Has Congress just blown our last economic chance?

Last week’s budget deal in Congress appears to have hammered another nail into the lid of our economic coffin.  I confess that I almost despaired at hearing of the so-called ‘deal’ to which they’d agreed.  Karl Denninger called it ‘a scam and an outright assault‘ – a very appropriate label, IMHO.  Former Director of the Office of Management and Budget, David Stockman, had this to say.

Truly, this is a cop-out of monumental proportions – one that threatens the future of the entire United States.  Our legislators have ignored reality and punted the problem far out into the future.  Unfortunately for them – and for us – I believe that this ‘deal’ has not only made an economic meltdown inevitable, but probably advanced its timetable.  I’ll be surprised if we get through the next two years without some sort of major upheaval . . . perhaps not even through one year.

The reason can be summed up in a few graphs.  They tell their own story.  All are sourced from usgovernmentspending.com, which I recommend as an invaluable resource.  The first is the total annual expenditure of the federal government from 1900 to 2013.

The second is the gross public debt of the US government from 1900 to 2013.  This, of course, is what’s funding the expenditure shown above – because taxes certainly aren’t, as you’ll see in the third graph.

Finally, here’s US federal government deficits (i.e. the difference between what the government took in in taxes and fees, and paid out in terms of expenditure), also from 1900 to 2013.

I think anyone with two brain cells to rub together can look at those graphs and see immediately the imminent disaster that confronts us . . . yet Congress has just refused to do a damn thing about it.  Our Representatives have chosen to ignore this reality and live in cloud cuckoo land, economically speaking.

If you want an analogy, it’s as if we’re living on the plains, with a mountain range visible in the distance.  Often we see storms rumbling over the mountains, and know that there’s thunder, lightning and heavy rain going on;  but because it’s far away from us, we don’t realize how destructive those storms can be.  Occasionally heavier rainfall sends floods out from the foothills, some of which inconvenience us, and some even cause damage to infrastructure like roads and bridges;  but we merely grumble, patch up the damage, and carry on.  We never stop to think that a succession of massive storms, dumping heavy rain on the mountains day after day, week after week, month after month, may build up such a head of water that eventually it’s going to come sweeping down out of the hills and swamp us all.

To better understand some of the current economic ‘storms’, go read John Mauldin’s and Grant Williams’ latest newsletters.  Both are scary as hell – and absolutely accurate, in my opinion.  That’s what’s probably coming our way now . . . yet, with this budget ‘deal’, Congress has blithely chosen to go on fiddling while our economy burns.  As Karl Denninger retorted to our representatives:

The time will come when the mathematical impossibility of what you are doing comes down around the ears of everyone in this nation.  I’m sure you think you can maintain your scheme until you leave office, and thus you don’t care.  After all, who gives a damn about the young adults, kids and grandkids — not to mention those not yet born — right?

If you were to actually run some of the numbers and looked at the imbalances you have created over the last half-dozen years you wouldn’t be so sanguine.

But you’d rather not look….. right?

Good luck. 

You’re gonna need it.

I couldn’t agree more.

Peter