Inquiring minds are reading an interesting article by Alex Daley at Casey Research. Please consider We Cannot Afford to Double Dip.
For the first time in a long time, developed governments in Europe and the U.S. face the specter of sub-AAA credit ratings and rapidly rising costs of borrowing more. Between rising borrowing costs, the already hefty budgetary burden of paying prior debt interest, and the ever-expanding rolls of government employees, legislators can hardly keep up on the bills these days, let alone inject any more into the economy.
As the walking bankrupt states and cities continue their budget slashing – down from criminally high levels such as Miami, where the average city worker nets $76,000/year compared to the $29,000 average for private citizens of the metropolis – it will only exacerbate the returning slowdown. Fewer households with cash to spend in the private sector. Rising mortgage defaults and foreclosures as the workers face the grim reality that a state paycheck doesn’t come with a 30-year guarantee these days. Declining tax revenues at all levels. And more people on the already busting-at-the-seams federal unemployment files, which remain at all-time highs.
Speaking of the U.S. federal government, their guaranties of Fannie and Freddie Mac loans are now estimated to cost anywhere from $250 billion to $1 trillion to taxpayers in the end, far above the net cost of any of the other bailout measures and potentially more than is possible to pay. The price tag is so steep, many conservatives are starting to call for repealing the institutions’ charters altogether and letting the private market have at them. The U.S. federal government is simply buried over its head in obligations.
The government is all tapped out. And yet the economy continues to slow.
If you are among the camp who wished the government would have never stepped in to begin with and called out the seemingly obvious truth that they could only worsen the situation by flailing so wildly to contain it – the double dip is coming, and you are about to be proven right and get your wish at the same time.
It’s the price we are all about to pay for letting our politicians get away with budgetary murder year after year, including letting them try to “save” us the last time around.
Saved to Death
Alex Daley is certainly correct about the cumulative effect of various “saves”. Indeed we have been “saved to death”.
We Cannot Afford to NOT Double Dip
I certainly agree with the article but ironically not the title which would be better put as We Cannot Afford to NOT Double Dip.
The following Ludwig von Mises quote will explain why.
“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises
Greenspan and Bernanke combined to stave off paying what was due in 2001-2002. The result was a massive housing bubble that ultimately collapsed.
Congress and the Fed added to the misery by wasting trillions of taxpayer dollars bailing out banks and Wall Street while leaving the private sector in shambles, and millions of homeowners debt slaves to their houses.
Each time the day of reckoning is put off, the bigger the price down the road. Thus, we should all be fearing more Keynesian and Monetarist attempts to forestall the inevitable collapse.
Attempting to stave off further debt writedowns and another recession is like attempting to stave off a hangover by drinking more whiskey.
Yes there will be short term pain and lots of it to do the right thing now, but there will be greater pain down the road if we don’t.
Mike “Mish” Shedlock
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