The Plan

Here’s the Plan ( as I see it )

The political plan to deal with our economic woes is as plain to see as the nose on your face – literally.  Let’s look at that simile, when you look at the nose on your face you look in a mirror to see it and what you see is a direct reflection of what you want to look at.  In other words you are looking at your nose exactly backwards.  That is the political plan, to do the exact opposite of addressing the problem and dealing with it directly.  I can hear the thoughts now, how is this idea anything new?  Politicians have been doing this since the beginning of time.  What you are saying and thinking is an exaggeration for effect, what I’m saying is that our political representatives not only will do but are doing the polar opposite of the right thing.  Now this sounds like something really silly, like maybe I’m being sarcastic but I’m not.  As an example let’s look at the latest fiscal cliff deal, the fiscal cliff was not a bad thing, what it was, was fiscal responsibility.  The chairman of the Federal Reserve used that metaphor to describe what he saw as an economic problem and it caught on as a catch phrase for the democratic agenda.  In reality, as history will show, the so called fiscal cliff would have saved this country a lot of economic grief.  Let me show you what I’m talking about.

Public debt is exactly like your household budget, except a whole lot bigger.  If you have more income in your budget than expenses, you have a surplus.  If you spend more than you make, you have a deficit.  Public debt is a measure of exactly the same thing, with federal spending being deducted from income  (tax revenue), because the number is so large, either way, it is reported as a percentage of the gross domestic product.  You could do the same thing with your household budget by citing the monthly surplus or deficit as a percentage of  sales of the company you work for. In what world would that make any sense. Compound that by adding in calculations on inflation indexes, the world price of commodities, pro_ections on rate of growth or decline in earning potential, annual depreciation of assets, increases in interest rates on debt and a partridge in a pear tree. Would you consider adding those calculations to your household budget? It sure would sound like you are doing something important. This is the Federal government we’re talking about so they have to have special language, special calculations and special terms for the things that you and I deal with everyday. Sounds like maybe the government has a corner on the market of red herring or could it be that you and about 150 million other people have been hoodwinked by a really slick salesman on a contract no one understands but sounds really important, to balance your budget. The fact of the matter is both of those things are true, we are lead down the wrong path at every turn by people who can talk the talk but have never walked the walk.

Now here’s the deal, if we had been allowed to go over the fiscal cliff the deficit in public debt would increase from 69% of GDP to 84% by 2035.  So we would accrue more debt but in the process our gross domestic product would jump by almost 3% which means more revenue.  You know we didn’t go that route so now we’re looking at the public debt as a percentage of GDP going up from 69% to 200% in 2035 and GDP staying flat. Those numbers are available from the Congressional Budget Office.  How would that work out in your budget?  Now let’s get on with what the plan is.

Hyperinflation by itself doesn’t mean the currency will fail – there are two ways to extend the inevitable, if the government can raise taxes enough and if they can borrow enough.  That’s how this government has been getting away with an economy in hyperinflation for the last four years, by borrowing.  We’ve reached a point in time where our options for borrowing are becoming very limited.  Nobody wants our debt as demonstrated by the last two years of borrowing from the Federal Reserve.  If you look at the numbers you’ll find China holds $1.1 trillion of our debt while the Federal Reserve holds well in access of seven trillion dollars in Federal debt.  The remainder of the balance of $16,000,000,000,000 in Federal debt is held by businesses, state and local governments and individuals in investments.  The Federal reserve is a private company but politicians, especially the president who appoints the director of the Federal reserve, has some influence on Federal reserve policy.  The last four years the Federal Reserve has engaged in three rounds of quantitative easing and four months ago operation twist, can you see how something like this would happen?  You think that this might be part of the plan?  Of course it is.  The politicians think they can borrow their way out of this mess long enough to get revenues up enough to get us out of an inflationary trend.  Of course it’s not working because they don’t understand business cycles, basic economics’, fiscal responsibility or have any common sense whatsoever.  The Federal reserve had its annual meeting at the end of December and I will bet you a dollar to a doughnut that Bernanke got called on the carpet over operation twist because the Federal reserve is starting to backpedal on this program.  Nonetheless borrowing money from the Federal Reserve is half of the political plan, the other half is raising taxes.  The president has been quoted as saying we don’t have a spending problem we have a revenue problem.  Which we all know is the exact opposite of what the problem really is.  To sum up the plan, the politicians will borrow money until they can’t, then they will raise taxes until they can’t, then our economy will fail.  Meanwhile the general population suffers through the effects of hyperinflation, while everyone blames it on everybody else and no one does anything to stop this freight train that has run out of rails. So what does this mean for you? We’ll discuss that next time.