Monday, February 01, 2010

Welfare Nation: Addiction, Denial and Magical Thinking

Any nation which borrows/prints 20% of its GDP every year is essentially a debt addict on welfare.

If you depend on borrowed money which will never be paid back and freshly printed notes for 20% of your expenses, you're on the dole. Since we will never pay it back, the borrowing of the money is just a sham; stripped of deception, it's welfare, a "gift" from future taxpayers to the current beneficiaries of Federal largesse and swag.

The Federal government will borrow approximately 10% of the entire U.S. GDP--$1.3 trillion-- for fiscal 2009 and another $1.3 trillion for fiscal 2010. Barring intervention from an alien race of superbeings, these stupendous deficits will continue until Doomsday (implosion of the status quo).

Additionally, the Federal Reserve conjured up another $1.5 trillion--$1.2 trillion squandered on mortgage-backed securities to prop up the housing bubble from its ultimate retracement, and $300 billion in direct purchases of Treasury Debt. Add in hundreds of billions thrown into Fannie Mae and Freddie Mac, and indirect purchases, loans, guarantees and other props, and the true extent of the "free money welfare" is staggering.

In our pride, denial and hubris, we as a nation still fancy ourselve a productive Empire. That is a falsity, a facade, a delusion we cling to the way an addict clings to his illusions: we're not addicted to debt, nosiree. We're just borrowing trillions of dollars every year to get through a "rough patch."

If trillion-dollar deficits are required from now until Doomsday, that's an addiction to debt. Claiming otherwise is the magical thinking of an addict in complete denial.

Let's set aside the pathetic bleatings of denial and the magical thinking which borders on psychosis for a moment and face the painful truth: what will happen should the Federal government stop borrowing and spending $1.3 trillion each and every year? What will happen when the Fed stops spending $1.2 trillion each year to prop up the housing market? What will happen when the Fed stops buying Treasuries to prop up the market for securities which will never be paid back at anywhere close to current value?

What will happen when the nation has to live within its means, without resorting to these trillions in welfare every year?

We all know what would happen: the U.S. economy, addicted to credit, debt and leverage, would crash.

Like an addict going cold turkey, there is no way to restore health except to end the addiction to borrowing and creating trillions in "free money."

What can we say about someone who believes that piling up more debt in an economy alrady crushed by debt will somehow create new demand for more debt and thus "consumer spending"? We would have to say that is magical thinking, the equivalent of thinking that one can eat cheesecake, Big Macs, fries and sodas every meal and not gain weight. It is magical thinking on a scale so colossal that it borders on psychosis--a complete detachment from reality.

Welfare, addiction, denial, magical thinking: these are not foundations of a healthy economy or mindset. They are a "sickness unto death," to borrow a phrase, an alienation, a hubris, and a state of denial so profound that the sanity of the addict/believer must be questioned.

That is the current mindset of the nation's leaders and much of its populace, who prefer the grand illusions of permanent adolescence, a childlike state in which they don't want any new taxes but they also don't want a single dollar of their entitlements cut, either.

Can there be any more profound detachment from reality than this childish demand that we live beyond our means indefinitely?

As spoiled, delusional teens eventually discover, adulthood requires realistic assessments and trade-offs; there is no free lunch, no "borrow/print trillions each year so I get every dollar of the swag that's mine." There will be consequences, amd denial, addiction to debt and magical thinking are not strategies with any great longevity.

It's painfully clear: any nation which borrows/prints 20% of its GDP either destroys its currenty or it defaults on it ballooning debts/obligations. There are no other choices in the road ahead.

The permanent adolescence of the American voters insures that every politician who dares to cut entitlements will lose, and every politician who seeks to raise taxes by $1.3 trillion will also lose. (As they should, in my own view. As always, the rentier-predatory Power Elites will largely escape taxation and thus the burden will fall on the dwindling productive class/small business, creating a feedback which will impoverish what's left of the productive citizenry and drive tax revenues ever lower.)

In response to this magical thinking, the politicos pander to the childish voters, promising that yes, Virginia, we can "borrow our way out of this," fund essentially unlimited entitlements and not raise taxes--in fact, we can cut taxes and reach the same magical place even sooner!

There is no way addiction, denial and magical thinking on a national scale will end happily.

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