Ignorance is expensive
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Baltimore — It is too late to debate. A debt-fueled crash is imminent.
I made a promise to my wife late last fall. Once the holidays were over and she was well on her way to recovery after a recent surgery, we would hit the local furniture stores and redecorate our living room.
Next time I make such a promise, I’ll research current furniture prices first. With four-digit price tags for a simple sofa, it is no wonder just about every furniture pusher is hocking no-payment, no-interest plans to unload their stock.
As a cash-only kind of guy, I didn’t fall for the gimmicks. But judging by the looks on the salesman’s face when I handed him a pile of crisp bills, I am in the majority.
For years, all sorts of retailers offered “money-saving” financing schemes to entice cash-strapped buyers into the checkout line. For somebody with the financial might to pay off such accounts before the massive interests and penalties kick in, these plans really could save some dough.
But as Congress was eager to prove recently, most Americans end up in a very expensive trap. That’s why the folks in Washington outlawed the no-payment plans starting next month. Our leaders know the dangers of getting in too deep.
Why shouldn’t they? Washington’s got $12 trillion of debt to manage that it isn’t making payments on, at least not any substantial payment.
If you and I tried what Washington is doing – paying off debt with more debt – they’d put a stop to it in a heartbeat. But because they are too concerned with the next election to listen to some geeky economist, our lawmakers keep hiking down a deadly path.
If you listen to the growing chorus of pundits (I am one of them), that path is going to lead to a dead-end in the very near future.
One look at the gold markets today (an ounce is up by more than fifteen bucks) will show you investors are once again worried about the strength of the American economy. With an employment market that is the worst since the Great Depression began (a U6 reading of 17.3%), the hopes of an easy, painless recovery are waning fast.
In an economy leveraged to the max by credit, “painless” is never an option.
While lawmakers and government policy makers are worried about propping up the average Joe, a new, virtually unstoppable crisis is building. The collapse of sovereign debt – the money owed by the world’s governments – is going to be huge.
The only way out of the situation is severe pain. Venezuelans know what it feels like. Chavez and his politicos cut the value of the nation’s currency in half last week to battle the nasty effects of a crippling recession.
Just imagine the ramifications as this wave slowly creeps across the globe. One country after another, in a rapidly growing crescendo will be force to restructure their economy and their balance sheets to battle the natural effects of credit overload.
National banks will default. Inflation will soar. Stimulus will be a word of the past. Welfare programs will be cut.
The only good thing is the government’s natural tendency to continue growing will be destroyed.
Washington and its global counterparts will be forced to contract. There is no debate. It won’t come after months of political debate. Instead, the markets will do the thinking for them. Eventually, nobody, not even China, will lend to us or our over-burdened brethren.
When it happens, it won’t be pretty. Unfortunately, it is happening far faster than anybody predicted.
Every day, I prepare for the horrific headlines.
You should too.
***One of my favorite classes in grad school was a statistics class. I know I am not supposed to admit a fondness for the subject, but there is nothing better to shut somebody up than the right set of numbers and a statistical formula.
Correlation analysis is good for anything from finance to fisheries management. But I like it most when it proves Washington’s fiscal ignorance.
According to a recent Associated Press study, Washington’s construction-related stimulus package has done nothing to improve local economies. No matter how much Uncle Sam sent local bridge workers and road constructors, the study was unable to find any correlation to employment figures. None!
One would think that would instantly eliminate any calls for another round of stimulus, but we all know the truth. It will only force Washington to ask for an even larger sum of cash or a new set of statisticians.
The Obama administration just doesn’t get it. In an economy valued at over $14 trillion, even a hundred billion in construction spending won’t create more than a ripple, especially when the tide is gushing in the opposite direction.
The only thing saved or created by Obama’s massive spending is the notion that stimulus works. Politicians say it is worth every penny. But those of us that bother to run the numbers know the truth.
The truth is, we’re in trouble.
Original source for this article: Contrarian Profits
