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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
July 14, 2009
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Through the period of 2001-07, the employment of bureaucrats grew twice as fast as did employment in the private, civil American economy. And this is where the current gigantic economic anomaly strikes home. In the private US economy, layoffs are rolling across the land in a tidal wave which has now taken "official" (grossly underestimated) US unemployment up to 9.5 percent. The public service – the number of bureaucrats on the American taxpayers' payroll - has not declined at all. The modern serfs are losing their jobs in record numbers and are being moved out of their dwellings (via foreclosures) while their overlords are being kept secure in their jobs with borrowed money and huge budget deficits at all levels of government - federal, state and local. This is a situation of two intertwined economic nations existing inside the same land. One is diving into a fast deepening economic recession/depression while the other economic nation - the"official nation" if you will - stands economically unaffected. So far.

The Current Proposition Is A Short-Term Proposition:

The current economic situation is global with every "official nation" (read government and bureaucracy) borrowing and spending to keep itself intact. It is only viable as long as governments everywhere and at all levels can continue to borrow. Borrowing piles their debts ever higher. There are limits to this debt, a point where lenders balk at lending more and all past debts become a real burden upon tax revenues.

This is so because for decades, it has been the practice of government to borrow the interest due on past debts. Governments borrowed that too and added it to the sum of debts owed. That is why across the West, the taxpayers in most nations never felt the real costs of the borrowing. The debt was not serviced out of tax revenues. Once governments can no longer borrow, they can no longer borrow the interest payments due on past debts. This means that those payments will have to come out of taxes paid.

Historically - While The Names Change - The Actors Don't:

This is precisely the situation which brought down the French and Spanish Kings. Their debts had grown to such an astronomical level that they could not maintain their credit and roll their debts over even while taxing their nations into destitution and mass poverty. Because they could no longer "roll over" their debt, they could no longer maintain the splendour of the court and their retinue or their armies and navies. Their power vanished. Their long oppressed civil societies, sensing this weakness, rose in protest and open rebellion. What was known as the "Ancien Regime" (Old Order) departed the stage of history.

Today's Old Order:

Today's "Ancien Regimes" are the Western welfare states. They have reached their full extension. The tax burden they place on the shoulders of the everyday member of civil society is now at a height which would have been familiar to a serf in the time of King Richard II when the serf had to work for two days a week on land of the local lord. Think of income and other taxes reaching forty percent.

The Powers That Be Are Running Scared:

Our current political powers that be across the West do not dare raise taxes upon the general public, not with unemployment climbing as it is. Nor do they dare to cut government spending because any cut in government spending today would send the civil and private economy even deeper into recession. Nor do the powers that be dare to cut back and make the size of government smaller because dismissing any large number of bureaucrats would directly add to the unemployment numbers.

The Approaching Farewell To The Welfare State:

Politically AND economically, the present enormous Western bureaucracies are on their last legs. Present budget deficits are unviable everywhere. Some Western governments, the Germans foremost amongst them, are already looking ahead towards withdrawing the "stimulus" over the next year or so. Once one major nation is on that road, the contrast with nations which are not will become glaring indeed.

Cutting The "Stimulus":

A government which tries to cut back on its present deficit spending will instantly be faced with a twofold problem. Does it cut back on government expenditures only in the social services area? Doing that will mean a much smaller welfare state. Or does it cut back on the size of government itself? That will mean a lot fewer bureaucrats on the taxpayers' payroll. Germany will likely set one of the first examples here of the new direction. In the German case, it will very likely be a mixture of cuts in both social services and the sheer size of government itself. Once on the road in this direction, the fall in the budget deficit and its need to be covered by borrowing, will give the government's credit rating a boost if and when an end to budget deficits seem to be in sight and a return to balanced budgets approaching.

Once the ice is broken on cutting budget deficits and borrowings, political history shows that such events gain a momentum of their own. In Europe both the political and economic debate is already voluble over how to find the best way OUT of "stimulus". Once deficit cutting is actually underway, markets will respond all over the world in revaluations of the currencies in question. There will be reassessments of national credit standings and where the best investment opportunities exist in the world.

The Critical RAISE:

But the BIG change of direction will come when a major Western nation acts to RAISE its official interest rates. This is the one that truly matters in economic terms. Only higher interest rates reward the saver for saving. Monetary savings are the seed corn for any wave of new investments in real CAPITAL. Only an increase in capital can increase real economic output and therefore living standards.

A competition between nations will then ensue in cutting their budget deficits AND the size of their governments. The ones which cut both the most - the ones that cut enough so that taxes can be lowered without adding to government debts - will be the winners. As the size of governments contract, more individual space will open up and private society will re-enter the spaces vacated by governments.

Any government which tries to maintain its current size will destroy its economy and face a revolution.



We live in astounding times. Late this week as The Privateer goes to press, it has been reported that US Treasuries lost 4.5 percent in the first half of 2009. That's the worst
performance in 30 years.

The above is burning fuse number one. President Obama is borrowing record amounts to stimulate the US economy and to service his exploding budget deficits. US Treasury debt offerings for the first half of this year totalled $Us 963 Billion - more than twice the total for the full year of 2008. There are planned sales of another $US 1.1 TRILLION by year end. That is burning fuse number two.

Between the two burning fuses stands the US Treasury and its future international credit standing.

A US Economic Policy Of NO Exits:

US economic policy is a vehement blind refusal to face fiscal facts. This year's federal budget requires a borrowed sum of $US 1.85 TRILLION simply to cover the gap left by collapsing tax revenues. That is more than half of a budget with planned spending of $US 3.55 TRILLION. The Obama Administration has placed itself in a fiscal position with no exits. If, after declaring a national emergency, spending is cut to match presently incoming federal revenues (a balanced budget), a huge 14.9 percent is cut out of the present GDP. That means an instant US economic depression. Failing to do this means that this amount of new debt is piled on top of the crippling debts already issued by the Treasury.

There is no exit from this "policy". Either the Treasury balances and the economy collapses sooner or it keeps borrowing to face a worse collapse later. The remaining global "safety" feature is the rest of the world's willingness to keep funding the US with endless loans. The economic alternatives before the US are simple. Cut spending to bring the budget back into (at least near) balance. That means abandoning the present US welfare state. Barring that, the US faces the certain future loss of its global credit.

Ó 2009 – The Privateer

(reproduced with permission)


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