Sunday, February 7, 2010

The Reset Button

We are a care free generation that has enjoyed a 25 year party. The drug of "easy money" by our Federal Reserve has allowed speculators to borrow money at below market interest rates without the need of good credit. The Interest Rate Mega Bubble has made all speculators "financial geniuses" as Stocks, Bonds and Real Estate have all clocked wildly inflated gains due to the record breaking collapse in interest rates. And the avarice of human nature has allowed our generation to pay the bill for our lavish Bohemian lifestyle with our children's credit card. We are a generation of financial "hippies". This is an aberration in the long line of prudent hard working individuals that came before us.

We have navigated a nation formerly of immense wealth through the most profitable period in it's history and came out the other end insolvent and with an addiction to debt. Kind of like a child actor that starts a drug habit after starring on a bad TV sitcom.

The only difference is that child actors almost always lose their wealth but this is the first time our citizens have decided to frivolously impoverish our nation at the expense of our future generations and our national security.

Our government, our banks and over half of our households(including renters) are insolvent. We are so high on the "debt drug" that we are trying to solve our financial problems by borrowing even more money from foreign nations. It is ridiculous to think that we can extricate ourselves out of insolvency by taking on more debt. Plus it is extremely dangerous to sell ourselves into servitude to China, The Middle East and Japan. Even a child could understand this fact. Our leaders say that this gamble is our only viable solution. Instead of working to patch the hole in our financial deficit we are spending our time bailing water back into the boat.

If our Grandparents were magically put in our present situation I guarantee that they would spend 20 years working and saving and end up in good shape. Our Great Grandparents would not only pay off the debt but they would cast out the Wall Street lawyers, lobbyists and politicians that caused the problem in the first place. They would do this because they where financial adults.

But we are financial children dependent on the "debt drug dealers". Our younger generation will grow up quickly. They will become the financial adults. They have no choice.

Our generation is creating a mountain of debt to foreign nations that will be paid back at very high interest rates in the future by our children. Our kids will be able to monitor how Japan, Greece, Portugal and Spain collapse with their speculative debt burdens. These countries could end up pushing the "reset button".

What does the "reset button" look like? It depends. The most successful scenario would be a short very sharp recession like in 1920. It could also be a Latin American style currency collapse with spiking interest rates and high inflation. Either way it could possibly eliminate the problem, which is the debt created by corrupt government leaders unconstitutionally enriching themselves and their cronies at the expense of the taxpayer.

The current trend shows that by the time our generation is through with our "orgy of debt" that it will be mathematically impossible for our children to even pay off it's interest. Much less the principle that is funding our gluttonous debauchery of speculation. The only choice that will be left for our heirs will be to hit the "reset button".

Our overtaxed citizens give our bloated federal government about $3 trillion every year. None of this income has ever been used to pay down the $60 trillion in unfunded liabilities such as Social Security, Medicare, Government Pensions, The Pension Guarantee Corp, Fannie Mae and Freddie Mac. So by definition these programs and many other federal programs are Ponzi schemes

So let me put this in perspective. Our generation has created tens of trillions in future liabilities without even a line item in present spending to pay for it. The plan is to keep creating debt, never pay it off and then hand the debt and it's interest to our children.

Eventually we will be a great example for our kids. They will understand that the only way to increase a nation's standard of living is through productivity gains and saving. They will point to our generation as an example that excessive debt absolutely does not create wealth. It unjustly attempts to impoverish the future to pay for the excesses of the present.

So let's have a last hit on the debt crack-pipe and charge it to our children's Chinese credit card.

It's nothing that we need to worry about today.

The adults will handle it tomorrow.

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