How To Hide a Depression

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I’ve suggested for some time that the U.S. is in a depression. The primary reason we do not have visible evidence of widespread poverty and suffering is massive government intervention in the economy. Despite the multi-trillion dollar “extend and pretend” game being played today, I suspect that with a little historical perspective the past 12 years and the coming five (or more) will replace the 1930s Great Depression as the most significant downturn in modern U.S. history.

Following are a series of charts which highlight just how far the federal government has gone to hide the depression.

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The above chart shows those receiving benefits. Those who are not in the labor force claiming a disability is much higher.

Not in Labor Force – With a Disability, 16 Years and Older

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Those not in the labor force and receiving disability benefits are not considered unemployed and do not affect unemployment statistics. This is one means the federal government uses to understate unemployment.

Beneficiary Data

The following charts are from Social Security Online.

Social Security Beneficiaries By Type

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Number of Beneficiaries as of December 2011

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A few more charts will put this in perspective.

Civilian Labor Force

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Private Employment

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Quick Stats

  • As of June 2012 – the civilian labor force was 155,163,000
  • As of June 2012 – there were 111,145,000 in the private workforce
  • As of June 2012 – there were 56,174,538 collecting some form of SS or disability benefit
  • The ratio of SS beneficiaries to private employment just passed the 50 percent mark (50.54%)

Following is one final chart to consider.

Social Security Benefits in Dollars

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As of May 2012, social security outlays are $756.9 billion annually. Fewer and fewer workers support more and more recipients. Social Security benefit payments are now growing exponentially. This is how you hide a depression.

Source: Global Economic Analysis

Does Anyone Do Math Anymore?

While the European crisis continues to take center stage, nobody seems to remember the mess that the US is in.

The federal government spends about $ 3.8 Trillion in a year and takes in approx. $2.15 trillion in various shapes and forms. That leaves a gaping hole of $1.65 trillion a year.

The official national debt is about $16 trillion. In that official debt, we have not included any unfunded liability for pensions to government employees, Medicaid, Medicare and Social Security. Estimates of those unfunded liabilities vary from $66 trillion to $140 trillion. For example, Uncle Sam has promised about $700,000 in pension and health benefits to its retired civil servants and so far the only source of that money is an IOU. Add another $17 trillion to that coming from Obamacare.

It astounds me how, as a nation, we talk about borrowing and spending trillions of dollars as if it was chump change. It is chump change for the federal government. But it is worthwhile to remind ourselves how absurd government spending has become. Following is a visual representation of the millions, billions and trillions:

This is one million in $100 bills.

And this is 100 million, $100 notes, stacked on a standard pallet.

This is 1 billion, about 10 tons of paper.

And here is the US deficit, $16 trillion — not including unfunded liabilities.

Remember we were talking about that $140 trillion deficit. Here is a visual.

How much is a trillion dollars anyway?  If Jesus Christ spent $1 million every day since his birth until today, he would still not have spent $1 trillion.

Michael Moore to Obama: “Show some guts,” arrest S&P head

Please consider for your entertainment: Michael Moore to Obama: "Show Some Guts," Arrest S&P Head (Washington Times)

Give it enough time and the radical left shows its totalitarian side. Michael Moore, who epitomizes the radical left, believes the CEO of Standard & Poor’s should be arrested for downgrading U.S. debt.

Liberal firebrand Michael Moore called on President Obama to respond to the U.S. credit downgrade by arresting the leaders of the credit-ratings agencies.

On his Twitter feed Monday, the Oscar-winning film director also blamed the 2008 economic collapse on Standard & Poor’s — apparently because it and other credit-ratings agencies did not downgrade mortgage-based bonds, which encouraged the housing bubble and let it spread throughout the economy.

"Pres Obama, show some guts & arrest the CEO of Standard & Poors. These criminals brought down the economy in 2008& now they will do it again," Mr. Moore wrote.

Standard & Poor’s, one of three key debt agencies, stripped the U.S. federal government of its AAA status Friday night and reduced it to AA+ for the first time in the nation’s history.

Mr. Moore went on to note that the "owners of S&P are old Bush family friends," continuing a theme he has developed through several films about capitalism as essentially a crony system for the rich and Wall Street, especially the Bush family.

He went on to link approvingly to an article last week in the Guardian, a left-wing British newspaper, about a police raid in Milan against the offices of S&P and fellow ratings agency Moody’s. Italian police were searching for evidence on whether the rating agencies, in the words of a local prosecutor, "respect regulations as they carry out their work".

"Here’s how they roll in Italy when it comes to these bastards," Mr. Moore cheered.

Mr. Moore did not note that Italy’s government is led by a conservative prime minister, Silvio Berlusconi, a business tycoon who also has long been accused by his country’s liberals and leftists of overseeing and benefiting from a system of crony capitalism.

Personally I find this kind of idiotic blather humorous. It is about time one the presumably independent, impartial rating agencies stopped enabling the extend and pretend tactics of the federal government and spoke the truth. And besides, S&P didn’t say the U.S. should be downgraded to junk bond status, merely AA+. However, for Moore any criticism of the multi trillion-dollar socialist spending machine that is our federal government is unacceptable .

Is History Repeating Itself?

In the 15th century, China was home to the highest standard of living in the world. This was China during the Ming Dynasty. Places like Sichuan had reached the pinnacle of civilization at the time with modern infrastructure, robust economies, international trade and a prosperous middle class.

On the other side of the globe, Europeans were living short lives mired in squalor and poverty. They were dying by the thousands from the bubonic plague. They were practically Neanderthals compared to the Chinese. Explorers like Marco Polo wrote fanciful tales of the wealth and opulence in the east.

If you had told a Chinese merchant at the time that, over the course of the next several hundred years, global ascendency would shift to Europe (and a relatively unknown American continent), you would have been laughed at. It was unthinkable given how advanced China was over the west.

But, it happened. The Industrial Revolution and technological achievement caused the table to turn and economic, social and political power to shift from east to west. It has remained that way for several hundred years.

The table is turning once again, back to the east, and it is driven by several factors.

At the tail end of World War II, a new global financial system was concocted that was biased to benefit the United States. In may respects the United States was the “last man standing” after World War II. Europe was in shambles, Russia and China were mired in Communism and the rest of the emerging world wasn’t of any consequence yet. Since that time, foreign countries have been mopping up U.S. government largess and financing out of control  U.S. consumption.

In some respects people the world over (but especially here) felt it was a natural right of Americans to have big homes, cheap gas, and lots of trinkets. Governments at all levels bought into the idea as well. Why couldn’t government buy anything it wanted or make outrageous promises to its constituents without giving a second thought to how these obligations would be paid for. Unfortunately, much of this largesse was made possible at the expense of peasant workers overseas.

For years other countries have imported US inflation while suffering a significant disparity in standard of living compared to the U.S., all because of how the global financial system was constructed. This system, based on the United States as the center of the economic universe, is broken. It will be the biggest game changer in centuries.

There is no shortage of news and opinion about the viability of our way of life, both pro and con. Is it possible that such a force can be stopped or reversed? Highly unlikely.

These huge changes in the global order happen slowly, like gigantic ships changing course. The seeds of change were planted decades ago when the US began running consistent budget deficits in the early 1960s and even before that when the Federal Reserve Act was passed in 1913. The event which may go down in history as the final straw occurred in 1971 when then President Richard Nixon removed all ties between the dollar and gold.

The negative momentum has been building for an long time. Today’s debt, inflation, dollar debasement and unemployment crises are merely the latest symptoms of a cancer that has been growing for seven decades.

The patient is likely beyond cure at this point.

The US debt situation is already precarious. Even the government’s own budget shows continued deficits for years and years to come. This represents some level of risk for the nation’s creditors, and market participants are likely to require a greater return on investment in order to justify the risk of loaning money to the US government. That translates into higher interest rates and higher government borrowing costs, something the federal government can ill afford.

Even assuming that all existing debt is rolled into new bonds, higher borrowing costs will cripple the Treasury. The more money they borrow, the higher their borrowing costs will become; yet, the higher their borrowing costs become, the more money they’ll have to borrow to make interest payments. It’s a vicious circle.

If you’re at all familiar with the financial condition of the federal government, you’ll see that mandatory entitlement programs like Social Security and Medicare soak up more than 75% of all federal tax revenue collected. That’s before paying a penny in interest on the debt. The rest of the budget constitutes several trillion dollars in other, “non-mandatory” expenses.

When you add in sacrosanct budget areas like the military, tax revenue falls over $400 billion short of expenses. America has to borrow to pay its interest expense.

Is it possible for a white knight to come riding in and slash spending by the necessary (and brutal) 50+ percent just to break even? Possible, but extremely unlikely without granting him/her dictatorial powers. Getting a majority of 435 members of Congress to sign up for such painful political consequences is dubious at best. We just don’t have the political will to voluntarily face the music.

Even still, such draconian cuts would just be enough to break even. In order to actually make progress on paying down the debt, one would have to make even steeper cuts… and that’s at today’s levels. The debt grows worse by the day.

Borrowing costs will inexorably rise, causing the budget deficit to spiral out of control.

Since so much of the global financial system is based on the U.S. treasury market, this will set off a chain reaction of bank defaults and commercial bankruptcies, not to mention trigger a wave of credit default swap and other derivative obligations to the tune of several trillion dollars.

Another (more likely) possibility is that the Federal Reserve will continue to finance the deficit by conjuring additional money supply out of thin air, eventually leading to a loss of confidence in the dollar as a reasonable store of value.

The only reason this hasn’t happened already is because there is no viable alternative to the U.S. Dollar as reserve currency… yet. However there are signs that investors and foreign governments are scrambling for a solution. Alternatives like the Swiss franc, Singapore dollar, and gold are all at record highs.

Barring a benevolent dictator or some kind of miracle, this situation is irreversible until the next cycle of the global pecking order turns the tables once again.

When a Cut is Not a Cut

Another insightful, truthful article from Ron Paul.

One might think that the recent drama over the debt ceiling involves one side wanting to increase or maintain spending with the other side wanting to drastically cut spending, but that is far from the truth.  In spite of the rhetoric being thrown around, the real debate is over how much government spending will increase.

No plan under serious consideration cuts spending in the way you and I think about it.  Instead, the “cuts” being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases.  This is akin to a family “saving” $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda.  But this is the type of math Washington uses to mask the incriminating truth about their unrepentant plundering of the American people.

The truth is that frightening rhetoric about default and full faith and credit of the United States is being carelessly thrown around to ram through a bigger budget than ever, in spite of stagnant revenues.  If your family’s income did not change year over year, would it be wise financial management to accelerate spending so you would feel richer?  That is what our government is doing, with one side merely suggesting a different list of purchases than the other.

In reality, bringing our fiscal house into order is not that complicated or excruciatingly painful at all.  If we simply kept spending at current levels, by their definition of “cuts” that would save nearly $400 billion in the next few years, versus the $25 billion the Budget Control Act claims to “cut”.  It would only take us 5 years to “cut” $1 trillion, in Washington math, just by holding the line on spending.  That is hardly austere or catastrophic.

A balanced budget is similarly simple and within reach if Washington had just a tiny amount of fiscal common sense.  Our revenues currently stand at approximately $2.2 trillion a year and are likely to remain stagnant as the recession continues.  Our outlays are $3.7 trillion and projected to grow every year.  Yet we only have to go back to 2004 for federal outlays of $2.2 trillion, and the government was far from small that year.  If we simply returned to that year’s spending levels, which would hardly be austere, we would have a balanced budget right now.  If we held the line on spending, and the economy actually did grow as estimated, the budget would balance on its own by 2015 with no cuts whatsoever.

We pay 35 percent more for our military today than we did 10 years ago, for the exact same capabilities.  The same could be said for the rest of the government.  Why has our budget doubled in 10 years?  This country doesn’t have double the population, or double the land area, or double anything that would require the federal government to grow by such an obscene amount. 

In Washington terms, a simple freeze in spending would be a much bigger “cut” than any plan being discussed.  If politicians simply cannot bear to implement actual cuts to actual spending, just freezing the budget would give the economy the best chance to catch its breath, recover and grow.

The original article appeared here.