Taking On Issues - Political Issues and Government Policies

A Hot Discussion Forum on Government Policies and Political Issues

  • Facebook
  • RSS
  • Twitter
  • Election 2016
  • Big Government
  • Healthcare
  • The Other Side
  • What’s New
  • Your Freedom

America’s massive debts make true recovery impossible

June 18, 2018 By Takingonissues

There is a classic denial tactic that many people use when confronted with negative facts about a subject they have a personal attachment to.  I would call it “deferral denial” — a psychological postponing of reality.

For example, point out the fundamentals on the U.S. economy such as the fact that unemployment is not below 4 percent but actually closer to 20 percent when you factor in U-6 measurements including the record 96 million people not counted because they have run out of unemployment benefits. Or point out that true consumer inflation in the U.S. is not around 3 percent as the Federal Reserve and the Bureau of Labor Statistics claims, but closer to 10 percent according to the way CPI used to be calculated before the government rigged the numbers.  Far a large part of the public including a lot of economic analysts, there is perhaps a momentary acceptance of the danger, but then an immediate deferral — “Well, maybe things will get worse down the road, 10 or 20 years from now, but it’s not that bad today…”

This is cognitive dissonance at its finest. The economy is in steep decline now, but the mind in denial says “it could be worse,” and this is how you get entire populations caught completely off guard by a financial crash. They could have easily seen the signs, but they desperately wanted to believe that all bad things happen in some illusory future, not today.

There is also another denial tactic I see often in the world of politics and economics, which is what I call “paying it backward.” This is what people do when they have a biased attachment to a person or institution and refuse to see the terrible implications of their actions. For example, when someone like Donald Trump makes a destructive decision, such as the continued support of Israel and Saudi Arabia in Syria and Yemen, or the reinstatement of funding for the White Helmets in Syria who are tied to ISIS, Trump supporters will often say “Well what about Obama?”

This is a game of shifting accountability. Is one person worse than the other? Possibly. I say give it time and make notes. However, the negative decisions of one politician we don’t like do not diminish the negative decisions of another politician we might like. They should both be held accountable.

The same goes for countries and economies. When an analyst points out that U.S. debt is at historic highs and is utterly unsustainable, people in denial will say “but what about China or Europe?” One does not negate the other and, of course, there are differences that make the situation in the U.S. far more tenuous.

Primarily I am talking about America’s endless dependency on the world reserve status of the U.S. dollar and, beyond that, the endless expansion of debt at low interest rates.

The Federal Reserve, once the No. 1 buyer of U.S. debt, has essentially declared it is cutting off support and has begun dumping assets from its balance sheet. The only assets the Fed seems to be maintaining are Mortgage Backed Securities (MBS). All others are being cut, including Treasurys. The American economy is inexorably attached to the idea of our treasury debt as a safe investment, with our national debt spiking above $21 trillion and many trillions more owed to entitlement programs depending on how you calculate the expenditures, there is a vital need for steady foreign investment in U.S. debt.

But what happens when investment in U.S. debt becomes politically unsavory? Consider the current escalation of the trade war. Many pro-dollar talking heads and cheerleaders have argued in the past that no nation has the guts to dump dollar denominated assets and risk the wrath of American “economic might.” But already we have seen Russia dump half its U.S. treasury holdings in a single month and the trade war has only just begun.

Is Russia’s action a sign of things to come? Will other nations like China follow the same strategy? We will have to wait and see, but I believe this is the inevitable outcome of the trade war if it drags on for the rest of the year.

America’s dependent nature, feeding off of foreign investment to support its debts, is a disaster waiting to happen. The concept of economic “recovery” is laughable until this issue is addressed.

That said; let’s not forget about American corporations and consumers. U.S. corporate debt as a percentage of gross domestic product is at historic highs not seen since the housing bubble of 2008 or the dot-com bubble of 2001. There is a distinct difference, though, that makes today’s bubble far more insidious. After years of near-0 percent interest rates, corporations have become addicted to cheap debt. So much so that they have been borrowing nonstop to support their own stock prices through stock buyback manipulation. But now the Fed is raising interest rates and has committed to expanded hikes in the future.

So what will corporations do as the cheap debt dries up? So far, they are spending the majority of their Trump tax cut still trying to artificially prop up stock process. When this money runs out (and I believe it will much faster than the mainstream thinks), the existing debt of these companies will cost much more to finance, and future borrowing at the same pace will become impossible. This is a threat that is developing now, not in some far-off future.

Eventually, corporations will have to make deep spending cuts rather than borrow. This means mass layoffs, store closures and potential cuts to pensions. And, of course, no more stock buybacks, meaning a market crash will ensue.

What about the U.S. consumer? U.S. consumer debt is set to reach new highs by the end of the year; around $4 trillion by official estimates.  While discussion continues about the “labor shortage” in the U.S., one thing is clear — the jobs that do exist do not pay wages that keep up with true inflation. When we see spikes in retail sales in the U.S. and this is applauded as economy recovery, very few people point out that higher retail sales are actually tracking higher inflation.

Consumers are spending more on less stuff. Again, this is unsustainable, which is why consumer debt is exploding. Dependency on credit cards and loans is being used by the public to offset much higher costs. But as the Fed raises interest rates, this too will end. Higher Fed rates translate to higher credit rates as well as higher mortgage rates (indirectly). With higher interest payments comes a large drop in overall spending.

As you can see, there are at least two forces at work here that will end all talk of U.S. recovery — the first is the trade war, which I believe is a massive distraction designed to draw attention away from the actions of international banks and central banks. The second is the Federal Reserve, which has addicted the country to cheap fiat and is now flushing all the drugs. We cannot delude ourselves into thinking that this trend will remain slow or that it will not develop into a crisis in the near term. We also cannot simply deflect to other countries like China or those in Europe as if their problems are somehow worse and therefore ours are not a concern.

The danger is here, now. Seeing and accepting it allows us to prepare accordingly. Denying it as inconsequential sets people up as victims of their own bias and ignorance.

Click Here to Read More Like This

Related Posts Plugin for WordPress, Blogger...
Email, RSS Follow

Related

Subscribe to Taking on Issues

Enter your email address to subscribe to our site and receive notifications of new posts by email.

RSS Political News

  • 5 House Democrats took $60,000 trip to South Africa for Beyoncé concert, records show February 23, 2019
  • Robert Mueller's 'Collusion' Case So Far February 23, 2019
  • Dianne Feinstein scolds kids who pushed her to back Green New Deal: 'I know what I'm doing' February 23, 2019
  • U.S. Farmers Receive $7.7 Billion in Trade Aid to Date February 23, 2019
  • Trump Aides Worry he'll get Outfoxed in North Korea Talks February 23, 2019
  • Tax Law Helped Boost 2018 Bank Profits to Record Level February 23, 2019
  • 'I Believe in White Supremacy': John Wayne's 1971 Playboy Interview February 22, 2019
  • Voter fraud means new election in North Carolina February 22, 2019
  • Trump announces Kelly Knight Craft as nominee for UN ambassador February 22, 2019

Archives

New Featured Articles

  • Nooooooo: Avenatti not running for president
    December 4, 2018

    Do you have any idea how much easy blog content over the next 12 months just went down the toilet? We’re talking hundreds of man-hours that could have been devoted to lazy goofs on Avenatti’s no-shot campaign that will now have to be spent on actual news, requiring serious thought. It’s the difference between looking […]

    Email, RSS Follow
    […]
  • Time to Re-Boot the War Debate in Congress
    August 6, 2017
    Last month, Fox News host Tucker Carlson engaged in a […]
  • The answers as to why CNN was at Roger Stone’s house make little sense
    January 26, 2019
    When I published my piece yesterday morning on the […]
  • The Ugly Politics Of Orthodoxy
    September 7, 2018
    I was waiting to see something definite before posting […]
  • Progressives need to stop abusing their cultural power
    November 7, 2017
    Author Peter Beinart, who previously wrote one of the […]
  • Listen to What Yemenis Are Saying About the War on Yemen
    March 28, 2018
    Just a snapshot of the humanitarian crisis, Yemeni […]
  • What Donald Trump, Andrew Jackson, and Bane have in common
    January 22, 2017
    posted at 8:01 pm on January 22, 2017 by Taylor […]
  • Moon: No, really, Pyongyang wants “complete denuclearization”
    April 19, 2018
    So what’s the catch on Kim Jong-un’s […]
  • Politico: Trump ready to start wheeling and dealing on AHCA
    March 8, 2017
    posted at 10:01 am on March 8, 2017 by Ed Morrissey […]
  • Trump Administration Protects Religious Liberty
    January 18, 2018
    f11photo/Shutterstock This is great news: The Trump […]
  • McCrory calls special session to repeal HB2 bathroom law in North Carolina
    December 19, 2016
    posted at 2:01 pm on December 19, 2016 by Ed Morrissey […]
  • Kavanaugh confirmation hearing scheduled for September 4
    August 10, 2018
    The Kavanaugh confirmation process is moving ahead […]
  • Free Beacon: DNC suuuure seems quiet on deputy chair’s domestic-violence allegations
    August 14, 2018
    A fair point from the Free Beacon, if perhaps a bit […]
  • Perfect Time For Gun Control Discussion?!
    July 26, 2012
    Is There Ever A Perfect Time For Gun Control […]
  • The speech from Cakeland: Did May thread the needle in Brexit address?
    March 3, 2018
    Facing a nearly impossible task of pleasing all of the […]
Copyright © 2019 TakingOnIssues.com

Contact Us | Terms of Use | Privacy Policy | Advertise | About Us