Understanding America’s Financial Crisis
Collapsing the Global Economy by Demagoguing Solutions
By Michael S. Coffman, Ph.D. and Kristie Pelletier
July 1, 2011
Like falling dominos, the states within the European Union (EU) are failing financially, one by one. The economies of Greece, Ireland, and Portugal have already been bailed out by the EU and the International Monetary Fund (IMF). Spain is teetering on the edge.
Because of its size, analysts have concluded that Spain is too big to be saved by outside intervention. Spain’s failure would cause an unstoppable domino effect; first within the EU, then the U.S. and the world.
At the same time that Europe has been facing financial disaster, the spending policies of Presidents G.W. Bush and Obama have more than doubled the U.S. national debt from $5.7 trillion in 2000 to $14.3 trillion in mid-2011. Why? Interest on the National Debt is expected to top $430 billion for 2011. State unfunded liabilities for public sector pension plans could reach $3 trillion. Social Security, Medicare and Prescription Drug unfunded liabilities total $113.6 trillion by April 2011. It is simply unsustainable.
In the two and a half years he has been in office, Obama has racked up a deficit that nearly equals the combined debt created by all the presidents up to G.W. Bush. His initial 2012 budget continues piling up debt at rates that will double the debt to $26 trillion in 10 years. Along with this debt, the Federal Reserve (Fed) is printing trillions of dollars out of thin air (QE1 & QE2). This is not only irresponsible, it is insanely irresponsible.
The great concern is that this will result in high inflation, perhaps even hyperinflation. It is already happening. We are being told that the rate of inflation only is only 2.5 percent. Yet, every day as we walk into the supermarket or gas station we get hit again with skyrocketing prices. If you think something is wrong, it is. The way of calculating the inflation rate, or Consumer Price Index, was changed in 1980 and again in 1990. It no longer includes such mundane things as food or gasoline prices.
If the rate of inflation was calculated like it was before 1980, it would be a whopping 10.2 percent!
That means anything less than a 10.2 percent raise in wages is a pay cut—except the average person doesn’t know it. Social Security recipients will lose 10.2 percent of their benefits this year because they got no cost of living adjustment at all. The U.S. dollar is being devalued before our eyes, yet it is being obscured by smoke and mirrors. At least a part of the skyrocketing gas prices is due to the devaluing of the dollar because of inflation.
The trillions of dollars printed out of thin air by the Fed in QE1 and QE2 were supposed to make money available to businesses and the mortgage market. They failed. However, they did cause the stock market to soar and the banks receiving this cheap money reaped record profits from investments, many of them overseas. Once again the banks profit at the citizen’s expense. On the positive side, if it could be labeled positive, because the money didn’t get into the hands of citizen’s, the potential hyperinflation it could have caused did not happen—yet. Economist and consultant John Williams warns it could happen at any time, however.
President Obama and his tax and spend progressives are hell-bent on keep up the spending spree. Obama’s original 2012 budget kept his bloated federal spending at about $3.7 trillion, the same as 2011. Although he claimed he was doing all he could to reign in the deficit, the 2011-2012 budgets were 23 percent higher than the last Bush budget of $3.0 trillion in 2008. Amazingly, Obama’s budget did not touch entitlement spending at all—something that must be done if there is any hope of reducing the huge deficit.
Not to worry, however. Obama claimed the 2012 deficit would be only $1.1 trillion compared to the $1.65 trillion deficit in 2011. As with all of his rosy projections, Obama accomplishes this amazing feat of deficit reduction by smoke and mirrors. He claims that all of his stimulus efforts will finally trigger the long awaited economic recovery by building into the budget huge revenue increases resulting from a booming economy. Reality, however, suggests just the opposite; a stagnate or plummeting economy accompanied by high inflation, perhaps hyperinflation.
Possible Solutions Demagogued
Rep. Paul Ryan (R-WI) introduced the Republican’s House budget blueprint on April 5 which called for drastic changes in government spending—including entitlements. Unlike the smoke and mirrors in the Obama budget, Ryan’s budget had real cuts that would carve out between $4 and $5 trillion over the next 10 years. Ryan called the blueprint a starting point for bipartisan negotiations.
Rather than making a counter offer, however, progressive Democrats immediately demagogued the Ryan blueprint with the politics of fear. They have used this strategy successfully for decades. Obama proclaimed the Ryan plan would “end Medicare as we know it” and would “leave millions of seniors, poor children and Americans with disabilities without the care they need.” Nancy Pelosi blasted the Ryan plan “as a path to poverty.”
It was obvious Obama deliberately did not address entitlement programs so the progressive Democrats could attack the Republican plan when their plan came out with solutions to the entitlement third rail. Obama was more concerned with winning politically than he was with finding solutions to the crisis gripping America. That is becoming the norm for this administration and progressives in general.
In spite of their well-laid plans to ambush the Republicans, their fear tactics fell flat. Progressives were shocked. The American people seem to be aware that something had to be done and, as usual, Obama was avoiding the hard decisions that had to be made.
The progressive’s time-tested strategy of fear was in danger of back-firing.
Obama quickly came out with a second budget that he claimed was “more balanced” than Ryan’s and would reduce the deficit by $4 trillion over a 12 year period. As explained in Part II of this series, the Obama budget is deliberately vague and gives only token lip service to reducing spending and the debt. The only specifics given in the budget are cutting military spending and raising taxes on the rich—the usual class warfare strategy of progressives. Obama’s budget would somehow reduce entitlements, but he provides no specific ways of doing it.
As with the original 2012 budget, fuzzy math was used to reach the $4 trillion cut over 12 years. A ten year forecast is the standard for all budgets and when the 12 year projection is reduced to 10 years and realistic assumptions are used, the $4 trillion drops to $2.5 trillion.
Obama’s so-called revised 2012 budget announcement was more of a campaign speech trashing the Ryan blueprint than a serious effort to create a budget that reduces the deficit spending. The speech was so bad that Rep. Allen West (FL-R) called Obama’s crude behavior as having a “Third world dictator-like arrogance.” West then characterized Obama as “a community organizer is nothing but a low level socialist agitator.” Because of vicious politically correct attacks on anyone who would dare challenge Obama, only West, an African American having a distinguished military career, could ever successfully expose Obama as the “Emperor Who has No clothes.”
This irresponsible political gamesmanship did not go unnoticed by Standard and Poors (S&P), one of the major bond rating firms in the world. S&P reacted to the Obama budget by downgrading the U.S. rating from AAA to AAA/A-1+. As explained in Part II, the S&P warned the U.S. that “there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years.”
That’s a warning shot over the bow of the U.S. If the U.S. does not take meaningful action to get its deficits under control and reverse the process, the U.S. could lose its AAA rating. Such a downgrading would mean much higher interest rates on the National Debt, greatly exacerbating the deficit problem. Amazingly, the White House was nonchalant, casually saying that negotiations were underway that will solve the problem.
Obama’s disconnect from reality and bulldog focus on partisan politics has become a hallmark of Obama’s tenure and has dismayed analysts. By vilifying Ryan and the Republican’s Obama has laid down the gauntlet of bitter partisan politics that will be almost impossible to overcome and find common ground in finding a way to bring down the deficit.
This seeming indifference by Obama to the very real threat of utter financial collapse of the U.S. economy has astonished analysts. A collapse of the U.S. dollar will almost certainly come if the U.S. continues down the road Obama has set for the nation.
The collapse will be far greater than the Great Depression. Obama is either totally blinded by the Keynesian economic model that calls for ever-increasing government intervention to solve economic woes, or he is deliberately taking the U.S. to the brink of economic ruin to justify the implementation of a global monetary system.
There is no question that Obama has been using the Keynesian economic model to justify the deficit expenditure of trillions of dollars to “stimulate” the way out of the U.S.’s deep recession. The little recovery that has occurred to date has occurred in spite of, rather than as a result of Obama’s massive spending plans. The 1970s “stagflation” is returning with a vengeance, with high unemployment, high inflation and sluggish economic activity.
President Obama seems to be proving to the world that he is an ideologue that will continue to drive the nation into the ground in spite of all the warning signs we are sliding into the boneyard of past failed nations.
He as much as confirmed that in an April 18 Town Hall meeting in which he admitted, my “vision is less about reducing the deficit than it is about changing the basic social compact in America.” In other words, changing the nation to full-blown socialism is more important than the looming budget crisis.
Obama’s reference to the social compact is code to progressives that refers to 18th century Jean Jacques a Keynesian economics is based on the ideas of 20th century English economist John Maynard Keynes.
Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by government, including large monetary infusions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. It has dominated Western (including the United States) economic activity since the Great Depression. It caused the stagflation of the 1970s which was broken by economist Milton Friedman during the Reagan years by applying free market principles.
Rousseau and his Social Contract.
Rousseau’s Social Contract or Compact calls for an all-powerful central government that provides everything to its people.
Rousseau’s ideology is what has led to socialism, Marxism and even fascism. It is the ideology that has already driven the European nations to the brink of the abyss, some of which have already fallen over the edge.
Obama’s obsession with turning America into a failed socialist state should be of great concern to every American. America is facing it greatest threat in its history. Collapse may be imminent. We are assured it is not, but the facts say otherwise. Obama in particular and the progressive agenda in general has taken America to the edge of a very dark abyss. Is it because progressives are blinded by their ideology, or is there something far more sinister at work? More on that in Part IV.
Either way, at least part of the answer is the same. The election of constitutionally focused candidates is critical in 2012 and beyond. Each of us has a choice. We can continue to demand more and more from government, which will increase the size of government and bankrupt us, or we elect constitutionally literate candidates who will shrink the size of government, the deficit and finally, the debt. It will involve sacrifice and probably some pain. The alternative, however, is the total collapse of America as we have known it. Part IV discusses how this is being done.
© 2011 Michael Coffman
Dr. Coffman is President of Environmental Perspectives Incorporated (epi-us.com) and CEO of Sovereignty International (sovereignty.net) in Bangor Maine. He has had over 30 years of university teaching, research and consulting experience in forestry, environmental sciences and geopolitics. He and four colleagues stopped the ratification of the Convention on Biological Diversity in the U.S. Senate one hour before the cloture vote. He produced the acclaimed DVD Global Warming or Global Governance (warmingdvd.com). His newest book, Rescuing a Broken America (rescuingamericabook.com) is receiving wide acclaim.
He can be reached at 207-945-9878 or email@example.com. Kristie Pelletier is a researcher and freelance writer who works frequently with Dr. Coffman on specific issues. Her research allowed her to predict a terrorist attack by Osama bin Laden on American soil two years before the events of 9-11. She can be emailed at firstname.lastname@example.org
Home Part 1 of this series