Why The Next Bubble is Still Growing
Here’s the dirty little secret: Our government is living on borrowed time, on borrowed money, living in a fragile bubble sustained by rapidly vanishing trust. Don’t just look at the deficit figures; that daunting, scary picture is trumped by overall national indebtedness, revealed in the books behind the public façade. The government could seize all that mythical “excess” income about $250,000 per year, apply it to the real debt, and we’d be still be deeper under water than our evicted friends whose empty homes are in foreclosure.
Is the US “too big to fail?” Here’s the real question: Which nations, in the current political and economic environment, are both willing and able to bail us out? Think it through. Was Weimar Germany too big to fail? Was the Roman Imperium? We will be allowed to fail because we are too big to save.
Here’s change you can believe in: Within a fairly short time span, there will be:
[Check Box One] a dramatic, destructive fiscal reckoning – or –
[Check Box Two] there will be a brutal, but survivable correction.
Hope for the latter, because there is NO Box Three.
I am resolutely optimistic by nature but my resolution is sorely tempered by the state of denial that has infected the Beltway power brokers. We’ve been living through a red vs. blue power struggle that is analogous to a dangerously dysfunctional family; think of Mom and Dad locked in a mortal struggle inside the house while the children are blithely setting up their toys on the freeway in perfect trust that everything will work out.
The problem is so serious that nothing less than an entitlement moratorium and a brutally honest spending reformation will save the day. The spirit of fiscal improvidence in Washington echoes the last days of the Weimar Republic. I do not exaggerate. The problem here is that a majority of voters and a plurality of elected officials are essentially clueless about the relevant history. [First Hint: Google “The Weimar Republic”, hyper-inflation and Hitler. Second Hint; Hitler was a socialist.]
We can reasonably expect a partial course-correction as a result of the 2010 congressional elections. I am constrained to say partial because the Senate may well remain resistant to any spending corrections initiated by the new house majority. The current congressional leadership seems hell bent on front loading all of the new entitlement and save-the-world spending measures such that only an affirmative change in direction in both chambers, supported by POTUS, will be able avert the inevitable fiscal collapse. This outcome would herald at least two more years, during which we continue to race towards the next bubble explosion.
This is why fiscal reform trumps health care reform and any save-the-world bend-the-climate curve measures. Yes we are at that place.
Staggering costs alone will transmute the democratic health care reform package – in any plausible form – into an electoral poison pill that will kill off an entire generation of liberal voters. No they won’t actually die: You just won’t be able to find very many of them after the coming reckoning/correction.
To say that I am disappointed would be an understatement. This was an opportunity squandered. For a brief moment, when the president’s words about a bipartisan dialogue seemed real, we might have summoned a consensus to reform the health care delivery system at a more fundamental level, unleashing forces that would pry Americans from the herded-sheep, bureaucratic-nanny model that is spreading over the western world like a child’s “blankey”, writ large. All of the strictly fiscal warning signs aside, this blankey will prove to be a faux-soothing cloak, ultimately suffocating. To our credit, a super-majority of US voters agree with a more conservative approach, and remain strongly opposed to the democrats’ proposals. Sadly, a Kamikaze, “this is who we really are and what the hell”, impulse has overtaken congressional democrats, who are still locked into “commit now and pay later” magical thinking.
I’ve outlined some prudent health care reform alternatives in three articles, ending with http://jaygaskill.com/DarwinianMedicine.htm which references the other two.
DOING THE UNDOABLE WITH THE UNTHINKABLE
The president’s stated agenda is inherently unobtainable because of its internal contradictions. You just can’t “bend the cost curve” downward when you provide new entitlements. And you can’t maintain the quality of any kind of professional care when you punish providers for offering it.
The president is fond of citing history. This would be an excellent moment for POTUS to reflect on economic history. Realistic cost containment can only be achieved when efficiencies are driven by the market tensions between informed consumers and providers who are rewarded by consumer preferences. Realistic debt containment can only be achieved by dramatically cutting back entitlements to match real government income. Realistic job creation can only be achieved by unburdening productive job-creating businesses. Realistic recovery from excessive debt can only be achieved by substituting repayment for new borrowing.
Here’s one more dirty little secret: The current government in power is still borrowing to pay for necessities and intends to borrow still more for programs that are not necessary. That’s what deficit actually spending means: continuing to add to a staggering indebtedness. Even a balanced budget the holy grail of sound fiscal policy does absolutely nothing to reduce the vast, unstable debt bubble.
I believe in American exceptionalism. We are in fact the light of hope for the world. But our hard earned exceptionalism is about to be squandered. We are not so exceptional that we have earned some secret exemption from the iron laws of economics. Countries that persist in spending beyond their means actually do fail.
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