WHAT DOES IT TAKE TO HAVE YOU REALIZE OBAMA IS WRONG ON OUR ECONOMY?

Submitted by: Donald Hank

How Much More Evidence Do You Need?

You cannot ”ease” your way out of a debt mess. The unemployment rate in the euro area reached the highest on record as the festering debt crisis pushed the economy toward a recession, prompting companies to cut jobs. Unemployment in the economy of the 17 nations using the euro was 11.4 percent in August, the same as in June and July after those months’ figures were revised higher, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995 and in line with median of 30 economists’ forecasts in a Bloomberg News survey. Nobody is going to hire or expand their business until and unless they see evidence of organic demand.  And when you have driven demand higher through artificial means, you are then stuck; organic demand is never able to catch up as you’ve managed to do something really stupid in the use of a geometric series as part and parcel of your alleged demand curve. Over time this drives the required additional new debt levels ever-higher; we reached $7 of new debt in one quarter for every $1 of GDP acceleration (in 2007) and subsequently collapsed. Think about this for a moment, because nobody borrows without intent to immediately spend.  This means that each borrowed dollar had to go into the economy.  The implication of that fact is that the economy was in a ridiculously deep recession — it was literally losing $6 of every $7 borrowed – at that time. That is, the economy was in fact contracting at a rate of approximately 6% (annualized) in 2007, and had been declining at over a 5% rate from the end of 2006 forward! Now the worse news — we’re still cheating and now are finding that real personal incomes, in monetary terms, are sliding at a nearly 4% rate which has been accelerating again into negative territory after reaching “parity” in the first quarter of 2011. This outcome is caused by the expansion of debt without expansion of incomes in a ratable form.  The impact on the economy is inescapable; we can play games for a while and pretend, but we cannot change the laws of mathematics. Governments cannot run deficits as they are exactly identical in form and fashion in mathematical terms to raising taxes by the exact same amount of the deficit spending undertaken.  The premise that one can do this and thereby “support the economy” is false; government could in fact spend accumulated surplus but there is no accumulated surplus that has been socked back.  Rather, government has gone between spending more than it takes in and spending even more than it takes in with the latter undertaken for the explicit purpose of propping up bad investments and preventing the consequences of those bad investments from being recognized. It isn’t going to work folks, because it can’t.