Friday, February 13, 2009

Falling Off The Wagon (again)

In general, I tend to keep on the brighter side of life. Not that I have any illusions about the true nature of man or the limits to progress in this fallen world. In that regard, I belong to the camp that Chesterton described as "happy pessimists." While my outlook on matters of eternal truth is still quite positive, I find myself rather depressed about future prospects for the secular realm.

Looking at the mammoth millstone that has just been hung around the neck of the American taxpayer, it's hard to be sanguine about America's future, economically or politically. When the depths of the financial crisis first were becoming apparent, I hoped (obviously naively) that it serve as a wake up call for the country. I thought that maybe this time we would finally face up to the seriousness of the situation, buckle down, and make the hard choices required to get us through. Everyone would have to cut back and be more frugal. Everyone would have to feel some of the pain and make sacrifices. This would include government. While they might have to spend more on certain programs to provide support for those hardest hit by the crisis, they would have to cut back on others. In short, we would as a country finally accept the necessity of acting fiscally responsibly.

We had an opportunity to do this after the tech bubble burst and 9/11. Instead we elected to create another bubble through easy money from the Fed, governmental sanction of the idea that "everyone should own" a home, and no small measure of greed by lenders, traders, investors, consumers, and yes many homeowners themselves. Why grow up when you've just found another credit card in your dad's wallet?

So we were off on another binge. And while it lasted, the party was rocking. But eventually the music dies down, the crowds thin out, and the withering rays of the rising sun expose you to unflattering reality. And the hangover is a doozy.

Like a self-deluded drunk, we reexamine our situation in the harsh light of sobriety and claim, "Man, I am never going to do that again." For emphasis we add, "And this time I mean it."

But of course we are going to do it again. And this time we're going to hit it harder, stronger, and longer than we ever have before. In fact, with the stimulus package we really are taking it to the next level:

Perhaps you recall the deficit wails from the Reagan years, but the peak deficit was only 6% of GDP in 1983. In the Clinton years we were told taxes had to rise to reduce a deficit of merely 3.9% of GDP. CBO estimates the 2009 deficit will reach 8.3% of the economy, not including the stimulus or bank bailout cash. Toss in those, and analysts at the Strategas Group estimate the deficit could hit nearly $2 trillion, or 13.5% of the U.S. economy.

By the way, notice how people have stopped talking about the entitlement iceberg looming ever closer? Instead of trying to figure out how the hell we're ever going to pay for the Medicare and Social Security liabilities that we've signed up for, we're adding another TRILLION to our existing debt. Put it on the card.

We had a tech stock bubble. We had a housing bubble. Now, we're going to have a government bubble that dwarfs anything we're ever seen before. And when this one bursts--when there simply aren't enough taxes to collect, enough bonds to sell, enough money to print to keep this governmental bubble afloat--the financial, political, and social impacts on the country are going to be far more severe than anything we've yet gone through.

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