Soup lines, they are a comin...

One thing I have always loved about mathematics: numbers don't really care about your opinion.  I have run the numbers, and America is in BIG trouble!

Recent national attention on the flavor of the week ‘news’ does not even begin to accurately portray what is silently happening to America, and this is coming from one whose many lifelong friends have always termed him their 'eternal optimist.'  So forget politics for a minute and consider these simple-to-understand economic points grounded in mathematics:

1)  AMERICA’S REAL UNEMPLOYMENT:  In this election year, unemployment is being quoted at 8.2%, but that isn’t a real number.  Real unemployment is actually around 20% if you consider part-time workers who want but cannot find full-time employment.  Also tainting this inaccurately low 8.2% figure is the fact that multiple millions of would-be workers have given up looking for work, as their unemployment benefits are now depleted, and they are no longer being counted as part of our labor pool or employed work force.  In essence, they have vanished from any type of accounting that might otherwise allow their numbers to tell some sort of story.

2)  AMERICA’S DEBT:  Our nation’s debt stands at $16 Trillion for a nation that is currently bringing in ~$2.3 Trillion in income and other types of tax revenues.  Here’s what you are NOT being told by anyone, anywhere:  Of that $2.3 Trillion…America’s yearly paycheck…almost 1/3 of it ($819 Billion) is Social Security tax revenues, and in FY11 alone $725 Billion of that “income” went right back out to pay social security beneficiaries.  So the actual ‘income’ available for paying off debt is far less than $2.3 Trillion.  America simply DOES NOT HAVE extra cash or surplus capacity to enable us to pay off our mountain of debt.  When our nation’s credit rating (the indicator of our ability to pay debt similar to our personal credit scores) is once again downgraded, and it WILL be downgraded again shortly like Greece and Spain, the cost of our already expensive debt will rise still more with increases in associated long-term interest rates that will be raised to offset the additional risk our debtors must assume while holding our debt (U.S. Gov’t bonds mostly) at a lower credit quality rating.  And unlike European nations, there will no entity like the European Union or International Monetary fund capable of bailing out the largest economy on Planet Earth—the United States of America.

3) HOW CAPITALISM IS SUPPOSED TO WORK:  By reducing taxes and interest, people and corporations keep more of their income to spend and reinvest.  This spending or expansion (growth) in the consumer goods and services sector of our economy represents our nation’s single largest contributor to overall American prosperity, which is why “holiday consumer spending” is an actual measurable/reportable economic indicator each year.  More Americans working means more citizens are paying taxes AND more citizens are buying goods and services.  Businesses expand to meet new consumer demand for goods and services, and businesses make more profits that are again—taxable—therefore adding to America’s tax revenue (income).   Lowering interested rates makes money cheap to borrow, so businesses and individuals borrow cheap money in order to buy homes, cars, equipment and build houses and infrastructure—again expanding their business, creating more jobs and generating greater tax revenues for federal coffers.  Despite huge deficits and mounting debt during the Reagan years, we had functional tools available to allow us to “GROW” America out of debt.  And in every debt era since that administration, America has relied upon—counted upon—her ability to “grow” herself out-of-debt.   Not so anymore, I’m afraid.

4)  HOW IT IS ACTUALLY WORKING:  With interest rates at historical lows right now, there is no room left to LOWER interest rates leaving raising tax rates as the only possible source of increasing much needed federal revenues (taxes).  Raising tax rates (corporate, individual, or both) stifles growth by costing companies and individuals the funds they would otherwise spend on consumer goods, services, and business expansion.  The downside to low interest rates and cheap to borrow money is inflation.  As the cost of living (inflation) rises with all this “loose money” spending, the FED is forced to raise interest rates to clamp down on the money supply and hopefully control inflation.   Essentially, America’s “medicine,” higher taxes and interest rates, becomes her “poison” as tight expensive money to borrow and higher personal and corporate taxes further reduce economic growth and make payoff off a fast growing debt even more impossible.

6)  THE MISSING LINK:  Add to this scenario the addition of large costly social welfare programs PLUS the ever looming threat of an OPEC reduction in crude oil supply to artificially keep Crude oil prices high as they have done numerous times in the past, and you have an economic PERFECT STORM…a recipe for 50% unemployment, 100% inflation, and 75%+ stock market crash…a far worse scenario than this nation’s ten year Great Depression of 1929-1939.

5)  AMERICA’S BOTTOM LINE:  We have an eerily similar example of how these possibilities will unfold for us as we observe what is happening just across the Atlantic in numerous European Nations experiencing credit rating reductions and defaults on enormous debts cause by decades of out-of-control deficit spending.  In the U.S., there is plenty of blame to go around, but in my view the bulk of the blame lies squarely with those whose job description includes preventing financial meltdowns and keeping the nation’s economy strong through sound monetary and credit policies—namely the current and former chairmen of the Federal Reserve.

So politics aside, economics is what will decide our fate--simple math!  In the words of John Steinbeck in his blockbuster novel, The Grapes of Wrath, "How can you frighten a man whose hunger is not only in his own cramped stomach but in the wretched bellies of his children? You can't scare him—he has known a fear beyond every other."  

It is beyond time to fear the morbid inaction of our handlers, lest we find ourselves on the same verge of extinction as did the ancient Romans, many moons and many irreversible governmental mistakes ago!  So, what is the #1 thing individual American Citizens SHOULD be doing to insulate themselves from our nation’s impending economic collapse?  GET OUT OF DEBT…do not OWE anyone, for anything.  Make personal sacrifices NOW, or pay the piper WHEN the aforementioned calamity occurs, and it will occur, as we have no way left to avoid it, I’m afraid.

Michael Wegman