10/04/2005

Newberry: Inflation, then Recession, then Catastrophe

Another diary full of joy from Stirling Newberry.. NOT! As said about other pessimistic guys, Stirling could throw an hyena into a crying fit -- law

Inflation, then Recession, then Catastrophe
by Stirling Newberry
Mon Oct 3rd, 2005 at 14:21:33 CDT

For those hoping that things will get better in the US after 2006, I have a simple message.

Wake up.

* Stirling Newberry's diary :: ::
*

Right now we are on the back side of the insanity curve, this is the point were "sensible" people are going to start taking over, and, as a result, bad is going to get worse. It's in the bag, and nothing is going to happen to stop it. Seriously.

Right now, as with the late Reagan years, America's economy is on a borrow and squander binge. You can throw in Nixon's first term as well. The first thing that happens is that the foot is eased off the gas pedal, and "sensible" people try and do "sensible" things to set everything right. The result is a recession, because sensible people try and simply force the issue. Whatever gains the Democrats make in 2006, and the House and Senate are both in play, the policy they will push is Bush-lite - big military, extraction economy and austerity budgets. This will reproduce Nixon-Ford, Bush Sr, or Hoover - depending on how badly it is messed up.

You see, in circumstances like this - corporate or government - the cost cutters and turtles take charge. The theory is that if the company simply retrenches - say pass big tax increases and service cuts on most people, and try and slam the door shut to the outside world - then everything will be fine again. The inevitable consequences of these policies is to "make the poor pay". The inside corridors of power are already betting that gasoline is going to remain around $3/gallon and up for a long time, jobs will be hard to come by, and the taps of cheap money will dry up.

One sign of this will be a big rush to burn coal as oil, build lots of big plants, attached to big nuclear plants, that will turn rocks in gas. It's already the group think. This will produce $5/gallon gas for about 20 years - a political life time to an old conservative Democrat from a coal bearing state. It's simple, extractive, top down, and requires no changes to anything else. It is a big consumption tax, and will be paid for by more big consumption taxes. Income taxes will stay low for the rich, because the rich are going to loan themselves the money to build all those big plants. Clever how that works out.

The next year will see rising inflationary pressures, as increases in raw materials and a federally financed building binge happens. Lots of happy construction workers, concrete companies, contractors and other largess giving groups. The American people will be presented with an American solution to oil dependence - namely "global warming? what's that?"

There is, as I said, nothing you can do about this.

Anyone getting into power will have to find make work for all the other unhappy exurbanites while the phony fuel economy gets ramped up. The solution will be to expand the military, and keep bases open all over the place, and borrow lots of money from the Social Security revenue stream. This will be augmented by a new VAT tax to pay for medicare/medicaid, which will run a surplus that will be raided to pay for it. We already have a flat tax in this country, what we will get is a steeply regressive tax regime.

This will rob money from people who actually make things, and give it to people who stand around on military bases, and people who make holes in the ground and pollution. It will be very popular, until, of course, it collapses in a heap as oil prices continue to spiral upwards. You see, every barrel of oil we make will be dumped back into the "build mcMansions and move into them" land rush, and will not delay the economic reckoning one bit. It will however dump lots of mercury into the atmosphere, and make utility companies rich beyond their wildest dreams. And Americans won't be able to opt out, because they don't have a coal mine in their back yard.

The result? Well, there really is only one: a bankrupt America that gradually gives ground to China - which also has lots of coal, but does not have the land rush cycle - and finally ends up as a washed up has been power, with delusions of adequeacy.

Why is this going to come to pass? Because about 65% of Americans are either conservative or reactionary. This political alliance will dominate until the day that it really does break down, leaving progressives to come in and fix a catastrophic meltdown of the economy. Civil rights, equality, mobility - kiss them all good bye, because only when they are taken away will progressives stop giving money to conservatives - who will take it and sell the progressives out for a bunch of clean coal plants and some jet fighter bases.

This may seem cynical or pessimistic. It is neither, because society is always controlled by those who produce. Consumers can veto a few things they don't like, but this is only a "pick your poison" situation.

::

Anything we can do? Well yes, but it isn't going to happen, not until there is a clear understanding that pushing the current Democratic leadership in is no better than Bush. Hillary? She voted for Iraq, will push phony fuel and a big military, and will enact, 100% gar-on-teed - big consumption taxes.

This will of course hose the consumer, and this will lead to a collapse of the US stock market - which is, after all, selling the consumer's willingness to overpay for cheap junk as stock. When that day comes, dumpity dump dump of the dollar and the stock market, and very suddenly the US will owe alot, and will have to sell off anything and everything to pay it back. Ask the Brits what this looks like.

Does this bother me? No, not a great deal, I will do well in just about any economic environment - but many millions of others aren't blessed with connections, a high IQ and the ability to pick up and leave the US if necessary. For them, it is going to be rotten au gratin. But there isn't anything that I can personally do about this.

You see, sensible people are sensible people, because when push comes to shove, they are the ones shoving the other guy from the plane without a parachute. Sensible people will do something like pass protectionist legislation - with full support across the political spectrum - and set about turning the US into China with better baseball stadiums. Works doesn't it?

Now the reality is that global warming, the nature of extraction advantage and the collapse of production costs are going to turn this into a complete disaster area. The rest of the world buys our bonds and our stocks because we "own" intellectual property - which they will copy in much less time than it took us to create it, and won't be worth as much in a post-petroleum world anyway - and because we have a big military to keep the trade lanes open. Which can be duplicated with somewhat more effort, but will be.

They aren't doing it because America Numbe One, or any such happy delusion of the American consumerate.

Daily Kos: Inflation, then Recession, then Catastrophe

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