Our economic problem is rather simple to describe: There is too much debt relative to income and/or wealth. Below is a single graph that depicts the condition of our economy. It shows total debt of the U.S. as a percentage of GDP from 1870 forward. The debt figure includes all private and public debt. It does not include liabilities associated with unfunded government mandates like Social Security and Medicare. (Note: according to the U.S. trustees of these funds, the present value of the liabilities is about $106 trillion. Including them would boost the ratio below to nearly 1,000%.
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Of the three alternatives, what is best economically is worst politically. This natural conflict between good economics and good politics is not unusual. Economically, the country would be harmed least by implementing alternative 2. From a political standpoint, alternatives 2 and 3 are probably unacceptable. Thus, it is likely that alternative 1 will be tried (again!). It is precisely the continual overuse of this alternative that has led to the current sad state.
Alternative 1 cannot work. It will not avoid a depression. Worse, it will likely result in hyperinflation. Thus, we likely end up with the worst of all worlds. With hyperinflation, money will cease to be a medium of exchange. Markets will cease to work, except on a barter basis. The middle class will be wiped out. Their savings will become worthless along with the dollar. The end will be as Mises warned so many years ago.
The possibility of losing our form of government is a real risk under any of the alternatives. So is civil unrest and strife. All are probably more likely under alternative 1 because of the corrosive effects of high inflation combined with a depression.
Beware the turn of the calendar. Things are going to get interesting, and probably very quickly.
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oH boy ..Hold on tight martha its going to be a bumpy ride.
ReplyDeleteThe streamers and blow horns were a little out of tune last night. Celebrating the beginning of 2010 just felt strange.
ReplyDeleteGet out of major banks; go to high rated credit unions or community type banks, check their ratings before transfering money...keep cash on hand at home in a fireproof safe. Get rid of or sell extra "stuff" thats laying around unused and buy prep items. Declutter and downsize; be mobile if you can, but most cannot and are stuck in cities. Keep a low profile, only associate with those like minded, keep groups small. Google in: leaderless resistance.
ReplyDeletethe civil war will begin in early 2011. People will destroy washington and the New York financial district. Buy a gun if you can find one.
ReplyDelete