Charge, Charge, Charge….
Courtesy of Karl Denninger at The Market Ticker
…. until China takes the credit card away!
President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid "massive layoffs of teachers, police and firefighters" and to support the still-fragile economic recovery.
Uh huh.
Where was the restraint during the last decade on hiring those teachers, police and firefighters? Missing, that’s where.
How many cities, counties and states have permitted public employee unions to ram through pension and pay packages that result in retired police and firefighters pulling pensions of over $100,000 a year, often retiring at 55 due to their "hazardous" profession?
Sustainable? Who cares.
How many teacher contracts have contained pay raises for the last several years, including the last two years while there has allegedly been no inflation and private-sector jobs and wages have contracted? All of them, right?
Heh, our local middle school was still able (this year) to spend $10,000 on Nintendo "Wii" game consoles and flat-panel TVs along with game "dance pads" – for "physical education."
Sure, you get exercise playing said games. You also get them from a pair of running shoes on the track or a game of dodgeball.
Which is more cost-effective – a half-dozen dodgeballs or a half-dozen Wii game consoles, flatscreen TVs and a couple of dozen "dance pads"?
Does the school care? Hell no – not any more than they did at Bluewater Elementary, which a few years ago built a new wing for students. The wing was needed. The $30,000 smart boards and flatscreen TVs in the corner, which display the school clock for nearly the entire instructional day, installed in each new classroom, were not.
Never mind Florida teacher reaction to a bill that Governor Crist vetoed that would have linked future raises to student performance and caused all new hires to be under probationary contracts. Speaking of which, tenure exists at the university level to prohibit political firings by professors conducting "unpopular" research. What research does a GRADE SCHOOL teacher perform, and since the answer to that is "none", what purpose does TENURE serve at said schools other than protecting incompetent teachers?
Do we need more cops – or even all our existing cops? I don’t know. Are they going to shoot into houses like they did in Detroit, killing innocent grade-school kids? Buy millions of dollars worth of "SWAT" gear that they then have to justify owning – and thus, substituting brute force for good police work? We live in a world where it’s easy to trace and find people and even easier to conduct covert surveillance on them – far easier than it was 10, 20 or 50 years ago. Yet back in the day of "Sargent Friday" they surrounded a suspect and ordered him to come out with his hands high, rather than throwing "flash bang" grenades and kicking in doors with guns drawn. The latter gained preference during the "drug war" as a defense against the suspect flushing the evidence down the toilet. Perhaps one can explain what evidence a murder suspect, as was the case in Detroit, is going to flush?
Or perhaps instead of spending more money we don’t have on police departments, courthouses and prisons we should reconsider a "war" on drugs that we’ve fought for nearly 100 years and have, by any measure you care to lose, lost? One million (roughly) of the 2.4 million persons currently incarcerated are there for non-violent drug offenses. We currently incarcerate more people on a per-population basis than any other nation in the world, ahead of Russia, Rawanda and Cuba. Three-fifths of nations have an incarceration rate of under 150 per 100,000 – ours is 756, or five times as high.
Is drug abuse a problem? Yes. But should it be a crime to use or abuse drugs in the privacy of one’s own home? That’s a different matter. We have recently decided (correctly, in my opinion) that tobacco’s price does not reflect it’s hidden costs to society, and have imposed taxes in an attempt to both deter use to some degree but also to pay those costs absorbed by the public. Why don’t we take the same approach with most currently-illegal drugs, shrinking the cost of law enforcement while at the same time funding the public health impact of these substances? Is the true reason that the public-employee unions and private prison firms lobby heavily to prevent common-sense reform of these policies?
The letter comes as rising concern about the national debt is undermining congressional support for additional spending to bolster the economy. Many economists say more spending could help bring down persistently high unemployment, but with Republicans making an issue of the record deficits run up during the recession, many Democratic lawmakers are eager to turn off the stimulus tap.
….
"It is essential that we continue to explore additional measures to spur job creation and build momentum toward recovery, even as we establish a path to long-term fiscal discipline," Obama wrote. "At this critical moment, we cannot afford to slide backwards just as our recovery is taking hold."
We never managed to turn down the deficit spending during the alleged "recovery" from the 2001 recession. In point of fact as I have repeatedly pointed out, that "recovery" was a lie:
You can’t spend your way out of a recession. The premise through the 80s and 90s was that we could continually avoid the full (or any!) effects of recession through additional financial leverage.
This belief and capture of the allegedly-independent Federal Reserve, which abandoned its claimed mandate to credit aggregate management, led to the credit bubble.
In 2001 we hit the wall. Proof of this fact is in the above chart. We became incapable of stimulating true growth in the economy through temporary stimulus measures and turned to one final binge of leverage – that is, new credit and debt – instead.
Henry Paulson knew this, which was why he went to the SEC and got them to remove the leverage limits on investment banks. Ben Bernanke both knew this but didn’t care and refused to intervene and prevent the final blow-off of speculative credit creation.
The economy’s ability to sustain that incessant leverage increase was exhausted in 2007, which was the proximate cause of entry into what is an economic depression.
Our government’s refusal to accept this, which would result in the bankruptcy of those financial institutions that were responsible for the leverage creation (and thus should be the ones that bear at least a share of the costs!) led them to more than double their deficit spending.
This cannot continue. It leads to exactly where Greece and Iceland wound up. It cannot be otherwise; this is a mathematical function and it simply does not matter how many police, firefighters or teachers bleat about how "unfair" it is.
These organizations should have considered this when they were spending every penny they could get their hands on in the 2000s and building unsustainable pension and employment packages. They should have considered the math while installing $30,000 smart boards in new elementary school classrooms, instead of stocking back those funds. They should have considered the math when contemplating the wisdom of locking people up for the non-violent adult choice of consuming certain recreational chemicals (while others, most specifically alcohol, remain perfectly legal – and taxed.)
But they did not.
The sad fact is that this refusal to deal with reality, just as the Realtors refuse to deal with reality, the banksters refused to deal with reality and the nation refused to deal with reality when it comes to energy policy, does not and cannot change the mathematics of situation. A mathematical law, specifically the law of exponents, does not care if you "believe" in it or not or whether it is politically convenient.
It just is.
This nation has two choices.
We can continue to believe that which is mathematically impossible and continue to compound the damage we must take to restore our economy to health. We have already doubled that damage. We could have accepted a 10% contraction in GDP in 2001 or a 20% one in 2007. We might now need to accept a 40% contraction under some of my more-gloomy scenarios – but that it is now up to 25-30% is essentially a certainty. That additional damage was done by the Bush and Obama administration policies and bailouts, and both administrations and Congresses bear equal blame and shame.
Or we can continue to "extend and pretend" on all levels. The damage will continue to mount, until the credit card we currently use, funded by foreigners, comes back "declined." That day will come. When it comes we will not get to choose the form and fashion of the contraction in our economy. We will not get to choose what to protect and what to sacrifice. Those choices will be imposed upon us.
Which decision do you wish to make today America? Do we choose the difficult path now, or the worse path later?
Do we choose which programs to cut and how to restructure public sector unions, wages and programs, or do we have those choices imposed upon us?
Do we choose to excise the leaches, failed programs and destructive public employee unions now, or do we choose a potential eco-political collapse two, five or ten years down the road?
Those are the choices folks.
President Obama is arguing for the second choice, hoping that the pain comes after he is no longer in office – just as have his predecessors.
George W. Bush lost that bet – that he could delay the crash until after the election in 2008. But despite his claims and those of his minions that there would be no recession we not only got a recession we got a stock and credit collapse to go with it.
If we don’t stop this insanity now, despite the claims that we are "recovering" we will get a worse stock and credit, along with an economic, collapse.
On the path we are on now we’re arguing when, not what.
PS: This month, so far, we have blown $48.9 billion more than we took in via taxes at the Federal level. This month.
