President Obama has added more to the deficit EVERY YEAR then President George W. Bush did in 8 years at approximately 800 billion.
You can not be stuck in deficit spending for long periods of time like this to such an extent and not have serious repercussions. This is the warning we have received. The debt agreement just like the previous budget agreements simply cut future spending from the mind-boggling amounts put into work by President Obama in the first place. This leaves us in a rather bad place with another issue threatening us.
That is right. The untouchable and unmentionable spectacle known as social security could use fixing and could use it yesterday. That is a lot of IOU’s that the Government has borrowed from for years to either balance the budget or to spend on some other hair-brained scheme or on 10000 dollar screws. Whatever the case, social security is the giant elephant in the room while our politicians sit and squabble over budgets for Federal programs that mean squat next to the amount of money we will need to shell out for social security.
Forget it being fixed, we are too busy fighting over simple things and simple concepts. Such as the concept that printing more money (AKA Quantitative Easing) is ever a really good idea except in one very rare circumstance which I will not go into here.But the idea that it would every be applied multiple times in the absense of that said rare circumstance is rather childish.
But then we also have ideas such as the idea that increasing taxes is a good idea and that it will raise revenues based on current data more then slashing the budget. I will just state this once before I explain, tax breaks will never be as effective as slashing a budget. Slashing a budget is fixed and that effect is immediate. Raising taxes not only continues spending money in the Government (which if its in debt IT DOES NOT HAVE), and furthermore this money is just frankly a waste in most respects. Lets go back to how this idea is justified. From the same article:
“But experience shows that in a period of slack demand like the present, tax hikes
are no more job-killing than spending cuts, and probably less so. Cutting
spending—say, by firing federal employees or canceling procurement—removes
demand from the economy dollar-for-dollar. A dollar tax hike, on the other
hand, especially one aimed at upper incomes, cuts demand by less than a dollar.
Those who pay the tax cover part of it from their savings and only part by
reducing their spending. If lawmakers insist on using the phrase “job-killing,”
Roberton Williams, a senior fellow at the Brookings Institution-Urban Institute
Tax Policy Center, wrote in a recent blog post, “they should apply it equally
to both tax increases and spending cuts.”
One fact that we need to realize about economics on the large-scale is that Government is NEVER going to be more efficient than private enterprise. By increasing the size of Government and allowing the Government to function in areas where private enterprise can do so fairly, we are in effect spending extra money to get a worse job done. Regardless, what we have is a belief problem in Government today. Government believes that it exists to do its own thing regardless of what the citizens want. This belief will be shattered as the Government itself struggles to assert itself with change in the air. You don’t have to be a brain surgeon to realize that change is coming. The era of aloof senators and house members who just don’t care about the people they represent is coming to an end. The era of a president who tells people they should give up their corporate jets or pay more in taxes on them and then flies all over the country for “fund-raising”.
These bygone traditions will become part of the past as the citizens start to see how out of touch these politicians really are. Fighting over 20 billion dollars like for one its their own money and two that it will actually mean a thing when we are over-spending over 2 trillion dollars a year is a sure sign that they really do not see the truth. But as little as we can do about politicians at this point in time, we can look at facts.
We can believe in truth such as the fact that Government is never more efficient at spending OUR money then we are. Obviously it makes more sense for us to spend our own money as we wish since the Government can not do it better then us. That being said, this leads us to the bad news and the elephant sitting in the corner. The history of our leaders shows how we can not even trust them to hold onto money for seniors who then will be literally robbed by their own Government in search of funds for general usage. This money was given “IOU’s” which we can not hope to pay back today. What are we to do, this money was promised by a retarded set of leaders who then robbed from the fund? We can not just stop this promise when they spent their entire lives putting money into this system. We can not just keep going as we are, so some solution is needed.
Remember, the fact that politicians for roughly 50 years have been robbing them under “IOU’s” that will never get paid is not their fault. It’s all of our faults for not calling the politicians to task 20 years or longer ago back when there was time to relieve the crisis we are about to experience with so many baby boomers retiring. This crisis is the true pain that is about to come home to us and I predict we will not even visit the discussion here until the social security payroll taxes double over-night. Yes, we will be forced to increase taxes as well, which is a very bad thing to do as I explained.
If we had started 20 years ago, we could have safe-guarded it without an issue by today. But this issue was never talked about because it was that ultra secret “unmentionable” elephant. Pssss, don’t mention the elephant in the room. Because it will bite us if we do.
Regardless, it will bite us all in the end. Today, we have both a record deficit and the social security problem about to rear its ugly head. If we had been more frugal with the general deficit, we could have probably just taken SS on as part of a deficit increase and lived on deficit spending. But obviously our politicians like to spend money they tax from us and the money that they create with computers. In this sense, our country has seen its future robbed more by President Obama then at anytime in the past. But by no means am I simply blaming the current president, he might have been the worst of the bunch (who has caused to date over half the deficit by himself), but every president in the last 30 years and even prior to that could have solved this problem but chose not to. The only solution is a drastic overhaul which no one is willing to discuss, because as I mentioned, the elephant in the room should not be mentioned.