Political Paralysis Brought on By Government Spending

Dow down 88. Oil nudging against $100. Gold setting new record highs…

And “Washington gripped by paralysis.” That’s what the papers say. We’ve seen the “Washington Paralysis” so often, we were beginning to think it was a new disease, discovered on the banks of the Potomac. Like Hong Kong Flu. Or Delhi belly.

“Paralysis” describes what most people see as America’s biggest weakness. We just wish it had a better grip.

The politicians can’t get together and make up their minds. The theme is particularly common now because the debt ceiling hangs over the nation like…well, like a debt ceiling. Once the ceiling is hit horrible things will happen. The politicians will only be able to spend what they raise in tax revenues. They’ll have to live within their means, in other words. If that isn’t the end of the world, we don’t know what is!

Why is it the end of the world? Because the country has gotten used to spending money it doesn’t have and probably never will have. It spends the money on Medicaid and unemployment benefits and so forth. The feds send out 80 million checks a month. Without an increase in debt, millions of people won’t get their stolen money.

Of course, for all we know many of these government programs may be laudable, high-minded and in accordance with God’s Own Plan. If Jesus were around, he’d surely vote for the full budget as presented by the earnest people running the country. That is, if he were fool enough to get mixed up in politics in the first place.

Listening to CNN en Espagnol we discovered, among other things, some of the fine work of the Department of the Interior. The Spanish-language, paid-for commercials tell listeners that forests are good things and that if they’ve got forests or want to plant trees they can get money from the government. And of course, the world we be a better place as a result.

And of course, these advertisements would probably be suspended if the feds couldn’t borrow money. And all because of paralysis in Washington. If only the pols could get up out of their wheelchairs and walk! They could come together and hug each other on the floor of that big building with the dome roof – the one that looks for all the world as though it was inspired by similar edifices of the Roman Empire period. Then, they could shake hands and agree on further currency and credit debasement.

Political paralysis is a good thing. If homo politico liberalis can’t come to terms with homo politico conservatoris, well at least they couldn’t get up to any mischief together. The rest of us could go on our way…creating and disposing of wealth…without too much interference.

It is a lack of paralysis we fear. Such as the extraordinarily limber Congress of 1913. Those guys couldn’t find anything to disagree on. They passed the Federal Reserve Act with scarcely a polite conversation, let alone an active debate. They passed a lot of other obnoxious legislation too – including imposing an income tax and cutting the states out of Congress by requiring direct election of Senators (they used to be appointed by the states).

Then, there was the Congress that came to Washington with Franklin Roosevelt. What a jolly time that must have been. Backslapping, instead of backstabbing. Raising their hands together…all ‘ayes’ on setting up Social Security, the SEC, and the NHA. In just 100 days of 1933, they put in place the WPA, the CCC, the NYA, the NRA, the PWA and the FERA. There was hardly a single letter of the alphabet that stirred up a controversy. They found common cause on every one of them.

Skipping over a lot of accord, we come to the 21st century, and there we find George W. Bush and his team on Capitol Hill. Practically the entire Washington establishment was on the same side again…beating with one heart…breathing with one lung…thinking with no brains whatsoever. Get along, go along; with few exceptions they went along with the looniest war in US history and the most ruinous spending ever.

And then, if that wasn’t bad enough, hard on their heels came Barack Obama and the Congress of 2009. Whoa…there was a little discord there…which caused a slight arthritic palsy…but no paralysis! Despite the creeping rigor mortis on the Republican side, the president was able to push through a massive, hugely expensive bill that changed the nation’s entire health industry.

How we could have used a little more paralysis then!

But now paralysis works against us. Not in the way the media thinks, of course. Now, the course of the empire is set. We will spend our way at home…and bumble our way abroad….to our own destruction. That is the course that has been set. The pols will move their creaky bones…maybe they already have…to raise the debt ceiling so they can stay on course. Then, little by little, one by one, they will come to their senses and see the brick wall in front of them. But they will be paralyzed…stuck…locked on target. They will be unable to change course…unable to save themselves…or the empire.

Empires are like automobiles without reverse. They can’t back up.

There. That’s our prediction. We’re sticking with it unless and until events prove us wrong.

As Congress becomes more and more paralyzed, the can-do military machine becomes more popular. We see it in our churches. And we see it in our airports.

Jillian Tett, a reporter for The Financial Times, had the same reaction we did:

“In Europe, it is rare even to see anyone in military uniform, far less to venerate them in symbolic terms. US airport crowds, however, are often dotted with fatigues, and it is common to hear the airport [loudspeaker] declare that ‘members of the military and their families’ can…board before anyone else.

“I am starting to see a dark underside to these announcements…”

We explained yesterday how the middle class got ‘thrown under the bus.’ It was just part of the imperial bargain. The US military got to throw its weight around in Europe and Asia. The foreigners got to sell us stuff…thus undermining American manufacturing. In the last 10 years alone, for example, a third of all remaining manufacturing jobs were lost.

Now, the few jobs that are being created are no longer middle class jobs. They are low-paying service industry jobs. Hotel cleaners. Hospital orderlies. Car parkers. People who provide services to the old…or the rich.

In 1980 more than half of all jobs were middle class. Now, the total is only 42%. Meanwhile, the percentage of lower class jobs grew, from 30% to 4.

Here’s yet another glimpse at where this leads. From The New York Times:

Consumers in the US are increasingly using credit cards to pay for basic necessities as income gains fail to keep pace with rising food and fuel prices.

The dollar volume of purchases charged grew 10.7 percent in June from a year ago, while the number of transactions rose 6.8 percent, according to First Data Corp.’s SpendTrend report issued this month. The difference probably represents the increasing cost of gasoline, said Silvio Tavares, senior vice president at First Data, the largest credit card processor.

“Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food,” said Tavares, who’s based in Atlanta. “That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem.”

After-tax income adjusted for inflation fell 0.1 percent from January through May, according to figures from the Commerce Department. The drop came as Labor Department data showed energy prices rose 8.2 percent and food climbed 2 percent during the same period.

The value of an average transaction on credit cards outpaced the gain for debit cards, showing consumers are increasingly relying on borrowing to pay for gasoline and other necessities, Tavares said.

The figures are in synch with data from the Federal Reserve. Revolving credit, credit card balances, increased by $3.37 billion to $793.1 billion in May from an almost seven-year low of $789.8 billion in April, figures from the central bank showed. The gain was equivalent to a 5.1 percent increase at an annual rate.

The use of credit cards is a “smoking gun” that indicates some consumers, including the long-term unemployed who have lost jobless benefits, are resorting to other sources of cash flow just to “get by,” said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto.

The Tea Party is a reaction to this. People in the middle classes feel as though they’ve been ripped off. They don’t understand by whom, why or how…but they’ve got a feeling someone is making a profit at their expense.

“Remember what Warren Buffett says,” our weekend guest reminded us. “If you’re in a poker game and you can’t identify the fool at the table…you’re it. Well, these Tea Party people feel like they’re it. And they’re not too happy about it.”

Barack Obama is probably a one-term president. Not that he’s a bad egg, especially. But when a large percentage of the voters feel like victims, a well-mannered community organizer and law professor is not likely to last long as their leader. The masses want someone to translate their agony…their feeling of being victimized…their resentment and their desire to get something for nothing. They want a champion. Someone who simplifies things…and gives them voice.

And what will that voice say? Will it explain the theory of competitive advantage or the rule of reversion to the mean? Will it describe how the US got so far ahead of the rest of the world and how it is only natural that the rest of the world now catches up? Will it elucidate the causes of excess credit expansion and let the middle classes know that they were jackasses for going along with it? Will it talk to them honestly, explaining the need for huge cutbacks in military and social welfare spending?

We don’t think so. Instead, it will rally them around the home team – America’s men at arms. It will turn on the printing presses and treat anyone who opposes this agenda as a traitor.

Are we being too negative, dear reader, too pessimistic…too gloomy? We hope so.


Bill Bonner
for The Daily Reckoning

The Daily Reckoning