My Future's So Bright: 80% Cut In Spending?

When I wrote an introduction to the Grant interview I posted Saturday I mentioned that the federal government being forced to cut expenditures by 80%. I said it was not a good thing. My friend Doug Young said this in the comments.

Wow! And 80% cut in federal spending? Something a libertarian can only fantasize about. If that happened, the greatest economic boom in American history would result. Just look at post-WWII. No one would go hungry. No one would go without decent medical care. Old people wouldn't get kicked out of their homes. Rather, with government out of the way and prosperity abounding, charity would be widespread, and less needed. One can only hope.

While I would in the abstract agree that transitioning to a smaller government is desirable, and inevitable, the path to get there is dark. For while I postulated a scenario with 80% spending cuts, this same scenario says that there will be no tax cuts. So the result would be like this.

A senior now receiving $1,000 a month social security and having 90% of their medical bills paid would now get a check for $200 and only have 20% of their medical bills paid. The federal government has turned seniors into dependent clients of the government. The effect would of such cuts would force most seniors back to living with their children. Think about it. You are in your 50's, your kids are finally gone and suddenly up to four people suddenly move in. In our divorce ridden society the parents might not even be married anymore, or worse the now divorced parents might have to live in the same household with their ex spouses new spouse!

No, it will not be pretty.

The difficulty is the libertarian expectation that the current working generation will simultaneously support the current retirees while saving for their own retirement. Most people would not be able to do it. Factor in student debt, oil prices skyrocketing, and state government pension costs, (I read that Illinois that each household owes $50,000 in costs for this expense), and we are truly ******.

Sorry for making you think a bad word, but I could not think of a word strong enough to replace it.

I have been told I am pessimistic. Maybe. I have even said I am guardedly pessimistic, as I still hope we can limp our way through this.

I remember the pop song from the 80's, "Our Futures So Bright, I Gotta Wear Shades."

The song is actually a portrayal of a quite horrible future. I did not get the point of the song in the 80's. I do now.

Grant Interview

This is more raw footage from the documentary Bubble. 

Grant is something of an expert on interest rates. One interesting point Grant made was that if interest rates returned to a more normal rate of 5%, then in order to pay this interest the Federal Government would have to cut spending by 40%. When this is added to the fact that we should also cut spending by 40% right now to balance the budget, we have a potential disaster of 80% cuts in spending. 

I am something of a spending hawk, but even I find this appalling.

I am not worried about the supposed fiscal cliff, I am worried about some combination of factors that leads to a fiscal tsunami if nothing is done in the next 2 to 6 years.

Bubble

The upcoming documentary Bubble has posted some of the raw footage from various economic pundits used in the documentary. I will post this footage today and over the next week.

 

Today the footage is from Marc Farber. 

 

I mostly agree with Faber, but he did make one error. If you borrow money for a house and lose the house to the bank, you may still be responsible for the debt. It depends on the state. In Missouri you are responsible; in California you are not unless you refinance.

Economic Video

I agree with John Mauldin in this video. The low interest rates can not last. We will have inflation; but first we will have deflation. BTW, I see no reason to buy any of these economic newsletters that John is selling. Most people do not need it. Buy "junk" silver instead, then maybe make investments. 

The Corporation

Remember that the fact I post this does not mean I agree with it. I think we can place a lot of our problems on corporations where ownership and control are vested in different people. I do not agree with the solutions that these producers would suggest, but I do agree with them on the problem.