40 % through the shock period

The West, and especially the U.S., is about 40% through the shock period of declining Oil and declining credit. As I said in my in November 28, 2007 post, the shock will occur and unwind over a 5 year period to be followed by years of grinding and slogging until the "alternatives" materialize - or we shrink population and GDP to fit within the new environment. We are nearly 2 years into the 5 year shock period (40%) - there will be more jolts - big ones - coming, and it is impossible to know what they are or when they will occur.

For folks that still have money: You might think you have dodged the bullet, and you are right - sort of. You have dodged A bullet, not THE bullet. There are more bullets coming your way.

I have written many posts about California, how they got to the end of their fiscal rope and why California could easily drag the U.S. currency off the proverbial cliff... but this was on the front page of Bloomberg today:

With California mired in a budget crisis, largely the result of a political impasse that makes spending cuts and tax increases impossible, Controller John Chiang said the state planned to issue $3.3 billion in IOU’s in July alone. Instead of cash, those who do business with California will get slips of paper.

The California morass has Democrats in Washington trembling. The reason is simple. If Obama’s health-care plan passes, then we may well end up paying for it with federal slips of paper worth less than California’s. Obama has bet everything on passing health care this year. The publicity surrounding the California debt fiasco almost assures his resounding defeat.

It takes years and years to make a mess as terrible as the California debacle, but the recipe is simple. All that you need is two political parties that are always willing to offer easy government solutions for every need of the voters, but never willing to make the tough decisions necessary to finance the government largess that results. Voters will occasionally change their allegiance from one party to the other, but the bacchanal will continue regardless of the names on the office doors.

California has engaged in an orgy of spending, but, compared with our federal government, its legislators should feel chaste. The California deficit this year is now north of $26 billion. The U.S. federal deficit will be, according to the latest numbers, almost 70 times larger.

Bleak Picture

The federal picture is so bleak because the Obama administration is the most fiscally irresponsible in the history of the U.S. I would imagine that he would be the intergalactic champion as well, if we could gather the data on deficits on other worlds. Obama has taken George W. Bush’s inattention to deficits and elevated it to an art form.

The Obama administration has no shame, and is willing to abandon reason altogether to achieve its short-term political goals. Ronald Reagan ran up big deficits in part because he believed that his tax cuts would produce economic growth, and ultimately pay for themselves. He may well have been excessively optimistic about the merits of tax cuts, but at least he had a story.

Obama has no story. Nobody believes that his unprecedented expansion of the welfare state will lead to enough economic growth. Nobody believes that it will pay for itself. Everyone understands that higher spending today begets higher spending tomorrow. That means that his economic strategy simply doesn’t add up.

For the James Carville wannabee's out there, responding that Ronald Reagan, or GWB, or Abe Lincoln, did this, that, and the other thing, I want to share with you something that I learned from Sister Mary Ancilla at Transfiguration grade school in 1966:

"Two Wrongs don't make a Right."

I will GRANT you that history is replete with dumb ideas and mistakes. But we are here, NOW. And what this administration is doing is going to have unintended consequences that are going to blow your mind. I sincerely hope Obama and his team know what they are doing, but it does not look like it to me.

More from the article at Bloomberg

Character Deficit

Back in the 1980s, Reagan’s own economist, Martin Feldstein, spoke up when he felt that the Reagan administration was pushing the deficit too far. Where are the economists with such character today? Apparently, the job description for economists has transformed from recommending policies that are defensible to defending whatever policies that the political hacks in the West Wing dream up.

As bad as the California legislature has been over the years, it has never entered a fiscal crisis like the one that we face today and then doubled down with a massive spending increase. In the end, when times got tough, patriotic and sensible Californians of both parties stood up and began acting like adults.

Maybe the same thing is starting to happen in our nation’s capital. The key players in Washington are Senator Evan Bayh and 15 Senate Democrats who joined him this year in forming a coalition of moderates. One thing that has distinguished moderate Democrats from the garden variety of the species is heightened concern about fiscal responsibility.

Off a Cliff

With the price tag of Obama-care likely to exceed $1 trillion, moderate Democrats face a simple choice. They can jump off the cliff with the president, or they can stay true to the principles that they have espoused throughout their careers.

There are reassuring signs that principle is winning. One of the most expensive components of the Obama plan is the so- called public-insurance option, which opponents fear would result in massive government subsidies. Senator Mary Landrieu said that she is “not open” to a public option that will compete with private insurance.

Many other Democratic Senators, including Ben Nelson, Blanche Lincoln, and Tom Carper, also oppose the public option. As the cost estimates increase and support wanes, the Senate Finance Committee is even going as far as to pursue its own health-care plan, meaning that the health-care end game is now in sight.

$4.5 Trillion of deficit spending over 2 years is going to yield another 2 year, $5 Trillion deficit. Obama is going to have a $10 Trillion first term deficit. That will be nearly 70% of GDP in a 4 year period!!

I beg the Liberals and Democrats that read my blog to contact their representatives and sphere of influence - don't let this happen.

The alternative is not pleasant - but at least it is something we may recover from absent something far less pleasant.