Sunday, January 2, 2011

2011 - The Year of Catch 22

A guest post at Zero Hedge by Jim Quinn nicely summarizes the situation that the powers that be have created for us for the year 2011 - Catch 22:

The United States and its leaders are stuck in their own Catch 22. They need the economy to improve in order to generate jobs, but the economy can only improve if people have jobs. They need the economy to recover in order to improve our deficit situation, but if the economy really recovers long term interest rates will increase, further depressing the housing market and increasing the interest expense burden for the US, therefore increasing the deficit. A recovering economy would result in more production and consumption, which would result in more oil consumption driving the price above $100 per barrel, therefore depressing the economy. Americans must save for their retirements as 10,000 Baby Boomers turn 65 every day, but if the savings rate goes back to 10%, the economy will collapse due to lack of consumption. Consumer expenditures account for 71% of GDP and need to revert back to 65% for the US to have a balanced sustainable economy, but a reduction in consumer spending will push the US back into recession, reducing tax revenues and increasing deficits.

He has some interesting numbers for us to ponder:
On January 1, 2010 the National Debt of the United States rested at $12.3 trillion. On December 31, 2010 the National Debt checked in at $13.9 trillion, an increase of $1.6 trillion.

The Federal Reserve Balance Sheet totaled $2.28 trillion on January 1, 2010. Today, it stands at $2.46 trillion, an increase of $180 billion.

Over this same time frame, the Real GDP of the U.S. has increased approximately $350 billion, and is still below the level reached in the 4th Quarter of 2007. U.S. politicians and Ben Bernanke spent almost $1.8 trillion, or 13% of GDP, in one year to create a miniscule 2.7% increase in GDP. This is reported as a recovery by the mainstream corporate media mouthpieces. On September 18, 2008 the American financial system came within hours of a total meltdown, caused by Wall Street mega-banks and their bought off political cronies in Washington DC. The National Debt on that day stood at $9.7 trillion. The US Government has borrowed $4.2 since that date, a 43% increase in the National Debt in 27 months. The Federal Reserve balance sheet totaled $963 billion in September 2008 and Bernanke has expanded it by $1.5 trillion, a 155% increase in 27 months. Most of the increase was due to the purchase of toxic mortgage backed securities from their Wall Street masters.

Real GDP in the 3rd quarter of 2008 was $13.2 trillion. Real GDP in the 3rd quarter of 2010 was $13.3 trillion. Think about these facts for one minute. Your leaders have borrowed $5.7 trillion from future unborn generations and have increased GDP by $100 billion.

That's the government for you, borrowing $5.7 trillion to create $100 billion growth. In other words, $1 increase in GDP was brought about by borrowing $57. Does that make sense to you? It apparently make tons of sense to those die-hard Keynesians who inhabit Congress, the White House, and the Fed.

I know their argument: GDP would have collapsed without $5.7 trillion infusion. We wouldn't know, would we? We didn't get the chance to see if the GDP number would collapse without any government stimulus, fiscal or monetary.

He has a scary chart of the US national debt since 1940. Note the phenomenal increase in the last two years, or ever since Obama became the president. (Oh I forgot. Let's blame Bush for that.)

And Obama's chief economic adviser is threatening a catastrophe if the debt limit is not raised. But a catastrophe is staring at us from this chart, and you don't need no stinkin' debt limit to see it.

And that, I think, how the Catch 22 situation will be resolved - by brute force, as the debt reaches the exosphere and finally comes tumbling down, crushing everything.

Are you ready to get the hell out, before the proverbial s--t hits the fan? I don't even want to know how the s--t hits the fan. Or will you be trusting CNBC and Goldman's Hatzius who say everything will be just dandy?


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