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August 2, 2011

Fail

by beaufou

Sick of the debt ceiling talks yet?
Don’t worry, the outcome is even more nauseating for American families and the economy.
According to our friends in power, cutting government spending boosts economic growth and government spending hinders it, the debt not the lack of revenue is the problem.
That’s just ass-backwards, consider Japan and its indebted system for the last 20 years, Japan’s debt is 200% of its GDP, the US sits at 60% although Japan has not destroyed its manufacturing capabilities in the last 30 years replacing a productive economy by a fallacy built on excessive private borrowing, securitization and derivatives. Financial fairytales.
“Restoring liquidity to the consuming classes is the only means of both settling debt and restoring velocity to the money supply, but that would mean diluting/redistributing the cash hoarded by the non-productive/leech class.” writes Petey at the Big Picture and that’s absolutely right.
Take a look at the two following charts:


Notice anything?
While the bulk of the gains created in the last 40 years or so have been concentrating in fewer hands – the top 10% have hoarded 80% of all new wealth created since 1980 – the government has indebted itself more and more trying to keep the illusion of a functioning economy; again, it was growth created by Wall Street for Wall Street while salaries were stagnant and employment numbers were skewed by government hirings.

We borrowed more to spend more, deluding ourselves that this was sustainable economic growth. Government has been as guilty on this as any other party; perhaps doubly so, because interest payments are funded ultimately through taxation, transferring wealth from the taxpayer to the bondholder. But what is really going on? America has been munching on a stupendous free lunch fuelled by debt ever since the Reagan administration.

The only way out of this mess is to rebuilt the economy as it once was, a powerful innovative manufacturing machine and it may take more government spending to jump start; infrastructure repairs, alternative energies…
Cutting spending and declaring austerity will only have one result; a lower GDP and eventually more desperate stimulus and bailout money funneled to Wall Street bankers, as always.
Consider this, unemployment is back on the rise, growth is already at a miserable 1.3%, industrial production and manufacturing are dipping, another recession is coming but there are some good news; corporate profits are at an all time high, thanks to layoffs and paying no taxes.

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