Banned Commercial on US Debt: Are You Scared Yet?

2 Scoops Please: When a double dip recession is a depression

Congress and most politicians are not in the real world. They do not cut their grass, go to PTA meetings at public schools or wash dishes. Rather, they have lifelong guaranteed pensions and health insurance, there children attend private schools and to top it off they take a five week vacation and Obama celebrates his birthday by raising millions of dollars for 2012. These folks are not like us, but I have said this before as well as that there is no difference between democrats and republicans. I mean more than 40 percent of senators are millionaires with democrats comprising four of the top five and more than 230 members of congress are millionaires.

I hate to say it (not really but I warned folks three years ago that we were in a depression, that the fat lady had not started to sing and the vultures were circling. All was based on the premise that our solutions from a federal standpoint are topical and isolated, ignoring that we are not in a closed economy as we believe, but rather a global economy. Keynesian approaches cannot work as they did in the times of FDR for we are no longer on a gold standard and because spending is moot since most dollars will go to foreign debt holders who will spend the money abroad and not here to create jobs in the US.

First no matter what we do or don’t do via political dysfunction cannot the escape from the fact Europe is financially crisis from the run on banks in Greece or the observation that Italy from September 2011 will be broke to the fact that the risk related to both Spain is and Italian government bonds is unsustainable and unbailoutable (if such is a word). This is essential to understanding the US economic crisis because 25 percent of our exports go to Europe and a large corpus of our business operates out of Europe. Making money in Europe has sustained us but it may be over because nations with bond yields above 6 percent in two days market terms (Italy and Spain) will eventually destroy the European economy. Not to mention none of our debates, even the recent debt ceiling debacle do not deal with this or address what is at issue – long term economic growth.

The danger zone confronting Europe is hitting America. Pundits fear the ubiquitous double dip recession but the truth is that we are passed such and already in a depression. Our structural weaknesses accumulated during the boom years are still not being addresses. The U.S. is headed not just for double dip recession but rather a full-blown depression. Obama, following the bush inept plan to grow the economy only temporarily interrupted by a bunch of stimulus which ultimately weakened the economy further (2 million more unemployed since it started).

So to understand this, go to your local ice cream parlor, if you can afford it, and order two scoops of ice cream, and see how long it take for both to merge into one. Yes a double dip recession does equal a full blown depression.

There is a hole in the economy

It gets me as to how folks can propound on the esoteric meaning of nothing in the world of economics. Especially here in America, were we hear how to solve problems with solutions that do neither have method nor definition. All reminds me of an Island song I would hear harry Belafonte sing when I was a child growing up, “There's a hole in the bucket dear Liza, dear Liza.” If ever was there a need of a song to be remixed, it should be this one and the word bucket should be replaced with economy.

What is their not to see? It seems that politicians, albeit not very good in math as most Americans, want to make this a complex issue and act as if the solutions are massive and difficult – for lack of a better phrase, as if we are talking about Calculus or differential equations. Unfortunately it is not that complex and really a function of basic, simple, remedial math – adding, subtracting, multiplying and dividing.

The simple truth is that the way we are going economically is unsustainable. We are borrowing as a nation more than one-third of what we spend. I mean, let me put it another way. We as a nation, the United States, are spending $3 for every $2 we are bringing in the form of GDP.

It is also infelicitous that our political leaders know this and don’t or won’t tell us or worse, they do not know or understand the rusticism of the situation at hand themselves. For if they did they would do something and stop pointing fingers at each other. If they do not, you can best believe that the global capital markets will do it for us and like at the G20, we will not be in a position to do anything about it. We see what has happened in London, with students marching against the conservative political leadership, or last year in Greece with protesters in the streets or even this year in France. Don’t sleep it can happen here also.

But what is more troubling and scary to me is that if the Government, regardless of political affiliation does not see on the horizon what I fear, and that is a collapse in the bond market. I mean if the US is a company, with a massive debt problem plus $12 trillion and counting, with all these nations like China holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities, and the feds drop $600 billion into circulation, the value of the dollar may drop.

If this happens then it would not surprise me if foreign governments no longer want long-term US debt and will dump all the bonds on the markets if interest rates rise from current lows. This is not as farfetched as one may think given what has just occurred in Ireland and soon maybe in Portugal.

Politicians, there is a hole in the bucket. We have a sovereign debt crisis and all yawl do is point fingers at each other. We see that neither the Bush Tax Cuts, nor Obama’s massive spending have not worked. Regardless, something needs to be done now before it is too late, and it must entail at looking at entire projects and not bits and pieces. For inaction, may take our jobless rate up like Greece while they are trying to tackle their deficit. Maybe we could learn something from the difficulty they face now trying to restore fiscal soundness to their economic policy – naw, that would be too simple, instead we pass the buck, a borrowed buck at that,.