Den Of Liars

That would be our government.

It of course includes Congress, and until proven otherwise, all who came from Congress, including our President-Elect.

Yeah, I know, we only have one President at a time.

That's fine.  But here's reality:

• Senator Ensign was on CNBS this morning ranting that the automakers came to them pushing their bill with "panic".  Uh, Senator, what did Bernanke and Paulson do?  Where is your outrage and demand that the EESA/TARP be rescinded?  MISSING, that's where.
• Bernanke and Paulson prattled on for more than a year about how "subprime is contained", "the economy is fundamentally strong" and other outright falsehoods.  These statements were made in testimony before Congress, while many, myself included, argued they were lies.  We were right; they were lies. Where is the accountability?
• Many have also said we "won't have a lost decade like Japan."  Wrong; Japan has had two lost decades, not one, and we just booked our first one.  Have a look at the S&P 500 lately?  Go back to December of 1998; you have made nothing.

We are doing exactly the same thing that Japan did.  We are propping up zombie banks, refusing to force losses to be taken and allowing it all to be swept under the "TARP."  We have done exactly nothing about the lying and fraud that is pervasive up and down both Wall Street and K Street, along with Constitution Avenue and Independence Blvd in Washington DC, never mind the Liar in Chief at 1600 Pennsylvania Avenue and his minions in the building next door.

Does all this change on January 20th?  I'm not holding my breath but the following facts remain clear and indisputable.  Again, my favorite chart:

Let's reduce this to numbers.

In 2000 our GDP was approximately $10 trillion.  At 270% of GDP that would place total debt at $27 trillion dollars.

The reported GDP in 2007 was $14 trillion (again, give or take one.)  At 360% of GDP this places total debt at approximately $50 trillion dollars.

Assuming a linear appreciation over that seven year period we have a total GDP expansion from 2000-2007 of approximately $2 trillion annually over seven years, or $14 trillion in total of "salutary" GDP expansion over that seven year period.

But - total debt went from $27 trillion to $50 trillion, or an expansion of $23 trillion dollars. 

Of course the debt taken on is spent on something, which means it shows up in GDP.

Has the light bulb come on yet?

Let me explain this in very simple terms - again, assuming more-or-less linear expansion of the debt (which is in fact not true since claimed GDP expanded, so the growth in debt rate is actual a derivative function) there was actually a $9 trillion dollar contraction in GDP over the previous eight years, since taken-on-debt that is spent is not actual output expansion any more than I am "improving my wealth" if I go borrow $200,000!  In fact I am damaging it because I must not only pay the $200,000 back I must pay interest as well!

That's right folks - we haven't had an expansion in GDP over the last eight years.  Congress and its organs of reporting economic "facts" have lied.  We have in fact actually seen about a 10% contraction in real GDP from 2000 levels; all of the so-called "expansion" of the Bush Administration has been a lie intended to prevent recognition and working through of the recession that should have happened in 2000.

If you as an American are wondering why it seems you've been taking it in both holes for the last decade, with your real purchasing power decreasing, and have felt "forced" to take out home equity in order to maintain your standard of living (not to mention charging up your plastic until it smokes) now you know the truth.  In fact your purchasing power has been destroyed; you have had a real 10% or more deficit in actual buying power .vs. where you were in 2000.

None of this is an accident.

The worse news is that we have taken a 10% contraction in GDP, which was necessary and could not be prevented in 2000, and through the "magic" of debt and compound interest turned it into something far worse.  In order to recover equilibrium we will now have to shrink GDP by close to 30%, and if our government doesn't quit dicking around and trying to prevent this contraction from taking place it will be far worse.

How much worse?

Government has already added another $2 trillion to the debt tab which means that they have added more than 10% to the amount of contraction necessary in nine months time, and they are still adding to the bill!

This lunacy must stop.  If it does not by mid 2009 we will be so far underwater that we could literally see GDP cut in half, which would be a depression far worse than the 1930s.

To put this in stock market terms - if this lunacy does not stop here and now the S&P 500 will trade at TWO HUNDRED and the DOW will trade under TWO THOUSAND, with the damage lasting for more than a decade.  Unemployment will reach TWENTY PERCENT on U-6 (and well north of 11-12% on the government's "claimed" number.)

This is mathematics folks.  Politics and politicians can lie through their teeth but they cannot change the mathematical realities of finance and compound interest.

To Congress: Cut it out!  Those of you in The House that don't understand basic financial math - get educated damnit and do it now.  Those of you in The Senate - virtually all of you do know, as most of you are businesspeople.  QUIT LYING.

To President-Elect Obama: Damnit, start speaking the truth - now.  You're smart enough to know I'm right and the math cannot be argued with.  Most of your "advisers" are Keynesians and they are the same folks who smugly advised the path that got us here.  Fire them all and get some classical or Misean economics folks in the debate, or how about some folks who can simply do the math?

We are at a critical crossroad in this nation.  I have been raising hell about this now for over a year, as it was obvious from the start that Congress had no intention of doing the right thing either due to ignorance, stupidity, bribery or all of the above.  I, along with the others who have sounded the same alarm, have been roundly ignored.

That our nation will experience a Depression is no longer in question; the policies of the government have guaranteed that.  We are now arguing over whether that Depression will be shallower, equal to, or worse than the 1930s, not whether it is going to happen.

If the addition of debt load is stopped we can stop the damage.  We cannot prevent the pain that this damage has and will cause from occurring, but we can keep it from getting worse. 

What we cannot do is spend money we do not have and obtain a positive result.  That is mathematically impossible; every additional dollar of debt that is taken on in an attempt to "fix it" will in fact make the economic nightmare worse, result in more job losses and lengthen the slump.

We must not take on any additional debt; that which is currently unsupportable must be defaulted, and while the financial system needs to be held together, the firms responsible for this mess must  be literally taken out back and shot via bankruptcy.

Those who have knowingly put us in this position - including those in the current administration and The Fed - should be under indictment for fraud perpetrated against our nation, our Treasury and the people.