Over the Cliff and Through the Wood to Grandmother’s House We Go…

Well – not much has changed in Washington and it’s pretty clear real change will only occur with great economic pain.  And the bad news is, barring a miracle, this pain will be upon us soon and it ultimately will be extremely severe.

There is no way around the pain now rather it’s a question of how bad.  Do the right thing now by gradually reducing spending, gradually increasing taxes, stop attacking the private sector (grow jobs) and gradually reduce the size of government and the economy will not collapse. The pain will still be bad, but depression and collapse can be avoided.

Keep spending like drunken sailors and the economy will collapse and along with it the global banking system and economy.  In fact a severe market correction can collapse the derivatives market leading to very rapid cascading failure of the global banking system, which is why in 2008 the first thing that should have been done was to gradually unwind the entire derivatives market.

My guess if Congress and Obama can’t compromise is that we enter a very bad recession, which spirals downward into a depression over time.  And it will be an unwillingness and/or inability to deal with national debt that takes us down to near collapse.  To be certain the so called fiscal cliff is a rounding error in comparison to the $16 trillion debt growing at $1 trillion per annum.

It can also be that we go into a recession and the market sells off so badly that derivatives implode and we’re into a near collapse within 6-12 months or we keep spending and the death knell comes in two years.

None of this is negative thought or pessimistic rather accurately observing economic reality – the party’s over.

The future of the US and global economy hinges upon what Washington does in the next few weeks to months.  This isn’t to be arrogant as per the US being overly important rather Europe is hanging on for dear life, China is in great danger of revolution and the US badly failing takes everyone else down.

There must be a very bad gas leak in Washington as all players seem to be suffering from a lack of oxygen.  How else can their lack of compromise and selfishness be explained?

Obama is taking his ideas to the people via social media to go around the House, which is something he should reserve for going after lobbyists like in the medical industrial complex.  If ACA is to work then insurance, fraud , pharma, suing, edu costs, etc. all need to be addressed or ACA is DOA. 

All sides need to sit down in a closed room and hash out a compromise based on economic reality and not their ideologies or political futures – do the right thing for the country (of course this won’t happen).

The main issue is all bubbles collapse.  Hard to say when or how, but they all collapse.  Both tech and mortgages ultimately collapsed because there was no fundamental strength.  The same goes for the current government debt bubble.  It’s unsustainable and it will collapse.  Address it now and it will be less painful, but wait and add a few more trillion the collapse will be brutal.

Please don’t tell me things are rosy.  Both the bond and stock markets are being artificially propped up by the Fed and this will end very badly.

And the current denial of this by many matches the tech/mortgage denial – “oh it will never end.”

What is currently going on reminds me of a start-up at which I once consulted.

The start-up was loaded with drama.  There was always much ado about things that were of no real consequence as per growing the company.  The players thrived on the drama – it was worse than a telenovela.

Important issues were never addressed rather the parties just played business rather than did actual business.  And like in DC the players were all extremely well versed in and highly adept at playing politics and shifting blame away from themselves where it should have squarely landed.

And the blame shifting game worked for a while as the more adept players got others fired while they remained unscathed and continued on with playing business and wasting huge amounts of money without ever bringing in revenue.

Long story short the start-up ran out of cash, could not raise more and was shut down.  At the end of the day everyone lost and this is what is going on in DC.

Everyone is playing and not doing business and because they cannot compromise and do what is right for America – we are all going to lose.

To this point, I have seen articles suggesting that the Dems win either way – going off the cliff or not.

And the articles might be correct and as in the start-up let’s say that via printing or other manipulation the economy can be kept from crashing (not likely) and the Dems now run both houses come mid-terms.

Now like in the start-up there is nowhere to shift the blame as all your internal competitors are gone – then what?

It doesn’t matter because there are no winners.

The main problem in the US is far too many are economically illiterate or simply working too hard to make ends meet that they don’t have time to pay attention to DC’s shenanigans.

Whatever the case, we are being led off a very real cliff and while gravity may not apply in the rarified atmosphere of the Capitol it certainly does everywhere else on the planet.

Compromise and work as one or there will be nothing left to govern and as in a start-up 50% of something is better than 100% of nothing.

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2 comments to Over the Cliff and Through the Wood to Grandmother’s House We Go…

  • itaest

    I disagree on all counts. I posted your article because I value your participatoion but not because I agree with your opinions. The debt issue will get fixed just as it got fixed in the past. After world war 2, after Bush (father). My answer to your post is in the front page "Obama will not compromise".

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  • BC

    Fair enough.

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