12/14/2011 6:48 PM ET|
Why all signs point to chaos
The road to chaos
First, some context. I've written frequently about the eurozone problems and their structural underpinnings over the past few weeks. Last week's agreement by European Union leaders did nothing to change the situation, with its one-sided emphasis on stricter enforcement of budget austerity.
The outcome, an intergovernmental treaty, will create yet another layer of supranational governance in Europe to accompany the European Union, the European Economic and Monetary Union, the European Parliament, the European Council and the European Commission.
Hopes and dreams of a massive increase in the eurozone's bailout power and/or massive intervention by the European Central Bank crashed into the rocks of reality. Germany insisted that the maximum bailout power be capped at 500 billion euro, roughly $659 billion. And the ECB continues to resist all calls for it to engage in belligerent monetary financing of the likes of Italy and Spain -- pointing out that its existing bond purchase program is "limited in scope and longevity" and that there is "no possibility of greatly expanding ECB bond purchases" according to an official.
Essentially, it all boils down to this: Germany and France are asking Greece and Portugal to embark on an impossible task of "internal devaluation" to boost export competitiveness at a time of fiscal vulnerability. Greeks would take a hit to protect French and German bankers.
It won't work. You can't ask an entire country to take pay cuts and work longer hours for less at the same time you offer fewer social benefits and increase taxes. Not only will the economy not grow, but your deficits will get even worse. And your banks will get hit with more deposit outflows and loan losses.
This last point is key.
The damage done by austerity
A few months back, I wrote extensively about fiscal austerity and the damage it causes a weak economy, and showed how this related to the fierce debates in Washington between Obama and the Republicans. I warned of focusing too intently on fiscal woes and the debt burden while ignoring the need to support the economy over the short term. This was the fool's errand behind the 1937 double-dip recession that made the Great Depression so terrible.
Instead, I recommended a focus on short-term growth (to fix the cyclical portion of the deficit) and a commitment to tackling the real, structural drivers of the medium-term budget problems, namely, health care spending. (For more, read "Why Obama needs to spend more" as well as the work of Francois Velde, senior economist at the Federal Reserve Bank of Chicago.)
The current predicament combines all these things into one fantasy, a delusion shared by elements of the Tea Party as well as the pushers of austerity in France and Germany: that you can cut your way to prosperity. You can't. New research by the International Monetary Fund, looking at efforts to close budget deficits in 17 wealthy countries since 1978, found a clear link between slower economic growth and higher taxes and lower spending.
This shouldn't be surprising, given the anecdotal evidence around us. The British economy is stagnating as its coalition government pushes through even more tightening measures. And the Greek government is experiencing firsthand the downward dynamic of recessionary austerity: Budget deficits were higher than expected for the first 11 months of 2011 as the economy weakened more than forecast, resulting in lower tax collections and higher spending on social programs.
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These are the facts. Those that ignore history are doomed to repeat it, and history always repeats itself until people finally wise up. This current political and financial system is corrupt and broken, and has been for decades. It is supposed to be "We the People", it is not supposed to be "just the few" and everybody else can go to hell along with the nation.
Republican this, Democrat that. You have got to be kidding me.
When Welfare was introduced, Roosevelt said, "Lay down your shovels, sit on your a$ses, and light up a Camel, this is the Promised Land."
Today, the government has stolen your shovel, taxed your a$ses, raised the price of Camels and mortgaged the Promised Land to China.
The Greek Gov is broke, Spain is broke, Italy will be broke within the next year, Ireland is quickly going broke, France is almost there, Russia well we all know what happened to Russia, The key to all these are socialistic societies created in Europe offering free health care, free education, free this and free that. No government regardless how wealthy can support a society. Sooner are later you run out of other peoples money to give away. The same people you are trying to help are the same people that have been on the handout their entire lives. You find that you have fed them, you have housed them and given them free education and they have done nothing with all this and still they want more. AMERICA is headed down this same path. America is broke but refuses to believe it and continues to give money that they don’t have to those nations with socialistic societies in an effort to stave off an economic collapse. WAKE UP AMERICA! You can not spend your way out of debt!
Too many governments spending too much money they don't have to begin with, and no way to pay it back.
Don't spend more than you have.
Don't borrow more than you can pay back in a reasonable amount of time without jeopardizing the rest of your finances.
And most of all, don't listen to politicians who promise you goodies for life, but then tell you not to worry about the money because "someone else" will be paying for it. It's a LIE!!
Middle class and poor need to have good paying jobs-- the wealth cannot pool at the top as it has over the past 30 years. Otherwise the engine that drove the economy is broken. In this spiral down starts. For developed nations like countries of Europe, US, Japan, etc. will not stand for it. They will revolt. Especially when we see shortages or high inflated items for every day items. Along with the fact we cannot find decent paying jobs. Rent, utilities, phone service, etc. industries will be forced into bankruptcy as they are debt driven, with old debt based on old wage numbers, the new wage numbers do not allow the consumer to pay 700 or 1000 a month on rent anymore, instead 30% of income on most of the jobs that are here now, rent would be about 300 to 400 a month on average. But again, these industries are so laid up with old debt based on old buying power, they won't be able to service their own debt based on the new numbers, more bankruptcy to restructure this debt will have to occur before anything goes anywhere. An apartment complex that once cost 2 million for 20 units at an annual date payment of 10,000 loan mortgage payment a month makes break even cost of 500 a month per unit based on mortgage loan repayment. That's not pricing in wait period to find new prospective tenants, management, and upkeep costs. These units will be better priced at 800K with a mortgage repayment of 4,500 a month making a break even 225 per unit and allowing actual rent prices per unit to be around 400 or so to cover costs of running the complex and providing some profit. Much more profit, when the complex is paid off in debt, then that money going toward the debt just goes to the bottom line.
It's all simple math. Any business major either with an associates degree or higher can figure this out. The system is broken. And at the worst time. Finite oil supply is running low and demand for it continues to grow exponentially as other nations come online requiring it for transportation. And the last 100 years very little implementation toward new transportation energy sources have been done. We're in for a bump ride for the next 50 to 100 years. I'm only 28. It had to happen during my life time. Oh well. Here we go. Biggest thing we can do is help fellow people out. This is not a time to be greedy. Greed and vanity are what got us here in the first place. Along with just simple stupidity of not looking toward the future.
Is it necessary for lobbyist to even exist?
Efficient governments there isn't a need for cuts ever, if they were smart and conservative steady growth will provide stability but greed destroys the entire process.
If we want change we need to change the priorities of the American people and all get on the same page and for certain we need to clean out every single politician and allow hard working Americans that will put the country's needs first before their own.
Deceit, dishonest, unethical behavior and theft run rampant on Capitol Hill.
How long will the American people stand by and watch before we take back our soil from these criminals?
Alexander Tyler, a Scottish historian and professor said, in the late 1700’s, about the fall of the Athenian Republic;
A democracy is always temporary in nature; it simply cannot exist as a permanent form of government.
A democracy will continue to exist until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the government. (Sound familiar?) The result, the democracy will finally collapse due to loose fiscal policies, which is always followed by a dictatorship.
The average age of the world’s greatest civilizations from the beginning of history, has been about 200 years. During those 200 years, these nations always progressed through the following sequence:
1. From bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From great courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence;
8. From dependence back to bondage.
America is now somewhere between the “apathy” and “dependence” phase of Professor Tyler’s definition of democracy with over 40% of the nation’s population already having reached the “Governmental dependency” phase.
TAKE BACK YOUR COUNTRY before it’s taken away!!!
There are so many unsupported assumptions and giant leaps in logic that it isn't worth the time to address. Economics is such a soft science that you could pull any conclusion out o the air and then go find supporting statistics to back it up.
But do you really think that if countries spend more and don't address budget problems, they are going to be able to still find adequate amount of investors to finance their debt? Especially when there is political pressure to screw the banks and default? We'll get to a point where deficit spending will be impossible, because interest rates will be ridiculously high, all due to the giant risk it will be to loan money to a government. Talk about forced austerity.
Most of this is just sensationalist anyway. Average Joe isn't THAT badly off, but 24 hours news cycles need something to talk about, and people demand this sort of entertainment. We like to be told how bad we have it, rather than how good.
Taxing your way to prosperity is even less successful.
If you people would spend a little time and research what lead to the great depression, you will find the same things happening now. Don't just spew out partisan garbage! They change the laws after the depression, Stegall-Glass act(Sp?), to keep banks from gambling with the money deposited. They repealed this act which then allowed them to gamble, and they lost. Who payed on that? We all did! And we will continue to pay until this is changed.
Every society that has collapsed in the past was due the gap between the upper echelon and lower echelons of that society. Meaning the wealth distribution between the haves and have not's was too great, creating social unrest! This is happening all over the world right now!
It is happenin here in the US, Europe, why do you think the arabs are all upset. Some are bathing in black gold while others cannot even eat. Russia anyone? And China will be next! The 1%ers around the world need to stop being so greedy and share the wealth with people who want to work. I for one and doing what I can to stop this madness!!
The lead in to this article says "Strict austerity from governments, especially in Europe, is making harsh economic realities even worse. History tells us that when this happens, social disorder follows." People the only way out is for the governments, including the good ole USA, to control spending. Stop giving away what you don't have. This also means that they must raise taxes but we the people must force them to use the additional money from the taxes to pay our debts and NOT create new debts.
There will be no chaos , don't believe this **** ! The USA is resource rich we will find a way to create new and better jobs . There is no reason people in this great nation can't solve the problems at hand . I think we should keep it simple get back to basics like our founding fathers intended it to be .If we don't have the money to spend the government should cut back , just like the working man if you can't afford to buy you don't need it . Stop all these endless wars bring our brave men and women home . All the those lives and billions of dollars wasted for the banks to get richer . I don't think those people are any better ,most are poor and only want peace . Stop borrowing from China we should pay our own bills maybe sell more of our goods to them .Instead of buying all their cheap junk they sell . Instead of war and corporate welfare we need to invest in our future and increase spending on education knowledge is power that our children need .
I'm so tired of these "follow the trend" articles. Tomorrow the market will go up and everyone will be glad that the world has "everything under control" finally. I realize that right now NO ONE has any clue what's going to happen next, however, jumping on the 24 hr bandwagon really shows a lot of non-professionalism in the reporting sector.
Just take a stance and stick to it. Maybe 1 year from now you can write the "I told you so" article with at least some damn dignity.
There WILL be social unrest because too many have grown accustomed to living off others. Benefits and social spending and other euphemisms are merely taking from producers and giving to NON-producers. Punishing success to subsidize failure. It is harsh, it is true. The problem IS Government intervention. Remove that and (after some unfortunate dislocation and adjustment) things improve DRAMATICALLY. Ron Paul has some loony ideas, but economically he's right on.
Nations are no different than people. Then have assets/income, liabilities/expenses, they spend, they borrow, and pay certain interests rates on their debt based on their credit scores/S&P ratings. It's not a difficult concept, really.
All over the world, nations are discovering the hard way that living beyond your means is an unwinnable proposition, and some have already reached the point where they are so deep in debt they cannot possibly dig themselves out. We are headed for a the same hard landing, ans soon. PLEASE learn from their mistakes, and speak with your vote. I don't care whose fault it is, we MUST reign in gov't spending.
This is about the world falling into chaos. Yes, it is coming. The really sad part is that the people who didn't overspend and lived within their means will be sucked down also.
They are the true victims not the greedy "I've got to have it now, Let's suck the equity out of our over valued home and the greedier loan officiers who gave them the tools to do it."
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