The Fire Next Time

by Michael Seely

The Great Recession is behind us. That’s the good news.

The big one is still out there. That’s the bad news.

So what afflicts the US and world economy, where are these infirmities taking us, and what responsibilities do we bear amid the disquieting portents that surround us?

We have a “3D” problem-debt, deficits and demographics.

–Our debt is huge and growing. Greece, which will likely default before the end of the year, has a debt/GDP ratio of 120%. The US ratio, counting unfunded entitlements and private debt, is about 350%! Further, the term structure of our Federal debt is very short-term, meaning we have to pay it back or refinance most of it relatively soon.

–Our government deficits are enormous-and growing. This scale makes the recent debt ceiling debate almost cosmically ludicrous.

–Our demographics are disheartening. US population growth is modest –at precisely the time we Baby Boomers are retiring in record numbers and claiming our Social Security and Medicaid benefits. Economists shudder at such declines in what they call the “dependency ratio.” Degrading dependency ratios-along with socialist proclivities– are killing Europe.

The implications are dire. Sadly, unemployment is likely to stay at high levels for many years. And any spike in bond yields from today’s record low levels will create a crisis where the US will struggle mightily to service its debt. Sorry, Mr. President, but S & P has a point.

The dollar will plummet (it’s lost half its value in recent decades); inflation (and interest rates) will skyrocket as the government tries to monetize the debt, and the middle class will be crushed.

Make no mistake- unless a lot of things change and change fast, we are seeing the end of America. Look at Rome, look at the British Empire-first, the building of a free and advanced legal/political system; then, with rising prosperity, an increase in military power and its use to extend influence globally, then the fruits of empire enrich the citizenry, leading ultimately to excess spending, rising debt and shrinkage from the world stage. That is our fate if things don’t change. And it isn’t just our kids’ problem; the situation has grown acute and it’s now truly our own.

We are in the final chapter of a long battle between those who would like our nation to return to its individualistic, free market culture of self-reliance and those who wish for a socialistic European welfare granny state where bureaucrats make decisions for us. As Maggie Thatcher once observed, the only problem with Socialism is that you eventually run out of other people’s money. And we have. And then things get ugly-promises are betrayed, the citizenry revolts, class strife erupts, hope perishes.

What should we do? Our first duty is to our families; we must protect our savings when the government is trying to take it from us, inevitably through higher taxes and, more stealthily, but as they always have in the past, through government-sponsored inflation, the cruelest tax of all. This means investing in metals and commodities and in the more responsibly-managed economies of the third world-Asia particularly. My two favorite bets are shorting long Treasurys (despite Operation Twist!) and long China’s currency, the remimbi.

Our second duty is hold our politicians accountable. Forget party affiliation-they’ve all been bribing us with our own money for decades. And subordinate concern about social issues-what matters now (in fact, almost always) are the economic ones. Insist that elected officials-every one of them-reject the gold-plated benefits they enjoy; no lifetime pension after one term in Congress. No private pension and healthcare scheme-put them in Social Security and Medicare. And please-How did your overseas travel/numerous trips to warmer climes in dead of winter at taxpayer expense benefit us Vermonters?-explain that if you will.

Support politicians who favor smaller government. Less government regulations. Lower taxes. More freedom. Less private sector intrusion. Actively support those with unpalatable but realistic ways to right our ship-like growing the Federal budget at a slower rate than GDP growth. Like means-testing the entitlement programs. Vote for those who pay us the ultimate compliment of treating us like adults-people who can make up our own minds and better decide what is right for us than unseen government bureaucrats.

Reject politicians who would diminish the independence of the Federal Reserve and who purport to offer us something for nothing; they are still lying. Those who say, today, for example, that Social Security and Medicare aren’t broke are lying. Those who say a single payer healthcare system in Vermont will save money are lying. Those who say “I’m from the government and I’m here to help you” are lying.

Vote them out.

Michael Seely, a private investor, is a resident of Dorset.