Tuesday , 19 March 2024

Regardless of Who Wins in November the U.S. Is Going Over the Financial Cliff! It's Just a Matter of Time – Here's Why

The outcome of the election of 2012 will [only] determine the rate of speed at which we approach the [financial] cliff [because] neither political alternative is willing to change course, to steer away from the cliff. The cliff is so high that whether we go over it at 200 mph (Obama) or whether we merely slip over the edge (Romney), the end result is the same — fatal for the economy and perhaps our entire political system. It is the fall that will kill us. [This article explains why that is going to be the case.] Words: 1135 

 

So says “Monty Pelerin” (www.economicnoise.com) in edited excerpts from the original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Pelerin goes on to say:

The U.S. economic problems are real and large, but not unsolvable. A reasonably bright economist, unencumbered by politics, could design a solution rather easily. Pain would be involved, but the option for a solution without pain expired years ago. Any solution must involve pain, including the present strategy of pretend and extend. Addressing the problem forcefully now will result in less pain than continued inaction which will result in a complete and total economic collapse. Inaction only makes matters worse….

The barrier to a proper economic solution is political. Economics provides answers, but politicians must implement solutions. Sadly neither the economics profession nor any other profession can provide an antidote for political cowardice. Politicians got us this deep into the mess and they are unlikely to take the remedial actions required to correct it.

The Economics Profession

Many in the economics profession are no longer willing or able to provide correct answers. They have been co-opted by the corrupting influence of government aptly warned about by President Dwight Eisenhower in his Farewell Address:

The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present – and is gravely to be regarded.

Fame, fortune and power for economists is obtained by spouting the government line. This requires Statist economics of which Keynesian economics has become the standard. John Maynard Keynes was a brilliant statesman and political figure. His brand of economics provided what every politician wanted — a license to grow government and government’s power. Markets were claimed to be unstable and required government intervention to achieve satisfactory equilibrium. Politicians flocked to his new theory faster than the economic profession. It provided the perfect cover for expanding political plunder and vote-buying desired by most politicians.

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Money, something which the economic profession understood, was quickly used to corrupt the profession. Positions of power at high incomes were created for economists who proclaimed the need for government to become further involved in economic activities. Funding was provided for favorable research and to departments which reinforced the need to control the economy. Newly-minted Phds were affected by the corrupting influence in two ways — that was what they were taught and that was what they were supposed to profess in order to get hired and tenured. Keynesianism swept through academia not because it worked but because it was lucrative to profess that it did. It was a rare individual at a rare college who did not succumb to the Statist economics.

Economics quickly became politicized via monetary incentives and penalties. Mediocrity paid better than greatness, so long as you professed the right creed. Few individuals resisted the temptation. Time has not made matters any better. No economist who works for government can be intelligent and honest without conflicting his future employment.

The Political Profession

Politicians, by nature, deal in dreams. Theirs is an occupation built on promises, not results. They are in the “free lunch” business. Their careers are judged in terms of how many goodies they provided to their constituents. Bad news or the concept of scarce resources is beyond their self-conceived job descriptions. Their training is geared toward election and re-election. Once the Santa Claus model of government became popular, politicians had to pander for votes by handing out ever-increasing amounts of goodies.

Politicians live in an unreal world but have convinced voters that they provide the wealth, security and prosperity that voters desire. Enough of the masses have fallen for this siren song that political competition has been reduced to promising more than can be delivered. Each election cycle the vying for votes via “free” goodies ratchets to new lows. The political cycle used to be tax, tax, tax and spend, spend, spend to elect, elect, elect. Now the first act — taxation — is considered too harsh and has been eliminated. Now it is just spend, spend, spend to elect, elect, elect.

We do not suffer from economic problems but from political or government problems which are mistaken for (or lead to) economic problems. No solution is likely because each party attempts to outspend the other. Doug Casey captures the essence of the problem in one paragraph — there is no difference between the two political parties:

In reality, there’s little philosophical difference between the Republicrats and the Demopublicans; they’re really just two wings of the same party. The left wing of the party claims to believe in social freedom (but doesn’t) and overtly disbelieves in economic freedom. The right wing says it believes in economic freedom (but doesn’t) and overtly disbelieves in social freedom. The right wing uses more aggressive rhetoric to build the warfare state, and the left wing talks more about the welfare state but the net difference between them is minuscule. That’s because they share the same corrupt intellectual and moral views.

Both parties compete by promising more than can be delivered. The one making the bigger promises usually gets elected. Politics has become a race to the bottom as politicians attempt to promise their way to the top. It appears as though it doesn’t matter whom we elect in 2012. All that outcome can do is determine the speed at which we go over the cliff.

As Frederick J. Sheehan describes the problem:

Hope may spring eternal, but the presidential victor in 2012 will dictate an economic policy that is stuck in the mud. What then, will break unsustainable imbalances and market interference? Lacking an untoward event, we will wait for the markets to revert. The currency and bond markets cannot be controlled forever. The form and speed of a reversion is unknown. The world is full of surprises. If rising inflation of things (not asset prices) is recognized by the general public, a scramble for stuff would upset the asset price-fixing of central banks.

A “Special Election” is Coming

Ultimately there will be a “special election” called at the convenience of markets. It will not be a political election but rather a day of economic reckoning like nothing seen in our lifetimes. The laws of nature (and economics) will trump the rules of politics.

*http://s.tt/1fmhX

Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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