Our Sinking Economy and the Worst To Come

October 19, 2007

The economy is sinking because we have both inflation and recession colliding to weaken our basic economic structure. The confluence of the two will mean the middle class and working poor will take the hit while the rich will continue as before, getting richer.

There are two primary factors to consider, the inflation and debt load. First the inflation factor.

Our primary inflationary factors are energy and food.  Their effects are being hidden by a wily government not willing to tell the truth. Incredibly, the federal government no longer includes food or energy prices in the inflation index so their reported inflation rate is misleading and low. Unfortunately, energy and food are extremely important and excluding them makes things look better than they are. Hiding the inflationary problem will not make it go away, it simply delays the inevitable to a time when people wake up and realize inflation has taken all their wealth and are almost bankrupt.

Right now, our primary inflationary factors are colliding with a primary recessionary one, the nation’s massive and unprecedented debt load which is at historic levels brought on by greed and refusing to take responsibility at all levels. The following will define this problem:

First, the nation has a national debt of just over 9 trillion dollars. In 2000, the debt was less than 4 trillion and it took over two centuries to accumulate that, but in seven years, the debt has more than doubled. Even subtracting out the Iraq War costs of about 460 billion, the national debt has easily doubled in that short time. The problem with debt is that it must be serviced by paying interest on it and this weakens the economy.

 

Further, businesses in general have amassed debt to meet demand generated by easy consumer debt fueled by our financial sector which recklessly loaned money to people who could not afford it. Business was wonderful the past few years but it cannot last and it isn’t.

 

Finally, the average American has accumulated more than $18,000 in consumer debt and household debt as a percentage of assets is at an all time high.  Plus, consumer savings accounts and saving rates are extremely low so even a minor income disruption would mean almost immediate financial failure for millions.  With mortgage loans added to this mix, we are truly at a catastrophic point in our economic history.

Unbelievably, we are a nation which now believes debt is wealth. This deceitful concept was created in the past five years by financial forces willing to provide money through loans to as many people as possible who wanted more things. Their motivation was greed and they hoped to make a fortune before everything imploded due to loan defaults which they knew would happen.

Our debt based economy will fail because it has little foundation in economic responsibility and stability. To compound our troubles, the overall asset value is shrinking especially in housing which has been a cornerstone of our economic stability.  This makes debt from all sources an unsustainable burden.

Our economy is a con game of epic proportions aided and abetted by financial institutions, Congress, “Big Business” and the White House. This is a scam the Mafia would be proud of in their heyday. 

Unfortunately those who will pay the bill will be the regular citizen, barely hanging on financially because of inflation, hoping they won’t be laid off from their job they desperately need to service their debt.

But wait, it gets worse.

The next step in this process will be the selloff of retirement and long term savings assets by those squeezed to the brink of bankruptcy because of defaulted mortgages, consumer loans and unemployment. This will help in the short term but eventually our sinking economy will bottom out. Our reliable and stable economy built up in 200 years will be gone, sold to the wealthy.

We will find ourselves a lot poorer, in a job that pays less with fewer or no benefits; we will all be willing to work longer for less. Our bank accounts will be empty and we will have to work until we die.

The rich will be richer and they will have millions of indentured servants serving them. To them, debt is power not wealth. They know better and we should have.