President Barack Obama, who said his “one mandate” in a second term was to help middle class families, takes the oath of office with many barriers to raising most Americans’ living standards.
Most Americans started this year with a cut in take-home pay as Congress let a temporary 2-percentage-point reduction in payroll taxes expire. Workers’ own leverage to gain wage increases will be limited for years by competition from the swollen ranks of jobless Americans as forecasters expect the unemployment rate to remain at or above 7 percent through 2014.
You'd think these guys over at Bloomberg could manage to use a calculator, or just apply a bit of critical thinking, instead of popping off at the mouth on things that have exactly nothing to do with the problem at hand.
The middle class have been decimated by more than a decade of outrageous deficit spending, which both parties are equally complicit in. There is no way to resolve this problem with more deficit spending just as you can't drink yourself sober.
Every dollar of deficit spending is exactly identical to a tax increase of the same dollar. And since deficit spending goes directly into the economy unlike a tax increase you can't shield certain people from it by directing what you tax!
Now it is true that if the deficit spending was entirely contained to that lower and middle class then the impact would be blunted to some degree. Unfortunately even that doesn't work because debt accumulation and the GDP "spike" it produces is cumulative and that makes it an exponential series.
That is, to maintain the same effect "next year" the amount of deficit spending must increase every year, and it must rise faster than GDP does because all debt comes with interest.
Even if it's only a little interest.
There is no way out of the trap. Like all exponential functions when you begin this one seems to be rather benign. It's only a "little" extra spending, you tell yourself. Anyone who has gotten in trouble with their credit card (or worse, the local payday loan shark) knows this.
This is why in 2008 when the banks got in trouble the only correct action was to let them fail. Sure, we need banks to clear payments and such. We didn't need those banks. And we certainly didn't need to drop interest rates to zero and inject trillions of dollars of new federal debt into the economy, trashing the lower and middle class standard of living.
Back in 2007 I wrote a letter to all 535 Clowns on The Hill in which I exhorted them to find a couple hundred billion dollars to provide "three hots and a cot" to anyone who would need and be willing to accept it. Not as "Section 8", or "Food Stamps" or anything of the sort -- rather, literal "three hots and a cot".
You come with a duffel bag of clothes (we'll provide a duffel bag) and here's your cot. There's a bathroom over there with toilets, sinks and showers. The food kitchen is over there, and it serves three hot meals. You're not going to get your preferences, but you've got a place to sleep, you've got food to eat, there's a sanitary place to take a crap and you've got a shower. You can move between these facilities if you wish, and the facility will keep you in reasonable physical condition along with being reasonably presentable so you can try to find work.
There are no luxuries, no pretty-pretty. Do this with old bases we've closed; clean 'em up enough to use their kitchen facilities and places to set up racks. Anyone who becomes violent, abusive, or is caught using or distributing any sort of mind-altering drug, including alcohol, is expelled -- permanently. One strike and you're done; go fend for yourself. But for those truly in need, we can do that.
Of course I'm sure the Democrats would see this as "mean"; who knows what Republicans would say. I say that breaking the exponential cycle is not an option; it is essential. More to the point, it's going to happen, and we are simply choosing to do it on our terms instead of on someone else's when the market has had enough. The latter day always comes.
Greece did what we're attempting. They continually increased deficit spending and "social support" right into the maw of the exponential curve. Even when they could see the wall approaching they refused to stop. You can see the mess they're in -- and they're not alone.
Latvia, on the other hand, took the other approach. Faced with the same exponential cycle they immediately put in place severe budget cuts, including huge salary reductions for everyone in the government. Resistance within the government was fierce, but the choice was put to the people -- either do this or we go bankrupt. The people decided and backed it up.
And what were the immediate results?
GDP declined by 20% in 2009 and unemployment reached 22%.
But a year later unemployment was down to 15% and is continuing to fall, albeit slowly. More importantly, however, the budgetary red ink has been staunched, with Moody's believing that a 2012 1.9% deficit was achievable, and moved their ratings outlook from "negative" to "stable." This proved to be pessimistic -- the nation achieved a 1.2% deficit!
Is the game over in this regard and the book closed? Of course not. The urge to attempt to paper over trouble remains strong, but economic progress has returned to Latvia in the last two years. The target for the 2013 budget deficit is 1.4% and perhaps this will prove pessimistic as well.
The United States is attempting to do what Greece did. It won't work, not because we lack national will but because it can't work. This is a matter of arithmetic rather than "hope and change."
The driver of our budget problems is found in the medical system. We cannot fix Medicare and Medicaid standing alone no matter what policies government adopts.
Obamacare threatens to double private insurance costs over the next year in many markets. This is exactly what I forecast would happen when this law was being debated, and now it is happening. The attempt to "shield" the government from these escalating costs, and which a few liars are claiming was achieved with Medicare, will fail -- as private entities are simply unable to shoulder this cost it will ricochet back on the government, making the former 9% rate of increase look like a Girl Scout Picnic.
Exponents aren't something you can change by diktat. The laws of mathematics are not suggestions and they have nothing to do with politics. Left, right, center, Democrat, Republican, doesn't matter. All projections and intentions ultimately fall to the simple test of whether the arithmetic that comes from your policies will confirm your claims.
The lie factory is running out of steam and the consequences of our actions, both personally and through our alleged "representatives" in Congress over the last two decades, which are and will remain severe, are about to be served upon us.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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