The Debt Deal Con: Is It Fooling Anyone?

Brandon Smith
Alt-Market

Alternative economic analysis brings with it a certain number of advantages and insights, but also many uncomfortable burdens. Honest financial research is a discipline. It requires us to not only understand the fundamentals, but to question the fundamentals. It requires us to look beyond what we would LIKE to see in the economy, and accept the reality of what is actually there. With this methodology comes the difficulty of knowing the dangers ahead while the mainstream stumbles about well behind the curve. It means constantly having to qualify one’s conclusions, no matter how factual, because the skeptics and opposition base their views on an entirely different set of rules; farcical rules that no longer (or never did) apply to the true state of our country’s fiscal health.

After a while, you begin to expect that a majority of the public will buy into any number of government or Federal Reserve con games and swindles as the process of full spectrum collapse rolls onward. However, this expectation is not always accurate…

A majority of Americans were against the bailouts, TARP, quantitative easing, the “too big to fail” concept, etc. Sometimes a government action is so fraudulent that even those who aren’t educated on the specifics can smell the grift in play. The recent debt ceiling debate and resulting debt deal are fuming with the hot stench of predigested disinformation, so much so that no one seems to be happy with it, even people who a month ago were begging for it. When you have to parade around a hobbled shooting victim in order to get any applause for your legislation, then you may be in trouble…

Though their reasons and motivations vary, everyone, whether on the so called “Left”, or the so called “Right”, is asking “Was anything really accomplished here?” The question is a valid one. To discern the exact nature of the debt deal, we must first cut through the web of misconceptions that surround it. While no American is satisfied with the final plan, many are disenchanted for the wrong reasons. Let’s clear the fog (or light a match), as it were…

Where Are The Spending Cuts?

Were any cuts actually made in this debt plan that has been painted by the MSM as a “historic landmark” in spending reform? If you think yes, then you have been hornswaggled. Only yesterday I came across perhaps the most profoundly inept New York Times Op-Ed piece I have ever seen (and that’s saying something):

http://www.nytimes.com/2011/08/02/opinion/the-tea-partys-war-on-america.html?_r=1

In it, Joe Nocera, a typically impotent mainstream financial hack, proceeds to outline the debt deal snafu in grade school fashion, claiming not only that cuts in spending attributed to the bill will destroy our fragile economy, but that all the blame for this destruction rests squarely on the shoulders of Tea Party Republicans, who are apparently no better than “terrorists”. Yes, that’s right, fiscal conservatives are now terrorists hell bent on our nation’s demise. Gee…we didn’t see that one coming. While I am not particularly happy with the direction the Tea Party has taken since 2010, especially the constant attempts by Neo Conservatives (fake conservatives) to co-opt the movement, the Tea Party is hardly to blame for any destabilization of the economy, if for no other reason than they accomplished nothing in the deal. Nocera’s idiocy is made embarrassingly apparent in his outcries against spending cuts, because NO cuts were actually made.

First, the $2 trillion plus compromise we hear about so often is slated to take place not over the next ten months, but the next ten years! Only $917 billion in cuts are officially mandated by the bill. The final $1.5 trillion will be voted upon at a later date. Only $21 billion in cuts will be applied to discretionary spending in 2012, $42 billion in 2013, and the remaining cuts after 2014. This strategy, by itself, is wholly inadequate in making even the slightest dent in our national debt, being that our government’s spending has grown exponentially with each passing year.

In June of 2009, our national debt stood at $11.5 Trillion. Today, it climbs past $14.5 trillion. That’s an increase of $3 trillion in the span of two years. Now, I don’t know where men like Boehner, Reid, or Obama, learned simple math, but I can tell you their numbers don’t add up. Even if current spending levels stay static (which they won’t), by 2013, we will have to increase the national debt to at least $17.5 trillion, while only cutting $63 billion from the budget. Wow….sounds like progress to me.

Even worse (yes, it gets worse), the spending cuts that were finalized are based not on current spending, but on PROJECTED spending, or what is often called “the baseline”. That means, essentially, that no existing programs or subsidies are specifically facing cuts, only programs and subsidies that have yet to be created! So, Obama could ostensibly forgo an extra $2 million taxpayer subsidized vacation to Hawaii or Manila, and then claim this as a “spending cut”. Imagine it! We could save so much money as a country by not buying all the things we could have bought beyond what we already buy! Huh?

So, no official spending cuts until after elections. No specific programs identified for cutting. No cuts to current deficit spending. Debt ceiling elevated yet again. All that debate and noise, and nothing has changed…

Crisis Averted, Or Aggravated?

What was going on while America was being distracted by the debt talk wrangling and the accusations of fiscal terrorism? What about after the debt deal was passed? Only a full on reversal of the Dow, coupled with the disintegration of the dollar, and an assured downgrade of the U.S. credit rating. Below are just some of the evident collapse signals that occurred in the past two months…

The markets, obviously, were not impressed with the final debt bill. The Dow Jones has plunged several hundred points in the past month, and this plunge accelerated after the debt deal compromise was announced. Only rumors of yet another QE have stalled the implosion:
http://www.examiner.com/political-buzz-in-national/dow-falls-sharply-even-after-debt-deal-passes

HSBC; global banking behemoth, known silver market manipulator, and now layoff central, as they announce 30,000 new job cuts. Gotta’ love HSBC:
http://uk.reuters.com/article/2011/08/01/uk-hsbc-idUKTRE76U0VB20110801

U.S. manufacturing fell off a cliff last month, posting the slowest growth in two years:
http://www.reuters.com/article/2011/08/01/us-usa-economy-idUSTRE7662I420110801

Home prices continue to spiral into the abyss as some banks decide to bulldoze properties and give them away to local municipalities rather than suffer the headache of trying to sell them:
http://www.bloomberg.com/news/2011-07-26/home-prices-in-20-u-s-cities-fell-4-5-in-year-to-may-case-shiller-says.html
http://news.yahoo.com/bulldoze-way-foreclose-102000063.html

The service sector, which accounts for at least 70% of the U.S. economy, has posted a steep decline in growth not seen since February of 2010:
http://www.reuters.com/article/2011/08/03/us-usa-economy-services-idUSTRE7723H120110803

U.S. consumers tightened their wallets this summer after two years of riding the recovery farce, signaling a sizable contraction in an economy dependent on constant spending:
http://news.yahoo.com/americans-cut-spending-first-time-20-months-123819626.html

Cities across the country are edging towards insolvency, as the municipal markets finally give way to lack of investment:
http://finance.yahoo.com/news/Cashstrapped-RI-city-files-apf-1809896377.html?x=0&sec=topStories&pos=7&asset=&ccode=

And finally, Vladimir Putin froths at the mouth telling a bunch of kids at a Russian summer camp that the U.S. is a “parasite on the global economy”, and that the dollar’s monopoly must end. China, of course, agrees:
http://www.reuters.com/article/2011/08/01/us-russia-putin-usa-idUSTRE77052R20110801
http://www.bloomberg.com/news/2011-08-03/china-s-zhou-to-monitor-u-s-debt-as-xinhua-sees-bomb-yet-to-be-defused.html

So many negative economic indicators in such a short period of time, all while the debt ceiling debate is raging? What does this mean?

I can’t help but wonder if the debate itself was merely a smokescreen to obscure the complete and utter failure of the Federal Reserve’s bailout and QE measures. Trillions of fiat dollars pumped into the system, and as we warned back in 2008, the U.S. is worse off than when the collapse started. I know it was blatantly designed to obscure the creation of the so called “Super Congress”, which as far as I can tell, is a completely illegal and unconstitutional entity designed to fast-track every piece of totalitarian legislation that has ever gone opposed by the wider public over the past few years. It’s a “Council of 13” for crying out loud! Come on! This has evil written all over it in neon!

The debt decision and the above mentioned dire indicators leave us with two inevitable consequences: One, our credit rating WILL be downgraded, by S&P certainly, followed by Fitch and Moody’s later on. Two, we are, without a doubt, soon to see an announcement from the Fed of a third QE. Both of these items WILL lead to the final abandonment of U.S. treasuries and the dollar by the East, and likely by OPEC, ending in stagflation. That is, if they don’t commit to a dump before hand. What we are looking at is the turning point of the final phase of total structural debasement of the U.S. economy. This is it, folks. This is where illusions are lifted, lies are revealed, assumptions are squashed, and things start to get really ugly.

The Medicine Will Not Be Denied

The debt deal, as with every other absurd measure the government has taken since the credit catastrophe unfolded in 2008, is a psychological stop gap. It solves nothing, but it keeps the masses from rioting in the streets for a few more months. As many alternative analysts have warned in the past, the government is in no way equipped to solve disasters driven by insolvency. Governments cannot create wealth. They can only siphon it away from the citizenry, through austerity, taxation, and inflation. To believe otherwise is astonishing folly. The ultimate problem underlying the tactic of shifting debt rather than paying off debt is that it only works for so long. As I’m sure many have noticed, with each new bailout, QE, or debt deal, the time between visible crises grows shorter. Each subsequent downturn is sharper, more disheartening, and more frightening to those who are unprepared.

A common argument made during the debt ceiling debate was the assertion that to cut spending now would end in a painful loss of stability. The delusion inherent in this argument is that we can somehow avoid such pain indefinitely. Like a terminal cancerous growth, our national debt along with our vast entitlement program obligations must be removed, and they will be removed, whether by our own hand, or by the hand of fate. If you cannot pay for a thing, you cannot keep a thing. Debating over whether or not social security, medicare, welfare, and other nanny state programs are right or wrong becomes irrelevant. In the end, it all comes down to what you can afford, versus what you cannot afford. At this point in the game, the U.S. is able to afford very little.

The debt deal, I believe, rather than fooling us into further apathy, has clarified this fact for many Americans. Though some are confused on the details of recent events, the country overall is not falling into the trap of false confidence in the markets, or our financial system at large. It may seem like small potatoes to those of us in the Liberty Movement who followed the crash before the crash even “officially” struck, but the first step in shielding a society from disaster is making that society aware of how truly awful the situation is. The greatest con of all is the belief that ignoring the hideous side of one’s life and one’s culture is akin to washing it away. As we have seen over the last few years, this couldn’t be further from the truth.

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