Can governments heading for disaster turn around? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 3 December 2012
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Los Perros, Nicaragua

We missed a few days of news. Here in Nicaragua time slides by like a snake. It hardly rustles the leaves or disturbs the grass. There seems no need to check the news.

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Checking in over the weekend, we find little has changed. After the Obama election win was announced, stocks lost ground. Then, late last week, they recovered some of what they had lost.

Gold is still over $1,700.

What is important? What is going on that could affect our wealth and our lives? The papers are still talking about the fiscal cliff. This, from Reuters, brings us up to date.

    The S&P 500 rebounded from a 1 percent decline, gaining more than 20 points from its low after Boehner, an Ohio Republican, said he was optimistic that a budget deal to avoid big spending cuts and tax hikes can be worked out. President Barack Obama added to the good feelings, saying he hoped to get a deal done in the next four weeks.

    Whether or not those remarks reflect the reality of negotiations is another story. "The fiscal cliff is dominating the discussion, and short term, we're a little bit too optimistic on it being fixed right away," said John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York.
But will the fiscal cliff make any real difference? Probably not. The Republicans will compromise. The Democrats will compromise. The commentariat will describe the great workings of the democratic process...

...and the nation will continue on the road to destruction.

Why destruction? Because that's what you get when you spend a lot more than you make...and you can't stop yourself.

Our thinking on this issue has evolved. We're beginning to understand what we previously only guessed. When governments - especially democracies - head for disaster, they can't turn around. Because the farther they go, the more voters have an interest in going further.

Half of US families get money from the government. Half of the voters pay no taxes. And the more industries the feds subsidize, bailout or sponsor the more people - directly or indirectly - want to see the whole thing continue.

Check this out. The bubble in student debt is blowing up. These loans, backed by the US government, are going into default at an alarming rate:


But student debt is only a bit over $1 trillion. There's $85 trillion more.

Here's the story:

The real federal deficit for this year - including unfunded Medicare and Social Security obligation - is more than $7 trillion. That's 21 times the amount of additional growth for the same period. It is as if you got a $1,000 raise and spent an additional $21,000.

How long could you keep that up? Well...that's what we're going to find out. .

Meanwhile, the total debt, when you take Medicare and Social Security into account, is not the widely reported $16 trillion. It is $86 trillion...5 times GDP and going up fast. And that's also why the fiscal cliff babble is a waste of time. It is a pine needle in a forest. Insignificant. Trivial.

One way or another, the feds will have to default. How? Directly and honestly, by announcing to the world that can't honor their commitments? "Sorry, bondholders...sorry, Old People...we don't have the money we promised."

Or, will they take the easy way out...printing up new money to cover shortfalls until the whole system explodes?

Hope for the best, dear reader...but protect yourself from the worst.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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2 Responses to "Can governments heading for disaster turn around?"

Anonymous

Dec 3, 2012

"but protect yourself from the worst."

HOW ?

Like 

Sthithapragnja

Dec 3, 2012

Eq.Master Team,
With all humility fortified with abundant ignorancwe I am prompted to comment as under:

Years ago in a Leo Tolstoy novel(I do not know the actual name of the novel/story) I HAD READ THE STORY OF A VERY GREEDY FARMER WHO WAS GIVEN THE OPTION OF OWNING THE ENTIRE LAND HE RUNS ALONG (THE CONDITION IS THAT HE SHOULD RETURN TO THE SAME SPOT FROM WHERE HE BEGAN TO RUN)!! WHEREIN THE GREEN CROPS WERE STANDING, HE STARTED TO RUN AND THE FARTHER HE RAN THE MORE FERTILE FIELDS WERE NOTICED BY HIM. HE WAS SO GREEDY THAT HE WAS VIRTUALLY OUT OF BREATH WHEN HE WANTED TO RETURN TO THE PLACE FROM WHERE HE STARTED. FINALLY BEFORE HE
COULD COVER HALF THE WAY back to the starting point HE COLLAPSED and passed away!!

THE POSITION OF THE CURRENCY PRINTING OWNER IS ALSO THE SAME AS THE FARMER IN THE TOLSTOY STORY !!
I HASATEN TO CONCLUDE !!

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