America is going broke – while Congress worries about getting re-elected...
THE HEADLINE in Tuesday's USA Today tells the tale, says Bill Bonner in the Daily Reckoning.
"US owes $62 trillion."
Beneath the headline was a photo of Congressman Anthony Weiner sobbing.
Poor man, we thought, he's taking this too personally. It's not his fault the US is so deeply in debt.
But Mr. Weiner doesn't give a damn about the US going broke. He wasn't weeping about the fate of the nation, but about his own fate, his own pathetic career. Now that voters know what a silly creep he is, he's afraid he could be kicked out of the House. As for his campaign to replace Michael Bloomberg as mayor of New York City, it will have to wait until voters forget!
There you have the whole story, dear reader. America is going broke. Congress is worried about getting re-elected. Do you need to know more?
USA Today goes on to report that the total of America's debts and unfunded obligations – which the newspaper computes following generally accepted accounting principles – increased by $5.3 trillion last year and now comes to $534,000 per household.
Okay, so let's do the math. The average household has about $45,000 in income…and about $30,000 in 'disposable,' after-tax income. If the $534,000 were looked at as an additional mortgage, at say 5%, it would cost about $2,200 a month…or about $26,000 per year.
So, let's not bother with any more math. The feds have loaded the average household with so much debt that there is no way it can keep up. It would require almost all its disposable cash to do so – leaving almost nothing for food, transportation, housing, and everything else.
In short…forget it. This debt is not going to be paid.
Well, then, what will happen to it? Easy answer: it will disappear. Retirees will not get what they hope for. Bondholders won't earn the kind of returns they hope for either.
That's just the way it is.
'Okay, Bill, you say retirees won't get what they expect…'
That's right, but they'll get what they deserve!
'Ha, ha…you're so funny… But let's get serious. Did you bother to look over at the editorial page of USA Today? If you had, you'd see that the retirees aren't going to give up without a fight.
'There are letters there from military retirees. To make a long story short, they claim they deserve every penny. And how can you deny them? They say they've paid for their benefits in "blood and sacrifice."'
Yeah…yeah…nobody ever wants to give up nuthin'. Especially when they didn't earn it. And military retirees are the worst. They pretend that if it weren't for them our wives would all be speaking Vietnamese.
But what's so bad about speaking Vietnamese?
Seriously, the military has contributed mightily to the bankruptcy of the nation. They fight phony 'wars' at great expense…and then we pay the residual costs for many decades. And who wants to say 'no' to an old soldier with a missing leg? Or an old teacher with a facial tic? Or an old firefighter with a drinking problem?
Not us. And not Congressmen either. Remember, they want to be re-elected. And you don't get re-elected by saying 'no.'
And now, we have a whole new class of people nobody is going to want to say 'no' to – America's middle class.
Guess which houses have lost the most value? Low-priced, middle and lower class, houses. The homes of the rich have lost much less as a percentage of their pre-crisis values.
Guess who have lost most jobs and income? Again, the middle and lower middle classes. There are now 25 million people in the US who lack full time jobs; very few of them are bankers, lobbyists or lawyers.
Guess who has the hardest time paying higher gasoline and food prices? You guessed it!
And guess what consumers this headline refers to:
"Economic Perfect Storm Halts Consumer Spending."
Not shoppers at Neiman Marcus, Saks, or Tiffany's. We're talking about people living paycheck to paycheck, struggling to keep up with rising living expenses.
Yes, dear reader…the middle and lower-middle classes are taking a beating.
Yes, the US is going broke, too. But that is far in the future. We need to help these people now! That's what Barack Obama says.
Poor Barack Obama. He seems like such a nice guy. He's probably even a distant relative. He's Irish too, you know.
But what's a nice guy like Barack doing in a place like this?
"I am concerned about the fact that the recovery that we're on is not producing jobs as quickly as I want it to happen. Obviously we're experiencing some headwinds."
The president faces a re-election campaign in the midst of a Great Correction. The wind is in his face, not at his back.
Of course, he seems to have no idea which way the wind is blowing. Yesterday, he told the nation that it did not face a 'double dip' recession. How did he know that? Of course, he has no idea.
And when the double dip comes…and the triple dip…and the quadruple dip…
…and when the election approaches…
…do you think President Obama and Congress will say 'no' to America's middle class voters?
Mr. Market is wily, cunning and cruel. He always tries to disappoint the greatest number of investors. So what will he do now?
What do most investors expect?
Many think the economy will recover slowly…with slowly rising stock prices.
Many others think inflation will pick up…with falling bond prices.
What if neither of those things happens?
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