Saturday Learning Series - China running into economic headwinds?

Is China finally hitting the headwinds that many have predicted?  Possibly, just as an Al Jazeera documentary postulated last year.

Italian Cruise Ship Looks Like Some Euro Economies

I haven't had a lot of opportunity lately to surf the Internet to look at blogs and opinion pieces of late, but I'm still left wondering if anyone else doesn't see the images of the Italian cruise ship run aground and half sunk, as more than just a little symbolic of the debt crises in the Euro zone economies.  Clearly the worst case is Greece, but with Italy having a debt -to-GDP ratio of over 1.1 isn't all that stable either.

According to Wikipedia,

According to the EU's statistics body Eurostat, Italian public debt stood at 116% of GDP in 2010, ranking as the second biggest debt ratio after Greece (with 126.8%). However, the biggest chunk of Italian public debt is owned by national subjects, and relatively high levels of private savings and low levels of private indebtedness are seen as making it the safest among Europe's struggling economies...

Nevertheless, debt is debt and it ultimately doesn't matter who holds that debt if it goes to high and a reckoning happens. The symbolic irony is a warning sign for Europe.  If you don't want to run aground you have to steer your ship out of the dangerous waters.  The problem is that for many passengers aboard the Cruise Ship Euro, the ride and the view are just too sweet to bother changing course.

Simply Indefensible.

You can talk to a Democrat, pardon the pun, until you are blue in the face, but it won't make a bit of difference.  They believe being fiscally conservative means you are selfish, mean-spirited and greedy.  They do not understand that liberal policies in many subtke ways, embody greed.  They do not understand that what drives fiscal conservatives is not wanting to spend the money but rather not wanting the COUNTRY TO GO BANKRUPT!!!!

Already my face is turning blue.

The fact of the matter is that health care reform as espoused by Democrats, and Cap and Trade and the ARRA stimulus and the omnibus bill ALL are financial, simply indefensible.

The country is being drained of it's lifeblood and IT CAN DIE. IT WILL at this rate.

The Wall Street Journal describes it as a coming disaster.

Peter Schiff sees it too, just as he saw the housing bubble burst.




Part II:



As an aside, word is Schiff is going to run against Dodd in Connecticut: (in which he uses the word 'distaster')



That's trading up, big time - Dodd is at least negligent and at worst criminal on the housing problems. Schiff deserves support.

Charles Gasparino from CNBC gets it too;



The examples could go on forever. The fact is that there are so many people who see the gaping holes in the Obama Titanic that  to continue without even stopping for a breath is also, simply indefensible.

If this economic folly is not halted soon, it has only two possible outcomes - collapse and/or violence.  Either way, this does not end well.  I know it sounds like the equivalent of conspiracy nutjob stuff but we're talking about trillion dollar debts for a decade, in a best case CBO scenario.  The best case is never the way reality turns out.

If these people are wrong, then delaying Obama health care a few years is merely a delay.  If they are right, or even partly right, then we are facing an even bigger change than Obama planned - irreversible decay of America's financial power and global influence.  We're talking about the greatest country in the history of the world turning into an also-ran.  Rome fell; in it's heyday it was the current version of America as far as geopolitical and economic power.  There are more disturbingly similar parallels too.  That means America is not too big to fail.  Do you really want to chance that for free health care paid by higher taxes, and money borrowed from China and/or stolen from your children?

It really is indefensible.

Economic Peril

The Telegraph today has a frightening post about a repeat of the 1930's Great Depression possibly revisiting America, or worse yet, an Argentina style slide from First World power to Third World calamity as a possible end state of the current economic crisis.

Indeed, while the worst may appear to be over, it's distinctly possible the worst is yet to come, according to Nobel-winning economist James Buchanan.

The study represents a challenge to the widely held view that Keynesian fiscal policies helped the US recover from the Depression which started in the early 1930s. The authors say: "[Franklin D Roosevelt's] interventionist policies and draconian tax increases delayed full economic recovery by several years by exacerbating a climate of pessimistic expectations that drove down private capital formation and household consumption to unprecedented lows."

Although the authors support the Federal Reserve's moves to slash interest rates to just above zero and embark on quantitative easing, pumping cash directly into the system, they warn that greater intervention could set the US back further. Rowley says: "It is also not impossible that the US will experience the kind of economic collapse from first to Third World status experienced by Argentina under the national-socialist governance of Juan Peron."

The paper, which recommends that the US return to a more laissez-faire economic system rather than intervening further in activity, has been endorsed by Nobel laureate James Buchanan, who said: "We have learned some things from comparable experiences of the 1930s' Great Depression, perhaps enough to reduce the severity of the current contraction. But we have made no progress toward putting limits on political leaders, who act out their natural proclivities without any basic understanding of what makes capitalism work."

Fairy Tale Economics - Part 3

[NOTE: Italicized text is repeated from Part 1 for contextual purposes.]

Politicians would have you believe most anything. They'll say anything to get elected. They themselves might absolutely believe the words they are saying when they say them. But when it comes to governing, they are often confronted with the realities of the situation that cause their promises to become forgotten promises. In that light, the GOP being regarded as the party of 'No.', on the surface appearing to be simply obstructionist, is in reality a good position to be in. It's a lot easier to promise NOT to do something, NOT to spend money and then deliver on that promise, than it is to promise to do something that turns out to be unwise or impossible to deliver upon after being elected. In that case you've got to go back on your word, or plow ahead with a bad idea that will do more harm than good in the long run.

It's one thing to believe that your solutions are smart ones when the aren't, it's entirely another and far more sinister when politicians are deliberately misleading the public into believing in a set of principles that are patently flawed. The United States as a nation finds itself in one of those situations right now. The recessionary meltdown currently being navigated by the economy is the problem, and believe it or not, the solution as it stands is a big part of the problem too. There are three distinct culprits in getting us to this crisis point: (1) President Obama (2) The mainstream news media and (3) the inattentive, gullible and naive American public. The truth is that the culpability is pretty evenly spread between those three.

Previously, looking at the problem itself the focus was on Taxation (See Part 1 here) and additional Government Borrowing (see Part 2). Also in Part 2, the problem was more specifically defined;

The problem is that the economic crisis the nation currently finds itself in, cannot be solved the way the government is going about doing so. In essence, the initial problem of a recession is being compounded by the solution.

The Problem

The economy is in rough shape but it can't be cured by Fairy Tale Economics. Those following the economy will look at things like unemployment rates and the stock market and draw their conclusions about the nation's health based on them (or similar indicators). But that's taking a microscopic look at an economy that has a macroscopic problem. The unemployment rate is the symptom of the problem, not the problem.

You don't solve the economic problems by solving the unemployment rate issue. That's like thinking you'll cure your cold by taking cough syrup. If it was as simple as creating jobs then as someone pointed out (source unknown), then the government could take the stimulus money and hire workers, and handing out shovels to 2 groups of people - one to dig holes and one to fill the holes back in. And why not pay them $200,000 each to do it? Surely that would be more stimulating than $35,000 each, no?

The fairy tale economics yarn that the Democrats are spinning is that the government will create jobs and demand for goods and services by creating projects and spending money on them. The politicians will argue that consumers are not demanding goods and services so the government has to step in to fill the void until consumers appetite for buying returns. The government may indeed need to fix roads, build more Hoover Dams etc., but that's not the issue here. The economy is the issue, and their solution does not work. It's pretty a simple matter to figure out why.

In the simplest context, the government has to get that money from somewhere. They have 3 options available to them (i) they can raise taxes on consumers and/or businesses (ii) they can borrow money from domestic and/or foreign lenders (banks or governments) and then pay it back later or (iii) print more money and use it for the government spending. Of course the politicians could also decide to do a combination of some of all three of those options. The result would then be a mix of the results of each option taken in isolation.

Printing More Money To Spend

Money doesn't grow on trees. It's not a renewable resource in the sense that you simply can't make wealth out of nothing. Wealth has to be created by adding value to something or for someone. There has to be value for money to have meaning. Printing money doesn't add value or wealth to the economy, it dilutes value of existing wealth.

The economy might seem to some to be simple to this example;

Harry and Nancy both have $10. They are the ones responsible for printing their own money. They are in a store where there are goods for sale. Every item in the store costs $1. Thus each of them can buy 10 items. But if they print another $10 each then they could each buy 20 items. They get more and the store gets more money.

Where's the flaw? Let's say one of the goods is a pot and one is kettle. They are worth the same equal value as each other. And they are both worth $1. But there's only one of each in the store. Harry wanted a pot and Nancy wanted the kettle. But now that they've both got twice as much money, they both want a pot and a kettle.

There's only one of each but demand for two of each. What's a smart store keeper to do? Raise the price of the kettle to $2 and the pot to $2. Harry and Nancy are back to the same situation as where they started - Harry gets a pot for $2 instead of one and Nancy gets a kettle for $2 instead of one. In other words, the shopkeeper sells the same two items but gets twice as much money (inflation). But even the shopkeeper is no better off - if he wanted to buy the kettle back, the price has been set at $2 now. No one is any wealthier.

All that has happened is that the value of the dollars have gone down. $1 used to buy a kettle, now it buys half a kettle. The money does not add any value, and therefore no 'wealth'. The only way for there to be more wealth is to get more kettles or pots into the store. They need to be made.

What printing $20 extra has done is caused inflation. What printing an extra trillion dollars does is the same thing but on a much bigger scale. And what it does in the real world is also devalue the American dollar compared to other currencies.

If printing extra money happens on too large of a scale the results can be disastrous. Two relatively recent examples are the Wiemar Republic and even more recently, Zimbabwe. These choices have real world consequences.

Germany:



Zimbabwe:



There are lessons to be learned from the past.



Clearly, the way forward is full of danger.

Next Up: In Part 4 - whose fault is this? How did America get to this point?

Fairy Tale Economics - Part 2

[NOTE: Italicized text is repeated from Part 1 for contextual purposes.]

Politicians would have you believe most anything. They'll say anything to get elected. They themselves might absolutely believe the words they are saying when they say them. But when it comes to governing, they are often confronted with the realities of the situation that cause their promises to become forgotten promises. In that light, the GOP being regarded as the party of 'No.', on the surface appearing to be simply obstructionist, is in reality a good position to be in. It's a lot easier to promise NOT to do something, NOT to spend money and then deliver on that promise, than it is to promise to do something that turns out to be unwise or impossible to deliver upon after being elected. In that case you've got to go back on your word, or plow ahead with a bad idea that will do more harm than good in the long run.

It's one thing to believe that your solutions are smart ones when the aren't, it's entirely another and far more sinister when politicians are deliberately misleading the public into believing in a set of principles that are patently flawed. The United States as a nation finds itself in one of those situations right now. The recessionary meltdown currently being navigated by the economy is the problem, and believe it or not, the solution as it stands is a big part of the problem too. There are three distinct culprits in getting us to this crisis point: (1) President Obama (2) The mainstream news media and (3) the inattentive, gullible and naive American public. The truth is that the culpability is pretty evenly spread between those three.

Previously, looking at the problem itself the focus was on Taxation (See Part 1 here). The problem however was not immediately defined in Part 1, so before looking at more let's define the problem specifically.

The problem is that the economic crisis the nation currently finds itself in, cannot be solved the way the government is going about doing so. In essence, the initial problem of a recession is being compounded by the solution.

The Problem

The economy is in rough shape but it can't be cured by Fairy Tale Economics. Those following the economy will look at things like unemployment rates and the stock market and draw their conclusions about the nation's health based on them (or similar indicators). But that's taking a microscopic look at an economy that has a macroscopic problem. The unemployment rate is the symptom of the problem, not the problem.

You don't solve the economic problems by solving the unemployment rate issue. That's like thinking you'll cure your cold by taking cough syrup. If it was as simple as creating jobs then as someone pointed out (source unknown), then the government could take the stimulus money and hire workers, and handing out shovels to 2 groups of people - one to dig holes and one to fill the holes back in. And why not pay them $200,000 each to do it? Surely that would be more stimulating than $35,000 each, no?

The fairy tale economics yarn that the Democrats are spinning is that the government will create jobs and demand for goods and services by creating projects and spending money on them. The politicians will argue that consumers are not demanding goods and services so the government has to step in to fill the void until consumers appetite for buying returns. The government may indeed need to fix roads, build more Hoover Dams etc., but that's not the issue here. The economy is the issue, and their solution does not work. It's pretty a simple matter to figure out why.

In the simplest context, the government has to get that money from somewhere. They have 3 options available to them (i) they can raise taxes on consumers and/or businesses (ii) they can borrow money from domestic and/or foreign lenders (banks or governments) and then pay it back later or (iii) print more money and use it for the government spending. Of course the politicians could also decide to do a combination of some of all three of those options. The result would then be a mix of the results of each option taken in isolation.

More Government Borrowing

One of the ways politicians try to get elected or re-elected is to give people things. Sometimes this is manifested via pork-barrel spending projects, sometimes it's done on a more subtle level. If a politician running for offices promises to give you a new benefit (say free health care) but tells you that under his or her plan, it won't cost you one extra dime, that politician is promising to give you something for nothing.

Everybody has heard the expression "there's no such thing as a free lunch". You've heard it because it's true. Nothing is ever free. If something is free for you personally, which is pretty rare, it means there's a cost for someone else. If you went into your local Wal-Mart and they told you here's a free XBox 360 and 10 free games, there's a cost to Wal-Mart. They've given up the cost of those items they gave to you because they bought them. And they've also given up the possible profit they could have made from you.

Why does that matter? Because any politician who tries to borrow money to give you something for 'free', is only telling you half of the story - the good half.

Firstly, the government has it's own problems. It's not living up to a lot of what it's supposed to be doing in so many areas (think of service levels at the DMV), that it's wrongly focused on trying to do more for you. It can't even get right what it's already doing. Furthermore, if it can't get those things right, what makes you think that they can get health care or carbon tax credits right? But the bigger point is that the government shouldn't be responsible for those items for you - you should be.

Secondly and more importantly government borrowing isn't free. Whether the government borrows from an American bank, a foreign bank, or a foreign government, they are going to have to pay interest on what they borrowed. Do you think China is lending America money out of the goodness of it's blessed communist heart? No - they want to make a percentage off the loan. On top of which they want the borrowed money to work it's way into the American economy and eventually back to China in the way of purchases on manufactured goods now made there instead of the United States. It's a win-win for China, provided the U.S. doesn't default on the loans.

Thirdly, because the borrowing isn't free it creates another problem. Any money the government borrows now, gets added to the national debt which already stands at over $11 trillion and is expected under Obama's budgets to nearly double in the next 10 years. That's on top of the currently calculated costs of Social Security and Medicare that are currently calculated to be at $107 trillion dollars. That amount is staggering, and in the favored lexicon of the President ' unsustainable'.

People know from their personal credit situations that the more you borrow the higher the interest payments become. If you owe $100 at 5% APR interest, that means after a year without making any payments you'd owe $105. But imagine owing $11 trillion, let alone $127 trillion all told. 5% APR for the government on $11 trillion is $550 billion dollars. By comparison the U.S. Defence Budget for 2009 is $515.4 billion. That's an astounding amount.

Every year that the government does not pay that down the billions the government has to pay goes up. In the course of two years at that level, the government will pay a combined $1.1 trillion in interest payments to banks foreign and domestic, and to other governments, some of which are not friendly to American interests. Furthermore that money is money the government could have spent on roads, dams or fixing the DMV as much as possible. Your tax money is going to China, who have bought government bonds to support American spending habits. The interest on the debt flowing outside of America is as much a problem as the balance of trade deficit because both cannot go on indefinitely and the interest on the debt is something that's going to hit the fan sooner of the two problems.

The Fairy Tale here is that the government can somehow magically borrow money from anywhere and there is no impact on your wallet. There may be no visible impact for the short term, but the truth is it will cost America, it will cost your children and grandchildren, and given the rate of growth of the problem, it may hit your wallet sooner than you think.

Just like you can't spend yourself rich, the government cannot spend it's way out of the economic hole it has dug for itself since the time of Roosevelt. The surpluses of the 90's didn't couldn't have overcome the Social Security, Medicare, Medicaid trifecta of doom, and would have hardly dented the spend President Obama has planned for you either. While the short term boost of a government spending spree might have made sense under ideal circumstances - those vary considerably from current conditions.

If the government regularly ran at a surplus budget, if there were no massive national debt, if the stimulus truly generated more spending than it raised the interest on the debt, if the spending were economically efficient, immediate and clearly controlled, monitored and costed then maybe it might make sense. And even then, only if the costs were repaid as immediately afterwards as possible would it make sense. That reality is more of a Fairy Tale's distance away from the current situation.

But Democrats will tell you each and every time this money has to be spent or else...don't bite. Every dollar out is another government spent dollar for nails for the coffin of America.

NEXT UP: The third option for government to come up with ways to spend money is to just print more. Scary? You bet, and there's lots of evidence as to why.

Fairy Tale Economics - Part 1

Politicians would have you believe most anything. They'll say anything to get elected. They themselves might absolutely believe the words they are saying when they say them. But when it comes to governing, they are often confronted with the realities of the situation that cause their promises to become forgotten promises. In that light, the GOP being regarded as the party of 'No.', on the surface appearing to be simply obstructionist, is in reality a good position to be in. It's a lot easier to promise NOT to do something, NOT to spend money and then deliver on that promise, than it is to promise to do something that turns out to be unwise or impossible to deliver upon after being elected. In that case you've got to go back on your word, or plow ahead with a bad idea that will do more harm than good in the long run.

It's one thing to believe that your solutions are smart ones when the aren't, it's entirely another and far more sinister when politicians are deliberately misleading the public into believing in a set of principles that are patently flawed. The United States as a nation finds itself in one of those situations right now. The recessionary meltdown currently being navigated by the economy is the problem, and believe it or not, the solution as it stands is a big part of the problem too. There are three distinct culprits in getting us to this crisis point: (1) President Obama (2) The mainstream news media and (3) the inattentive, gullible and naive American public. The truth is that the culpability is pretty evenly spread between those three.

The Problem

The economy is in rough shape but it can't be cured by Fairy Tale Economics. Those following the economy will look at things like unemployment rates and the stock market and draw their conclusions about the nation's health based on them (or similar indicators). But that's taking a microscopic look at an economy that has a macroscopic problem. The unemployment rate is the symptom of the problem, not the problem.

You don't solve the economic problems by solving the unemployment rate issue. That's like thinking you'll cure your cold by taking cough syrup. If it was as simple as creating jobs then as someone pointed out (source unknown), then the government could take the stimulus money and hire workers, and handing out shovels to 2 groups of people - one to dig holes and one to fill the holes back in. And why not pay them $200,000 each to do it? Surely that would be more stimulating than $35,000 each, no?

The fairy tale economics yarn that the Democrats are spinning is that the government will create jobs and demand for goods and services by creating projects and spending money on them. The politicians will argue that consumers are not demanding goods and services so the government has to step in to fill the void until consumers appetite for buying returns. The government may indeed need to fix roads, build more Hoover Dams etc., but that's not the issue here. The economy is the issue, and their solution does not work. It's pretty a simple matter to figure out why.

In the simplest context, the government has to get that money from somewhere. They have 3 options available to them (i) they can raise taxes on consumers and/or businesses (ii) they can borrow money from domestic and/or foreign lenders (banks or governments) and then pay it back later or (iii) print more money and use it for the government spending. Of course the politicians could also decide to do a combination of some of all three of those options. The result would then be a mix of the results of each option taken in isolation.

Here's where the fairy tale breaks down into three distinct lessons to be learned.

Taxation

Let's look at our hole digging example above. If the government raises taxes to pay those diggers, it means it has to raise taxes on other workers or businesses to get that money. If 10 workers are paid $200,000 each that costs $2 million for the government to pay them. That means it has to pull that $2 million out of other's pockets. On the surface, the government has added no new value to the economy, just moved it from personal areas of spending to paying for holes to be dug and filled back up.

But, the politicians argue, the economy is in recession - those people wouldn't have spent that money otherwise. They would have just paid off credit card debt, or saved it in case they are worried about becoming unemployed and they need it later. While there's no certainty that that would be the case, let's assume it's true.

If those who kept that money paid off their credit card debts, it would mean they are in fact spending the money - spending it on purchases they previously made. True it's not new spending but the payments do have an economic impact. The financial institutions, at the crux of the economic mess, become more solvent because they don't need to worry as much about potential bad debt. If they never got paid back for the credit they extended, they might collapse causing a much bigger drain on the economy. Even if they don't collapse, without the flow of being paid back, they would continue to be stingy with their new lending, thus acting as a brake on the economy.

Banks do not need to keep one dollar for every dollar they lend. They can lend $10 for every dollar they have on deposit. That means they can lend out $90 dollars. That means in our simple scenario the banks could lend out $1.8 million. If the hole diggers who got the $2 million put 50% of it (unlikely) into the bank then the bank would have $1 million more on deposit and could effectively lend out $900,000.

If the borrowers then writes a check to someone else who deposits the $1,800,000, the bank receiving that deposit can lend out again - $1,620,0001, and so on. The net effect is the potential amount of money in the system is increase by $20 million if the government does not tax it, and $10 million if the government does tax it, gives it to these workers and they save half.

That is, if the assumption that the assumptions about the ditch diggers depositing half of their pay into the bank holds true. In reality it would be much less. On the other hand we could assume that the newly hired ditch diggers and the other workers who are being taxed to pay for them all behave in the exact same way - they spend as much and deposit as much as each other. In that case there is no change in economic effect because $1 of those taxed and $1 of those paid would be applied the same way. In tat case, we are looking at a transfer of wealth, and not a stimulus because no matter where that dollar is - it will deposited or spent the same way.

The other reality is the psychological impact of a new level of taxation. If you are going to be taxed more, you are likely to spend less as a result. That has a negative, but not precisely measurable impact on the economy.

The economy requires that people spend. The economy therefore requires that people sell. The economy requires that people save so that banks can lend and multiply the value of every dollar in the economy. Lending leads to spending which leads to new things being built or made. That is wealth creation. Simple Supply and Demand dictate that the money will ultimately flow to where the economy most needs it. If we are short golf balls, more end up produced without any government bureaucrat saying let's produce more. When the government steps in to alter that system, it impedes the natural flow of the economy. The real argument about digging the holes is this - does digging and then fill in a hole do more for the economy, more for the country, or more for society than allowing that money to be used to manufacture computer chips for sale in laptop computers? Obviously not.

So the real question is - what does the government have planned for all this stimulus money? What can we compare private industry production against to see if we are all benefiting more by what the government wants to do than what the unimpeded economy will produce. The problem is all this money about to flow into the economy isn't precisely directed anywhere. It's such a mish-mash that being able to judge it fairly is impossible.

And that, is exactly what the Democrats want.

NEXT UP: Of course taxation isn't the only alternative for getting money into government's hands to be spent. Democrats would rather have you believe you are getting something for nothing. It's painless and therefore seems like a free lunch. They way that is achieved is to borrow money for the government to spend. In Part 2 - the borrowing option.

Who is Peter Schiff? Why do you care?

Peter Schiff predicted the recession in 2006 and 2007. Unfortunately Arthur Laffer looks way off base in the same clip. So does Ben Stein.

The timing was off, but Peter predicted this. He was right.



So what? Well look what he's saying now?

Listen.



It gets worse.



Don't let this happen. Stop the Democrats. Join the Tea Parties before it's too late.

This is not a scare tactic!

This really isn't a scare tactic. This is the truth. The truth is going to kill America if nothing is done to halt it.

Please watch this, and tell everyone you know. The U.S. economy is sick, and the Democrats are in the process of killing the patient:

Obama - taking credit.

I warned about this.  Don't let Obama take credit for change he did not affect.  So far, all that's really happened since the election in the economic downturn, is a lot of talk and a few TARP funds (which came from Bush/Paulson) got released.  But the market is turning up.  Recovery might be on the way.

Certainly that's what President Obama wants you to believe. We've turned a corner thanks to him.

LONDON (AP) - Concluding his first international summit, President Barack Obama hailed agreements at the emergency meeting of world powers Thursday as a "turning point in our pursuit of global economic recovery." The new U.S. leader said the heads of industrial countries that met in London agreed on "unprecedented steps to restore growth and prevent a crisis like this from happening again."

But if the recovery has started, it has nothing to do with the efforts of Obama.  At most he can claim that he provided "hope".  So far, as far as the economy is concerned, he has provided imagery, not "change".  Yes, he's promised things.  Dangerous and economically hurtful things. But promises do not turn a world economy around.

No doubt he will get all the credit though, unless private citizens ensure they explain the truth to the believers that Obama is not a Magic Genie. 

Eating your fitness ice cream

President Obama's solution to the current economic crisis is analogous to wanting to lose weight or increase your fitness by eating more ice cream.

The housing crisis or bubble was caused by an over-abundance of credit to those who didn't merit it. The problems at GM and Chrysler were caused by them being uncompetitive - including spending more on production than their capacity to do. The problems with the banks were caused by over-lending. The problem with the American economy contains components of over-spending and lack of savings and re-investment. The commonality? Over-spending.

The President's solution? An $800 billion stimulus package. A $400 billion omnibus bill. A $3.5 trillion dollar projected budget deficit. $600 billion plus as a DEPOSIT on health care spending.

Trying to solve debt problems in an economy plagued with debt problems by spending even more is like a 500 lb. man trying to lose weight by upping his ice cream intake.

Unless of course the purpose of the effort is more along the lines of trying to kill the patient.

Panic stations!

The American public needs to have this put in perspective - the national debt obligations of the United States government EXCEED the GDP of the ENTIRE WORLD! This is not all Obama's fault of course, he can largely only be blamed for pushing the latest $0.8 trillion. That's T for Trillion and as in TROUBLE. His blame in the build-up would be more substantial if he actually voted while in the Senate more often, but he was complicit nonetheless.

The real blame lies with successive Congresses, Senates and Presidents since the FDR era who have either willingly followed or not stomached the fight with Keynsian economics that has brought America to the precipice. Now, panic is not a good idea, and I remain positive on the outlook for America. This liability has yet to be realized. Truth be told there's still some time to turn around before driving America off the cliff. But that time for applying the brakes is quickly running out. Instead Obama & the Democrats (who I truly wish were instead a 60's Motown act instead) have chosen not to brake put rather put the pedal to the metal.

This is why 2010 and 2012 are CRITICAL to us as conservatives, libertarians, Republicans, social conservatives, fiscal conservatives and anyone else interested in still having a country in 2040. We've got to put aside any grievances we have with anyone who shares that concern and is willing to listen to the implications of failing to act. This is why the Turncoat 3 need to be banished. It has very little to do with ideological control of the Republican party and everything to do with saving the economy and the country from an unsurvivable cliff dive.

"As bad as 2008 was, the $455 billion budget deficit on a cash basis and the $5.1 trillion federal budget deficit on a GAAP accounting basis does not reflect any significant money [from] the financial bailout or Troubled Asset Relief Program, or TARP, which was approved after the close of the fiscal year," economist John Williams, who publishes the Internet website Shadow Government Statistics, told WND.

"The Congressional Budget Office estimated the fiscal year 2009 budget deficit as being $1.2 trillion on a cash basis and that was before taking into consideration the full costs of the war in Iraq and Afghanistan, before the cost of the Obama nearly $800 billion economic stimulus plan, or the cost of the second $350 billion in TARP funds, as well as all current bailouts being contemplated by the U.S. Treasury and Federal Reserve," he said.

For a more visual interpretation of the real problem, watch this 60 Minutes piece from 2007:



Yes, where were 60 Minutes during the run-up to the 2008 election when Obama was saying ha hatchet wasn't needed, just a scalpel. It was chic to point out the problem under Bush, but where are they now with the stinkulus bill? All I hear from CBS is crickets chirping. Maybe I'm wrong. If you know of any concerns they've raised since October 2008, please let me know.

Here's the truth. Medicare, Medicaid have to go. They are a federal version of the problems General Motors - punting problems down the road by promising more to unions when the impact would be felt decades later, In the case of the US government the 'unions' are the voters. These programs are the equivalent of an anvil around the neck of a drowing man.

Want proof? I hope you do. This is from the Government Accountability Office - it was published last June (2008):

GAO was asked to provide its views on the long-term fiscal outlook. This statement addresses four key points: (1) the federal government's long-term fiscal outlook is a matter of utmost concern; (2) this challenge is driven primarily by health care cost growth; (3) reform of health care is essential but other areas also need attention which requires a multipronged solution; and (4) the federal government faces increasing pressures yet a shrinking window of opportunity for phasing in needed adjustments. GAO's simulations of the federal government's long-term fiscal outlook were updated with the Trustees 2008 intermediate projections and continue to indicate that the long-term outlook is unsustainable. This update combined with GAO's analysis of the fiscal outlook of state and local governments demonstrates that the fiscal challenges facing all levels of government are linked and should be considered in a strategic and integrated manner. Since 1992, GAO has published long-term fiscal simulations of what might happen to federal deficits and debt levels under varying policy assumptions. GAO developed its long-term model in response to a bipartisan request from Members of Congress who were concerned about the longterm effects of fiscal policy. Information about GAO's model and assumptions can be found at http://www.gao.gov/special.pubs/longterm/.

Long-term fiscal simulations by GAO, the Congressional Budget Office (CBO), and others all show that despite a decline in the federal government's unified budget deficit between fiscal years 2003 and 2007, it still faces large and growing structural deficits driven primarily by rising health care costs and known demographic trends. Simply put, the federal government is on an unsustainable long-term fiscal path. Although Social Security is important because of its size, over the long term health care spending is the principal driver--Medicare and Medicaid are both large and projected to continue growing rapidly in the future. Rapidly rising health care costs are not simply a federal budget problem. Growth in health-related spending is the primary driver of the fiscal challenges facing state and local governments as well. Unsustainable growth in health care spending also threatens to erode the ability of employers to provide coverage to their workers and undercuts their ability to compete in a global marketplace. Public and private health care spending continues to rise because of several key factors: (1) increased utilization of new and existing medical technology; (2) lack of reliable comparative information on medical outcomes, quality of care, and cost; and (3) increased prevalence of risk factors such as obesity that can lead to expensive chronic conditions. Addressing health care costs and demographics--and their interaction--will be a major societal challenge. The longer action on reforming heath care and Social Security is delayed, the more painful and difficult the choices will become. The federal government faces increasing pressures yet a shrinking window of opportunity for phasing in adjustments. In fact, the oldest members of the baby-boom generation are now eligible for Social Security retirement benefits and will be eligible for Medicare benefits in less than 3 years. Additionally, in addressing this fiscal challenge it will be important to review other programs and activities on both the spending and revenue sides of the budget.

In 2 brief (and visually unreadable) paragraphs on their website, the GAO hammers the current situation as unsustainable.

Don't trust the GAO? What about this from the Congressional Budget Office in December 2008?

The rising costs of health care and health insurance pose a serious threat to the future fiscal condition of the United States. Under current policies, CBO projects that federal spending on Medicare and Medicaid will rise from about 4 percent of gross domestic product (GDP) in 2009 to nearly 6 percent in 2019 and 12 percent by 2050. Most of that increase will result from rising per capita costs, rather than from the aging of the population.

Unfortunately the CBO's focus is on increasing payroll taxes to close the gap - it doesn't really think outside the box on smarter ways to privatize the insurance and keep it affordable.

And here's Ben Bernanke, Chairman of the Federal Reserve Board, in 2007;

Federal Reserve Chairman Ben S. Bernanke warned today of a "fiscal crisis" in coming years if the government does not act soon to curb federal retirement and health care entitlement programs, picking up a theme that his predecessor, Alan Greenspan, had pursued without success at the end of his term as head of the central bank.

In prepared remarks delivered this morning to the Senate Budget Committee, Bernanke said that a dip this year in the annual federal budget deficit to $248 billion was "the calm before the storm," with ballooning entitlement payments looming over the next 20 years as the Baby Boomers retire and medical costs skyrocket. By 2030, he said, spending under current law on Social Security, Medicare and Medicaid could consume as much as 15 percent of the nation's economic output, double the current rate. Underwriting that could lead to a "vicious cycle," he said, as the nation borrows more to meet its obligations and spends increasing amounts to service that debt, leaving less for investors and consumers and slowing economic growth.

This black hole of government cost has to be addressed, and soon. The GOP has to come up with a comprehensive solution to this before 2012, and continually hammer the public on the need to fix this. It's not important for Republicans, it's important for America. The Democrats aren't going to do anything about this, so the GOP has the opportunity to own this issue and create a fix - it just has to sell itself as the solution.