Economic Collapse is Coming and Obamacare Will Finish it Off
“Masked youths…attacked the head of Greece’s largest trade union while addressing the crowd, and hurled stones at the police. It suggested that Greece sell Corfu…and that Greeks get up earlier and work harder.
Iceland: 93% of voters cast his ballot against a bailout plan. Why shackle common voters to the banks’ losses? The plan was so outrageous and so unpopular that Iceland’s normally compliant Prime Minister called for a referendum.
Insurrection is in the air. In England, government employees are preparing the biggest strike since the ‘80s. In America, dissatisfaction with Congress is at record highs; four out of five of those polled say, “Nothing can be accomplished in Washington.”
There are more clowns in economics than in the circus. Economists enjoyed the illusion of competence and pretend to know what they were talking about. The new theory gives everyone what they most wanted. Politicians could spend even more money that didn’t belong to them. Consumers could enjoy a standard of living they couldn’t afford. Financial industry earns huge fees by selling debt to people who couldn’t pay it back.
Never before had so many people been so happily engaged in acts of reckless larceny and legerdemain. But as the system aged, its promises increased. Beginning in the ‘30s, the government took it upon itself to guarantee the essentials in life - retirement, employment, and to some extent, health care. These were expanded over the years to include minimum salary levels, unemployment compensation, disability payments, free drugs, food stamps and so forth. Households no longer needed to save.
As time wore on, more and more people lived at someone else’s expense. Lobbying and lawyering became lucrative professions. Every imperfection was a call for legislation. Every traffic accident was an opportunity for wealth redistribution. And every trend was paid for by government.
Banks invented subprime loans. By 2005 even jobless people could get mortgages. Then, the bankers found ways to hide debt…and ways to allow the public sector to borrow more heavily. Goldman Sachs did for Greece essentially what it had done for the subprime borrowers in the private sector — it helped them to go broke.
All thought they were getting something for nothing, this economic model enjoyed wide support. But now that they are getting less than promised, the masses are unhappy. Half the US states are insolvent. Nearly all of them are preparing to increase taxes. In Europe taxes are going up. Services are going down. Taxpayers are being asked to pay for the banks’ losses…and pay interest on money spent years ago. Until now, they were borrowing money that would have to be repaid sometime in the future. But today is the tomorrow they didn’t worry about yesterday. So, the patsies are in revolt.
Several countries are already past the point of no return. Even if America taxed 100% of all household wealth, it would not be enough to put its balance sheet in the black. And Professors Rogoff and Reinhart show that when external debt passes 73% of GDP or 239% of exports, the result is default, hyperinflation, or both. IMF data show the US already too far gone on both scores, with external debt at 96% of GDP and 748% of exports.
The rioters can go home, in other words. The system will collapse on its own.
Regards,
Bill Bonner
The Daily Reckoning