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Saturday, December 29, 2012

The Fiscal Cliff Is Not The Problem, The Debt Tsunami Is.

      We made it past the Mayan Crisis, which turned out to be more of a Y2K event than the end of the world.  The next Crisis is the Fiscal Cliff which is looking more and more like a reality.  Actually the thing to watch is the Coming Financial Tsunami.  Certain idiots are saying, it will not be that bad but they are not looking at all the facts. History is full of facts that say they are wrong.  One sign is what the richest people in the world are doing to prepare for it.  They certainly are not waiting till the last minute. You might check this link.   It makes clear that those who understand finances sense an upcoming economic problem.  Warren Buffet, John Paulson and George Soros have been dumping stocks that are dependent on consumer spending.  Why would they do that unless they sensed something interrupting the cash flow in the economy.

     The current situation with the Fiscal Cliff says the taxes are going up on some people regardless of what the Congress does or does not do.  Well in 1936, almost seven years into the Great Depression, the Roosevelt administration seeing a slight recovery tried to raise taxes to reduce government debt.  They had to reverse themselves quickly as the economy slid back to its historic lows and stayed there till the start of World War II. That is proof that raising taxes brings things to a halt.  Big business and the rich immediately tighten their belts if they sense a problem.  The sad part, and something not realized by most economic analysts is that most downturns start from the bottom up.  It is sort of like the warning sign before the Tsunami.  The water suddenly rushes out and people see easy pickings of the fish on the beach, but those who understand as the poor do, know something worse is coming.

      America's debt problem is going to sweep over the top of the Fiscal Cliff and suck out any hope of recovery in the economy.  The poor are already tightening their belts.  That can be proven from the holiday sales records.  Spending was way slower than projected.  If the Congress does not act and over 2 million people lose their unemployment income the housing market will shortly start another downhill slide. Even if only half of those people own homes the lost income will put many over the edge.  Congress and the Obama administration are not doing what needs to be done to save the economy.  They need to create jobs.  Even if they are only temporary infrastructure repair jobs.  They are jobs.  The national infrastructure may be one way to help solve the problem.

     The President and Congress say they know there is a spending problem yet they just approved a pay raise for themselves.  Based on what I have seen, it should be a pay cut for their incompetence.  The media recently showed how and why we have such a big problem in America.  In Florida they are building a center to honor the Space Shuttle program.  It is only going to cost $100,000,000 dollars.  Yes that is right one hundred million dollars to make a garage to house the Atlantis Space Shuttle.  Yes it was a great program, but it is not a wise investment to spend that much money on a museum.  That does not include the money they spent moving the other shuttles to the Smithsonian, New York and California.  Even if those other three are included in the cost it is simply to much money.

    Over the last week the Congressional indecision has caused the stock market to slide and loose 2 per cent of it's value.  How down will it go if we go off the cliff.  Those who say it does not matter are totally ignorant of the cost involved in a real crash.  The people who wrote the book referenced in the link I gave earlier, estimate the stock market could loose 90 per cent of it's value.  That would only put it in line with the Great Depression.   In the Great Depression the market lost 89 per cent of it's value.  So their statements are not unreasonable.  You ask why should anybody listen to them.  Well they were about the only ones to predict the housing bubble busting and the market collapse.  That tends to show they have some credibility in what they say.

     The Fiscal Cliff is only a minor problem.  When we get to the bottom of the cliff the incoming Tsunami of debt will totally wipe out the system as we know it.  To balance the debt and bring things back into line economically we need to cut about 6.5 Trillion dollars from the debt.  That number is staggering when you consider the entire national debt at the start of the Great Depression was less than 4 Billion dollars total.  We should have a clue that we have a problem when the debt is at levels that can not even be entered on the average calculator.  I have a 12 digit calculator and it only gets me to 999 billion.  I would need a calculator that does 14 or 15 digits to actually calculate the numbers our national debt is at.  It is easy to see that these numbers are not sustainable.  Putting America's Financial House in order will be a very painful process and there is no way around it.  It will have to happen sooner or later.   The longer it is put off the more intense the pain is going to be.  The sad part is that it is is going to hurt people all over the world.  Especially ones who believed in the Great America Dream.  America's biggest financial houses raped the world markets.  They  sold over valued housing portfolios based on the worlds faith in American Honesty.  Then they wanted bailed out of the crisis they created.

      Well the sad part of the tale is that when we hit the bottom of the cliff and the whole economy collapses, there will no one to bail out anybody else.  It will make the Great Depression look like a cake walk. It will be every man for himself.  When the Market collapsed back in the twenties the government was solvent and it could bail the system out.  The sad part is this time it will be the government itself that is going under.  If you would like to know what the Great Depression really looked like you might read.pages 211 to 256 of the book The Sweep of American History, Volume 2, by Robert Jones, and Gustav Seligmann. It is available through Amazon and it is in the Google Book Library.  I have done a lot of reading on the Great Depression and it is one of the better reads. The chapters on the Great Depression give lots of things one can see happening in this day and time.  It deals mostly with the facts.  Or if you would like some really interesting reading purchase access to Time Magazines archives.  Time was founded in the early twenties an you can actually read in every issue back to their founding,  Articles from the time of the collapse as it actually happened.  It is a great resource for historical information.  If you do not want to buy it yourself many universities and libraries have access to Time's Archives.

      Only time will tell where things are going.  I personally feel President Obama should have done what he said and left after the first term.  It would have left him a better place in history than where it will probably be four years from now.  His trickle down job program is not going to keep the system going for another four years. Being a history buff, history says we are overdue for a major setback and adjustment.  I would love to be wrong, but history repeats itself and it says I will be right.  Time will tell.

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