Iceberg Dead Ahead

I’ve had this “knowledge” for a long time that the USA was headed for a financial disaster.  Nothing in the immediate future, but someday far from now, all of the Ponzi schemes that the Federal government keeps pumping out are going to kill our economy.  Most of this knowledge comes from my father’s belief in fundamentals as they relate to macro economics, and his talent for not letting a good opportunity to point these fundamentals out to me go by.  Eventually, even a thick skull like mine will absorb the teachings from that kind of barrage. 

Anyway, this knowledge consists of a few things that are coming to a head in the near future:

1. Baby Boomers Retiring.  The Mother-of-all-Ponzi-Schemes, or so-called Social Security, will soon be paying out more than it collects when more and more baby-boomers retire.
2. Medicare / Medicaid.  An aging population combined with rising medical expenses!
3. Healthcare Costs Escalating.  Has your insurance ever gone down, or your coverage ever gone up, or has the complexity ever been reduced?  Mine neither.
4. Deficit Spending by the Federal Government.  Despite what seems to be common knowledge that we had a surplus in the late 90’s, spending by the federal government has never in my lifetime been below tax receipts (see Bureau of the Public Debt, US Treasury)
5. Federal Debt Financed with Short Term Loans.  Short term borrowing is a recipe for disaster – unless you are repaying short term.  But we aren’t repaying (see #4).  If interest rates go up to even modest amounts, we will be adding another $ trillion to the annual deficit. 
6. Consumption Economy.  I’ve heard about the trade deficit my whole life.  Can an economy sustain several decades of high and increasing trade deficits?
7. Ever Increasing Regulatory Environment.  Our elected officials seem to think there is no cost to Sarbanes-Oxley or OSHA or The Patriot Act.  Or a bazillion other regulatory burdens.
8. Taxes.  Never.  Go.  Away.  I remember when I was a kid, the sales tax was less than 5% in the part of Texas where I grew up.  It’s over 8% now in AZ,  PLUS as income tax!  My property taxes increase every year, even when my house is worth 40-50% less.  And my Truck Registration was over $750 the year I bought it (‘06).

I had this knowledge well before the events of last summer.  I wasn’t that concerned because I felt like it was too far away to get too worked up over – after all, we’ve been hearing about this sky-is-falling stuff since Perot in 1992.  But sooner or later, these looming disasters are going to kick us on the crotch.

Full Steam Ahead…

If McCain had won the election, I’d still feel like we’re headed for the iceberg.  I’m sure he would have tried to slow the ship.  I’m sure he would have introduced various reform packages that each would have been steps in the right directions, but could he have stopped the inevitable?  Could he have reformed Social Security, Medicare & Medicaid, balanced the budget, absorbed the gigantic cost of raising interest rates in order to refinance a $9 trillion debt with long term loans?  Could he have turned the momentum of spiraling healthcare costs, and converted our economy into a production economy with a trade surplus? 

I don’t think would have been able to come close.  McCain was somewhat fiscally conservative, but he had a weird idea of free markets.  He had his name of a lot of non libertarian bills (McCain-Feingold, Lieberman-McCain, etc.), so it’s questionable as to how hard he would push for reform.

But McCain didn’t win – Obama did, as he’s fond of reminding us.  And far from slowing the ship, Obama is shoveling the coal faster than anyone ever has ever dreamt possible.  Hank Paulson and Ben Bernanke started this mess under Bush, but Obama has taken the wheel and kept his foot on the gas.  Take the following graph of Annual Debt Increase updated monthly (in $billions):

This just addresses the debt issue, but we all know that Obama has grand plans for increasing our Medicare / Medicaid coverage, and is an advocate of Federal Regulation.  He has taken over most of our nations banks, and two our of three of our domestic automakers.

And today, the Democratic controlled House passed a bill to force US companies, and therefore US consumers, to pay additional taxes for CO2 emissions

Ship of Fools

It seems like every single decision this government makes is the EXACT wrong decision – especially when it comes to economic decisions.

So if we are going to hit the iceberg anyway, I say “Full Steam Ahead!!”  Let’s sink this ship while we still remember  free markets, and when the decisions made are so dramatically obvious to everyone.

Maybe if we crash soon, our public might have the will to enact real constitutional protection that really limits what damage our government can do.

In the coming months, I am going to make an effort to point out some of these foolish decisions, but with a positive outlook!  The faster and harder we crash, the faster we can get back to being freedom loving Americans!