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Are we on the verge of an Economic Collapse?

Are we on the verge of an Economic Collapse?

In my opinion yes, and it is intentional, but I’ll let the CBO give you a heads up before I give my opinion.

Federal Debt and the Risk of a Fiscal Crisis

July 27, 2010

Economic and Budget Issue Brief

Summary

“Over the past few years, U.S. government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II. The recent increase in debt has been the result of three sets of factors: an imbalance between federal revenues and spending that predates the recession and the recent turmoil in financial markets, sharply lower revenues and elevated spending that derive directly from those economic conditions, and the costs of various federal policies implemented in response to the conditions.

Further increases in federal debt relative to the nation’s output (gross domestic product, or GDP) almost certainly lie ahead if current policies remain in place. The aging of the population and rising costs for health care will push federal spending, measured as a percentage of GDP, well above the levels experienced in recent decades. Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels.

If the United States encountered a fiscal crisis, the abrupt rise in interest rates would reflect investors’ fears that the government would renege on the terms of its existing debt or that it would increase the supply of money to finance its activities or pay creditors and thereby boost inflation. To restore investors’ confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner.”

Beyond those gradual consequences, a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates. It is possible that interest rates would rise gradually as investors’ confidence declined, giving legislators advance warning of the worsening situation and sufficient time to make policy choices that could avert a crisis. But as other countries’ experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory and in part because the risk of a crisis is influenced by a number of other factors, including the government’s long-term budget outlook, its near-term borrowing needs, and the health of the economy. When fiscal crises do occur, they often happen during an economic downturn, which amplifies the difficulties of adjusting fiscal policy in response.

Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have several negative economic consequences for the United States. Some of those consequences would arise gradually: A growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that “crowding out” of investment would lead to lower output and incomes than would otherwise occur. In addition, if the payment of interest on the extra debt was financed by imposing higher marginal tax rates, those rates would discourage work and saving and further reduce output. Rising interest costs might also force reductions in spending on important government programs. Moreover, rising debt would increasingly restrict the ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises.

This entire report is an alarm bell. The CBO, while admitting the spending/tax revenue shortfall, does not provide a solution but straddles both sides of the fence with the final sentence of this report.  I believe we are heading to an economic collapse and the Obama policies are speeding us there.

However this report will not be used, as it should be, by the Obama Administration. Instead of seeing this alarm bell as a warning to stop the spending, it will be used to drastically raise taxes, to let the Bush tax cuts expire, and to push through a VAT tax.

These new taxes will kill job growth, bankrupt the middle class, and further hasten an economic collapse because the Obama Administration has no intention of stopping the spending in any way. I have made the case that Obama is using the Cloward-Piven strategy not Keynesian Economics in a post at Conservative Daily News. This report is proof that Cloward-Piven Strategy is working.

If I am wrong about the Cloward Piven Strategy, the President will heed this report and make moves to downsize our bloated Federal Government, Renew the Bush Tax Cuts, Use all unspent stimulus and TARP funds as a downpayment on the debt, and actually stimulate private sector growth instead of hampering it.

If I’m right, they will not waste a crisis and move to Increase taxes on everyone, especially the very wealthy.

I recommend that you prepare for an economic collapse. This report is not your only warning sign. Here are some excerpts from Yahoo News & Reuters:

“Local governments warn: more job, service cuts”

“WASHINGTON (Reuters) – Local government revenue has withered so drastically that U.S. cities and counties will have to cut hundreds of thousands of jobs in the coming months, leaving communities without basic services and raising jobless rates, according to a survey.

Those surveyed — 214 cities with populations of more than 25,000 and 56 counties of more than 100,000 people — reported they will cut 8.6 percent of their full-time positions from 2009 through 2011.

“If applied to total local government employment nationwide, an 8.6 percent cut in the workforce would mean that 481,000 local government workers were, or will be, laid off over the two-year period,” the report said.

Currently, the U.S. unemployment rate stands at 9.6 percent. In June, local governments had a net loss of 8,000 jobs, according to the U.S. Labor Department, and they have shed 18,000 jobs over the past three months.

FEWER FIRST RESPONDERS

So far, more than half of cities and more than a third of counties have cut staffing for police, safety and firefighting services due to the deep recession that began in 2007. Those numbers are surprisingly high, given that “cities and counties almost always seek to protect public safety services.”

Philadelphia Mayor Michael Nutter said at a press conference about the survey and the local jobs bill that he had recently cut two classes of police training, keeping 200 officers from joining the city’s force. Philadelphia is suspending work at some fire stations to prevent laying off firefighters. Those choices have been hard to make, he said.”

The State and Local Governments will borrow from the Federal Government where possible which adds to the debt. When no one can borrow anymore and they can’t possibly tax anymore, the economy will collapse. I again recommend you prepare.

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  1. TexasFred says:

    I have said this before, on numerous occasions, George W. Bush was the founder of the ‘Lets see how many ways we can bankrupt America’ campaign. The Bush bailouts set the trend, Obama is just a continuance of those same Bush policies, on a much grander scale.

    I’m not a “Blame Bush” for everything kind of guy, but I call a spade a spade.

    Our troubles go back through several Presidents, ones that did little or nothing about ILLEGAL Immigration and foreign trade, it’s no one in particular, but the current, and recent past POTUS do BOTH bear a lot of responsibility for the current dangerous climate we find ourselves in.

    • Agreed Fred, We didnt get here in a year and a half. Bush was a Progressive and installed alot of this dangerous framework that may soon be used against us. This situation has been a long time coming.

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