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The Country Is Over

america us-sinking-shipEconomic Noise

Data are hard to deal with when your vision is on the wrong side of it. Those wanting to claim there is a recovery underway are having just this problem. These people either have no understanding of economics or they believe falsely that they can inflate “animal spirits” with their hyped reports and that will initiate a recovery.  

There will not be an economic recovery given the economic policies of this country. A recovery is not unlikely, I would argue it is closer to impossible if not impossible. The reasons for this position are not complicated. In short, the nation has become an out-of-control welfare state that is rapidly destroying the incentives to work or create jobs. Government policies appear designed toward this end. One doesn’t need a high IQ or  an advanced degree in economics to understand the problems.

There are innumerable factors responsible for the decline of the US. Only three important ones will convey why the economy is dying:

1. The rule of law and property rights are under attack. cyprusbankrobbery(2)

What do you really own? The depositors in Cyprus believed they owned what was in their bank accounts. They found out otherwise. Bondholders of General Motors believed they were protected by bankruptcy laws when GM was bankrupted by the government. They found out otherwise. Do you own your pension plans and IRAs. Well you always believed you did except now there is talk about confiscating a portion or all of these funds.

How much of your income do you own? For those doing well, let’s say 60%. But that portion is under attack with the “need” for higher taxes and “fair share” gobbledegook. What about Social Security? Although the government sold it as a retirement policy and told you it is yours, the government says in fine print it is not. That is their excuse for not treating it as a liability on their balance sheet.

The fact is that the rules are being changed at will by the side who has lots of guns. The number of rules and laws that have been changed or ignored in the past several years makes one wonder what laws will remain. We are  approaching the point where there are no rules which means there can be no society. Without cooperation, markets will cease to function efficiently or perhaps at all. Millions of people will starve to death under such conditions.

2. Obamacare has raised costs

The costs associated with Obamacare are still not known or calculable. The rules are still being written. Already there are thousands of pages. Even though we passed it as Speaker Pelosi suggested as a means to find out what was in it, we still don’t know as the rules are still being made up.

For sure the program is driving up the costs of medical care and driving down the quality. That is exactly the opposite of what was promised. Business firms face great uncertainty as to what this mandate will do to their costs and operating procedures. Obamacare is rising the cost of employees. When you penalize something, you get less of it. That is a prime reason why there is no employment recovery in this country.

Employers have frozen their hiring until clarity develops. The development of clarity is no assurance that they will change their behavior. If the costs are too high (and they appear to be for many smaller businesses who create the most jobs), then hiring will not return.

The effect on hiring is only one negative. Full-time workers are being made part-time in order that they be exempted from the Obamacare mandate. These steps are not something business wants to do, it is something they must do in order to survive.

3. Government policies have made the dole more lucrative than work

As we make it easier to get unemployment benefits for longer time periods, more people take advantage of the system. So too with food stamps and disability. All programs are at or near record levels in what is supposed to be four years into an economic recovery. For many, the benefits of becoming a government dependent exceed what they can earn. One study reported that a family of four, collecting all the benefits for which they were entitled, would have to earn $65,000 per annum to have the same after-tax purchasing power.

If you are a product of the government schools and are legal to work (i.e., have skills enough that you are affordable at the minimum wage or higher), at what point do you realize that there is no need to go through the hassle of actual work. You can live pretty well by staying home and taking advantage of the entitlements available to you. That is exactly what a larger and larger percentage of the population are realizing. In many cases, it is economically irrational to work.

This behavior creates a social pathology that only worsens over time. Kids learn from their parents that work is not necessary and the many ways to game the system. In this regard, look for this problem to become worse over time unless these programs are cut back.

There Can Be No Recovery

Despite all you hear coming from the government’s media megaphone, there is no economic recovery underway, nor can there be one. The policies in place ensure that one will not happen. Economics is not a top-down science as Keynesians and politicians want you to believe. You can throw as many Fed dollars into the system or devise innumerable government stimulus programs. These are all top-down. Economics is a bottom-up process that starts with individual decisions and behavior. Individuals respond to available choices and incentives. They act in their own self-interest not in the manner in which some government planner wants them to act. Top-down programs do not affect the incentives of the individual decision-makers.

We raise the costs on those who work (higher taxes) and the businessmen who provide the jobs. One of the basic laws of human nature is that when you penalize something or make it less pleasant, people will want less of it. It is not a mystery why business is not hiring and the number of workers is declining. The return to both is declining as a result of government policies.

We raise the rewards for not working. Another basic law of human behavior is that when you increase rewards for a particular kind of behavior, you will get more of it. It is not a mystery why more people are choosing the dole than ever before. Government has encouraged them to do by providing higher rewards.

Add in the regime uncertainty associated with unstable or unpredictable laws and regulations and you have the perfect storm. There is no incentive to hire. Business hunkers down not knowing what is coming their way next. They understand they are targets of this Administration. It is unlikely that there will be any improvement on this fron while Obama remains in office. This behavior has nothing to do with politics. Even businesses headed by Democrats are behaving in this fashion. It is self-interest as in the desire to survive that motivates this behavior.

Why The Economy is Dying

As government grows the private sector shrinks. As the private sector shrinks there are fewer goods and services produced (government produces no goods and few services). I believe it was Dick Armey who described this situation with the wagon analogy: there are more people riding in the wagon and fewer pulling the wagon. As the wagon becomes heavier, the remaining pullers must work harder to move it.

The pullers must support the riders. Government does not support the riders or anyone else for that matter. Whatever government has it has taken from the pullers. Whatever it doles out it must get from taxes, borrowing or printing new money. Regardless of which means it uses, it is all coming from the pullers. They pay the borrowing back. They have less as a result of higher taxes. They are made poorer by the rising prices from the printing of money.

As the burdens increase on the pullers and the benefits increase for the riders, more pullers decide to ride. The truly creative and talented can always make enough money to continue to work rather than ride. However, when their efforts can be expended in other countries that penalize them less, at some point they no longer pull the wagon. They leave the country to climes where they are treated better.

Each increase in government spending means requires more money from the private sector. That means greater distortions in the incentive-disincentive calculus that produces fewer people pulling the wagon. Now fewer people must support more non-producers. Every time someone gets in the wagon, the burden on the productive sector increases. More must be extracted from a smaller group to serve the increasing riders.

That is what is happening in this country. If it is not reversed, the economy will stagnate and eventually implode. This conclusion is dependent upon nothing more than simple arithmetic. How bad is the imbalance today? Tyler Durdenprovides some information (my emboldening in red added):

The punchline: 110 million privately employed workers; 88 million welfare recipients and government workers and rising rapidly.

And since nothing has changed in the past two years, and in fact the situation has gotten progressively (pardon the pun) worse, here is our conclusion on this topic from two years ago:

We have been writing for over a year, how the very top of America’s social order steals from the middle class each and every day. Now we finally know that the very bottom of the entitlement food chain also makes out like a bandit compared to that idiot American who actually works and pays their taxes. One can only also hope that in addition to seeing their disposable income be eaten away by a kleptocratic entitlement state, that the disappearing middle class is also selling off its weaponry. Because if it isn’t, and if it finally decides it has had enough, the outcome will not be surprising at all: it will be the same old that has occurred in virtually every revolution in the history of the world to date.

But for now, just stick head in sand, and pretend all is good. Self-deception is now the only thing left for the entire insolvent entitlement-addicted world.

Mr. Durden’s article is worthwhile and informative. I encourage you to read it in its entirety, including the PDF attached.

lawrenceIs The Decline Inevitable?

Of course not. As Lawrence of Arabia stated: “Nothing is written.”

The Economic Solution

The solution to solving the problem is quite simple for an economist. Merely reverse the process. Make it attractive for people to jump out of the wagon and begin pulling. For businesses, make it attractive for them to hire. Make it unattractive to be on the dole. Reverse the growth of government and you increase the size of the private sector. More capital is made available for productive activities rather than being squandered by government. Talent stops leaving the country when they are treated more favorably here, whether this be via lower taxes or less onerous regulatory burdens. Then, get government out of the way and let markets solve the problem.

The Political Barrier

For the political class, the solution borders on the impossible. Politicians have bribed the citizenry with goodies for votes. They have sold the notion that government is responsible for all good things. The economic solution runs counter to everything that politicians have peddled. Further it reduces their power and ability to retain office, at least in a manner in which they are accustomed. It shrinks their perquisites. It shrinks their vote-buying ability. In short, it is virtually impossible for them to go along with such a solution.

What politicians thrive on is what created the current problems. Reversing this behavior is alien to them. They would not know how to behave under such conditions. Yet the economic solution is the only solution!

Do I expect politicians to change and save the country? No! Is it possible they could? Probably not, but “nothing is written.”

http://www.economicnoise.com/2013/04/05/the-country-is-over/

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8 Responses to The Country Is Over

  1. Toecutter says:

    Nothing will change except for the worse.

  2. Jayme says:

    This is not an easy web page to read from Duke but Oswald Spengler seems to have believed that such an event is inevitable. He believed we reached our Autumn last century. I’m not sure what the timing means but it seems to me that winter is here or fast approaching.

    “All cultures come to a Civilization phase, an autumn when this breaks down. Mega-cities are characteristic of this time. Politics is motivated by money, and move through Imperialism and the Period of Contending States to Caesarism, a period of despots. Science no longer reaches certainties. People no longer accept common principles or goals, they fight all rules from the past. The arts, rather than working in ways that seem obvious to the artists and the people, follow fashions with constant changes of style. Later in this culture after a period of atheism, people turn to a religious renewal based on the religion developed in the spring of the culture.”

    Oswald Spengler. The Decline of the West.
    http://people.duke.edu/~aparks/Spengler.html

    Thomas Cole, who preceded Spengler by almost a century, painted a beautiful collection on the Course of Empire as a warning of the course of empire to the fledgling America.
    http://web.sbu.edu/theology/bychkov/cole.html

    There’s a very nice video on the Thomas Cole on this website.
    http://www.thomascole.org/

  3. ToM says:

    The economic solution? wTf?

    The economic solution is to eliminate the Federal Reserve/Central Banking system, and the Zionist sociopaths who own them. Jail the bankers and fire the politicians.

    Some people think what’s going on can be corrected? WTF again. What’s happening is criminals who are dismantling the middle class…on purpose. NO accident…no trying to figure out what’s what…it’s called a ponzi scheme, a pyramid scam…it’s being enslaved by bankers and their criminals institutions called banks.

    You can dress this economic collapse up with all sorts of analysis and Keynesian this and Bernanke that…it all comes down to a small number of criminals, trying to start a world war or another fake terrorist attack, like 911…to cover up their crimes and keep the sheople paying into their ponzi scheme.

  4. uninformedLuddite says:

    I know people that left school and went straight onto unemployment benefits. These people have NEVER worked and have been getting the dole for thirty plus years. The current ‘pay’ for being unemployed in Australia is about $230pw (approx.$235US). That is before you start to adding rent assistance, green energy subsidies, and whatever other subsidies I don’t know about.
    How can any society survive when it gives away such a lot of money to bludgers. I am not talking about those that use benefits between jobs or have a real(not fraudulent) need.
    For sake you can claim a benefit if you beat your wife. Seriously I can go to the local Centrelink office and tell them I need money to move out as I beat my wife and I get $200 that day. Just amazing.

  5. michael mazur says:

    Finance is art, not science.

    Recovery can commence almost immediately by Rabbi Ben Bernanke going about, in disguise, amongst the camps of homeless and handing to each of them a brick of $100 bills.

    Because there are too many such camps, he will need to send out a thousand such as he, each with a sack of such bricks.

    Absolutely no publicity, and watch what happens.

    Three months from now, repeat in other camps.

    As always, deluded money hoarders will eventually grasp all that money to add to their already huge pile of fiction, and not spend it.

    Let them secretly play with the equivalent of old newspaper cuttings.

    Economy begins to tank. Expected signal we are looking for.

    As all money is fiction, Rabbi Ben can summons his stealthy staff to once again venture out to all the uncouth places in search of people who will not hoard, as their needs are greater.

    This will work since money is created out of nothing, therefore it can be just as easily withdrawn – meaning it never happened ! So give it to those who will immediately put it into circulation through addressing their material needs.

    Because this will work, it won’t be effected since the goal of Rabbi Ben is the absorption of America into the North American Union, and to do that conditions of life first need be brought down to those prevailing in Mexico, and in the rest of South America.

    Not convinced ? Take hold of a container load of confiscated drug money before the banks and govt divvy it up amongst themselves, never to be seen again, and hand it out like i have described above.

    Absolute economic magic.

  6. David2 says:

    The key to understand is interest. Money comes into existence when you borrow and ceases to exist when you repay this is fractional reserve banking. However the interest is not created, it is a levy a tax on your wealth over and above money creation.

    That is why the IRS was created in 1913 same year as the private monopoly Federal Reserve, the IRS is there to collect the interest as a levy as a tax on your wealth to pay the bankers on their money creation borrowed by your Government.

    Government loans are rolled over and interest compounds to the point that there are not enough tax payers or enough wealth to service the interest. At this point the Government is insolvent.

    The coming collapse is a collapse of this ponzi debt system. There will be no Federal Reserve or banker debt forgiveness, all paper assets are debt instruments and you will lose them all in the process of the collapse of the DEBT SYSTEM! Period. Your homes will be foreclosed unless you have wealth such as monetary metals outside the debt system to service the repayment.

    The new system cannot be based on debt, it must be full reserve, it will be cashless, no longer will credit be extended to purchase property, welfare will be unaffordable. Under the communist regime all will be impoverished apart from the great bankers and their chosen oligarchs like Monsanto and funds chosen to buy up all farmland and homes.

    Think what it must be like to live in Palestine and a glimpse of the future will make sense for you, your children, their children and in turn for their children’s children’s children.

    In Orwell’s 1984 the communists won!

  7. Mike says:

    The work ethic in the US tanked when people of my generation watched their fathers being laid off enmass from corporations they’d given most of their good working years to. Only to be fired with their retirement plans heavily diminished or even completely gone! Who the f#@k in their right mind is going to have any type of loyalty to their job knowing that the work they are doing is not appreciated and beither is the position they fill. There is one word that sums up why this country went down the shitter and that word is GREED. Period! Greed from the top all the way down to the bottom of the social structure. The working class deciding that living way beyond, not just their means, but exorbantly beyond anything rational. This lifestyle, of course, was sold to them at interest by the credit card pimps who were on every street corner pimping their diseased enslavement to every person that walked by. As for thinking you own anything, here is a fun fact to ponder on: You may own something if you traded it for a commodity such as gold or titled property and can prove it or inherited it and whatever it is as long as it’s not just money and it has a title then it might be truly yours. Anything, and I mean ANYTHING, you purchased using federal reserve notes (all digital transactions and credit card purchases are considered as reserve note purcgases as well) is legally and actually owned by the Federal Reserve Banks that issue Federal Reserve Notes. It is well known that in a court of law the issuer of a promisary note that is accepted as payment for goods, services and properties is the actual owner of said goods and properties not the person spending the notes! So even if you are convinced otherwise and you paid your house off by working hard for those thirty years to pay that mortgage off and you have to go to court over some property rights problem, You will sadly find out who really owns the house you are living in and that you only have limited renters rights concerning the house you thought you owned but actually it’s owned by the FED. Using issued promisary notes is a contractual agreement therefore none of your constitutional rights are applicable to your legal standing as to what you own and don’t own. Everything you truly own will have a title of ownership. If you only have a deed and not a title then you don’t own that property, the FED does. Nice huh? Just goes to show how little Americans actually care about prosperity and the health of the nation they once had a true share in when they, the people, were still the government. Those days haven’t exsited now for 100 years. Ever since our implied consent allowed congress to put our very bodies up as collateral, in the for of a bond, for a usury loan that has never had the principal paid down on it because you can never pay off a usury loan in the first place. This is why usury is a crime, it takes ownership of the people in debt to it. The american dream is to be enslaved and entertained all at the same time. Wake up…. Wake up…. WAKE THE F#@K UP!!!!!

  8. Mel says:

    rampant homelessness

    increase in crime esp. property crime

    drug and alcohol addiction through the roof

    prostitution aka massage parlors popping up everywhere

    police shootings almost as if they’ve been given the green light

    it truly is over

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