The Collapse of the World Economy is at Hand.

Abstract: The national debt is soaring with out-of-control government spending. It will rise from 12 trillion to 20 trillion in just a few years. The interest on the national debt is now at $7,519 per year for taxpayers who pay federal tax. We have no idea how big the pool of toxic assets might be. The banks continue to hold on to this stuff and use federal funds to keep solvent. Fannie Mae and Freddie Mac might hold 5 trillion in bad loans and that would be $80,000 more per taxpayer. The banks may hold 5-15 trillion in more bad loans or leveraged debt and that could be as much as $250,000 or more per taxpayer.  Nobody knows what these toxic assets are worth until they start selling at auction and that has not happened. The banks keep silent on this issue and just hold like busted bluffers in a poker game.  The Fed has an outlay of some 7.36 trillion dollars already on its books somewhere to fight the debt-driven inflationary spiral we are mired in. The far left will use the depressed economy as an excuse to raise taxes so that private corporations fail and then confiscate their assets as they did with several banks, GM and Chrysler. They are printing money at a rate unknown in history and that will wipe out private savings and the old people will not be able to pay their taxes. They are taxing small business out of existence. The interest on the debt will surpass the entire tax revenue base at this rate in only a few years. The money will be worthless due to hyperinflation. Using such a mechanism, the far left can confiscate the wealth of the older white population [the ‘rich’] who cannot pay their taxes and bills and go bankrupt and then begin building their own version of America with minorities in control. All they have left is our wealth and they intend to get as much of it as they can.

Our economy is not doing well and the liberals in Congress like that way and intend to make things much worse. Let us take another look at some numbers.[1][2][3][4][5][6][7] Apparently, the average citizen is not tuned into the precarious financial situation we face world wide. We all have to understand just what is at stake here and how much of our wealth we can lose to the far left.

In just the US:

[1] National Debt: We have a national debt of $12 trillion dollars soon to balloon to more than $20 trillion due to Obama’s deficit spending of $9 trillion more.  The current deficit of about $2 trillion dollars is more than Bush had in his eight years even though Nancy Pelosi had control over the budget for his last two years. Spend spend spend. The current interest on the debt [2008 number] is a staggering $451 billion. We have to look at the national public debt[8]—not just the external or “foreign” debt. “Public debt is the amount owed by the government to its creditors, whether they are nationals or foreigners. [9]” That amount is now nearly $12 trillion dollars or about $38,834 on average per person out of 309 million total population or for the approximately 60 million persons who actually pay federal taxes a sum of right at $200,000 each. [10]

 [Note that this does not include Social Security which is in a separate account and taxed differently. That is another wreckage of leftist government to be dealt with soon.  SS and Medicare now run about $54 trillion in potential future liability, but that is another story. Note that our net worth is $57 trillion so we are close to being broke now.]

[2] Interest on Debt: The interest on this debt for the year  2008 was $451,154,049,950.63.[11] The debt has increased every year since 1969. The yearly taxpayer’s interest load alone is now $7,519for each of the 60 million workers and earners who actually pay federal taxes. Half the people pay no federal tax to speak of and Social Security and Medicare charges are not included here. FDR put SS off budget about 1933. Congress borrowed the excess taxes for decades and spent it on reelections.

[3] Toxic Assets: Our banks failed and our financial system continues to collapse because of debt resulting from ‘toxic assets.’ After all the blather and foam there is still no clear understanding on how much toxic debt we still  have. The TARP and other funds put money into the banks to prevent them from collapsing. An article by CNBC[12] thinks our Fed put out 7.36 trillion dollars by Nov. 13, 2008 and scattered it around the world. We cannot find out where this money went. $29 billion apparently went to France for unknown reasons.

The Fannie Mae and Freddie Mac ‘toxic debt’ alone of $3-5 trillion dollars adds another 5 x $16,000 to the taxpayer’s burden since this $16,000 is $1 trillion dollars divided by 60 million taxpayers from above. That is $80,000 more per taxpayer. 

[4] Toxic assets held by banks. We still don’t know how large this might be. Since they dumped the Mark to Market Accounting[13] the banks do not have to declare the very low value of their holdings [if they are] and can, in some instances, maintain their asset levels at the level that mortgages and other loans were originally issued. There is no way to determine what these are worth until banks put them up for auction and we watch the sales price. If they go for 95 cents on the dollar then fine, but what if they auction off at only 5 or 10 cents on the dollars? Down go the banks again as they are insolvent. The number of bank failures is rising rapidly. Some think 1000 more banks will fail in the next two years.[14]

[5] Excess manufacturing capacity. Here, we shift not to debt but to underutilized assets and how they are being handled by various governments.  We know all to well that auto plants have idle capacity and our government has decided to pay back the loyal unions at GM and Chrysler for their fine contributions to politicians, to nationalize some plants and use taxpayer monies, in the form of deficit spending, to prop them up. 

All the heavy stuff moves by ship and rail on the planet so if we look at just shipping so we can look at comments form an international expert [Ambrose Evans-Pritchard [15]] for  views on this on this:

 “1) Japanese …showed that exports fell yet again in July. They are down 39.5pc to the US, and 26.5pc to China…2) The Baltic Dry Index measuring freight rates for bulk goods and commodities has been falling almost continuously for eleven weeks, dropping from 4,290 to 2,778 [ down %35 e.d.] on Thursday.”[16]-- Can the soufflé really rise again? By Ambrose Evans-Pritchard Economics Last updated: August 26th, 2009 [Emphasis is mine in all quotes.]

Their exports are down because we [US, Eurozone, India, etc] are not buying much  and our exports are down because we are not selling as much.

“There is something wrong with the entire recovery tale, which ignores the fact that excess plant is still at the highest level since the Great Depression (capacity use is 70pc in Europe, 68pc in the US, 65pc in Japan, and as low as 50pc in some countries, according to the World Bank’s Justin Lin). Companies will have to cut jobs and investment.”-- Ambrose Evans-Pritchard August 26th, 2009

Our current mess was driven by credit and debt and now we go into debt to maintain useless capacity? Pay for no work? Yes, that is what we are doing at great peril.

[6] Deflation versus Inflation. We are still deflating.[17] Wealth is lost from falling real estate prices and that truncates credit and shrinks the money supply.  Prices fall. Most of the world has a fractional reserve banking system where added money tends to be multiplied by the reciprocal of the reserve ration, which is %10 in the US. An added dollar becomes 10 dollars in 18 months if it traverses the banks. The reverse happens as well. Removing money from the system contracts the money supply thus a lost dollar causes the supply to shrink by 10 dollars. Our current money supply M2 is $8.3 trillion and with the spending it might soar to $10-15 trillion in a few years. That is massive inflation.

[6] Taxation and Excessive Taxation. Where do we begin? Shall we look at taxes on sugar or excess incomes or carbon or salaries or many others? T he current US tax revenues are down about 18% and our government seems to want to tax everything. The taxes will NOT, however, be used to reduce the debt. The deficit spending this year will be about $2 trillion dollars [$32,000 more national debt for each federal taxpayer on average.] It is a hallowed [but phony] tenet that tax cuts cannot help growth and that tax hikes can avoid things like our current problem.   Paul Krugman[18] will not believe that tax cuts spur economic growth. There are long-winded macroeconomic dissertations that take into account maximum tax rates on the ‘rich’ that indicate that taxation does correlate with growth positive or negative.[19] These studies are interesting only in an academic or political sense. But growth, per se, comes from adding jobs by other than the government jobs. We are losing jobs at 500,000 per month. Only the government is adding jobs.

The past: Tax cut advocates point to the Reagan Era tax cuts:

[a] Total federal revenues doubled from just over $517 billion in 1980 to more than $1 trillion in 1990. In constant inflation-adjusted dollars, this was a 28 percent increase in revenue.

[b] As a percentage of the gross domestic product (GDP), federal revenues declined only slightly from 18.9 percent in 1980 to 18 percent in 1990.

[c] Revenues from individual income taxes climbed from just over $244 billion in 1980 to nearly $467 billion in 1990.5 In inflation-adjusted dollars, this amounts to a 25 percent increase.[20]

Note that in [b] this ‘decline’ is only in the fraction of GDP that the government took in when revenues actually doubles. One must be careful not to let tax mongers tell us those federal revenues ‘declined’ under Reagan. That is a lie. So, they are going to raise taxes no matter what.

The effect of high taxes on small business:

On a small business scale, let us inspect a theoretical business and look at the effects of increased taxes, which are business costs. A hypothetical business makes widgets for $100 each and here is the unit cost breakdown and profits:

In the initial small  business climate and tax structure, the widget manufacture makes a 7% profit and pays a total of federal, state, city and county taxes of $28 and this includes the owner’s salary and taxed dividends and capital gains if any. If taxes from any and all sources such as fees and government regulations, etc., simply increase to $33, then profits fall to $2. What happens now? Does the business decide to continue to operate? Maybe yes or maybe no. The business could try to raise prices of the widget to $105 to make up for the taxes, but other widget manufactures might not raise their prices and sales would drop. The company could reduce its labor force cost from 25 to 20 and improve efficiency and that might work. But, now jobs are lost. The current stock market ‘recovery’ seems to be based on not sales increases but on cost cutting[21] and that means employees. Contemporary businesses who report earnings increase appear to have done so not by increasing revenues but by cutting costs. Note that this is not sustainable.

Case 3 shows what happens with a major tax hike to $38 and now the business loses $3 on each widget.  If many companies do this then more employees get laid off and who is going to buy the widgets? Taxation drives businesses to cut costs and employees and drop out of business. Excessive taxation forces businesses to close.

For the actual business Capterra we get this response from a cofounder:

“Every dollar we [Capterra ed.] have paid in corporate income taxes has been a dollar we haven’t been able to use to grow our business – whether through new hires or additional investments. Retained earnings are the reward for a company well run. These earnings represent capital for future growth and corporate income taxes quite simply decrease (steal?) these funds that could otherwise be used to benefit the business.”[22]--Corporate Taxes, and Their Real Impact On Small Business By Michael Ortner April 24, 2009.

In the widget case, and in all other business cases, growth and expansion can only come from new investment capital from outside or from profits [retained earnings] from inside. The net effect of the tax increase was for what purpose? To increase jobs? If so, tax increases do exactly the opposite. Not only do they force job cuts but prevent new jobs from forming. High taxation only favors bigger government and their only revenue source is taxes.

The left are out of line here and lying to us if they think that tax hikes can create new jobs. The tax process that they tout only transfers wealth to others and prevents profits and new job formation so the purpose of this is not job creation—it is a payoff for political interests. In California[23] the new jobs were supposed to come from the green areas:

“Gov. Arnold Schwarzenegger was all smiles in 2006 when he signed into law the toughest anti-global-warming regulations of any state. Mr. Schwarzenegger and his green supporters [read EcoNazis ed [24][25][26]] boasted that the regulations would steer California into a prosperous era of green jobs, renewable energy, and technological leadership. Instead, since 2007 -- in anticipation of the new mandates -- California has led the nation in job losses.”[27]--California's 'Green Jobs' Experiment Isn't Going Well By Stephen Moore Los Angeles JANUARY 31, 2009

“The regulations created a cap-and-trade system, similar to proposed federal global-warming measures, by limiting the CO2 that utilities, trucking companies and other businesses can emit, and imposed steep new taxes on companies that exceed the caps. Since energy is an input in everything that's produced, this will raise the cost of production inside California's borders.”-- California's 'Green Jobs' Experiment Isn't Going Well

The UK has also attempted to revitalize their economy with EcoNazism.[28]

[7] Unemployment.  Here are the data:

The unemployment rate seems to trend up in spite of the phony stimulus spending that only benefits government. We need to notice that with about 500,000 jobs lost each month that we needed about 150,000 new jobs to maintain a 2-3% growth rate in this country. So, the monthly job loss is more like 650,000.

Conclusion: With massive spending and higher taxation the economy will collapse. There is no way business can survive in this arena. I don’t believe that the liberals in Congress actually believe in the hokum and fluff that are put out like so much hog swill to the voters about ‘recovery.’ They are vicious and liars, but they are not fools. They intend to grow government by printing money[29] and inflation[30] is the only outcome of such a foolish venture. I don’t think that bothers them. The prize for them might be the confiscation of private property of their choice if the banks go down  and when honest citizens cannot pay their exorbitant taxes. The forced inclusion of health care into the massive government maw that consumes trillions of dollars in wasteful spending and the same government that cannot seem to run a successful business or program will only bloat the federal government and minimize the private sector. Expect to see more bailouts as the government steps in, squashes the bond holders and puts stooges into top positions in seized corporations. That is government takeover of private business and is know in the history books as Fascism. [31] That is where I think we are heading. [32] They know their phony ‘ejukashon’ has failed to equip their allies with sufficient cognitive skills to compete with the current upper ore even middle classes in this society. Because of cognitive[33] and cultural reasons, they are mired in the low class forever under capitalism.[34] They have done their best to dumb-down education in California and Washington, DC and have succeeded but they cannot get enough of their victims into private jobs so they have to conquer parts of the economy like healthcare where they will stuff their voters and provide them with cushy jobs. We cannot allow this to happen.

And on it goes. We have to stop this madness.

rycK [a 5^th generation Californian in exile]

Comments to: ryckki@gmail.com