Negative 2.9

 "Real gross domestic product...decreased at an annual rate of 2.9 percent in the first quarter of 2014 according to the 'third' [the first estimate was a 0.1% growth and the second estimate was a 1% contraction] estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6 percent."  CNBC put a positive spin on the news: "The U.S. economy contracted at a much steeper pace than previously estimated in the first quarter, but there are indications that growth has since rebounded strongly." Hopefully, that pans out. The dismal growth had been largely blamed on the weather. The weather almost certainly did have some impact of the the economy (I know that in Atlanta the city was shut down for several days), but CNBC points out that "while the economy's woes have been largely blamed on an unusually cold winter, the magnitude of the revisions suggest other factors at play beyond the weather". It is also interesting that this was the largest difference between the 2nd and 3rd estimate since 1976.

The economist John Williams posits that the GDP number put out by the BEA are significantly off due to the massive underestimation of inflation. John Williams provides an alternative measure of inflation and GDP numbers that uses the methodology that the government used before they made all of the changes in the 1990s to make inflation appear lower. Using these numbers inflation is around 8% and the GDP has been bottom bouncing after the sharp downturn in the 2008 recession.

The Federal Reserve has continued to taper, down from 85 billion a month to 35 billion a month. The market expects the Fed to end QE by the end of the year. The market also believes that the economy is picking up and is gradually getting better. Although QE might not end if the economy continues to contract. It is interesting that the economy started to contract when the Fed started to taper at the beginning of the year. To put the "end" of QE into perspective, you need to put the latest rounds of QE into the broader context of all of the QE programs: the Fed launched and ended QE 1, QE 2, and operation twist(?) while QE 3&4 are in the process of being "ended". Considering all the QE programs as one large program, QE has not ended since 2008.  It is also better to think of QE as monetizing the debt as opposed to the euphemism QE. (What has happened to the debt that the Fed stopped buying?  Maybe the ECB is picking up the slack for the Fed. The Fed did help bail out Europe.) Speaking of Europe, the ECB has launched NIRP or negative interest rate policy and is expected to launch QE in the not-too-distant-future.

Taper

The Federal Reserve--the central economic planning committee--announced that it will begin tapering its QE program, which has been in place since the financial crisis, by 10 billion per month. The Fed will do this by reducing its purchases of treasuries by 5 billion per month to 40 billion per month and reducing its purchases of mortgage backed securities by 5 billion per month to 35 billion per month. The Fed also announced that it would keep the federal funds rate, interest rates, at or near zero for longer than they had originally planned. This offsets some of the effect of the 10 per month reduction in asset purchases. Chairman Bernanke was careful to characterize this reduction in asset purchases as not tightening monetary policy and noting that it was still highly accommodative. He said that further reductions or increases in QE was possible: “asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases”. 

The markets did not have the same reaction to the Fed's tapering decision that it had to the Fed's hint earlier this year that tapering might happen: the stock market was up on the news and gold and silver prices were down. The general consensus among the majority of the market participants is that tapering is a positive development. They believe that the Fed's move signals an improving economy and that a return to normal monetary policy is just around the corner: in the words of Bernanke, there is light at the end of the tunnel.

 According to Marc Faber:

'The Fed will never end QE for good,... They will continue because these programs, once they're introduced, usually keep on going.'
'The economic recovery, or so-called recovery, by June of next year, will be in the fifth year of the recovery,' Faber said. 'So at some stage the economy will weaken again, and at that point, the Fed will argue, 'Well, we haven't done enough, we have to do more.''
'The Federal Reserve—all of them—could be sitting on a barrel of dynamite, and then pouring gasoline on top of it, and then light a cigar with matches, throw the match into the gasoline, and then not notice that there is any danger,' Faber said. 'That is the state of mind of the professors at the Fed, who never worked a single [day] in business.'
And while Faber actually believes that a reduction in QE could happen, he wouldn't view it as a true tapering, as he says it will be a largely meaningless, one-time move that will eventually be reversed as the economy worsens.
'They may do some cosmetic adjustments, but in my view, within a few years, the asset purchases will be substantially higher than they are today,' Faber said.

According to Jim Rogers:

At the moment they are buying a trillion dollars a year – that’s a trillion with a “T” – of assets. Eventually we will see that they stop that if they do or slow it down.

What will probably happen is that they will slow it down at first to see what happens, and if things aren’t too bad at first – and they probably won’t be too bad at first – well what is likely to happen is they will slow it down, things will drop, and then they will rally and the Federal Reserve will say “Hey, this is not so bad, we can do it.” And they’ll cut some more. Things will drop again and then rally, because it will take a while for people to really believe how bad it can get, or will get. And so eventually they will try to cut [QE], it will finally cause the collapse...

Peter Schiff said in September:

We also must understand that even if the Fed were to deliver a small reduction in bond purchases, such a move would change nothing. The Fed would still be continuously adding to its enormous balance sheet while presenting no credible plans to actually withdraw the liquidity. As I have pointed out many times, it simply can't do so without pushing the economy back into recession. Although this would be the right thing to do, you can rest assured that it won't happen.

We should also recall where this all began. When QE1 was first launched Bernanke talked about an exit strategy. At the time I maintained the Fed had no exit strategy. But now questions about an exit strategy have been replaced by much more delicate taper talk. But easing up on the accelerator without ever hitting the brakes will not stop the car or turn it around.

Following this playbook, the Fed will likely maintain the pretense that tapering is a near term possibility and that it has a credible plan on the shelf to bring an end to QE.

The mainstream view that the economy is improving is most certainly incorrect. Much of the economic data such as the unemployment numbers, inflation, and GDP are determined by questionable and subjective methodologies and in the case of the unemployment numbers, manipulated. The inflation number that is used to adjust the GDP number is most likely lower than the real inflation leading to an overestimation of economic growth. Additionally, politicians are incapable of slowing the rate of growth of the national debt. This lack of ability to make any meaningful reforms is evident by looking at the latest budget deal where the republicans caved on the budget and actually eliminated parts of the sequester that cut spending with the hopes of future, insignificant cuts that won't materialize, as evident by examining the history of such deals.

The markets now believe that the economy is improving and are expecting the Fed to continue to reduce QE. When the Fed is forced to increase QE the market participants will possibly realize that the Fed can not exit its QE program. Overall, the Fed's decision to start tapering has moved the date up that the economic crisis will happen.

Sequester

The government is finally cutting spending that is of such a massive magnitude that the number of aircraft carriers are being cut back in the Persian gulf, illegal aliens have to be released from jail, people will be loosing their jobs, and many other catastrophic events will be headed our way according to our president. What is the cause of all of this calamity? 85 billion dollars worth of cuts that will take place this year. This is a lot of money or about half of a percentage point of the official debt of 16 trillion-- the real debt is around 100 to 200 trillion dollars-- or about 10 percent of this year's projected budget deficit. Here are some numbers to help put this extremely massive spending cut into perspective. The government borrows about 4 billions dollars a day, 85 divided by 4 equals 21. So the amount of money that will be cut is equal to about 21 days worth of new debt. The other days of the year the government will still be adding debt at the rate of about 4 billion per day. The government borrows 35 cents of every dollar spent, and under the sequester it will borrow 32 cents for every dollar it spends. That is a reduction in the rate borrowing by 2 cents or 6 percent. And this says it all: from Feb. 27 to Feb. 28, you need to check out the link to Treasury.gov to put this into perspective., the government issued about 85 billion dollars worth of debt or “In other words, the entire apocalyptic impact of the sequester for 2013 was offset by one day's debt issuance.".

To sum up this 85 billion spending cut: it is extremely insignificant. The government will never do with less money. The government will never reduce its sphere of influence in the economy. Not under Ronald Reagan or any president (click on the chart below). The state will continue to expand no matter who is at the reins. It is sad that our elected leaders will not be honest with the American people by warning them of the true economic crisis that is headed our way and warning them to prepare for what is coming. And instead of our leaders helping to prevent this crisis by making the necessary spending cuts and entitlement reforms that will avert this coming economic reset, our leaders will lie to and scare the American people when the government has to make such a small and insignificant cut and attempt to make it unnecessarily painful by cutting things that really matter like national defense as opposed to cutting waste like funding for studying shrimp running on tread mills. While our elected leaders will not level with the American people about the coming economic reset, there are plenty of investors with a proven track record of predicting economic events that will: Jim Rogers, Kyle Bass, Peter Schiff, Stanley Druckenmiller, Marc Faber, and others. It is time for Americans to stop getting taken advantage of and get their heads out of the sand, pull up their pants, pick up a magnifying glass, and get some clues.

Paul Ryan The Fiscal Warrior

Looks like Mitt Romney has chosen a conservative that is going to fight to massively reduce the size of government and tackle entitlement reform. The election is now about the big issue of reducing the size of government. This is big news. The coming economic crisis has been avoided thanks to a bold move by Mitt Romney to pick a radical small government politician that is going to make things happen.

Of course there is always more than the shiny facade pimped by party loyalists and for those that have bothered to investigate Ryan's record the picture becomes a bit murkier.
For starters there is the very pressing and disturbing votes of the Bush legacy. Specifically Ryan's support of: TARP, Medicare Part D and No Child Left Behind (NCLB). All three are wonderful examples of how the Republican party only fights for fiscal sanity when they are a minority party, the second they become the majority they expand Government programs at an alarming rate. NCLB is a monstrosity that gave the Department of Education teeth, Medicare Part D tacked on hundreds of billions (half a trillion as of today per year) to the debt and was passed in the House in a manner very reminiscent to ObamaCare and TARP is an egregious disregard of the free market system and should make any citizen sick to their stomach.[...]

In order to understand that Ryan's budget is nothing more than smoke and mirrors we turn to a detailed analysis of the budget. This interactive analysis lets you compare and contrast the Ryan and Obama budgets side by side and examine the projects for spending. [...]

First we got Medicaid. Clearly the difference is notable and appreciable. In fact based on this image alone it would almost invalidate all my criticism of the Ryan budget. [...]

Next we have Medicare. What's this? Apparently Grandma is not going off a cliff, instead it would appear that she is being pushed up a hill! Ryan's plan spends MORE on Medicare than Obama.[...]

Next up is Social Security. No, it is not a graphical glitch. Ryan's plan does absolutely nothing for Social Security. Yet conservative websites and pundits swoon over Ryan like he is the next coming of Barry Goldwater, more on that later.[...]

Lastly, the national debt. This is probably not surprising, but after all the hoopla and all the bravado the end result is that the speed at which our fiscal apocalypse arrives is merely slowed down by a teeny weeny bit. [...]
The answer is quite simple. Romney and Ryan represent exactly the same problem even if one appears to be a moderate and the other appears to be an epic fiscal warrior. The Republican party fights for and pushes through the status-quo. The images you see up above and the Ryan record is the status-quo. No doubt about it.
Yet Romney is counting on the ignorance of Republican base to run with the facade of Ryan's conservatism. If that illusion holds then Ryan's image will invariably boost Romney's own image as many will view Romney's decision as courageous and bold despite Obama's willingness to distort Ryan's budget. In other words, you are witnessing a most fantastic and glamorous circus. A bad Hollywood movie, except that ending will be quite real and not something you can pause or turn off.[...]

However we all know what happens when politicians threaten the sacred cows of entitlement spending. They get destroyed. Barry Goldwater was America's last libertarian-Republican candidate and he was obliterated because he dared to speak up against Social Security. Barry's loss paved the way for the great society and the invention of Medicare and Medicaid. How ironic. Poll after poll shows that Americans refuse to accept changes to entitlement programs, despite their clamoring for someone to fix our debt.

 They had me fooled for a little bit in thinking Paul Ryan was a small government conservative that is going to reduce the debt and reign in big government. 

222,000,000,000,000

 The actual U.S debt is 222 trillion dollars:

Republicans and Democrats spent last summer battling how best to save $2.1 trillion over the next decade. They are spending this summer battling how best to not save $2.1 trillion over the next decade.
In the course of that year, the U.S. government’s fiscal gap -- the true measure of the nation’s indebtedness -- rose by $11 trillion. [...]

The U.S. fiscal gap, calculated (by us) using theCongressional Budget Office’s realistic long-term budget forecast -- the Alternative Fiscal Scenario -- is now $222 trillion. Last year, it was $211 trillion. The $11 trillion difference -- this year’s true federal deficit -- is 10 times larger than the official deficit and roughly as large as the entire stock of official debt in public hands.  

The fiscal gap is the present value difference between projected future spending and revenue. It captures all government liabilities, whether they are official obligations to service Treasury bonds or unofficial commitments, such as paying for food stamps or buying drones.[...] 

Part of the fiscal gap’s growth reflects changes in policy, such as the Bush and Obama tax cuts, the introduction of Medicare Part D, and the expansion of defense spending. Part reflects “natural” growth of existing programs, including growth in Medicare and Medicaid reimbursement rates. And part reflects the demographic time bomb U.S. politicians are blithely ignoring.

When fully retired, 78 million baby boomers will collect, on average, more than 85 percent of per-capita gross domestic product ($40,000 in today’s dollars) in Social Security, Medicare and Medicaid benefits. Each passing year brings these outlays one year closer, which raises their present value.

 According to the CBO:

 Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation's underlying fiscal policies than the extended-baseline scenario does. The explosive path of federal debt under the alternative fiscal scenario underscores the need for large and rapid policy changes to put the nation on a sustainable fiscal course.

Hotair notes that, "We’ve been talking about the 'fiscal cliff' or 'Taxmageddon' coming at the end of the year, but this is the real fiscal cliff we face. And yet, no one in this general-election cycle has even acknowledged it, let alone proposed a solution to it." 

Here is a more optimistic view of the situation.

2022

 Europe is in trouble and America is not far behind:

Senator Tom Coburn (R-OK) believes that unless the U.S. gets its fiscal house in order, the financial and economic repercussions will be severe.
“How long do you think before the United States has a financial meltdown?” the Daily Caller’s Nicholas Ballasy asks.
“Two to five years,” Sen. Coburn responds without hesitating.
“Think about what will happen to us. We have $16 trillion worth of debt right now and we’re paying less than 2 percent on that debt  — that’s 4 percentage points less than our historical average for our debt,” he said, adding that he is confident interest rates will “come back up.”
“In 2022, less than 10 years from now, unless we make major changes that everybody’s saying they know has to be made but none of the politicians have the courage to make, the entire federal budget will be made of only three things: interest, Medicare and Social Security, nothing else,” he added.
[...]

“There has not yet been a republic that did not murder itself. We are in the midst of committing murder to our republic,” he added.

How About AGas Tax Hike To Force People To Drive Smaller Cars? And What Can Be Done To Save America?

According to GM's (I mean government motors) CEO a gas tax hike would be a good thing because it would nudge consumers into buying smaller cars like the wonderful Chevy Volt:

General Motors Co. CEO Dan Akerson wants the federal gas tax boosted as much as $1 a gallon to nudge consumers toward more fuel-efficient cars, and he's confident the government will soon shed its remaining 26 percent stake in the once-bankrupt automaker.

'I actually think the government will be out this year — within the next 12 months, hopefully within the next six months,' Akerson said in a two-hour interview with The Detroit News last week.

He is grateful for the government's rescue of GM — 'I have nothing but good things to say about them' — but Akerson said the time for that relationship to end is coming because it's wearing on GM.

'It's kind of like your in-laws: It was a nice long weekend. We didn't say a week,' Akerson said with a laugh.

And while he is eager to say goodbye to the government as a part owner of GM, Akerson would like to see it step up to the challenge of setting a higher gas tax, as part of a comprehensive energy policy.

A government-imposed tax hike, Akerson believes, will prompt more people to buy small cars and do more good for the environment than forcing automakers to comply with higher gas-mileage standards.

I for one would be willing to pay gas tax to solve a non existent crises. As you know the American government bailed out GM and fired their old CEO, I still remember the headlines that stated a President Fired a CEO of a private company that I thought I would never hear in America-- and replaced him with one more to President's Obama's liking. This might not be surprising, but the main point of the matter is that it shows how big business colludes with government to squash competition and uses the government to create regulations that benefits the business. It is similar to the financial sector that received a bailout by the government. The people in government that bailed out the banks were once CEO's of some of these very banks and are now in the position to regulate them. Is it surprising that they would use the government regulations to benefit their former business? This is the same situation that arose when the government first started regulating businesses--this started under Theodore Roosevelt-- like the railroads: those in charge of regulating the railroads once worked in the industry and when they worked for the government they used government regulations to give the big businesses an unfair advantage over their smaller competitors by creating regulations that smaller businesses could not comply with while at the same time staying in business. Today we have GE, GOOGLE, GM, and a host of other big business that collude with the government. Looking into this subject in more depth will make one look differently at big business and realize that America is not a capitalist system. A lot of the complaints against capitalism and big business by its opponents fail to see that it is this relationship between big business and government that is the real cause of the evils that they attribute to former.

Switching the subject to unfunded liabilities, Unfunded liabilities total about 107 trillion dollars according to this news article, I have heard between 60 to close to 200 trillion dollars. All the promises made by the government to take care of us can simply not be kept:

The latest Social Security Trustees Report tells us that the program will be insolvent by the year 2037. The combined unfunded liability of Social Security and Medicare has reached nearly $107 trillion in today's dollars. That is about seven times the size of the U.S. economy and 10 times the size of the national debt.

The question is will Americans react like the Greeks when the government teat runs dry or will they be able to endure hardship? According to recent developments in the debate to reform medicare, the answer is no. This is not any real news, but the author does pose an interesting question about what can be done to save America:

People ask what can be done to save our nation from decline. To ask that represents a misunderstanding of history and possibly a bit of arrogance. After all, how different are Americans from the Romans, Spaniards, French and English? These were once mighty nations standing at the top of civilization. At the height of these nations' prosperity, no one would have predicted that they'd become third-rate nations, especially England. If during Queen Victoria's Jubilee in 1887 had a person suggested that England would become a third-rate nation and later challenged on the high seas by a sixth-rate nation (Argentina), he would have been declared insane. One chief causal factor for the decline of these former great nations is what has been described as 'bread and circuses,' where government spends money for the shallow and immediate wants of the population, and civic virtue all but disappears. For the past half-century, our nation has been doing precisely what brought down other great nations. We may have now reached the point of no return. If so, do we deserve it?

A record number of Americans are dependent on the government for food stamps or "bread" and more Americans are concerned with "American Idol" and pop culture or "Circuses" than the important issues of the day. Reading history and comparing it to current events makes it hard to be optimistic about America's future. America is at a crossroads. Americans need to wake up and a cultural revolution needs to occur in order for our Country to be saved.

Does America Need Another Ronald Reagan Or Republican Leadership?

America is in massive debt and entity after entity are going bankrupt: the post office lost 2.2 billion dollars in the 2nd quarter of 2011 and might need a bailout; Social Security and Medicare will be out of money by 2036 " If you're 54 or older and plan to live the average American life expectancy of 77.9 years, then you're in good shape. But if you're planning to live past the year 2036, don't count on Social Security. And if you're relying on Medicare, don't even think about the math."; "legendary investor Jim Rogers thinks U.S. bonds will be worthless,

I will be shorting US bonds, Rogers told a conference in Edinburgh. 'I would probably be doing it today if I weren't here,' he said. Bonds in the US have been in a bull market for 30 years, Rogers said. In my view that's coming to an end...the bond bull market is coming to an end. If any of you have bonds I would urge you to go home and sell them. If any of you are bond portfolio managers I would get another job,' he said. Addressing one bond portfolio manager among conference delegates, Rogers said: If I were you I would think about becoming a farmer. You buy land and learn how to farm. In my view it’s going to be a spectacular way to make money,' he said, adding: This is where the great fortunes are going to be made in the future.[...] Longer term the US dollar is going to be a total disaster, Rogers said, urging investors to think about getting out of US dollars before it’s too late.

over in the EU Portugal has requested a bailout and Greece has not been living up to the terms of its bailout that demanded that Greece make tough budget cuts; it looks like the GOP will not be making big cuts to the 2012 budget. This little bit of economic news is just the tip of the iceberg. The world is broke and bankrupt and facing an imminent economic crisis. So does America need another Ronald Regan or Republican President? According to this view of history the answer is no.

"Why American History Is Not What They Say: An Introduction To Revisionism" is a short book from the Mises Institute. Starting on page 177 is a brief overview of Ronald Reagan. It paints a rather different picture of the standard on that portrays him as an advocate of limited government,

Like most Republican politicians since the early 1930s, Reagan always portrayed himself throughout his political career as a champion of limited government, individual rights, and free enterprise—the classical liberal values which, of course, he absurdly described as 'conservative.' But, like almost all Republican politicians since the early 1930s, he seemed to forget all about these values once he got into office and assumed the reins of power. Consider, as a case in point, Reagan’s eight years (1966-
1974) as governor of California. As Murray Rothbard noted in 1980, 'Despite his bravado about having stopped the growth of state government, the actual story is that the California budget grew by 122 percent during his eight years as governor, not much of an improvement on the growth rate of 130 percent during the preceding two terms of free-spending liberal Pat Brown. The state bureaucracy increased during Reagan’s administration from 158,000 to 192,000, a rise of nearly 22 percent—hardly squaring with Reagan’s boast of having “stopped the bureaucracy cold.'[...]According to Rothbard, Reagan 'created seventy-three new state government councils and commissions, with a total budget, in his last year alone, of $12 million. Included was the California Energy Commission, which put the state hip-deep into the energy business' and created a regulatory climate under which a three-year review process was required before any new power plant could be constructed in the state.[...] As James Ostrowski noted in 2002, 'Over the last one hundred years, of the five presidents who presided over the largest domestic spending increases, four were Republicans. Include regulations and foreign policy, as well as budgets approved by a Republican Congress, and a picture begins to emerge of the Republican Party as a reliable engine of government growth.'

The whole section is about seven pages. I know it was the democrats that was the reason for the increase in the national deficit during Reagan's Presidency, but I don't have any good arguments against the points made against Reagan by this short book. But the fact is that Republicans are just as bad when it comes to increasing the size of government and the national debt: look at Hoover, Nixon, Reagan, Bush 43. And it was Bush 41 who started talking about this new world order.

The point of the post is that the world is bankrupt and this massive global economic ponzi scheme is about to end and no Republican President or Congress is able or willing to stop the of massive tsunami of debt that is about to hit the world. Given the history of the leadership of Republican Presidents, America doesn't need one at the crucial time.

Cool, Educational Economic Rap Video

I think Melkor posted the first part of this rap video. This video is about the debate between John Maynard Keynes and Friedrich A. Hayek. The world economic system is based on the Keynesian economic model. This website has a fifteen minute video on Keynes.

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Keynes

"For the masses of men do not create their own ideas, or indeed think through these ideas independently; they follow passively the ideas adopted and disseminated by the body of intellectuals." Hayek

S&P Downgrades U.S. Outlook To Negative

"Standard & Poor's on Monday downgraded the outlook for the United States to negative, saying it believes there's a risk U.S. policymakers may not reach agreement on how to address the country's long-term fiscal pressures. " Or you can read the statement straight from S&P. Note this downgrade happened in 1996, but now America faces a much grimmer situation. This is one more warning from a reputable source: military leaders, congressmen, hedge fund managers, the Secretary of The Treasury, the CBO, and others of where America is headed. (I would have posted some of what the statement said but the copy and paste feature is not working properly.)

One third of all U.S. wages come from the government. An unprecedented amount of American's are dependent on government money to meet their most basic needs. The majority, 40%, of American's don't pay federal income tax. Food, shelter, and other basic physiological needs, the very base of Maslow's hierachy of human needs, are more addictive than any drug out there: if you don't get these needs you die. The vast number of Americans are not going to easily give up these basic necessities. This is exactly what will be required for meaningful economic reform to take place. If this reform takes place, social cohesion will be lost. America has been headed down this path for a long time. A cultural revolution will have to occur before America can reverse course.

Read the sobering statement about the economic reality that America faces. The next couple of years is going to an important inflection point that determines whether America's and the world's economy is going to survive or crash in the coming decades. (I am already convinced of which outcome this will be. All you have to do is look at American culture.) Get educated about economics and stayed informed by keeping abreast of economic news so that you can come to your OWN conclusion--you must know what you believe. A good easy book to read is "Economics In One Lesson". Invest your money wisely, pay down your debts, brush up on survival psychology--not that things are going to get to the point where society will completely collapse-- by knowing terms like analysis paralysis, inattentional blindness, the 10-80-10 rule and other terms as your life stands to be turned upside down; get a couple month's worth of food supply; and be weary of people that promise a magic solution to your economic problems. Or the easy thing to do is to just ignore everything and continue with your life.

Budget Battle, 38 Billion In Cuts, And America's Future

The Democrats and Republicans agreed to make the "largest cuts in history" to the budget. The actual cuts were around 2 billion,

Of the $38 and a half billion dollars in cuts, $12 billion in cuts from three previous stopgap continuing resolutions. In other words, old money. Twelve billion dollars of the 38 and a half came from old CRs, three stopgaps. Ten billion came from the previous continuing resolution. Now, we talked about this yesterday. It had been said that $10 billion of it was from a previous CR. We couldn't find any documentation. We did overnight. And the number of real cuts in this continuing resolution that was agreed to on Friday night was $2 billion.

Mark Levin's take: "It is an historic scam".

Inflation is actually around 10%, "Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter." It came from CNBC.

In light of the inability to cut government spending and to get its debt under control, here is an article to give you a heads up to what is coming.

Some more news in Egypt and the rise of Islam as the dominate political force there.

Update On The Economy

(Warning, this post might make you sad and this article contains what might be considered hyperbole.) QE 3 is looking more like a possibility. (Remember that QE stands for quantitative easing and is basically the creation of new money and pumping it into the economy in hopes of giving it a boost or to keep it going.)This means that the government will continue to just print, or digitize money. This will lead to further inflationary pressures down the road. As you may know food, energy, and commodity prices are up in part due to QE 2. Food and commodities are traded in U.S. dollars and when the value of the dollar is reduced because of the creation of more dollars this tends to drive up those prices. Food prices are up in part because of bad weather that has impacted crop yields and because the developing economies of the world are getting wealthier and are demanding more meat products. Energy prices are up due to the unrest in the Middle East, which was caused in part by higher food prices which was due in part because of QE 2. So you can't blame the current spike in inflation solely on the Federal Reserve actions. Back to what QE 3 will mean, the continuation of printing money by our government is starting to look similar to the path of trying to inflate its way out of debt and economic malaise that the Wiemar Republic took, but America is different and is able to avoid basic laws of economics unlike past civilizations or nations that have been unable to do so. This is not a big deal and while it might be easy to make a comparison between Wiemar and America there are differences that make a simple analogy between the two not completely accurate. The Mises Institute does an opinion piece on the possibility of QE 3:

Austrian School economists have often explained the business cycle using the metaphor of liquor or drugs. The expansion of paper money and credit gives a sense of exuberance, an economic high that leads to excessive risk taking and balloons of production. But it can't be sustained. There is a morning after.[...]

Then there is the problem of price increases more generally. The producer price index for February has generated terrifying results, though you probably haven't heard about them. Predictions were for a 0.6 percent increase but the reality was 1.6 percent, which points to double digits on an annualized basis.

And that just the beginning. Food prices rose the most since November 1974. Prices of raw materials rose by 3.4 percent in February from the previous month. Intermediate prices climbed 2.0 percent, with diesel fuel up a monthly 12.6 percent in February[...]

History is littered with monetary mangers who believed they were in total control — until the disaster hit. It is hubris of the first order to believe oneself master of the universe — but hubris is endemic in Washington.

QE3 is playing with fire. Or with a third dose of meth. Or another bottle of Jack. Choose your metaphor. It is a bad and deeply dangerous policy, all built on the insane view that if you stimulate a zombie enough with fiat money, it will start to live and breath on its own.

Reducing this even more, consider this: If you drink enough, does your body start to generate its own liquor?

The Fed and the government have hooked the American economy on a wicked drug. Our job is to drive the dealers from their seats of power.

If the Federal Reserve is not able to detect the exact moment to pull the liquidity back in, inflation and possibly hyperinflation will be the outcome. This has not been done successfully by any central bank that has embarked on the path of inflating its way out of debt, I can't back that up any fact as I just heard that from my opinionated economics teacher who said inflation is coming so this fact should be taken lightly.

Some real spending cuts are actually being enacted by Congress, about six billion. That is a lot of money that will make a big impact on the debt,

The national debt jumped by $72 billion on Tuesday even as the Republican-led U.S. House of Representatives passed a continuing resolution to fund the government for just three weeks that will cut $6 billion from government spending.

If Congress were to cut $6 billion every three weeks for the next 36 weeks, it would manage to save between now and late November as much money as the Treasury added to the nation’s net debt during just the business hours of Tuesday, March 15.

At the close of business on Monday, according to the Treasury Department’s Bureau of the Public Debt, the total national debt stood at $14.166 trillion ($14,166,030,787,779.80). At the close of business Tuesday, the debt stood at $14.237 trillion ($14,237,952,276,898.69), an increase of $71.9 billion ($71,921,489,118.89).

Since the beginning of fiscal year 2011--which began on Oct. 1, 2010--the national debt has climbed from $13.5616 trillion ($13,561,623,030,891.79) to $14.2379 trillion ($14,237,952,276,898.69) an increase of $676.3 billion ($676,329,246,006.90).

Congress would need to cut spending by $6 billion every three weeks for approximately the next six and a half years (338 weeks) just to equal the $676.3 billion the debt has increased thus far this fiscal year.

At least some progress is being made. We just have to give the Republicans more time and a chance to make some real cuts, like reforming entitlement programs, that I am positive they will make. It now looks like Obama's proposed budget will actually add 9.5 trillion to the deficit instead of 7.2 trillion, just off by two trillion. This means that real cuts need to be made and not some phony, weak six billion.

Government money or welfare make up about a third of U.S. wages,

Government payouts—including Social Security, Medicare and unemployment insurance—make up more than a third of total wages and salaries of the U.S. population, a record figure that will only increase if action isn’t taken before the majority of Baby Boomers enter retirement. Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.

'The U.S. economy has become alarmingly dependent on government stimulus,' said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. 'Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.'

The economist gives the country two stark choices. In order to get welfare back to its pre-recession ratio of 26 percent of pay, 'either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,' she said.

According to this guy, America's economy has reached an important milestone.

We are borrowing more than $5 billion per day. That’s $35 billion per week to run our government, totaling more than $1.5 trillion in borrowed money just to run it this year.

Harvard’s great economic historian, Niall Ferguson, noted that the decline of a country can be marked when it pays its moneylenders more than its army. His classic case comes from the French monarchy of the 1780s that failed to make interest payments on their debt, causing the financial collapse that triggered the revolution. Recently, Carmen Reinhard and Kenneth Rogoff wrote a brilliant book titled 'This Time is Different, Eight Centuries of Financial Folly.' Their vast study revealed that most government officials always believe they are unique and different, causing them to make the same mistakes that crippled past nations and empires.

Admiral Mike Mullen did state that America's debt is the biggest threat to its national security so maybe Ferguson is on to something. I think America can pull through and overcome this financial crisis, even if it doesn't look like it at the moment. We are different from other nations of the past and have overcome similar level of debt after WW II, although under different conditions.

And a nice opinion piece that is full of emotive language and hyperbole,

A devastating debt crisis is coming; simple mathematics predict it. It is no longer a matter of if, but when. The time for hysterics, hyperbole, and finger-pointing is over. The time for political games, grand-standing, and partisan shenanigans is long past. This is no longer about Democrat, Republican, liberal, conservative, or progressive issues. This affects all of us. The looming danger crosses all party and ideological lines and jeopardizes all Americans, present and future generations. We're staring down a massive debt tsunami that threatens the US with a fiscal Armageddon the likes of which we've never seen.

I am sure that I am just looking at the sensational news that is hyping the economic situation up. There are several investors that have an optimistic outlook on the economy and the stock market has done very well the past two years even if it is a bubble, about to burst, that is being inflated by the actions of the Fed. I think the Rubicon is just in front of the world's economy and it is about to cross the Rubicon with a new economic system being on the other side. That sounds crazy so it must be inaccurate. Maybe the Republicans are just getting a slow start and they will make something happen in the next few years.

A Chart Showing Why America Will Face A Serious Financial Crisis

I got this chart from the Business Insider website.

We'll be breaking out some key sections in the next few days. In the meantime, here's the one chart you need to see to understand why the US is screwed.

This is the 'income statement' of the United States in 2010. 'Revenue' is on the left. 'Expenses' are on the right.

Note a few things...

First, 'Revenue' is tiny relative to 'Expenses.'

Second, most of the expense is entitlement programs, not defense, education, or any of the other line items that most budget crusaders normally howl about.

Third, as horrifying as these charts are, they don't even show the trends of these two pies: The 'expense' pie is growing like gangbusters, driven by the explosive growth of the entitlement programs that no one in government even has the balls to talk about. 'Revenue' is barely growing at all.

As we'll illustrate with more of Mary's charts next week, the US cannot grow its way out of this problem. It needs to cut spending, specifically entitlement spending. We hereby announce that we'll give a special gold star to the first "leader" with the guts to say that publicly.

You can view a clearer picture of the chart on the website. The revenue for the Federal government in 2007 was 2.4 trillion dollars before the worst part of the recession, some economist believe the recession began in 2007. I read from one source that double digit growth for a decade will not solve America's budget problems which this chart also shows. Serious cuts will have to be made to entitlements as noted by the IMF and by our Treasury Secretary who noted that the political will does not exist to make these cuts. No politician is even talking about this as it is politically impossible to do. No Tea Party rally is going to solve this budget problem. Even a majority of Tea Party followers do not support cutting entitlement spending. And note by 2020 the net interest payment will be around eight hundred billion dollars as noted by a Senator when question the Treasury Secretary and agree to by our Treasury Secretary. Either way things go, there will be a serious financial situation in the near future.

Update On The Looming Financial Crisis.

(This is a short, happy post that is not well done.) The Republicans have failed to live up to their promise of tackling our "unsustainable" budget. It is politically impossible to make meaningful cuts without promoting massive social unrest ,look at the protest in Wisconsin, and threatening the social cohesion of our nation--the words "social unrest" come from a Congressional Budget Office's report and recently alluded to by our Treasury Secretary in his statement below. This is from the HotAir blog(they both link to the real news story),

The House rejected a measure cutting an additional $22 billion from the Republican spending bill, as conservatives ran into a wall of opposition from the GOP establishment over the depth of reductions to federal funding.

The amendment backed by the conservative Republican Study Committee failed, 147-281, but not before putting the GOP spending divide under a spotlight on the House floor. Authored by RSC chairman Rep. Jim Jordan (R-Ohio), the proposal would have dramatically reshaped an appropriations bill that already slashes federal spending by $61 billion over the next seven months…

Ace has a nice post and video that goes well with the disappointment that those that put their faith in the Republican party's promises to make some serious reforms. The Republicans have failed to make even their small 100 billion cut that even if enacted would have been ineffectual in solving the nation's looming budget crises and instead cut 60 billion from projected spending increases, not actual spending cuts. They have been dishonest in selling their proposed budget cuts and could not even vote to pass them. As Ace states "The GOP is dead to me". And even these modest cuts will likely be reduce after the Senate gets through with it. The point that I am trying to make is that no political party is willingly or able to make the necessary budget cuts and reforms to entitlement programs that are necessary to avoid the looming budget crisis. The status quo of our Nation's financial situation is simply not sustainable and there is no party that is doing anything about this fact. Who said that things are unsustainable?

The Treasury Secretary recently stated before a Senate hearing that the proposed budget is unsustainable because the interest on the debt will eventually rise to 844 billion dollars. This is the reason Admiral Mike Mullen recently stated that national debt is the biggest threat to our national security, a warning repeated by Hilliary Clinton. Tim Geithner also states that the proposed budget does not make the necessary cuts because it is politically impossible.

"'Forty cents of every dollar we spend we borrow, and in 20 years from now, all the money we have in revenue is going to go to pay the debt -- Social Security, Medicare and Medicaid. Nothing left for the national defense, homeland security, etcetera,' said Sen. Lindsey Graham, R-S.C., who appeared with Durbin. 'We are spending money that we do not have. Even the Social Security payments, we do not have. We're borrowing that from the Treasury,' said Sen. Richard Lugar, R-Ind., who was on CNN with Sen. Charles Schumer, D-N.Y."

The point of this short post is to show that there is a very real financial crisis that is knocking on the door. The sources that state this are not simply talk show host opinion, but rather this is coming from our elected officials, Treasury Secretary, the leader of our military, and the Congressional Budge Office. Seismic , titanic, and very painful cuts need to be made in entitlement programs that are simply politically impossible to make without affecting the "social cohesion" of the Nation and won't be made until the crisis is already upon us. Either way, if the necessary reforms are made or things continue as they are, a very serious financial crisis is headed our way. With this level of debt, America and the world has lost its ability to absorb shocks to the system such as natural disasters, economic shocks, wars, or a possible negative turn of events in the Middle East. With the ability to absorb the financial cost of such shocks, they will have a more pronounced effect on America and the world. Are you mentally and financially prepared for this? Or is your head still in the sand or you have your hopes misplaced with the Republicans and the Tea Party?

A Critique Of Libertarianism/Small Government Advocates: Is Such A System Possible?

"The Trouble With Liberty" is a good article that presents an opposing view on small-government libertarianism. The article has a lot of good points and questions that need to be answered by anyone who advocates less government and it also points out the impracticality of having a very limited government. In some cases the author is incorrect and in other places he correctly points out the problems that we face, but he fails to see the cause/causes of these problem and instead advocates a solution that is what caused the problem to begin with.

Do Western nations still have to fear socialism?

Ever since its publication in 1944, Hayek’s The Road to Serfdom has been the anti-regulatory Ur-text. Hayek wrote the book in response to the spread of socialism—including National Socialism— which at the time was a genuine existential threat to Western society. Since the fall of the Soviet Union, though, socialism isn’t the menace it used to be. Hitler is long gone.

The author is wrong that socialism is dead. While what Hayek calls "Hot" socialism is dead, the more mild version of socialism that manifest itself as the welfare state is the system that we find ourselves with. Look at Obama and the people he has put around him and look at how they describe themselves and examine their political philosophy. The prevailing political philosophy that prevails among the left and to a lesser extent the right is inherently socialist in its nature. This point does not need to be expanded for this audience. Fascism/State Corporatism is becoming the dominate global system. A good book that illustrates this is "Liberal Fascism".

The author attempts to point out the impossibility of eliminating central banking.

Libertarian minarchy is an elegant idea in the abstract. But the moment you get specific, the foundation starts to crumble. Say we started from scratch and created a society in which government covered only the bare essentials of an army, police, and a courts system. I’m a farmer, and I want to sell my crops. In Libertopia, I can sell them in exchange for money. Where does the money come from? Easy, a private bank. Who prints the money? Well, for that we’d need a central bank—otherwise you’d have a thousand banks with a thousand different types of currency. (Some libertarians advocate this.) Okay, fine, we’ll create a central bank. But there’s another problem: Some people don’t have jobs. So we create charities to feed and clothe them. What if there isn’t enough charity money to help them? Well, we don’t want them to start stealing, so we’d better create a welfare system to cover their basic necessities. We’d need education, of course, so a few entrepreneurs would start private schools. Some would be excellent. Others would be mediocre. The poorest students would receive vouchers that allowed them to attend school. Where would those vouchers come from? Charity. Again, what if that doesn’t suffice? Perhaps the government would have to set up a school or two after all.

Money was created not though the efforts of a central entity, but instead evolved through the experiences of millions of people throughout history. A central planning entity such as a central bank does not posses enough knowledge to properly manage a nations money supply, a fact that is becoming very evident as the age of fiat money is coming to an end. But I disagree with those calling for the "end of the Fed". The Federal Reserve could only be replaced over a long period of time after a complete transformation of the global economy, changes that won't occur and are impractical given the current state of affairs.

On the issue of government charity, given the current state of the nation; I support government performing the role that the private sector used to perform in the area of charity. It is a dangerous thing for freedom for government charity to trump private charity. The main reason the author sees as the need for a government cushion or safety net, lack of jobs, is created by government action that interferes with the free market. In a free market economy there will be enough jobs for those that want to work. And another rational for the government maintaining a huge social safety net is economic downturns, caused by government intervention and central banking expanding and contracting the money supply. There is not one economic downturn that was not caused by government intervention is the free market. We don't live in a free market and the current state of the economy is leading to an economic collapse. The government has replaced private charity through its excessive expansion into the private sector and by inculcating in the people through the education system a belief that government should be the one providing for charity which has taken away the impetus for private citizens to provide for this charity. So when the economy receives a major shock, that will have been caused by excessive government intervention in the first place, it is in the government's and society's interest that there be some safety net to provide for the basic necessities of the people. This economic shock will undercut the base of Maslow's Hierarchy of human needs food, water, security of body, employments, and other basic human needs. When this happens people tend to riot in the streets and demand that these needs be meet. This usually leads to revolutions and or the election of a Hitler that promises to bring an end to all the chaos and provide these basic necessities. In the current situation, there needs to be a huge government safety net, even if huge government created the need.

The main factor driving big government are those that can't accept the fact that some people will always be poor. These people fail to see the two main causes of poverty: human nature and excessive government. And they fail to see what the solution to ending poverty leads to: poverty spread out among a greater number of people. Some people are poor because they choose to be and/or they suffer from being raised in a poor culture; and the government's attempts at eliminating poverty end up creating more poverty, look at the results from the "War On Poverty".

And so on. There are reasons our current society evolved out of a libertarian document like the Constitution. The Federal Reserve was created after the panic of 1907 to help the government reduce economic uncertainty. The Civil Rights Act was necessary because 'states’ rights' had become a cover for unconstitutional practices. The welfare system evolved because private charity didn’t suffice. Challenges to the libertopian vision yield two responses: One is that an economy free from regulation will grow so quickly that it will lift everyone out of poverty. The second is that if somehow a poor person is still poor, charity will take care of them. If there is not enough charity, their families will take care of them. If they have no families to take care of them—well, we’ll cross that bridge when we get there.

This crash was caused by the government and state-charted banks. While there was no official Central bank in 1907, state-chartered banks were allowed to print bank notes, money, in excess of their bank reserves--inflation. Without sufficient reserves of hard assets to back up these bank notes, these banks notes became inflated and could not be redeemed in the advent of a bank run. After the creation of the Federal Reserve the Country has experienced more economic downturns and and over all more turbulent economic cycle. Again government action is the cause of the problem pointed out by the author and is also the rational for a government solution.

How can we be sure that are doctors are qualified to be doctors without government licencing and certification?

There are all sorts of situations the private market isn’t good at managing, such as asymmetrical information (I know my doctor is qualified to treat me because he has a government license) and public goods (it makes sense for the government to cover vaccines, which benefit everyone, not just the consumer). There’s also a consistency problem: Why should the government be responsible for a public good like national defense but not air-quality protection?"

The private sector is more than capable of developing mechanisms to determine the quality of service a doctor provides. One modern example would be an Internet rating system like you would find on EBay. Another example would be a private rating agency whose existence depended on how accurately they rated doctors which would mean that they would have to bear the cost of their failure to properly rate doctors. A doctor will not do well in a free market if he provides a poor service as no one would do business with him. Government certification of doctors along with the Union AMA helps to limit the number of doctors and drive up health care cost. Government action has led to more expensive, less abundant, and lower quality health care; but somehow more government interference of the type that caused the problem is the solution.

Should the Big Banks have been allowed to fail or should they have been bailed out? My natural reaction would be to not support this bail out, but what would have been the ramifications of allowing them to fail?

Or, say, a stable world financial system? Most of the libertarians I spoke with said they would have let the big banks fail in 2008. “I wouldn’t have done anything,” says French. 'The key to capitalism is you have to have failure.'

The financial crisis was not an indictment of their worldview, libertarians argue, but a vindication of it. Letting the banks fail would have been painful. But the pain would have been less than it will be now that the government is propping up the housing, banking, and automobile industries. Plus, the economy would have recovered by now. 'You’ve probably never heard of the depression of 1920,' says French. 'You haven’t heard of it because it came and went in one year, because the government didn’t do anything to prop up failed businesses.' (Other economists argue that the government’s response was actually consistent with the philosophy of John Maynard Keynes.) Letting banks fail would also avoid moral hazard, say libertarians, since investors wouldn’t take such risky bets the next time around.

It’s a compelling story. But like many libertarian narratives, it’s oversimplified. If the biggest banks had failed, bankers wouldn’t have been the only ones punished. Everyone would have lost his money. Investors who had no idea how their dollars were being used—the ratings agencies gave their investments AAA grades, after all—would have gone broke. Homeowners who misunderstood their risky loans would have gone into permanent debt. Sure, the bailouts let some irresponsible people off easy. But not intervening would have unfairly punished a much greater number.

Then President Bush said that he was told by advisers he trusted that if he did not bail the banks out then we would have been looking at the second Great Depression and the collapse of our economy. So he had to "abandoned free-market principles to save the free-market system". By the government intervening in the economy and bailing out these banks, the government has set up a future economic downturn that will be greater than what would have happened if he banks would have been allowed to fail and the necessary corrections in the economy to take place. When this collapse happens, many more people will be "unfairly punished" to a greater extent than if the banks would have been allowed to fail. Although, if by not bailing out the banks this would have led to a big economic downturn the people and government would not have been able to handle the shock that would have occurred and that could have possibly lead to a global economic depression that would have lead to lost of social cohesion and threatened global peace. Bailing out the banks just kicked the can down the road and delayed the day of reckoning, see what Neil Barofsky the special inspector general for the TARP stated. Again the government created a problem that required a government solution to avoid the possible disintegration of our society--a solution that will will still lead to the very situation it was designed to prevent.

Overall, libertarians just like communism or collectivism in general is a political philosophy that would only work if human nature could be changed to some extent. By human nature I mean the basically held philosophic beliefs that the vast majority of people hold. Modern Libertarianism does not admit or recognize this fact. They correctly view human nature as something that can not be changed, yet they fail to realize that this very fact makes their system impossible to be attained. John Madison, who some considered a libertarian, came close to stating this when he said "If men were angels, no government would be necessary". While no mainstream libertarian advocates no government, their view that government should be small and encompass a very limited sphere of an individual's life is incompatible with human nature and would only work "if men were angels". The fact that the average life span, about two hundred years, of a free society points to a flaw in human nature. The average person is not compatible with a free society as they are not vigilant enough to prevent their leaders from flattering them with pleasant words and promises of freedom from want nor are they vigilant enough to hold to the beliefs that are required for a free society. The early expositors of communism admits this need to change human nature when they stated the need to create the new "socialist man" and have attempted create such a man by eliminating around one hundred million people in the 20th century. What political system do we have? A middle-of-the-road system that can not permanently exist and fluctuates between the two extremes of anarchy and total government. It would be folly for any system to attempt to change human nature as the communist attempts at this have shown. A small government would require that a level of unattainable-perfection exist among the vast majority of people that could only be achieved by billions of people that refused to hold the philosophic beliefs required for a free society being eliminated( something that should not be done and has only been tried by the opposite political philosophy of libertarianism: communism). The best system that we can hope to obtain is a limited government that does not try to completely eliminate poverty or human misery and does not take on the role of God by trying to plan society; but instead creates a system that recognizes the imperfectability of human nature, protects private property, and creates a framework for the rule of law where human freedom can flourish; a system where people will accept the very unequal outcomes--a fact that is hard to accept for many people-- that results from this freedom and restrain themselves from taking on the role of God is the best we can hope for. In short there will be no perfect system of government and we must deal with the system we have which makes it impractical for small government solutions to be implemented: a system that it is leading to failure.

Dr. No predicts "Apocalyptic Pain" is headed our way.

(I intend for this post to sound a little sarcastic.) Here is some paranoia from Dr. No who is actually Senator Tom Coburn. He made this statement when referring to our Nations debt and overall economic situation.

'Apocalyptic pain' from an out-of-control debt could cause 18 percent unemployment and a massive contraction in the economy that would destroy the middle class, a leading Republican deficit hawk said in an interview that aired Sunday.

[...]

Sen. Tom Coburn, R-Okla., who recently issued a report on government waste, warned that the U.S. only has about three or four years to get its fiscal house in order or it could find itself facing austerity measures seen in Greece, Ireland, Spain, Portugal and earlier in Japan.

'The history of republics is they average 200 years of life. And they all fail in the history over fiscal matters. They rot from within before they collapse or are attacked,' Coburn told 'Fox News Sunday.'

'The problem that faces our country today, the last 30 years we have lived off the future, and the bill is coming due,' he added.
[...]
'I think you'll see a 15 to 18 percent unemployment rate. I think you will see an 8 to 9 percent decline in GDP. I think you'll see the middle class just destroyed if we don't do this. And the people that it will harm the most will be the poorest of the poor, because we'll print money to try to debase our currency and get out of it and what you will see is hyperinflation,' Coburn said.

'If we didn't take some pain now, we're going to experience apocalyptic pain, and it's going to be out of our control. The idea should be that we control it,' he said.
[...]
'I don't care if you're rich or poor, liberal or conservative. If we don't fix the problems in front of us, everybody is going to pay a significant price,' he said.

If the Republicans can't get the Country's finances back in shape in the next couple of years, what has been happening in Europe could be headed our way according to Coburn. You use to only hear this type of dire prediction by talk show hosts. Now it is coming from our Senators. Senator Coburn did pledge to not run for another term, so maybe that is why he is willing to be so honest about the situation our Country faces. America is special and we don't have to worry about the fate that has befallen other nations in the past as noted above. Our government is like the con artist who gets a loan and then pays for this loan with another loan and so on. (My economic textbook said that national debt is not anything to worry about as the government can just roll over its debt and pay for its existing debts by issuing more debt in the form of treasuries. But if the markets loose faith in the governments ability to pay back that debt, they will demand higher interest rates which will make the cost of servicing this debt prohibitive. This is what happened in Greece and Ireland.) It seems as if the economic con game that is our nations economy is coming to an end of sorts. Pain is about to befall us. Stay out of debt.

EU's Sovereign Debt Crisis And The Centralization Of Power Within The EU.

Ireland has recently accepted/forced to accept a 85 billion euro bailout and Portugal, Spain, Italy are falling like dominoes. The debt contagion is spreading throughout the peripheral nations and will eventually make its way to the core. This is a very good video titled "Von Rompuy:Pin-up boy for Eurosceptics" showing a member of the UK Independence Party Nigel Farage's message to the EU president and those that still wish to keep the European Union dream alive: "The dream is up". Farage's rant against the EU points out that current events in the EU could be leading to the end of the EU and if it doesn't then it will lead to people rallying around nationalism and violence because "when you rob people of their democracy and their identity. Then they are left with nationalism and violence".
(Picture) European Union: European Day poster, 2000. Photograph. Encyclopædia Britannica Online. Web. 30 Nov. 2010

(http://www.britannica.com/EBchecked/topic-art/196399/93978/Europe-Day-poster-2000).

And continuing on the ideal that the current events in the EU are leading to the fragmentation of the EU here is a good article from CNBC,

A few weeks ago, I wrote about the possibility of a political breakup of the European Union. Just before Thanksgiving, I wrote— not ironically — about whether a crypto-breakup of Europe might already be underway in the sovereign debt markets.
Today, a new idea that is at least as unsettling: Fragmentation in Europe, not just along national lines, but along class and economic lines as well.

Michael Pettis, a Professor of Finance at Peking University and a frequent writer on international economics wrote in a recent blog post, in reference to Europe's most economically troubled nations:

'Political radicalism in these countries will rise inexorably as a consequence of rising class conflict. As Keynes pointed out as far back as 1922, the process of adjusting the currency and debt will primarily be one of assigning the costs to different economic groups, and this is never an easy or conflict-free exercise.'

This is indeed a frightening scenario. If, as Milton Friedman suggested in 1965 'We are all Keynesians now,' perhaps it is time to think through some of the darker ramifications for Europe.[...] In the United States, we tend to underestimate the significant ideological grip socialism held in Europe for much of the 20th century.[...] While those examples might indeed be outliers, the policies of many European Union nations are influenced by the fundamental structure of their governments: parliamentary democracies.[...] The upside of the parliamentary system is the promise of an intellectual openness to a broader spectrum of political opinion. The downside is the possibility that small parties—and with them fringe movements—can accumulate a share of power disproportionate to their representation in the general population. (In an example from the opposite side of the political spectrum, the broad Swedish left is apoplectic over the rise of a political party alleged to have racist roots.)

In short, due to cultural, historical, and structural factors at play in Europe, it seems impossible to rule out the possibility of social fragmentation along class and economic lines. In certain European intellectual circles, that oft-quoted line from The Communist Manifesto[sic] —that 'The history of all hitherto existing society is the history of class struggles'—is more than just a ancient relic. It's a political truism.

As Farage notes in his speech, hopefully the Euro project will be destroyed by the markets before this happens. Looking at the fact that these PIIGS nations are receiving bailouts, it doesn't seem that the EU leaders are unwilling to let the free market work. There is too much political capital invested in the concept of the EU.
(Picture) European Union. Flag. Encyclopædia Britannica Online. Web. 30 Nov. 2010
(http://www.britannica.com/EBchecked/topic-art/196399/92316/Flag-of-the-European-Union).

A good article from the Ludgwig Von Mises institute states that these debt crises is leading to a centralization of power in the EU,

Finally, the bailout leads to a centralization of power in the European Union. European politicians already indirectly determine the Irish budget. For instance, they tell the Irish government to increase taxes, such as the sales tax. They also put tremendous pressure on the Irish government to abandon its policy of a low corporate-tax rate, a policy that many European politicians regard as 'fiscal dumping."' Here, at last, the Irish government resisted.

In the short run, one may find some positive aspects of the determination of fiscal policies by Brussels or indirectly by Germany. When Germany or Brussels tells Spain, Greece, or Ireland to reduce their deficits, the result for people living in these countries may be a reduced size of the government in the short run. But such centralization of power in the EU will likely prove to be disastrous for liberty in the long run. The European interventionists now claim that because there is one central bank we need one economic policy.

One factor that frequently hampers governments' attempts to increase their power via increases in taxation or regulation is the competition of other governments. If taxes get too high in a country, economic agents will flee to countries with lower tax rates (such as Ireland, with its low corporate tax rate). If economic policy is centralized in the European Union, this limitation on government power is eliminated. European politicians already aim at a harmonization of fiscal policies and talk about benchmarks for tax rates. Once fiscal policies are harmonized, there will be a tendency toward an increase of power in Brussels and then toward an increase of tax rates throughout the eurozone.

The euro might be saved, but at the cost of building a strong, central European state, as national policymaking is transferred to Brussels in exchange for bailouts. The turmoil produced by the euro will then have served as an instrument for the development of a centralized state in Europe.

This article also describes the problem with the concept of the EU project: it created the incentives for small EU nations to run up massive deficits.

This article notes the Ireland bailout is not about Ireland but it is about the European project,

What you need to know about Ireland's economic crisis is that it's not about Ireland: a small country of slightly more than 4 million people and an economy of roughly $200 billion. It's about Europe. For decades, Europe has pursued two great political projects. One is the democratic welfare state, designed to improve economic justice through various social safety nets. The other is European unity, symbolized by the creation in 1999 of a single currency -- the euro -- now used by 16 countries. The fact that both contributed to Ireland's troubles suggests that Europe could be on the brink of a broader crisis.

Ireland's problems are not isolated, and if they portend a wider meltdown, this would mark a dangerous new phase in the global economic turmoil that began in 2007. Europe represents about one-fifth of the world economy, comparable to the U.S. share. If the continent relapsed into recession, worldwide economic nationalism would intensify, as the already-weak global recovery faltered and countries competed for scarce sales. For example: Europe buys about 25 percent of America's exports, which would suffer. Protectionism and predatory behavior would increase.

Europe's problems can easily spread to the rest of the world. America could possibly have a very similar situation to the EU with its individual states. The concept of the Euro is being put before the economic well being of the individual EU nations and the whole European economy.

The events in the EU illustrates how that the concept of socialism is an economic failure and how that it leads to centralization of power among various governmental entities. In the case of the EU, it is the result of the attempts by them to prevent the economic collapse that is the inevitable result of socialism. If the concept of the EU does not end but continues to be pursued, it will lead to a more centralized European governing body that is built on very shaky economic ground that will possibly collapse into a very different system of government. Friedrich Hayek warned that socialist planning leads to situation where "totalitarian powers will get the upper hand",

I have never accused the old socialist parties of deliberately aiming at a totalitarian regime, but' What I have argued in this book[The Road To Serfdom], and what the British experience convinces me even more to be true, is that the unforeseen but inevitable consequences of socialist planning create a state of affairs in which, if the policy is to be pursued, totalitarian forces will get the upper hand. I explicitly stress that 'socialism can be put into practice only by methods of which most socialist disapprove' and even add that in this 'old socialist parties were inhibited by their democratic ideals' and that 'they did not posses the ruthlessness required for the performance of their chosen task'.

As Farage notes in his address to the EU president, democratic principles are being put aside for the purpose of maintaining the EU. From what I gleam from the various commentary that I have heard on business shows like CNBC's "Squawk box", the situation in Europe is leading to an inevitable collapse of the EU system. What system of government will emerge out of the possible future economic collapse of the European socialist model?

QE 2 And You.

(This is a long post but it is very pertinent to one's life and is very interesting. At least read the first article linked and the one below by Ayn Rand.) This is very big news and will directly impact YOU not too far in the future by devaluing your dollar and savings by at least 10-20%. If you have a decent sized savings, you had better put it in an inflation protected investment, always a good advice. This is a great article to read to better understand the global monetary system from Mises dot org, it is long but will help you to understand the economy. The economy is slow and the Fed, America's central bank, is worried about deflation. Inflation is around 1.2%, the average rate of inflation is around 3%, and this is below their target rate of around 1.7-2.0 % which means we are experiencing disinflation, the rate of inflation is slowing. According to The Mises Institute, the Fed determines the rate of inflation by looking at the Consumer Price Index CPI which does not include energy or food prices among other things: "Besides nitpicking the construction of CPI data, there is the problem of focusing just on consumer prices in the first place. For example, according to the latest report of the Producer Price Index, in the last year prices for finished goods are up 4.0 percent, the prices for intermediate goods are up 5.6 percent, and prices for crude goods are up a whopping 20.3 percent." One of the reasons all consumer product's prices do not reflect this increase is that businesses are absorbing the cost of higher input costs at the moment as I concluded in this report(I could be wrong on this as I came to this conclusion myself.),

Procter & Gamble Co.'s (PG) fiscal first-quarter earnings fell 6.8% on the sale of its pharmaceuticals business last year, even as the company's margins took a hit from higher commodity costs.
Earnings topped the company's forecast. The consumer-products giant is in the midst of a broad push to grab market share around the world. It has launched products, marketed its offerings more aggressively and offered consumers more promotions. Higher raw material costs, however, are now putting more pressure on manufacturers. P&G competitor Kimberly-Clark Corp. (KMB) earlier this week reported that third-quarter earnings fell 19%, hurt by rising commodities costs.
Raw materials have started to pressure a range of companies from makers of pizza to sellers of paper towels. Pulp costs have been a pressure for Kimberly-Clark, which makes such brands as Kleenex tissues and Scott paper towels. BMO Capital Markets analyst Connie Maneaty noted that prices for a key variety of pulp are off their peak to $975 a metric ton, but still 12% higher than the average of $870 a metric ton from early this year. Kimberly-Clark lowered its 2010 earnings guidance this week, partly because of input cost pressures. P&G also makes a variety of paper products like Charmin toilet paper and Bounty paper towels. Companies like P&G also use a variety of plastics and packaging for the shampoos and lotions they sell. In the three months ended June spot prices for plastic resin were up roughly 20% to 30% from a year earlier, estimates Caris & Co. analyst Linda Bolton Weiser. "We are now seeing those costs flow through," she said. P&G on Wednesday didn't break out the impact of different commodities on its earnings.
Speaking to reporters, Chief Executive Bob McDonald said consumer demand is still "dampened" in the U.S. Some food companies in the U.S. are starting to raise prices, with General Mills (GIS) recently announcing increases on some cereal prices. P&G said it will push to offset commodity price pressures with cost savings rather than price rises, McDonald said. In cases where price increases are necessary, the company will choose to do so through the launch of innovative new products, he said. P&G has been curbing costs to offset the pressure from commodities.
Commodities aren't the only challenge these companies face. While developing markets continue to grow fast, sales on daily consumer goods in developed markets and especially the U.S. have stayed sluggish.

While inflation appears to be lower than what the Fed's target rate is, inflation is higher when counting a broader range of prices. Even though the broader range of prices are higher the Fed wants, they still want to implement a policy to increase inflation to meet its target rate for inflation.

To revive the economy and to meet its target rate for inflation, the Fed has decided to do a second round of quantitative easing, QE 2, to be followed by QE 3 and QE 4 according to Roubini who predicted the financial crisis and is fairly respected as he appears on business news networks and is watched fairly closely. Quantitative easing is where the Fed ties to increase the money supply in an attempt to jump start the economy. "The Federal Reserve will buy an additional $600 billion of Treasuries through June[2011], expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation." To buy back Treasuries, the Fed will be paying money for them. What will the Fed be paying for it with? Today, every dollar the government spends it must borrow over 40 cents of it. The Fed will be buying these Treasuries by printing money. The problem with the economy is not a lack of money out there as consumers, businesses, and banks are sitting on around 2 trillion dollars. This could be one of the reasons that inflation appears to be low, especially when considering the amount of money pumped into the economy during QE 1 which was around 1.7 trillion dollars as a massive amount of money is not circulating in the economy. The reason they are sitting on this money and not spending it is a lack of confidence. So pumping more money into the system doesn't seem to make sense and will only make inflation worse when all of this money that consumers, businesses, and banks are sitting on plus this 600 billion dollars start circulating in the economy. QE 1 and 2 will drastically increase the money supply. This in turn will increase the rate of inflation.

The recent action by the Fed is not making other Nations happy as this will devalue their investment they have made in the dollar by buying America's debt. I heard on CNBC's Squawk Box that the German Central bank called the recent action by the Fed "Clueless". And China is not happy with the Fed's action, "'As long as the world exercises no restraint in issuing global currencies such as the dollar -- and this is not easy -- then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament,' Xia Bin, an advisor to China's central bank wrote in a newspaper managed by the bank."

Rush Limbaugh's take,

RUSH: By the way, folks, it is official. I told you this earlier in the day. I told you to be on the lookout for two things today, and it's not an accident the Fed meeting is today when everybody else is looking at the election returns. 'Federal Reserve to buy an additional $600 billion of long-term Treasuries by the end of the second quarter of next year.' QE2. They're not 'buying' anything. They're printing it. They are printing $600 billion, long-term Treasuries. Well, one of the primary uses of the money will be... (sigh) I don't know how to explain this. Just -- I'm telling you this is true. I can't give you the machinations for it. It's gonna end up invested at Wall Street, it's gonna end up invested in stocks, in businesses to make it look legit and okay. It's made to look like this is helping the economy grow. It's done so that Democrats can say, 'Look, look, our policies are helping the economy.'

Now, normally they run Wall Street down, they hatred, in favor of Main Street. Now all of a sudden they're gonna be looking at Wall Street. 'Look at the Dow Jones Industrial Average! Look at our policies! Look the growth of this economy! It's happening, it's just lagging, but we and our policies are bringing the country back.' That's what this is for. The money will end up in the stock market. You know what I'm gonna do? My job is to make the complex understandable, and I'm gonna do that in this case. I do not have the time here to explain the route that all this takes, but I will. For now, don't doubt me. This money is to do two things, the printed money. End up in the stock market to show growth there, and -- and -- to inflate the currency. That is the secondary purpose here, the beginning of the inflation-deflation cycle.

This is the fastest way to retire debt. When you don't have the ability to earn enough money to pay it off the fastest way is to inflate the currency. So this will allow the Fed and the regime to say that their policies are resulting in deficit reduction and savers. All of a sudden, by the way, you're gonna take it in the shorts here again. The money you've got socked away is gonna become worth less is that the regime can show the world that its policies are growing the government. So it is now official out there. QE2, Quantitative Easing, the printing of the money, is also another way for the Democrats to get control of Wall Street. "What do you mean, Rush? What do you mean?"

Wall Street's a bunch of welfare recipients today. All this money invested in equities, all this money invested in stocks, where's it coming from? It's not coming from John Q. Public. It's coming from Ben Bernanke. It's coming from the Federal Reserve -- and what they give, they can take away. Don't doubt me. That's why, folks, those of us who have been saying it having saying it: Last night [Nov 2] was just the beginning. Last night didn't solve anything. There's a long way to go. That's why don't be depressed. Don't be. Last night was a wipeout. Last night was such a wonderful event to build on. You may interpret what I'm saying as equating where we are to helplessness. I am not at all saying that. Don't misunderstand me. Yes, there are large forces, powerful forces. They don't always win.

This action by the Fed and the overall global economic situaiton is causing people to predict "doom and gloom".The US government does not have enough money to retire its debt so it will try to inflate its way out of it by just printing money. This action has lead to the comparison between America's current situation with that of the Weimar Republic where they tried the exact same thing and which eventually ended up with Hitler. I don't know if these two events can be accurately compared. Glenn Beck thinks that the world's current economic situation is leading to the collapse of the dollar followed by a "new global order". Will this just end up like the Carter years? I don't know. Were people making the same dire predictions during the Carter years as they are now? We had the Carter years and America is still here.

Continuing on the vain of some "new world order" resulting from the current economic situation, this from the 1st article above and first published in 2005,

It is now all too clear that the world has become fed up with the unprecedented inflation, in the United States and throughout the world, that has been sparked by the fluctuating fiat currency era inaugurated in 1973. We are also weary of the extreme volatility and unpredictability of currency exchange rates. This volatility is the consequence of the national fiat-money system, which fragmented the world's money and added artificial political instability to the natural uncertainty in the free-market price system. The Friedmanite dream of fluctuating fiat money lies in ashes, and there is an understandable yearning to return to an international money with fixed exchange rates.

Unfortunately, the classical gold standard lies forgotten, and the ultimate goal of most American and world leaders is the old Keynesian vision of a one-world fiat paper standard, a new currency unit issued by a World Reserve Bank (WRB). Whether the new currency be termed 'the bancor' (offered by Keynes), the 'unita' (proposed by World War II US Treasury official Harry Dexter White), or the "phoenix" (suggested by The Economist) is unimportant. The vital point is that such an international paper currency, while indeed free of balance-of-payments crises (since the WRB could issue as much bancors as it wished and supply them to its country of choice), would provide for an open channel for unlimited world-wide inflation, unchecked by either balance-of-payments crises or by declines in exchange rates.

The WRB would then be the all-powerful determinant of the world's money supply and its national distribution. The WRB could and would subject the world to what it believes will be a wisely-controlled inflation. Unfortunately, there would then be nothing standing in the way of the unimaginably catastrophic economic holocaust of world-wide runaway inflation, nothing, that is, except the dubious capacity of the WRB to fine-tune the world economy.

While a world-wide paper unit and central bank remain the ultimate goal of world's Keynesian-oriented leaders, the more realistic and proximate goal is a return to a glorified Bretton Woods scheme, except this time without the check of any backing in gold. Already the world's major central banks are attempting to 'coordinate' monetary and economic policies, harmonize rates of inflation, and fix exchange rates. The militant drive for a European paper currency issued by a European central bank seems on the verge of success. This goal is being sold to the gullible public by the fallacious claim that a free-trade European Economic Community (EEC) necessarily requires an overarching European bureaucracy, a uniformity of taxation throughout the EEC, and, in particular, a European central bank and paper unit. Once that is achieved, closer coordination with the Federal Reserve and other major central banks will follow immediately. And then, could a World Central Bank be far behind? Short of that ultimate goal, however, we may soon be plunged into yet another Bretton Woods, with all the attendant crises of the balance of payments and Gresham's Law that follow from fixed exchange rates in a world of fiat moneys.

From the entire article above, it does seem like the status quo in the global monetary framework can't last and a "new global monetary" order would seem to solve these problems with the current one. I don't think you can ascribe any nefarious schemes to these developments. Although I do question the foundations that this new system is being set up on, if there is such a thing. Going back on the gold standard does not seem like a possibility as of now.

Another good article about the overall structure of the economy is "Egalitarianism and Inflation" by Ayn Rand. I read this article about two years ago and after taking a macro economic, reading my textbook, and gaining a better understanding of the economy works I found this article to be an accurate description of the how the economy works.

Inflation is a man-made scourge, made possible by the fact that most men do not understand it. It is a crime committed on so large a scale that its size is its protection: the integrating capacity of the victims’ minds breaks down before the magnitude—and the seeming complexity—of the crime, which permits it to be committed openly, in public. For centuries, inflation has been wrecking one country after another, yet men learn nothing, offer no resistance, and perish—not like animals driven to slaughter, but worse: like animals stampeding in search of a butcher. [...]You have all heard of some manipulator who does not work, but lives in luxury by obtaining a loan, which he the repays by obtaining another loan elsewhere, which he repays by obtaining another loan, etc. You know that his policy can’t go on forever, that it catches up with him eventually and he crashes. But what if that manipulator is the government.

Inflation eats up a nations stock seed or capital that makes future production possible.

The overall situation of the U.S. economy according to Senator Gregg,

Sen. Judd Gregg warns that the United States could end up in dire financial straits like Greece's in a few years if it doesn’t cut its deficit and debt — and quickly.

The federal government and state governments are facing massive debts moving forward. States alone are looking at unfunded pension shortfalls for police, emergency, and government workers totaling between $3 trillion and $5 trillion during the next two decades, the Economist magazine reported recently.

'This nation is on a course where if we don’t do something about it, get federal situation, the fiscal policy [under control], we’re Greece. We’re a banana republic,' Gregg told CNBC.

'Our status as a nation is threatened by what we’ve got coming at us in the area of deficit and debt. And it’s only a few more years, at the most, that we have to work with here before the market says, ‘Sorry, your currency is something we cannot continue to defend.'

Senator Gregg is only one of many voices echoing the very same warning. A lot of my posts on the economy details this. The fact is that [IF], the key word is if, America and the world doesn't make a major change in its economic course, there will be a major world economic upheaval in the future. To what extent the upheaval will be and how the world will react to this is up in the air.

The bottom line: the stock market will likely be boosted in the sort term, inflation will be a very serious problem in the not-to-distant future and it already is with the rise in commodity prices, the U.S. Dollar could decline another 20% , and this action is more of the same bad policy that will set up the eventual global economic correction/collapse to be even worse than it otherwise would have been. This new policy is simply trying the very same policy, QE 1 after the economic downturn of 08, that failed earlier. This is BIG news for those that care about their economic future as this will further exacerbate the current global economic situation, and it would do you well to become more educated on this and the overall economic situation so that you can position yourself to succeed in the future. Or you can just ignore it and, uh, fall on your face like everyone else.