2012 – The State of the Nation – AWC’s Predictions For the Future

The State of the Nation…is in decline and accelerating.

THE DEBT

We are currently at $16.1T in national debt, up $5.5T from $10.6T on January 20, 2009, the day Obama was inaugurated. As a point of reference, and by no means an endorsement, it took George Bush two full terms to rack up a lowly $4.9T, in comparison. We are averaging a $2T deficit to be added to the national debt every year.

Of that $16T in debt, $5T is owed to government worker pensions and the Social Security account which has a current actual balance of $0.00. The Social Security account only holds Treasuries, which as you will see below, is simply debt we owe to ourselves because the actual money that was there, has been spent. What was it spent on? It was spent by previous politicians that used the money to pay down the deficit for the years they were in office so it didn’t look as bad.

A total of $11T is owed to foreign and domestic investors including The Federal Reserve.

The Federal Reserve creates money out of thin air to buy Treasury Bonds from the U.S. Treasury Department so we call this “debt owed to ourselves.” However, in creating money from nowhere to buy the Treasuries, and creating more money from nowhere to pay the interest on it to ourselves, we are increasing the money supply which causes inflation, which raises the price of everything we buy.

That is why inflation is called the “hidden tax” because if the Government wants to pay for something (welfare, social security, Solyndra bailouts), it can issue debt to other nations (in exchange for their money), or to itself (in exchange for its own money) by simply having The Fed print the money out of thin air. That is why we can also say, money=debt because to create the money, the Government had to create debt. By example, what is in the Social Security Trust Fund is not money, it is debt.

Eventually all of this debt, even the debt to ourselves, has to be paid back which can only be done by raising taxes, printing even more money, or taking on even more debt. The only other option is to cut Government spending. Neither Presidential candidate is willing to cut spending, therefore we can be 100% certain that our debt, and our inflation, will continue to expand.

Medicare, Medicaid and Social Security account for 44% of our current Federal Spending. Military is another 25%. Interest expense is 7%. Not much left for anything else, is there? That only leaves 24% to run, “Government.” In several years, Medicare, Medicaid, Social Security and Obamacare will strip even the remaining 24%. We are consuming ourselves from the inside out. Neither Presidential candidate has plans to reduce spending on Medicare, Medicaid or Social Security, therefore we can be 100% certain that these programs will continue to expand and devour the budget.

We are also paying $26B in interest payments to China every year for the money they have loaned us. Money which we have already spent. There are no signs of discontinuing the practice of borrowing from the Chinese. Since we are running a deficit every year, we do not have any money to pay the Chinese. The only way to pay this interest to them every year is to borrow more money from them and use it to pay them their interest back or to print the money and create inflation.

TUITION

Tuitions continue to rise, and why? Because the Government is guaranteeing most tuition loans, just like they did for most housing loans, with the same results. When it is easier for potential students to secure student loans because those loans are backed by the Government and the U.S. taxpayer, then there are more student loans available which means there is more money available to pay for college. Colleges and Universities respond to this by raising tuition rates and sometimes, building amenities that resemble 5-Star luxury resorts instead of age-old ivy-covered institutes of higher education.

College student loan debt now surpasses $1T, more than car and auto loans. Since 1999 student loan debt has increased by 511% while household disposable income has only increased by 73%. The average cost of tution for four years at a private college now surpasses $200,000. 8 out of 10 student loans are made by or backed by the Government which means signficiant financial losses for the U.S. taxpayer are ahead as these loans are not paid back by students who can not find work, or are forgiven by some politician for votes.

Mark Zandi, chief economist at Moody’s Analytics, has said government loans  and subsidies are not cost-effective for taxpayers because “universities and  colleges just raise their tuition. It doesn’t improve affordability and it  doesn’t make it easier to go to college.”

The dilemma, say economists, is a simple supply and demand problem. Colleges  can “raise tuition because they can,” David Breneman, dean of the Curry School  of Education at the University of Virginia, has said. When the government  subsidizes something, producers respond by raising prices to soak up as much of  the subsidy as they can.

The market forces creating this tuition bubble are the sames ones that created the housing bubble. Both bubbles were caused by our own Government assuming the risk of loans. If the Government had not violated the Constitution and interfered in the free market, there would be oodles of affordable homes for everyone and most students could easily work their way through college without debt. How do I know that? Because before the Government got involved in making home or student loans, which was not that long ago, there were oodles of homes and anyone could work their way through college, just like I did.

For the still-expensive housing market and straddling our children with crushing student loan debt in a failed economy, we have only our GOVERNMENT to blame, the American voters that created it, and the ignorant and evil Altruists who demand Government “do something” about rising tuition prices.

And they did.

INFLATION

The Fed has announced QE3 with no end date which means the inflation hounds from hell have been unleashed and prices will continue to rise all around us while our incomes will fall or stagnate because the economy has been rendered anemic.

The Federal Reserve and Ben Bernanke will lie and deny that inflation exists because they have to. They have no choice. If you think the Government does not lie, please don’t have any children.

To admit that there is inflation would require The Fed to raise rates which would destroy our ability to borrow money from China, skyrocket our interest rate expense, and require the Government to increase what it pays in Social Security and other benefits because they are adjusted for inflation. In a nutshell, the economy would collapse. Considering the low moral and ethical character of politicians and corporatist bankers, given the choice of collapsing the economy or lying, which do you think they would prefer?

It is very simple. The Government can not raise interest rates without creating an economic collapse so they will continue to borrow and spend and take on debt until the system collapses in on itself because if they collapse the economy proactively to correct our economic imbalances, it will be their fault as will everything they have already done that got us to this point, but if the economy does it on its own, then they can blame it on any number of causes or people.

In fact, if the implosion is severe enough, it may even provide an opportunity for the Government to seize even more control by asking Americans to surrender even more freedoms so the Government can, “do something” to “save us.” Rahm Emanual said as much in the early Obama days when he pondered favorably on the Great Recession by saying, “Never allow a crisis to go to waste. They are opportunities to do big things.” I can promise you that the coming economic collapse will be looked upon by the Government as an opportunity to do big things. And from what I have seen from Americans so far, they will gladly wear the chains of a slave if their Government offers it to them in exchange for “safety and security.”

Since Obama and Romney support the current actions of The Federal Reserve and are both Pro Big-Government politicians we can be 100% certain that inflation and debt accumulation will continue.

UNEMPLOYMENT

The real unemployment rate reported by our Government (U6) is 14.7% and has been above 14% since January of 2009.

The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts “marginally attached workers and those working part-time for economic reasons.” Note that some of these part-time workers counted as employed by U-3 could be working as little as an hour a week. And the “marginally attached workers” include those who have gotten discouraged and stopped looking, but still want to work. The age considered for this calculation is 16 years and over.

Considering our anemic GDP, inflation, our trade imbalances and our debt combined with all of the regulatory burdens and taxes for Obamacare to go into effect after the election (as only a real politician would do), we can be 100% certain that real unemployment will continue to rise.

EDUCATION

I have been amazed at how consistently college graduates continue to choose absolutely useless degrees, from comparative literature to sociology, and take on tens of thousands of dollars in debt to get them. They were lied to, by someone. A college degree is not enough, only a relevant college degree is enough. If a student graduates with a useless degree, the only advantage they have in the real world is to be hired over someone with only a high-school diploma for a job that only required someone with a high-school diploma to begin with, except the high school diploma graduate still has the advantage because they have four more years of experience than them, and no debt.

Any actual jobs that pay require an actual set of actual skills, many of which can be learned in college. The other option is to learn a skill or trade that does not require college. These are equivalent options.  The goal in life has never changed. The goal is to survive. That means learning how to do something that earns an income so you can survive and hopefully, prosper. If you take your eye off of that ball, you are going to fail.

Paying $50,000 to $200,000 for a useless degree is failure.

GROWTH

GDP has averaged 2% since 2010 when we need 4% for growth. There are no signs that this will change, in fact there are signs that it will get worse.

If you consider all of the other factors I outline in this post, all of which impact growth, we can be 100% certain that growth will continue to be anemic, or what is more likely, recessionary. In fact, most discussions now are not about whether we will go into a recession, but about which month in 2012 the recession started.

TRADE IMBALANCE

The trade deficit continues to widen, now to $444B. This represents money leaving the country to purchase goods produced in other nations and imported here, almost half of which comes from China. This is bad because we are paying Chinese workers to produce goods for us, and since we don’t export much to China, the Chinese aren’t taking the money we gave them and giving it back to us by buying stuff we made. So now, all our money stays in China. Hence the term, “imbalance.”

This is also a sign of the continued decline of manufacturing in the United States as it leaves for other countries. One main reason it is leaving is because labor is cheaper in other countries. Global wage arbitrage is the process in which the cost of labor in the U.S. is competing directly with the cost of labor in other countries, such as China. The primary reason why manufacturers here can not compete with Chinese labor rates is that the cost of doing  business in the U.S. is too high.

Businesses are strapped with tomes of legal, financial and regulatory burdens as well as high corporate and capital gains taxes that make doing business here, including hiring anyone, prohibitive. The cost to hire one employee is substantial when you consider minimum wage laws, healthcare insurance, workers compensation, social security and other labor taxes for both the employee and the employer to pay, as well as legal costs associated with EEO claims, frivilous lawsuits, bounty-hunter class action lawyers, and disgruntled employees because we live in such a litigious nation where someone can sue anyone for anything. And the more employees you hire, the more burdens the Government puts on you.

Do I think that without all of these hurdles the U.S. could be competitive with wage rates in China? We could not match them, but we could get close enough to bring manufacturing back to America. Remember that it costs money to ship raw materials to China, to build the factories there, to maintain them, to maintain oversight and a management presence there and to ship the finished product back to the U.S across a very large pond with fuel prices at record highs.

Many of these costs would be reduced or eliminated if manufacturing was back in the U.S. We could not be competitive with everything that can be made in China, but our Government has made being a business in the U.S. so difficult that we are not competitive with most everything that can be made in China. Serious legal, financial and regulatory reforms would allow businesses to take back to American soil large swaths of manufacturing that is currently done in China.

But when labor rates and regulatory hurdles are so high and burdensome that even having a bridge shipped across the ocean from China for the city of San Francisco is cheaper than building it on site, you know our country is absolutely volatile and repulsive to business.

OFF-BALANCE SHEET DEBT – $66 Trillion

From a 2011 article: The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for. This gap between spending commitments and revenue last year equals more than one-third of the nation’s gross domestic product. Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling. Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too. Corporations would be required to count these new liabilities when they are taken on — and report a big loss to shareholders. Unlike businesses, however, Congress postpones recording spending commitments until it writes a check. The $61.6 trillion in unfunded obligations amounts to $528,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises. “The (federal) debt only tells us what the government owes to the public. It doesn’t take into account what’s owed to seniors, veterans and retired employees,” says accountant Sheila Weinberg, founder of the Institute for Truth in Accounting.

Medicare, Medicaid and Social Security total $66T in “off-balance sheet” debt that the Government does not include in the national debt, but we owe it just the same. This amount alone is 4X larger than our entire national debt of $16T. Neither candidate will reduce the size of these liabilities so we can be 100% certain they will continue.

The FHA (Federal Housing Authority) has been busy being the primary loan provider for mortgage loans. Unfortunately, as shown by FHA Watch one in six home loans owned by the FHA goes into default putting the tax payer on the hook for the losses. The FHA currently has a net worth of (-24.4B) with a capital shortfall of between $44B and $63B. We are responsible  for that debt. The private sector stopped making home loans because the risks and the defaults were too high. That did not stop the Government because while a private business must be concerned about staying in business, the Government can simply print the money, borrow the money, or tax the money to pay for its failures.

By the end of 2013, State Government debt will total $1.2T, and Local Government debt will total $1.8T. The Federal Government encourages State Governments to accept Federal Funds for various projects (think trains to nowhere like in California) and entitlement programs (think new food stamp programs). Often times these projects and programs would not be possible without Federal funds. Once a project is established, it always overruns the original budget estimate during its initial implementation, and then requires funds every year just to maintain it. In the case of entitlement programs, they expand rapidly once initiated as more and more people apply for the free money.

Since none of these projects or programs could have been started without Federal Government funds (which is just money stolen from taxpayers in other States), the State is now a drug addict, forever asking the Federal Government pusher for more money to maintain what it started. This leads to two things; first, the Government can now make the State do whatever it wants by threatening to withhold funding and second, when the Federal Government is having cash flow problems, the States have to figure out a way to cover the bills without their help. Where the Federal Government can print more money to pay its bills, the States can not, so they must cut into projects and programs that should never have been started in the first place.

But that is not what the State does. Instead, the State demands that the people of that State allow it to raise taxes on them or else popular and sensitive public services like education, police, fire or state parks will have to be drastically cut. The State will always threaten to cut these services first even though they have nothing to do with where the majority of costs are being incurred. This frightens the citizens into allowing the State to take more of their money to cover the gaps created in projects and programs by the loss of the Federal Funds. The same projects and programs that politicians only created in the first place to buy votes and enrich themselves.

I see nothing in the next four years regardless of who is elected that will stop or even slow our current decline.

And that…is the State of our Nation.



Categories: 2012 Election, Corporate Fascism, Cronycapitalism, Economy, Federal Reserve, Gov't Workers & Unions, Inflation, National Debt, Socialism, Taxes, Unemployment & Labor Law, Welfare State

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