Double-dip recession?
Dire prospects rise along with borrowing
Originally Posted At The Washington Times
By Richard Rahn
August 11, 2009
We are likely to have a double-dip recession, and this is why. Your Uncle Sam has been having a hard time because he spends more than he makes. He engages in much unproductive behavior and wastes a lot of money on things that he doesn't really need. He is easily influenced by his irresponsible children, Nancy and Harry, whose mantra is: "Spend, Sam, spend." Sam is also sloppy with his finances. His record keeping is poor, and he is frequently ripped off by people who claim to be his friends.
Recently, Sam experienced a big drop in his income, because his employer (the American taxpayer) had been taking financial hits. But Sam likes to live well, so he went to Mr. Goldman and Mr. Sachs' bank and borrowed some money. He also hit up some of his friends in China and Japan for additional loans. Sam had promised to cut back his excessive spending, but then he found he was so good at borrowing he decided not only not to cut back, but to spend more.
Sam was living in a good way. He bought many new cars for his friends and a new health-insurance policy that promised to cover 100 percent of anything his friends might need forever, and Nancy and Harry told Sam he should make his employer pay for it. It was a great life.
But then things began to turn a bit sour. Sam's employer said he would have to take another pay cut to pay for the health insurance and all of the new, legally required environmental equipment, which would wipe out most of the profit he had been making.
Sam then did what he was good at -- he borrowed money. He found out that Mr. Goldman and Mr. Sachs' bank and his Chinese and Japanese friends would still lend him money. But since he had borrowed so much and was a credit risk, they said they were going to have to greatly increase his interest rates. Sam agreed to pay the higher interest in exchange for the additional loans, but then Sam found he did not have enough money for all of the spending he wanted and all the presents he had promised to give to others.
So, as you would expect, Sam ran out of money even sooner this time. He had to run back to the bank and his friends, and borrow even more at ever increasing interest rates, until he found that he was just borrowing more money to pay the interest on all the money he had previously borrowed.
Desperate, he went to see his friend Ben at the really big bank, and said: "What can I do?" Ben looked at Sam's income statements and balance sheet, and said: "You are in deep trouble, but this is what I will do for you. Because there is no way you can now earn enough to pay off all of these debts, I am going to give your employer 'new money' to pay you twice as much as you have been earning." Sam said: "Hey, that's great. But what's the catch?" Ben said: "The money will look the same, but it will only buy half as much as before. It will still be called a dollar so you can pay off your debts to your Chinese and Japanese friends, and to Mr. Goldman and Mr. Sachs' bank. They will all be hopping mad, of course, about getting dollars that can't buy much, but that's their problem."
Sam said: "Wait a minute .... I will only be able to buy half the things I used to with these cheap dollars." Ben said: "That's right, Sam, it is called inflation, but it is better than debtors' prison or being knee-capped."
It turns out Mr. Goldman and Mr. Sachs were not at all upset about Sam paying off the loans in "the new dollars" since they had long ago sold off Sam's loans to others who had heard Sam had always been good for the money in the past.
Sam's employer is every American, and we have all been suckered by Nancy, Harry and their irresponsible colleagues. Tax revenues (Sam's income) have been falling at a record rate, and now only cover half of government spending. Spending is up more than 50 percent in one year. Consumer spending rose slightly last month, but incomes fell.
As interest rates rise, as they must, and international commodity and other prices rise as the global economy recovers, real, after-tax, inflation and tax-adjusted disposable incomes will continue to fall. This means real consumption can rise temporarily but will likely fall again, giving the United States a double-dip recession.
Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.
|
|
Urgent Petition
|
Sign the petition to stop Social Security Cuts and send a fax to every Member of Congress demanding they cut other spending, NOT SOCIAL SECURITY.
Share This Petition
|
Recent News
Tuesday, May 15, 2012
Source: ABC News
The Food and Drug Administration has warned doctors to watch for fractures of the upper thigh bone in patients taking several popular drugs designed to prevent hip fractures and fight osteoprothesis. The FDA warns that Fosamax and Boniva in particular, if taken unnecessarily or for too long, may actually be causing the bone fractures they are prescribed to prevent. Watch ABC News video.
Read Full Story
Thursday, May 17, 2012
 Exit Not An Option In Chuck Schumer's America. New York Senator Chuck Schumer has introduced the Fugitive Taxpayer Act of 2012 to re-impose taxes on expatriates after they flee the United States and take up residence in a foreign country. Proposal also would impose a mandatory 30 percent tax on the capital gains of anybody who renounces their U.S. citizenship and would bar such individuals from ever reentering the United States again.
Read Full Story
Wednesday, May 16, 2012
Whether President Obama gets his second term or Romney enters the Oval Office, there’s a third candidate no one’s paying much attention to, and that candidate is guaranteed to be the one clear winner of election 2012: the U.S. military and our ever-surging national security state.
Read Full Story
Friday, May 11, 2012
According to the New York Federal Reserve, two million US seniors age 60 and over have student loan debt, on which they owe a collective $36.5 billion; and 11.2 percent of this debt is in default. 4.2 percent of all student loan debt is held by people over the age of 60, and that share grows with each passing year.
Read Full Story
Tuesday, May 15, 2012
Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending.
Read Full Story
Thursday, May 10, 2012
Two-thirds of Republicans and nine in 10 Democrats polled support making immediate cuts to the military across the board -- a position at odds with the leaderships of both political parties.
Read Full Story
Monday, May 7, 2012
Video revealing the circumstances of how a mentally ill homeless man in Fullerton, Calif. died last July was finally published Monday, revealing a stunningly brutal police assault that left Kelly Thomas bleeding, broken and near death.
Read Full Story
Monday, May 7, 2012
The number of people with jobs declined for the second month in a row, falling by 169,000 in April after easing by 31,000 in March. This means that there were 200,000 fewer Americans with jobs in April than there were in February. Additionally, the percentage of working-age adults who either have jobs or are looking for work, fell to 63.6%, which is the lowest level since December 1981.
Read Full Story
Tuesday, April 24, 2012
In November 2010, a police lieutenant from Parma, Ohio, asked Vanguard Defense Industries if the Texas-based drone manufacturer could mount a “grenade launcher and/or 12-gauge shotgun” on its ShadowHawk drone for U.S. law enforcement agencies. The answer was yes.
Read Full Story
Tuesday, May 1, 2012
A gang attack on two people stopped at a red light in Norfolk, VA has not, until today, appeared in the local newspaper. Local police refuse to follow up on the attack. The responding officer coded the incident as a "simple assault," despite the victims' and witness's assertions that at least 30 people had participated in the attack. A reporter making routine checks of police reports would see "simple assault" and, if the names were unfamiliar, would be unlikely to write about it. In this case, editors hesitated to assign a story about their own employees. Would it seem like the paper treated its employees differently from other crime victims? Something is rotten in Mr. Jefferson's State.
Read Full Story
Read All Recent News
Get in the Know Now
Get SSI Email Alerts
Social Networks
Action Center
|
