Welfare & Warfare

Most people in America associate the Democratic Party with spending on welfare programs and the Republican Party with spending on warfare. Until reading Niall Ferguson’s brilliant
The Ascent of Money

The Ascent of Money
, I never realized that welfare and warfare have gone hand in hand for over a century. The immortal German warmonger Otto von Bismarck was the first politician to introduce social insurance legislation in the 1880s. His reasoning was not strictly humanitarian.

According to Bismarck, “A man who has a pension for his old age is much easier to deal with than a man without that prospect.” Bismarck was a shrewd politician who realized that when you provide people something for nothing, they will vote for you. When you go to war with France, a population sedated with entitlements is more easily malleable and controllable. David Lloyd George rolled out pensions and national insurance in Great Britain prior to World War I in order to win votes. Politicians began a century of addiction to welfare programs, as the poor voted for those that promised them the most. The world has now reached its limit of unfunded promises. The financial crisis in the last two years was caused by politicians throughout the world promising benefits to their citizens and paying for these benefits with borrowed money. Margaret Thatcher aptly summed up what has happened:

”The problem with socialism is that eventually you run out of other people’s money.”

The world has run out of other people’s money.

Britain expanded their social welfare state during and after World War I. With demobilization in 1918, they introduced unemployment insurance as a method to keep former soldiers from disrupting their country. Winston Churchill rolled out an ever growing array of social programs to keep the lower classes from revolting. The Japanese government, after World War II, initiated national insurance for sickness, injury, childbirth, disability, death, old age, and unemployment. Nations began to cover all citizens against everything that could possibly go wrong. Is it a coincidence that the largest expansions of the U.S. welfare state occurred in the 1930’s before a World War, in the mid 1960’s in the midst of the Vietnam War, in 2003 at the outset of the Iraq invasion, and in 2010 as we continue to fight wars in Iraq and Afghanistan? It was essential for politicians to buy off the populace before conducting undeclared wars in far off lands. Why? Who has benefitted from entitlement spending and endless warfare? Politicians and the Military Industrial Complex benefit. The way to get elected in the U.S. since the 1930s has been to promise voters benefits while ignoring the long-term costs. The defense industry and their lobbyists benefit by creating phantom enemies around the globe and stirring up the masses through fear and propaganda. The other beneficiary has been the banking syndicate and their owned printing press called the Federal Reserve. The welfare promises and constant warfare over the last century wouldn’t have been possible without the Federal Reserve and their ability to create constant inflation.

Guns & Butter

Politicians discovered that the populace will go along with their never ending military adventures if they were bought off with promises of generous pensions, free medical insurance, subsidized housing, unlimited drug benefits, farm subsidies, tax loopholes, and thousands of other voter boondoggle payoffs. The Federal Reserve printed the fiat currency, the military industrial complex created the enemies, young Americans fought and died in foreign countries in undeclared wars of choice, and corrupt politicians promised unlimited benefits to the masses in search of votes while rigging the tax system to benefit the rich and powerful. The creation of the Federal Reserve and the Federal Income Tax in 1913 unleashed politicians from the chains of fiscal responsibility. The “guns versus butter model” was turned upside down. Before the Federal Reserve was created the U.S. had to choose between two options when spending its finite resources. It could buy either guns (invest in defense/military) or butter (invest in production of goods), or a combination of both. Politicians handed out butter to the masses and M-16 rifles to our young men. All of the New Deal and Great Society social programs are dependent upon unlimited amounts of debt to be issued for all eternity or until the entire corrupt house of cards collapses.

The beauty of socialism and the welfare state is that when a country is young and vibrant, with a rapidly growing economy, the many pay for the benefits of the few. The baby boom that occurred throughout the modern world after World War II granted politicians the means to expand their welfare pledges. The more politicians promised, the more votes they received. It was a beautiful scheme, until reality struck.

Ferguson provides the reality check in The Ascent of Money:

“Yet there was a catch, a fatal flaw in the design of the post-warfare welfare state. What had started out as a system of national insurance had degenerated into a system of state handouts and confiscatory taxation which disastrously skewed economic incentives.”

The larger the welfare state becomes, the lower economic growth, higher inflation and lower productivity overcome the social benefits. As unions become stronger, the economic system becomes more dysfunctional and warped. The economy in a welfare state becomes bogged down in misallocation of resources, mal-investment, rules, regulations, and distorted pay structures. Incentives to increase profits are eliminated. Incentives to create new businesses and to boost efficiency are purged as bureaucracy gains increasing power. As the populations of the welfare states age, there are only a couple of alternatives for the politicians who never looked beyond the next election when passing legislation to hand out more entitlements. Politicians increase taxes on the productive to pay entitlements for the unproductive. The entitlement promises are so great in the United States that politicians couldn’t possibly raise taxes high enough to pay for them. This is where a willing Central Bank steps in and prints money and allows politicians the easy out of borrowing to pay the entitlement promises. This method works until it doesn’t. Ask Greece and Spain.

Turning Japanese

The welfare state really gained momentum after World War II with Japan and Great Britain leading the way. Ferguson describes the beliefs that overtook the developed world:

“From now on, the welfare state would cover people against all the vagaries of modern life. If they were born sick, the state would pay. If they could not afford education, the state would pay. If they could not find work, the state would pay. If they were too ill to work, the state would pay. When they retired, the state would pay. And when they finally died, the state would pay their dependents.”

With a post-war worldwide baby boom, the taxes easily paid for the benefits in the early years. The myopic politicians and bureaucrats failed to consider that life expectancy would increase from 62 years old in 1935 to 78 years old today, a 26% increase in 75 years. They also failed to anticipate that the Baby Boomers would have fewer children. The average family size has plunged from 3.5 in 1935 to 2.5 today, a 29% decline. After the implementation of Johnson’s Great Society programs in the late 1960s, the percentage of families with 2 or more children plummeted from 36.7% in 1970 to 23.7% in 2007.

As usual, any program conceived by politicians always has unintended consequences because they have not properly considered the potential scenarios. A properly run Ponzi scheme like Social Security, Medicare, and Medicaid requires that enough new money come into the system from new suckers to pay off the old suckers. With the old suckers living much longer than anticipated and not enough new suckers being born, politicians have resorted to doing absolutely nothing. Any politician who proposes any adjustment, restriction or cut in these programs is immediately ridiculed, spat upon and run out of office by the AARP and the entitled classes. The U.S. is about to experience what Great Britain and Japan have already experienced. The major difference is that Japan and Great Britain did not have to fund warfare along with welfare like the U.S. has been doing for half a century. This experiment of delusion will not end well.

Great Britain’s experiment in socialism came crashing down much sooner than Japan, as their population was much older. Their system degenerated into a system of state handouts, high taxation, no economic incentives, slow productivity, high inflation, and economic stagnation. Social transfers rose from 2.2% of GDP in 1930, to 10% in 1960, 13% in 1970 and 17% by 1980. Unions controlled the politicians and resisted all efforts to institute incentives based upon traditional capitalistic principles. Margaret Thatcher was able to slow the advancement of the welfare state for awhile, but was unable to put a stake through its heart. Great Britain continues its long-term decline with a GDP equal to Italy today. Japan, on the other hand, appeared to have figured it out, with the most dynamic welfare state economy in the world from 1970 until 1990. But, then the wheels came off. Demographics have a way of ruining the best laid plans of politicians.

As the life expectancy of the Japanese has risen to the highest in the world at 83 years old, the birth rate in the country plunged. There are more people dying than are being born every year in Japan. They are the oldest society on earth, with 21% of the population over the age of 65, versus 12.8% in the United States. Japan has been in a two decade long slump and has squandered their national wealth on wasteful stimulus programs while failing to address the impossibility of fulfilling their welfare state promises. Japan’s welfare budget is equal to three quarters of tax revenues. Its debt exceeds one quadrillion yen, or 170% of GDP. On its current path toward 240% of GDP, Japan is doomed. As recently as the early-1970s, social expenditures amounted to only about 6% of Japan’s national income. In 1992 that portion of the national budget was 18%, and it was expected that by 2025, 27% of national income would be spent on social welfare.

Niall Ferguson sums up the situation for most of the developed world:
“Longer life is good news for individuals, but it is bad news for the welfare state and the politicians who have to persuade voters to reform it. The even worse news is that, even as the world’s population is getting older, the world itself may be getting more dangerous.”

Dangerous Liaison

The United States has hit the proverbial jackpot, with a rapidly aging population, a $106 trillion unfunded liability, an administration that has piled more unfunded healthcare obligations upon our future unborn generations, spineless politicians that refuse to address the crisis, and as icing on the cake 700 military basis spread throughout the world and an annual defense budget of $895 billion equaling the total spending of the next 11 countries combined. The number of Americans over 65 will surge by 35% over the next 10 years and then by an additional 30% in the following decade. Baby Boom demographics have caught up with politician promises. Therein lays the dilemma. Every day 10,000 Americans turn 50 years old. They will not vote for anyone who promises to cut their entitlements. It is the American way to ignore long term problems until the crisis arrives. Politicians could have proactively addressed the out of control entitlement issue ten years ago. They did not. Now it is too late. The crisis is upon us.

“The US government is on a “burning platform” of unsustainable policies andpractices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon.” David M. Walker

The United States of America is the modern day Roman Empire. Any reasonably intelligent person with a calculator can figure out that this will end in economic collapse. And still, we do nothing. Not only do we do nothing, we push our foot down on the accelerator by spending $2 trillion on wars of choice, commit $16 trillion to new drug coverage for seniors, and national healthcare for all at an unknown cost. There is one law that cannot be skirted. An unsustainable trend will not be sustained.

America’s welfare state delusions have been built upon decades of indoctrination, misinformation and the ridiculous belief that heavily taxing the productive and redistributing it to the non-productive benefits society. A nation of 310 million people cannot be governed based on emotional sob stories, but this is the tactic used by liberals to enact ever more entitlements and safety nets without consideration of cost. Steven F. Hayward describes the liberal mindset:

“Liberalism’s irrepressible drive for an ever larger welfare state without limit arises from at least two premises upon which the left no longer reflects: the elevation of compassion to a political principle (albeit with other people’s money) and the erosion of meaningful constitutional limits on government on account of the imperatives of the idea of Progress.”

Liberals have used these tactics to jam through unemployment benefits now reaching 99 weeks. They used these tactics during the healthcare debate. Emotion based sob stories always overcome rational debate, discussions of cost, and overall impact on society. The problem with making decisions with long term fiscal implications based upon compassion only is that you will run out of money before you run out of compassion. Author William Voegeli points out that there is no end to the liberal compassion-fest:

“Because compassion is an emotional response rather than a moral principle, it defeats every attempt to make wise choices about which sufferers do and don’t deserve governmentally dispensed solace.”

The more programs that are created and expanded the larger the constituency for never ending the program. There is no example in the history of the country where a program has been deemed a failure and scrapped. Entitlement programs never die. The current lot of myopic, bought by special interests politicians do not have the guts to cut or even reduce the growth rate of entitlements. Thomas Sowell captures the essence of America today in this quote:

“The problem isn’t that Johnny can’t read. The problem isn’t even that Johnny can’t think. The problem is that Johnny doesn’t know what thinking is; he confuses it with feeling.”

Fallacies & Fear

The chart below paints a picture of impending disaster. There are no easy choices left. Massive tax increases, enormous benefits cuts, or some combination of the two will be required to avert a catastrophe. Greek like demonstrations, protests and strikes are in our future.

The mindset of close to 50% of the U.S. population is exactly the same as the socialists in Greece. In the latest edition of The Casey Report reporter Jayant Bhandari describes the mindset of the entitled class:

“While sitting in a coffee-shop in Athens, I struck a conversation with a very smart-looking, confident girl while we sipped our rather expensive Euro 4 coffee. She was proud of spending time lying on the beaches and buying expensive clothes. By not taking on too much, she was contributing to the world’s peace and happiness. She claimed to be doing a good deed by spending money, which kept the economy going through increased money circulation. Saving money, she said, was bad, something only a selfish person would resort to.

“Fewer working hours mean work for other people and hence less unemployment,” she said. While I was thinking that she was likely a spoiled child of rich parents, she added, with bright, clear eyes, that the rich should be heavily taxed. Realizing something was missing, I couldn’t help but ask if she was on public assistance. Without a blink, with supreme confidence and a complete absence of any guilt, she said, “Yes.”

The reason she didn’t lie is because she did not feel an iota of guilt for being on dole. Those memes have been systematically annihilated. This is a life in complete contradiction to the natural principles. Not only does the educational system teach falsehoods, the machinations of the system are such that there are seemingly no consequences to misguided living.”

The same attitude about saving versus spending took root in the United States in the early 1980s. Citizens became consumers. The only way for a country to achieve long-term growth is for its citizens to save more than they spend. These savings can then be invested within the country to insure that prosperity would continue for future generations. A country of only consumers will eventually collapse under the weight of debt and lack of investment.

Two generations of Americans have been brought up to believe they are owed a pension, owed tax subsidized housing, owed free healthcare and owed the right to happiness provided by Big Brother. The conviction that government can coddle and provide for all the underachievers, disadvantaged and un-ambitious in society has taken root like a weed. This belief is a fallacy.

The other fallacy that has been bought hook line and sinker by the American public is that American style democracy can be spread around the globe through force by utilizing the most powerful military in the history of mankind. In 2000 the U.S. expenditure on Defense was under $400 billion. The Obama 2011 budget proposes military spending of $895 billion. That level is 8 times the next highest country. The country that we are supposed to fear as the biggest threat to world peace, Iran, spends $10 billion per year on their military. This is 1.1% of the annual U.S. spending level. The “War on Terrorism” has cost over $2 trillion since 2001. Do you feel safer than you did on September 10, 2001?

The neo-conservatives like Dick Cheney, Donald Rumsfeld, Paul Wolfowitz, and Josh Bolton have used fear tactics to scare the American public into never ending war in the Middle East, Big Brother like “security” measures like passage of the Patriot Act, and visions of mushroom clouds if we don’t attack our perceived enemies before they attack us. The citizens of the U.S. have not heeded the wisdom of our founders:

“War should only be declared by the authority of the people, whose toils and treasures are to support its burdens, instead of the government which is to reap its fruits.” James Madison

The country has been in constant military conflict across the globe since the 1940s and Congress has never carried out their Constitutional duty to declare war. The military industrial complex and the politicians they control have subverted the U.S. Constitution in order to enrich themselves at the expense of the citizens. The United States of America in 2010 is Greece, but with the biggest baddest military machine ever conceived as our backstop. The only difference between our socialist state and those that are tottering towards collapse is that we are also burdened with policing the world. This guarantees that our empire will not collapse with a whimper, but with a big bang.

The U.S. welfare-warfare state is not the result of any one political party’s agenda. The Republican Party and the Democratic Party have cooperated to achieve this result. Republicans passed the largest entitlement expansion since LBJ in 2003. Democrats have just proposed the largest military budget in the history of mankind. It isn’t easy to run the National Debt from $5.7 trillion in 2000 to $13.1 trillion today. It takes cooperation and mutual ineptitude on the part of both parties to achieve such a spectacular result. $30 billion unfunded unemployment extensions are attached to bills to pay for the war in Afghanistan. If you vote against the bill, you are not supporting our troops and you want to kick people out into the street. The two sides pretend to offer alternatives to the American people, but their agendas coincide:

“Mystical references to society and its programs to help may warm the hearts of the gullible but what it really means is putting more power in the hands of bureaucrats.” Thomas Sowell

The hard truth is that every human life ends in a tragedy. There is no amount of money that can be spent by government bureaucrats to alter this fact. Baby Boomers can keep running on their treadmills, popping vitamins, and trying to stay a step ahead of the grim reaper, but the grave beckons. The real tragedy is that because of the fiscal irresponsibility of politicians and the Boomer generation, future generations of Americans will for the first time in U.S. history have a lower standard of living than their parents. The wealth of the nation has been frittered away by statists and war mongers. The current fiscal path of the country is unsustainable. The immediate actions required to avoid a catastrophic collapse are:
At least a 50% reduction in annual military spending.
A drastic scaling back of Social Security, Medicare, and Medicaid benefits based on age, means testing and instituting real market competition.
Scrapping the entire income tax system and replacing it with a VAT or flat tax.
Eliminating useless government agencies like the Department of Energy and Department of Education because they are complete and utter failures.
An across the board 25% reduction in every government program.
The elimination of the Federal Reserve and the linking of the U.S. dollar to a basket of commodities including gold, silver, oil, and agricultural products, in order to restrict corrupt politicians from spending money we don’t have.
These six steps are the talk of a crazy man. There is no chance of any being implemented today. We all know that the American way is to ignore imminent problems until they morph into a crisis. Unless we act now, this may be our last crisis. The choice is ours.

-James Quinn
The Burning Platform, financial collapse, depression, war

The Escalator of Life Is Going Down

We’re riding on the escalator of life
We’re shopping in the human mall
We’re dancing on the escalator of life
Won’t be happy ’til we have it all
We want it all

Escalator of life – up and down
Escalator of life – round and round
There’s 111 choices
Don’t listen to those little voices
I don’t let the guilty feeling shake me
You can have your cake and eat it baby

–Robert Hazard Escalator of Life

Americans have been on the escalator of life for the last 30 years. The escalator has been going up for the vast majority of that time. Since Ronald Reagan was President, the escalator has been moving upwards with only a few momentary breakdowns. We wanted it all. We believed it was our right to have it all. Americans did whatever it took to have it all. That meant an explosion of household debt promoted by bankers, the Federal Reserve, politicians, the media, and Presidents. We were dancing on the escalator of life for decades but our shoelace got caught in the escalator last year and severed our foot. We are bleeding to death as the escalator heads relentlessly downward. There are millions of Americans who have a guilty feeling about how they have lived their lives. They had their cake and tried to eat it too. Americans are now repenting by dramatically reducing their spending. The U.S, government is desperately attempting to convince Americans to get back on the escalator.

The financial system has stopped functioning because no one trusts anyone else. The rules are changed by the Treasury and Federal Reserve on a daily basis. It seems like every company in America has converted into a bank so it can acquire a slice of the taxpayer funded pie called TARP. The government has been using all the tools at their disposal to dig the country out of this hole. If they dig too far, the stimulus could blow up in a torrent of inflation.

Which Assets Are Toxic?

In the last nine years U.S. financial institutions became extremely creative with their financial “products”. They were encouraged by Federal Reserve Chairman Alan Greenspan who was sure that any regulation other than self-regulation would be counterproductive. In the bully pulpit was our first Harvard MBA President George Bush, proclaiming the benefits of free market capitalism while not being able to pronounce or spell derivative, let alone understand them.

Watching over the creative bankers was the eagle eyed SEC, which had just received accolades for the Enron and WorldCom scandals. This trusting bunch of morons, hoping to one day get cushy jobs on Wall Street, decided that the investment bankers should be allowed to leverage their assets 30 to 1, rather than the overly restrictive 12 to 1 that had been in place for decades. Their models, created by overly confident MBAs, assured them that nothing could go wrong.
The final piece of the puzzle was obtaining a AAA rating for these new “products” from the staid old rating agencies Moody’s and S&P. These two companies had a very predictable boring revenue stream. Their CEOs wanted a little excitement in their lives, and maybe, just maybe, big bonuses and stock options. They decided to jump head first into rating the new indecipherable products. They also had their cock sure MBAs creating models which assured them that all was well. Surprisingly, after being paid billions in fees, the rating agencies provided AAA ratings across the board to all of the new investment products.

The Wall Street geniuses peddled MBSs, CDSs, and CDOs, to pension plans, cities, states, foreign banks, foreign villages, and anyone else who wanted to get in on the easy money. With AAA ratings, no one bothered to conduct due diligence and understand what could go wrong. The amount of derivatives outstanding rocketed from $40 trillion in 2000 to $684 trillion in 2008. It has been reported that 80% of all Credit Default Swaps outstanding in 2008 were speculative. There was no hedging going on. Wall Street had become a Las Vegas casino. Credit default swaps totaling $440 billion were written by AIG. These were pure speculative bets and the American taxpayer is still paying off. The bill is up to $160 billion so far. The executives at AIG must have exceeded their loss goals, because the American taxpayer is paying $165 million in retention bonuses to executives of the unit that nearly collapsed the worldwide financial system. Why would anyone want to retain these executives? If these people were asked, “How do you sleep at night?” they would respond, “On a big pile of cash”.

The economy, juiced by low interest rates, mortgage brokers handing out loans like candy, investment banks packaging thousands of worthless subprime loans into AAA products, auto companies putting deadbeats in Cadillac Escalades with no money down, and consumers sucking $3 trillion of equity from their ever increasing home values, appeared unstoppable. Home values doubled in five years. The Dow Jones reached 14,000 in October 2007, Treasury Secretary Hank Paulson was touting the fundamentally sound American economy, and Federal Reserve Chairman Ben Bernanke said there might be a minor blip from slight weakness in the housing market. As the economy was sailing along at seventy miles per hour, it hit something in the middle of the road. A Bear Stearns hedge fund blew up. The Wall Street gurus and government bureaucrats assured the public that all was well.

Congress, the Treasury, the Federal Reserve, and two Presidents have tried to convince Americans that the financial system is no longer infected with toxic germs. They have committed $11.6 trillion of your tax dollars to try and make the system kissable again. It hasn’t worked. They can pour another $11 trillion into the system, and probably will, but the trust in gone. The American public will no longer trust anything they are told by Wall Street, the Treasury, the Federal Reserve or Congress. We’ve been lied to, fleeced of our retirement savings, and now told to foot the bill for the criminals on Wall Street for the good of the country. Enough is enough. The ruling elite from government and big business urgently want Americans to regain confidence and return to borrowing and spending. They again missed the train. Saving, frugality and living within your means are back. This will destroy entire industries built upon a foundation of overspending and debt. Too bad. Good old fashioned American individuality and love of liberty will revive the country, not TARP, TALF and whatever other programs the government tries to peddle.

Source: Barry Ritholtz

We know what has happened in the last eighteen months. We still don’t know what toxic assets still remain in the system we don’t know about. The banks’ balance sheets are a black box, they have billions in off-balance sheet “assets”, and the commercial real estate market is just starting to collapse. The ever optimistic cheerleaders on CNBC would rather extrapolate four up days in a row into a new bull market, than examine the facts staring them in the face. No wonder Jon Stewart had such an easy time obliterating Jim Cramer and the whole network. Banks were handing out construction and land development loans between 2004 and 2007 at twice the rate of residential mortgage loans. With Americans losing jobs at a record pace, corporate bankruptcies soaring, and retailers bearing the brunt of consumer deleveraging, commercial real estate loans will begin to go bad late in 2009 and through 2010.

Bad mortgage loans have been the primary driver of the financial crisis so far. The nice little pie chart that follows shows that residential mortgages make up only 26 percent of bank loan portfolios. Commercial, non-residential real estate and construction loans total 40 percent of bank loan portfolios. These loans will provide the next leg down in this death spiral. Anyone who can’t see this coming is just not looking.

The credit card losses are confined to a few major players. Citicorp (C), Bank of America (BAC), American Express (AXP) and Capital One (COF) will face the music when the credit card debt bubble bursts all over their faces. U.S. credit card defaults rose in February to their highest level in at least 20 years. AmEx, the largest U.S. charge card operator by sales volume, said its net charge-off rate, debts companies believe they will never be able to collect — rose to 8.70 percent in February from 8.30 percent in January. Citigroup’s default rate soared to 9.33 percent in February, from 6.95 percent a month earlier. Analysts estimate credit card charge-offs could climb to between 9 and 10 percent this year from 6 to 7 percent at the end of 2008. In that scenario, such losses could total $70 billion to $75 billion in 2009. Meredith Whitney estimates that Americans’ credit card lines will be cut by $2.7 trillion, or 50 percent, by the end of 2010. The pain has only just begun. Prepare to bailout more banks with your tax dollars.

Even though we know that adjustable rate mortgages were a major cause of the financial crisis, the storm has not passed. Just because the problem is obvious, doesn’t mean it is not a problem. The chart from T2 Partners produced about one year ago shows that we are now in a lull for adjustable rate mortgage resets. There will be another crescendo of resets in 2010 and 2011. When banks ask for more taxpayer money to sure up their balance sheets in 2010, Timmy Geithner will be wearing his best “shoulda guessed” face when he gets the call from Citicorp.

After a year of frantic juvenile attempts to revitalize our financial system with your tax dollars, the government has accomplished nothing but driving our National Debt to obscene levels exceeding $11 trillion, on its way to $15 trillion by the end of Obama’s 1st term. All of the stimulus, TALFs, TARPs, TAFs, nationalizations, guarantees and printing of dollars will eventually explode in the faces of our leaders in one toxic geyser. The events of the last week show how warped the world gets when government owns private businesses. The U.S. owns AIG. The CEO, placed there by the U.S., pays out $165 million in bonuses to executives who nearly brought down the worldwide financial system. Government officials are outraged and appalled going on every TV show they can find to register their disgust. They are so used to sitting on the sidelines and criticizing the coach, they don’t even realize they are the coach.

Last week, another government owned company, Freddie Mac, reported a quarterly loss of $24 billion and demanded another $30 billion of taxpayer money. I didn’t hear Barney Frank on CNBC outraged at those results. As the government socializes the losses of corporations and Ben Bernanke attempts to create inflation, the deterioration and ultimate collapse of our economic system is pretty much a lock. Only the timing is uncertain.

Do We Need To Change The Rules of the Road?
Americans, from the country’s founding, have always cherished liberty over dependency. Personal responsibility and self reliance had forever been the hallmarks of the American population. Since 1913 when the Federal Reserve was created and the Federal income tax was implemented, Americans have been slowly and insidiously made dependent upon the government and criminal bankers running this country. Government has taxed and borrowed to implement policies and programs that make people more dependent on them and increased government’s control over our lives. Bankers have marketed debt as the way for Americans to live the good life. Americans have become serfs, ever indebted to the lords of the manor in Washington DC and on Wall Street. Until Americans decide to choose liberty and freedom over relying on government to solve all our problems, the country will continue on its path to socialism and bankruptcy.

Since the start of this financial crisis, government bureaucrats, Congressmen, Federal Reserve chairmen and have tried to hide the debris of our economic system in the woods. Nothing has worked. Bad mortgage loans, bad car loans, bad commercial loans, and bad credit card debt cannot be hidden. They must be written off. Letting banks pretend it isn’t bad debt has just led to more uncertainty in the markets. The smoke and mirrors that Treasury and the Federal Reserve have used to fool the public into trusting the banking system have not worked. Now they want to change the rules of the road.

All attempts to change the rules have backfired. The SEC outlawed short selling to stop the stock market from going down. The market accelerated downward, with no possibility for short covering to stop the fall. Hank Paulson forced banks to take billions of taxpayer dollars whether they wanted it or not. This was supposed to bring confidence in the system back. It didn’t. The government took over AIG, Fannie Mae (FNM), and Freddie Mac (FRE), deciding they could run them better than the existing horrible managements. These moves have already cost the American taxpayer a quarter trillion dollars. With many more billions to be poured down these rat holes.

The financial system is gridlocked. Four lanes have suddenly converged into two lanes and the drivers are angry. The AIGs of the world went from selling plain vanilla insurance to making bets with every major bank in the world along with guaranteeing risky bets by these same banks. Fannie Mae and Freddie Mac went from providing liquidity to the mortgage markets so that average Americans could buy a house to a Democratic Party tool used to provide mortgage loans to poor Democratic constituents so they could win more votes in the next election. Investment banks went from investing in productive business ventures to creating fake credit instruments designed solely to generate monstrous fees and bonuses for executives.
The rating agencies Moody’s and S&P went from the boring business of rating corporate bonds and generating 10 percent annual growth to giving AAA ratings to indecipherable derivative products that were then sold to pension plans and schools. Mortgage brokers went from helping match worthy borrowers with the best mortgage to criminals pushing no doc stated income adjustable rate mortgages on people who could never possibly afford a home. Consumers went from utilizing credit for just home purchases with 20% down to utilizing credit for multiple home purchases with nothing down, utilizing credit for car purchases with nothing down, and utilizing credit to buy every electronic gadget, kitchen appliance, and other toys flaunted by neighbors. The rules of the road were changed during rush hour causing chaos and confusion. Until honesty, integrity, and morality are again restored to our financial and governmental systems, gridlock and distrust will reign.

Where’s My Net Worth, Dude?

Americans are wondering where their net worth went. They can’t find it anywhere. It dissipated into thin air. It never really existed. Does that make you feel better? American households lost $11.2 trillion of net worth in 2008, and net worth is now below 2004 levels. The 17.9% drop in net worth during 2008 is mind boggling and will have a drastic impact on the future trajectory of household consumption and saving. Nearly 25% of the loss in net worth was from real estate, and equities and mutual fund shares made up 50% of the loss.

The dramatic rise in net worth coincided with the biggest debt bubble in history. Home ownership reached an all-time high of 68% in 2005. Stock ownership is still in the 50% range, so the downturn in housing values is affecting many more people than the 2000-2001 dot.com collapse. As you can see, home values fall but the debt remains the same. With at least another year of falling home prices, the number of people underwater on their home mortgages will reach 25 million, or one-third of all the houses in the United States. You won’t hear Mustard Seed Kudlow or Mad Money Cramer telling you this.

President Obama and Democrats in Congress passed a $787 billion pork filled calamity that will contribute to an explosion of our financial system. Very little of this socialist’s dream will help the U.S. economy in 2009. Vast sums will be allocated to unnecessary make work projects throughout the country. Picture thousands of Ralphs taking their time on construction projects while six guys stand around watching one guy using a jackhammer. Every construction project in the country will be a union job. This means 40% more expensive and a 40% longer timeline. When the majority of this stimulus hits in 2010 and 2011, along with Bernanke’s humongous printing of dollars we will hear a rumble before inflation erupts across the globe.

Oh The Humanity!

The American economy hit debris in the road years ago. Instead of pulling over and taking care of the problems before they became a crisis, our leaders ignored the problems. Government overspending, ignoring $56 trillion of unfunded liabilities, funding over-expenditures with money borrowed from foreigners, not addressing crumbling infrastructure, not creating a cohesive energy policy, and over-reaching in empire building were the fuel that led to our economy bursting into flames before our very eyes. President Obama and his minions in Congress scream, “Oh the humanity”, and take your hard earned money and redistribute it to the fools who created the tragedy.

It’s My Life
Tomorrow’s getting harder make no mistake
Luck ain’t even lucky
Got to make your own breaks

It’s my life
And it’s now or never
I ain’t gonna live forever
I just want to live while I’m alive
(It’s my life)
My heart is like an open highway
Like Frankie said
I did it my way
I just want to live while I’m alive
‘Cause it’s my life

Better stand tall when they’re calling you out
Don’t bend, don’t break, baby, don’t back down

–It’s My Life Bon Jovi

The American people are at a crossroads. It’s our lives, not the governments. The country is headed on a path toward government running everything in our lives. Now is the time to stand tall. Barack Obama, Ben Bernanke, and Nancy Pelosi can not make us spend money we don’t have. We can force the painful restructuring of our economy on our politician leaders. They can stimulate, print, and urge you to spend, but we don’t have to listen. We can throw them out of office in 2012. If the new set of clueless morons doesn’t do what is right, we can throw them out too. We must heed the warning of Founding Father Thomas Jefferson.A government big enough to give you everything you want, is strong enough to take everything you have.

James Quinn, TheBurningPlatform.com