Many families in this great country have been forced to look at their monthly budgets and see where they can make cuts. Maybe they can spend a little less on food, eating more vegetables than meat one week or maybe they need to cancel cable or forgo their summer vacations. Maybe they even need to look at the future and cut back on contributing to their retirements or their kid's college savings account. Some folks sadly have to dig even deeper and give up essentials. All of it is painful!
What the vast majority of financially hurting families don't do every month is go on a shopping spree at the mall, take a trip to Vegas, or spend simply open up a new credit card to allow for more debt. And those families who do have debt problems from bad decisions in the past are trying to rectify it by cutting spending and paying off that debt. That's just how a household budget works.
All true. But note this down a bit in the article:
A balanced budget amendment is where it needs to start. This kind of Constitutional amendment must be passed by a two-thirds majority in both houses of Congress and then be ratified by three-quarters of the states. Philosophically, conservatives and liberals are at an impasse when it comes to government spending but this is no longer about ideological views. This debate is about the very survival of our nation.
You're correct. But you're not admitting to what has to happen to fix it, which is why there's no clarion call to do so. As is next explained:
A balanced budget amendment increases certainty in the markets and facilitates job growth, which is desperately needed in this country. Our latest numbers of 9.2% unemployment show only part of the story. These figures represent the folks still looking, not the people on welfare or the ones that have taken a part-time job just get to off unemployment.
And they will, for a period of time, get worse when we balance the budget.
Not better, worse. This is unavoidable.
The President and Congress must follow the example of many of the families in America who understand that they cannot spend and borrow in endless rotation. It's time gentlemen, to put on your big boy pants and make the tough decisions about government spending. American families are with you.
That's an open question, but a critical one. See, when you lose your job and keep borrowing, you still have your iPhone, your Netflix, your $100+/month cable bill, and you still eat out every second night. You blow money like crazy, and it still feels good.
But when you stop doing that the guy on the corner who made your pizza goes broke and loses his job. The cell company loses the income from your lack of spending. Apple doesn't make as much money, and may make none at all. Netflix doesn't either. Nor does the cable company.
The entire premise of the alleged "recovery", in the words of Ben Bernanke, has been about pumping asset prices. But they won't remain "pumped" when we take our medicine. They'll go down.
How much? Oh that's easy - we know for a fact what the minimum contraction will be. It's right here:
That's about 12% of GDP or about $1.8 trillion dollars.
Why? Because GDP is simply defined as "C + I + G + (x - i)", and "G" is government spending. Decrease it by that 12% of GDP and GDP falls by (at least) 12%. This is simple math - subtraction.
Yes, we need to do this. Yes, people will raise hell. But it will make, at least for a short time, unemployment worse and pain will increase among Americans. We will not buy those iPhones and cable TV and nights out at the bistro, and the follow-on effects cannot be avoided.
The problem with everyone pontificating on this is that nobody - other than I - is talking about what happens when, not if, we take our medicine. See, we must at some point. But as the chart makes clear up above we've been in an economic Depression we have refused to admit to for the last three years, just as someone on a monstrous multi-year bender will refuse to admit they're addicted to some substance.
It doesn't matter if you want to admit it or not, however. Just as the boozer is destroying his liver, we're destroying our nation's vitality. We're way, way into the hole at this point - we not only made ruinous choices in the 2003 timeframe we compounded them into the 08-2011 years.
It has to stop, but Peggy and the other pundits must - I repeat MUST - stand and tell the truth to the American people. This is going to suck. It needs to be accompanied with changes in trade policy, our medical system, energy policy, immigration policy and tax policy and all of them must be debated and fixed to provide some mitigation to the inevitable destruction that will come with this adjustment.
We're now seeing the first part in the media - pundits of various stripes saying that we need to "eat our peas." What they're not, however, saying (thus far) is what the inevitable outcome in the short term will be of doing so.
We must not only talk about these facts we must accept them and tell our elected leaders that even though we understand that this pain will come, we choose the pain because it is less-damaging than what will happen if we don't deal with the problem now, just as we screwed ourselves by refusing to deal with it in 2001 and then again in 2007.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.