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Tuesday, December 4, 2012

2012 Economic Collapse?


      The above picture is funny till you consider the matter.  It is the perfect picture of the American government.  It can not get any traction or get anything done because the government is to big.  It is a situation that is not getting any better and stands to get a lot worse.  The media and politicians keep counting down till January 1st, but that is a big mistake.  The other day I was looking at my calendar and I realized that the 21st of December is not only the end of the world according to the Mayans.  It is the last effective working day of the year.  Christmas is on Tuesday and nothing will get done on Monday as it is Christmas Eve.  Then New Years day falls on the following Tuesday.  So there is a period of about 11 days that nothing meaningful will get done.  Congress goes on Christmas break and they will not want to work, not that they ever do anything even when they are in session.

     The credit rating agencies have warned if the United States fails to do something they will lower our credit rating.  It looks like that is what is going to happen.  The market can not get traction.  It seems stuck at the 13,000 mark.  The question is will the market end up back where it was when Obama took office.  For those who do not remember the market was at 7,949 on January 20th 2009 and by March it had dropped to a low of 6,469 points.  That was just from a minor shake up in the markets. The market had fallen to 45% of its all time high.  The all time high was 14,164 which it reached in October 2007.  That was in spite of the almost $4.00 a gallon price that gas hit earlier in the year.  I remember this only because it was at a period when I had no options about driving.  My mother was in the hospital with a terminal illness.  The point of all the above is what happens if the economy really goes bad.  Many compared it to the Great Depression.  In reality it did not even come close.

    The truth is that during the Great Depression the market lost 89% of its value.  To be equal in amount of loss the market would have to get down to about 1566 points.  What many do not realize is that there was a thirty month period between the market's high point and it's low point at the start of the Great Depression.  It was also still going on when World War II came along and rescued the economy.  Another thing that might show why this collapse could be worse is that the total national debt at the time of the collapse only equaled 38% of the GDP at the time.  At the end of World War II the government's total debt equaled 128% of the national GDP.  So all the forecasters that are harping on the GDP as an indicator are missing the boat.  The real problem was that the poor people could no longer survive in the economic environment of the time.  They quit buying and investing and started focusing on surviving.  The statistics for the recent Black Friday event might be an indicator of what is to come.  The size of the crowds were up compared to past Black Friday events.  The total sales however were down considerably.  That clearly says people are not buying and not spending their money.

      What the government does about the Fiscal Cliff will have serious consequences.  Either way the government has to cut spending.  Which in other words means cut jobs and add more people to the unemployment rolls.  That means the amount of revenue the Federal Government takes in will drop.  The government lost over 50% of it's income during the Great Depression.  With America's present debt load it does not take a rocket scientist to see that this could be a problem today.  If Congress fails to act and lets the mandatory tax increases and budget cuts go into effect the outcome will be much the same.  It will trigger a period of belt tightening by the lower income earners, which means reduced sales and a slowing economy.
The only thing that can fix the problem is the creation of jobs.  That is one problem the present administration can not seem to get it's hands around.  They give lip service to the issue, but no real solutions are forth coming.

     Then there is the problem of the Republi-can'ts.  They can not raise taxes even to pay for the two wars they voted for, but forgot to allocate funds for.  They were suppose to magically pay for themselves I guess.  At the same time they started the wars they gave one of the largest tax cuts in American history to the wealthy by reducing the Capital Gains Tax.  Restoring the Bush tax cuts till they have paid back the money the wealthy took away from government is a logical way to start paying down the debt that the Republi-can'ts created by their poor management.

      The one real possible solution is for the Congress to take a look at the Constitution and what it says their duties are.  Then they need to do them.  They are suppose to manage the money, the military and the welfare of the country.  They have failed on all three counts.  They have allowed the country to get sucked into wars and actions that America had no business getting involved in.  Partly because when they had the authority during the first Gulf War they failed to follow up and get rid of Saddam.  Later they manufactured a reason to finish the job they should have finished at the time of the first Gulf War.  The problem is across the board Congressional incompetence.  Their vision is totally focused on the next election, not the countries problems.

     Congress has failed totally to provide for the welfare of the country.  Had they created programs and allocated funds to maintain the infrastructure of the country it would not be falling apart.  They needed (or need) to create a program to maintain and develop the nations infrastructure, which is a duty clearly lined out for them to do in the Constitution.

      Based on what I am seeing the Fiscal Cliff may be a lot closer than many believe.  The end of the world that the Mayans spoke of may or may not happen.  It may turn out to be about as dangerous as Y2K did.  The Fiscal Cliff, however, is a real and present danger.  The cliff is not really the problem either.  The problem is how far down is the bottom of the abyss it is going to plunge the nation into.

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