It has become very fashionable for the media and our elites- especially on the left- to blame all the disruptions, from the recent budget showdown, on the Republicans and the tea party. Apparently the thinking goes that if the Republican meanies had not interfered, everything would’ve sailed along rosily, as if we were not sitting on a debt timebomb. Apparently the anger at the tea party seems to be that they had the temerity to actually dare to point out the problem and demand that something be done about it. What audacity! No, much better to pretend that the problem doesn’t exist, not deal with it, delay the inevitable, kick the can down the road, and hope that somehow it will magically resolve itself in the future. When someone dares to point out an inconvenient truth, it’s not good to shoot the messenger.
I remember when Obama was first elected his line was, “deficits in the long run matter, and we need to deal with them. But, in the short term we need to stimulate like crazy (which means borrowing and printing money like crazy), and then after that-sometime in the not-too-distant indefinite future-we will confront the problem. Well, here we are 2 1/2 years later, and the message from Obama & Co. has not changed: “we need to deal with the deficit crisis, but just not now.”
It doesn’t take a genius to figure out this whole line of reasoning is just a convenient way to rationalize not confronting the problem, with the excuse that we will deal with it sometime in the future. Conveniently that “sometime” never really seems to arrive, which is the whole point of the exercise.
One of the saddest aspects of this whole economic crisis has been the almost total lack of genuine leadership. The reactions of the leaders in the US, UK, Greece and Spain, etc., has been to pretend that the problem doesn’t exist, avoid any necessary reform, and borrow and print a ton of money hoping that that will resolve the situation.
Not surprisingly the recession has dragged on and on with no end in sight. I suspect that for a lot of countries, it will continue to drag on as long as reform and austerity are not undertaken. The European countries tried to avoid confronting the problem for as long as possible, but the euro debt crisis has obligated them to belatedly face it. Now they are taking measures to cut their budgets, although they are resisting genuine reforms to the economy that would go against the privileged interests of well-connected entities.
The US is about the worst in that it has done almost nothing to genuinely confront the issue of out-of-control spending. Thus, the rage against the tea party and the Republicans for daring to insist that something be done to deal with the problem.
It’s interesting how Democrats and leftists are gnashing their teeth with rage at the very modest budget cuts that were enacted, despite the fact that these “cuts” were really very timid and continue to allow the government to spend far more than it takes in and to balloon the deficit. The problem is not even close to being fully dealt with, and yet people have worked themselves up into a righteous rage. I suppose they think that nothing in the government should ever be cut. I guess they believe that we should either have deficits until they explode, or that any revenue shortfall should simply be met by endlessly increasing taxes on the wealthy and businesses. I really don’t find any of these proposals to be remotely realistic. There might be a case for increasing taxes on the wealthy, but we have to objectively evaluate the situation. We don’t want to make it so the wealthy either find clever ways to hide their income from the tax man, were they simply move their assets or themselves out of the country. Endless tax increases is simply not the answer.
Don’t Blame the Messenger: Inflation to End ‘Free Lunch’
By: Robert Wiedemer
During the debt ceiling debate, a lot of criticism was thrown at Tea Party members for holding up a compromise. No question that focusing so much on cutting spending rather than blindly raising the debt ceiling, as we have done for so many years, made it harder to raise the ceiling.
But, is that really a problem with the Tea Party or a problem with a massively rising debt? Would it be better if we ignored the debt and not worry about cutting spending? In a short-term sense, of course it would. The more we can ignore the problems we have created the better it will be — short term.
But, how long do you want to ignore the long-term problem? I know, everyone says we should wait until times are better. But, when times are better, no one cares about the debt.
There really is no good time to cut borrowing.
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Also, we have made a big change in the rate we accumulate debt. I like to point out that we borrowed more in February of this year than in all of 2007. There is clearly a large and growing problem long term and, as I always point out, that long term may be a lot shorter than people think. It’s not our children’s problem; it is our problem.
The real problem isn’t that the Tea Party members focused on the problem — the real problem is that others aren’t. Did Tea Party members do a perfect job of politics and compromise — probably not.
But, they face a lot of disinterest from members of Congress bred from years and years of ignoring the problem. It’s not an easy position to hold.
Many Tea Party members feel they failed in the recent compromise. Admittedly, the cuts weren’t very substantial — only $21 billion in 2012. The rest of the cuts are longer term and unpredictable. But, like any change in long-term behavior, this will take time.
What has happened is that the debate has changed. You can bet when the next debt ceiling debate has to take place, which is only another 18 months or so away, there will be increased focus on reducing spending.
The real question is whether we will change our behavior on our own, or whether reality will force us to change.
By reality, I mean the reality of the markets. There will come a point where the bond markets react and don’t easily lend us the massive amount of borrowed money we need.
That already happed during the financial crisis and the Fed stepped in and printed money to keep the bond markets stable. And, don’t worry, the Fed can step in again and buy more of our bonds with printed money if needed.
All of that money printing helps put off the day of reckoning. But, it comes at a price.
There is no free lunch and that applies to printing money. Printing money will create inflation. Right now, everyone thinks it is a free lunch, which is why there is little market pressure on Congress to make changes.
But, that will change and when it does the wrath of the Tea Party will seem quite mild in comparison to the wrath of inflation and the bond markets.
About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $120 million under management. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles. Discover more about his latest book, “Aftershock,” by Clicking Here Now.