Oh how I wish that at the end of what I'm about to say I could just say "APRIL FOOLS!". Unfortunately this is no April fools joke.
I'm going to make the case that where we are right now economically is the new normal in America. That 10% unemployment, weak GDP
growth and low interest rates are the permanent result of our progressive march forward. I'm not asking you to take my word for it, all
I'm asking is you honestly look at the information that follows and see if you can come to any other conclusion.
There are a few related factors that play a major role in our economy. They are the price of oil, interest rates, the national debt and
the unemployment rate.
In 2008 as oil prices peaked the increased fuel costs forced companies to cut costs which resulted in mass layoffs as shown in the rapid
spike in the unemployment rate. At the same time the US Federal Reserve began rapidly cutting interest rates to stimulate the economy. As the
economy slowed the price of oil began to drop as less demand leads to lower prices. As the unemployment rate began to level off so to did
the price of oil. What is not shown in these graphs is what the government was doing at the time.
In a period of 36 months the total federal debt grew from 8.4 to 12.6 trillion and is currently growing at a 1.5 trillion annual pace. George W
Bush started this spending spree with Stimulus and TARP and Barrack Obama has accelerated it to insane speeds. What is very interesting to notice
in those two graphs is that while we added 50% to how much we owe we are paying less in interest on that debt than we were 3 years ago. Since the
government makes the rules they were able to go on a massive spending spree and then set the interest rate they pay on that debt. They can do that
because America is the most powerful and stable economy in the world so we have no trouble selling our debt at these low rates.
What we have done though is put ourselves in a no win situation going forward. There is not enough money in the world to be able to continue lending us
the $100 billion a month our government now borrows. Even if we could continue to borrow forever we simply could not afford for our economy to recover. That may sound like a contradiction but it makes complete sense.
When our economy begins to pick up and companies start hiring again certain things will happen that cannot be avoided. As businesses produce more
and more people head to work the country will use more energy, the demand for oil will increase. This will of course lead to higher oil prices which
are already pretty high considering how depressed our economy is. If consumers have to spend more on fuel they will have less money to spend on other
things. Considerning that our economy is 70% consumer spending this will begin to negatively effect businesses.
The even more worrisome problem is that as the economy picks up the federal reserve will have no choice but to increase interest rates
back to historical averages. With the debt being 50% more than it was before the massive rate cuts the interest on the debt will be massive.
Since we currently have to borrow money in order to pay the interest on the debt we will go into feedback loop were the money we borrow
to pay the interest only leads to paying even more interest. According to the CBO by 2020 the interest on our debt will be at least $1 trillion
annually on a total debt of $20 trillion. I contend that with health care now passed and the economy not recovering the way they predicted those
numbers will be much higher if nothing changes.
What I have not even touched on yet is the amount of private debt currently held and how the housing market still has not hit bottom.
Even with rock bottom interest rates and government rebates to buy a home the price of houses continues to fall. What is going to happen
when the government ends the rebates and hikes the interest rates? What is going to happen to all the people holding credit card and other
variable rate loans as interest rates rise? Personal debt in this country currently stands at over $16 trillion but is actually going down
due to the large number of foreclosures. You see, when someone loses their home they no longer owe on their mortgage so that is counted
as a reduction in personal debt.
What is truly sad about all this is that not only did we not try to prevent this but I believe we have intentionally steered ourselves
in this direction. You see all you have to do is look across the Atlantic to any country in Europe and you will find that they have been
in this state for a very long time. The progressive politicians have been doing all they can to transform America into a socialist European
economy with all the social welfare you can swallow. Europe has been living with double digit unemployment, weak economic growth,sky high gas prices and socialized health care for decades now and they are beginning to drown in their own debt. So like the Europeans that we fought to win our independence from 234 years ago we have made ourselves part of the new normal of not just the European Union but the World Union.
If you'd like another opinion on the subject here is just one of the many, many examples you can find.
Chicago Tribune - Debt dangers,
When Warren Buffett looks safer than Uncle Sam