Our economy and the China Syndrome

The Second Great Depression?

The Chinese curse/blessing, “May you live in interesting times”, seems very appropriate when you glance at the headlines today. It can't get much more interesting than what is happening now. We are living through times that history books are written about.

China (our banker) recently downgraded our country's debt, saying the US has become a credit risk. What will happen to what is left of our economy when the US cannot finance its debt and interest rates jump?

Financial markets have stabilized in the last 14 months because our Government and Fed have papered over the cracks in our economy with trillions of dollars 'created out of thin air' and allowed the 'too big to fail' banks to mark their assets on their financial statements to fantasy valuations. This is no different than playing Texas Hold-em and not having to show your two down cards. Our government has legalized financial fraud.

Tax collections are down and the Federal Government ran a trillion dollar deficit in just the first nine months of this fiscal year. How long before our country's credit card is denied and what happens to us then? It's a shame I don't hear anyone discussing this.

The financial law that protected our banking system and economy for over seventy years was 37 pages long. (Glass-Steagall-passed in 1933 during the First Great Depression-repealed in 1999) The Financial Reform bill being passed this week is over 2100 pages and doesn't even address Fannie May or Freddie Mac, two of the major contributors to the current financial collapse. Bread and Circus!

Then one could discuss the wholly inadequate educations system. Math is obviously no longer a required subject in our schools. The total value of everything in the US, down to the last blade of grass, is estimated to be 60 trillion dollars. The US GDP is 14 trillion Dollars. With over 120 trillion dollars of unfunded federal liabilities, a $1.4 trillion+++ dollar federal yearly deficit as far as the eye can see, it is mathematically impossible to EVER pay off our debt. This is Fifth Grade math. We are leaving our children a financial wasteland.

I won't even bring up the $1.5 quadrillion derivative 'death star' looming on the horizon. Remember derivatives? Derivatives are what Warren Buffet, “The Oracle of Omaha”, has called “weapons of mass financial destruction”. They brought down AIG and the New York banks. Nothing has been fixed.

And don't get me started on unemployment. Using the same methodology as used in the early 90's, the actual current unemployment rate is 16.5%(U-6)-not 9.5%(U-3).

I don't know whether to laugh or cry about this nightmare. 'The Health Care Reform Bill is going to give us better healthcare and save money.' Our elected representatives think we're stupid too.

Before you dismiss my concerns, please remember, I warned City Council to get out of Freddie Mac and Fannie May SEVEN months before they collapsed. This was over the assurances of the city's outside financial advisors and the city’s finance director that these companies were solid and the city's multi-million dollar investment was safe. Freddie and Fannie’s solvency has not been corrected…they were both de-listed in the last couple of weeks.

I worry we are in the eye of a financial Category 5 hurricane. I hope I'm wrong.

Bill Willkomm
07/20/2010

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