Kunst

Cool Hand Bernanke Protects a Bankrupt Fed

Francis,

America will serve as a great morality tale for centuries to come. A hardworking inventive people from all the lands of the earth. Tremendous dynamism and ingenuity. Then something happened. Life was too easy. It's the ant and the grasshopper, the tortoise and the hare. Arrogance, hubris, whatever you want to call it. We believed our own press, that we were better than everyone else, when we were actually coasting on a post-World War II prosperity bubble that took decades to deflate.

The financial version of the problem is our national debt. The richest country in history, yet we always bought more than we paid for and borrowed the rest. No problem, we were rich. But gradually the weight shifts and eventually the teeter-totter flips. Barry Goldwater, in 1964, proposed balancing the budget and paying off 5% of the national debt per year. That hasn't been heard since. We haven't had a true balanced budget since Eisenhower in the 1950s.

Another aspect that people don't want to hear is our military spending. We spend roughly a trillion dollars a year, with all the deferred and hidden costs included, on "defense". We've been doing that, in current dollars, for the last 60 years. Do you think $60 trillion dollars makes a difference? As Eisenhower said, ultimately this is all waste.

We are a nation that's been spending down the trust fund, and it's getting low. Like the teeter-totter, the shift from one side to the other, from above water to under, seems to happen in just a moment when it's actually the result of a long accumulative process.

On the standard of living issue, the problem is that we have not been willing to VOLUNTARILY reduce our standard of living to a sustainable level, which has led to tons of debt. The federal debt is just the tip of the iceberg. The rest of the world has been happy to lend to us because that represents jobs and productive capacity in their countries instead of ours.

The 50% reduction in our standard of living is going to be INVOLUNTARY. We obviously won't do it ourselves. At some point, the rest of the world is going to cap our credit limit, to our rude surprise. We are 5% of the world's population but consume 25% of the world's oil, paid for with IOUs. This isn't going to keep working much longer.

Yes, it's a sad situation, but it has been long in the making and really can't be avoided. It's like a heroin addiction -- no problem as long as you can get more, but quitting is a bitch. The best hope is that we pull our head out of the clouds (have it yanked out, really), get rid of the idea that we are God's chosen children, and get to work. It didn't have to be this way, but it is.

Final sad question: What does this say about our democracy? We got here because politicians learned that the American people didn't want to hear the truth or suffer any inconvenience. Barry Goldwater was defeated, and so will be any politician who says that we need to cut back, spend less, invest more in productive capacity (e.g., education and infrastructure) instead of toys and fun. We run a perpetual budget deficit (that is worse than official numbers say) but listen to the politicians talk about more tax cuts.

It didn't have to be this way, but it is. American is still strong and ingenious and will probably rise out of the ashes. But there is no easy way forward.

BTW, I expect us to gyp the foreigners one more time by inflating the money supply so much that their dollars are diluted and can't buy up all of America. He who lends to an irresponsible borrower is also a fool.