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Insolvency

There Is No Way Out

It is nearly impossible for the average person to comprehend the damage the US government has done to the economy. Regulations have harmed business (and consumers). The welfare state is sapping the energy from the productive sector. Growth is below par and will continue to under-perform in terms of historic norms. The standard of living has slowed and will soon turn negative. Per capita income and wealth are stagnant or down. Unemployment is grossly and deliberately understated. It is difficult for the layman to grasp what has happened or that the future will get worse.

Easier to understand is the debt burden imposed on citizens. The numbers themselves are not comprehensible. Few understand what a billion dollars is. Even fewer have any understanding of what a trillion is. Nevertheless, the rate of deterioration is apparent as these debt numbers accelerate. Regardless of how much you understand, there is one thing that can be stated unequivocally: There is no way out of the debt problem other than massive defaults.

No economic theories or policies are able to avoid this ending. The rules of mathematics now control outcomes.

There is one possible solution which would require immediate and drastic cuts in government spending. Simpson-Bowles $4 Trillion target over a ten-year period is meaningless. It doesn’t alter the spending curve. Cutbacks of a trillion or two every single year, starting today, are required. The budget must be balanced and surpluses generated to have any hope of avoiding sovereign bankruptcy.

No politician is able or willing to address this problem. Attempting to solve the problem would be political suicide for the politician or party that tried. Civil unrest would break out everywhere. Hence we get lip-service or BS solutions which are meaningless. They only extend the game a bit longer while ultimately producing more pain.

To understand the magnitude of the debt, this list from Economic Collapse is useful. Read it to understand the hopelessness of the situation:

#1 It took more than 200 years for the U.S. national debt to reach 1 trillion dollars.  In 1986, the U.S. national debt reached 2 trillion dollars.  In 1992, the U.S. national debt reached 4 trillion dollars.  In 2005, the U.S. national debt doubled again and reached 8 trillion dollars.  Now the U.S. national debt is about to cross the 16 trillion dollar mark.  How long can this kind of exponential growth go on?

#2 If the average interest rate on U.S. government debt rises to just 7 percent, the U.S. government will find itself spending more than a trillion dollars per year just on interest on the national debt.

#3 If right this moment

Measured Properly, Things Are Much Worse Than You Are Being Told

Little the government does is efficient or effective. As this becomes more apparent to increasing numbers of people, government resorts to propaganda and lies to hide the true condition.

Nowhere is this duplicity more prevalent than in the reporting of economic information. Anyone with above a room temperature IQ marvels at the claims that employment is improving or that the unemployment rate is going down. Similar amazement occurs with other economic claims which contradict every day experience. Reported inflation statistics is just one example of the contradiction.

Statistical methodology is routinely changed to make numbers look better (or less worse). Collection techniques are changed for the same reason. None of this chicanery is new. It began with President Kennedy on a small scale and then accelerated under his successors. Sometimes the government outright lies in order to present things in a better light.

Two major areas, little understood by most in the public, are especially egregious:

Gross Domestic Product

Government accounting for GDP is filled with questionable practices to make the numbers look better. According to Shadowstats.com, GDP over the years has been the beneficiary of “Pollyanna Creep” which he describes as follows:

… where changes made to the series invariably have had the effect of upping near-term economic growth. Whether the change was to deflate GDP using “chain-weighted” instead of “fixed-weighted” inflation measures, to capitalize rather than expense computer software purchases, or to smooth away the economic impact of the September 11th terrorist attacks, upside growth biases have been built into reported GDP with increasing regularity since the mid-1980s.

The effect between government reported GDP and John Williams’ adjusted GDP “reflects the inflation-adjusted, or real, year-to-year GDP change, adjusted for distortions in government inflation usage and methodological changes that have resulted in a built-in upside bias to official reporting” and have become substantial over the years. Graphically, the two measures are plotted below:

According to Mr. Williams, adjusted GDP has been stagnant or declining since

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