Stranger than Fiction; America Must Continue its Debt-Fueled Ways to Survive

When I read all of the literature about how to solve the financial system, I realize that any rational solution cannot work. We have too many extenuating circumstances to return to a normalcy of spending because we have simply gone too far with our debt fueled existence to dial it back; without increased government spending, our economy as we know it will sink like a stone.

Right now we have a convergence of consequences from the various forks of the economic road requiring the largest outlay of deficit spending in the history of the country. We have corporate welfare with the bailout of the banks, insurance and auto companies. We have an escalating national debt, initially inflated by George Bush and his policies but now alarmingly exacerbated by President Obama's stimulus efforts. Finally, we have entitlement costs - social security and health care - and military spending that will bust the national budget in a few short years not to mention the interest payments on the national debt.

We are a nation depending on the kindness of China and Japan, the largest purchasers of our treasury bonds, to finance our debt. We are a nation completely unprepared to spend within our means. When times were good, our previous President, Mr. Bush, racked up annual deficits and doubled the national debt in his 8 year tenure. Now that times are bad and there is little real money flowing in our economy, our current President, Mr. Obama, needs to spend big and it is scaring the bejesus out of us because the debt that he inherited was already incomprehensible.
Unfortunately, we were all happily flush with cheap credit to worry about the debt when it mattered.

Now we have the Republicans, flagrantly disregarding the trillions Bush added while America's fortunes seemed rock solid and who lack a cohesive party agenda, blindly caught up in the throes of a full-fledged deflection of this stark reality and blaming President Obama for his profligate spending though it has apparently saved their bank accounts. Huh? I urge any Americans sucked into this rabid plot to reconsider and understand that the mechanisms for the problems we are facing were set in motion long before Obama.

Anyhow, efforts to balance the budget may well be the final nail in the coffin for the economy. This is an economy based on spending, 70% of it generated by consumer spending alone. The consumer is under siege due to the crash in the housing market, crash in their investment and retirement accounts, crash in credit financing and associated crash in employment. The government has to replace this spending in the interim to save the economy and it has to get us the credit we need so that we can start spending again.

As a result, the Federal Reserve and the Treasury are pumping all the money they possibly can into loosening those credit markets which, much to our distress, places the banks in the enviable position of ruling our economic roost. We cannot do anything about it because we all need the credit to move forward, including the government. It is counter-intuitive to think this way. After all, rational spending should be the basis of a sound economy and the solution of continuing our credit-fueled existence should sound stranger than fiction because it led us to this crash in the first place. But, it truly is our only hope at least until the economy can generate "real" money again. How, what and when will that be?

Sadly and ironically, the banks are cutting their consumer credit lines to shore up their balance sheets thus refusing to realize that by doing so will unleash a deadly negative impact to our consumer economy. They may be happy that they are racking up deposits because the consumer has learned the very hard lesson of not saving for a rainy day and are currently stashing cash but without credit cards and other consumer loans, we will buy nothing and that is much worse for America. So, we have to continue our debt-fueled ways because every other solution is an economic buzz kill. Yikes!

Obamanomics

Welcome to Obanomics. Will the massive expenditure of Government capital hold back the tides of disaster about to wash up on our shores? What will be the collateral damage because there will be some? How does one come to terms with the impending higher taxes looming in the near distant future that will be required to quell the massive deficit beast that has been unleashed?

The questions keep mounting. The Republicans have some salient points but they sound like the boy crying wolf because they still want to keep blaming instead of recognizing that they contributed greatly to our common woe by not sticking to their core principles of fiscal responsibility: small government and lower taxes. After presiding over the largest government expansion, costly wars and record-breaking deficits that led to an almost tripling of the national debt, they are now screaming and complaining about Obamanomics.

I am not sure how the Republican party, now framed by Michael Steele, Rush Limbaugh, Sarah Palin and Bobby Jindal with their number one hate-mongering cheerleaders Sean Hannity, Michelle Bachmann and Ann Coulter, can expect any rational minded person to take note of their platform. Even CPAC's best polling efforts turned up Mitt Romney with 20% of the vote as most likely to be the best Republican contender in 2012. Ron Paul turned up at 13% tied with Sarah Palin. I think the Republicans should turn to Ron Paul for an alternate plan to Obama and the tired tax-reductions-will-spur-growth economics begun by Reagan and bastardized by Bush then maybe they will have a chance. Even I liked Ron Paul.

I am rooting for Obamanomics. I am legitimately concerned about the expense but I'm hoping that it does work down the road to stem the tide of joblessness and wealth eradication. Tomorrow I have a job interview for a part-time job against a tide of abyssmal data of escalating layoffs, jobless claims and under-employment. The last time I got a job, it was lost to layoff within 3 months. It would be nice to get a job but I am well aware of the future uncertainties that threaten its tenure. Remember those people who showed up for their first day of work at American Home Mortgage just to find out that the company had collapsed that same day?

Thankfully, the Presidential race took up most of 2008 so we shielded from much of the bad news of 2008. Now that the President has been inaugurated, we have nothing to distract us from the near deafening drumroll of bad economic data and a tumbling stock market down 50% from its high in October 2007.

It probably would not have been so bad if we weren't all in so much debt, from the government on down to the little man. It is the debt that is doing us in. All of the financial instruments bought and created by this debt are collapsing. When so many corporations are borrowing from Peter (the Government) to pay Paul (their creditors) and Peter (the Government) is borrowing from foreign governments and institutions to pay Paul (every single penny of every single bailout package so far), we've taken that simple homily up to a whole new level.

It seems there is always this call for more expansion and that expansion cannot happen without leverage yet every time expansion is based on leverage it collapses and we still have to wait a significant number of years to get back to where we were because in reality it was going to take a significant number of years for a certain percentage of growth to materialize. Speeding up that growth to occur in a few odd years or so gives us momentary satisfaction because we still have to spend the remaining years wallowing with no growth and/or fighting for some sense of growth until the normal passage of years is satisfied. How long was it going to take for us to grow from 1997 on? Certainly it was not 10 years. So now we have to wait to find out where we are on the growth curve. Apparently we were way ahead of where we were supposed to be. How long was it supposed to take for that growth to materialize?

Only real dollars can spur growth. A company takes their profits and puts them back into the business until they reach a desirable rate of return. So far, history has shown us that we can't get ahead of ourselves. If we settled for tiny but steady increases then we would probably not have these massive corrections. In the end, it all has to correct. One could argue that the government has bought into this economic logic of borrowing to spur growth when in actuality there should be no growth. We took it all and enjoyed it all already. The faster we use up the spoils that are not of our labors the longer we have to do without. How many years is it going to be this time around?

Maybe we really don't need Obamanomics at all. Maybe we just need to tread water, put the next phase in place, and wait until we land back on the growth curve of where we were supposed to be in the first place. Maybe this is what Obamanomics should be.