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It’s not just our kids and grandkids who are at risk because of debt, it’s us

Occasionally there’s a book about the future that’s very important. Very few books about macroeconomics and financial markets are bestsellers, but let me tell you about one that is: ENDGAME by John Mauldin. Below are some captions from it:

  1. “There is a limit to the amount of debt you can pile on.” (p. 13)
  2. “…we cannot run deficits of 10 percent of GDP forever.” (p. 14)
  3. “The bankruptcy of Lehman Brothers in the fall of 2008 drew the curtain on a very long 60-year Act I in the debt supercycle.” (p. 15)
  4. “…as individuals and governments come to the end of their ability to borrow massively, growth must come from other sources.” (p. 17)
  5. “…debt cannot grow faster than … income forever…”
  6. “Debt is moving from consumer and household balance sheets to the government.” (p. 25)
  7. “When people have too much debt, they typically default. When countries have too much debt…” They can inflate, default, or devalue. (p. 25)
  8. “…if you want your economy to grow, you must have an economic environment that is friendly to increasing productivity.” (p. 49)
  9. “…business start-ups have produced nearly all the net new jobs over the last 20 years.” (p. 50)

10.  “…startups aren’t just an important contributor to job growth: they’re the only thing.” (p. 50)

11.  “…we need the entrepreneurs.” (p. 51)

12.  “Unless a central bank elects to print money, government debt must be financed by the private sector. That means, if the fiscal deficit is too large, it will crowd out private investment.” “…private investment is what fuels productivity growth … and the creation of new jobs.” (p. 53)

13.  “Obama Budget Deficit Would Bring Annual Budget Deficits to $2 Trillion” (based on data from the Congressional Budget Office and the U.S. Office of Management and Budget. (p. 55)

14.  “Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang! – confidence collapses, lenders disappear, and a crisis looms.” (p. 57)

15.  “…we … import $300 billion in oil (…depending on the price of oil)” (p. 68)

16.  “… as long as the Fed is printing, all bets are off as to who will win the race to the bottom.” [of the “competitive currency devaluation raceway”] (p. 70)

17.  “…2008 represents a structural break, moving back toward a period of greater volatility.” (p. 77)

18.   “…globalization makes the world more volatile through extended supply chains!” (p. 80)

19.  “A combination of lower trend growth and higher volatility means more frequent recessions.” (p. 80)

20.  “For unskilled workers,” “If you can stick with a job, do.” (p. 87)

21.  “…highly leveraged economies … seldom survive forever.” (p. 93)

22.   “…when you run these big debts, the problem is not with your children or grandchildren, it’s in your lifetime.” (p. 94)

23.  “There is no way to determine when the crisis comes.” (p. 97)

24.  “…we are in for a period of subpar growth.” (p. 107)

25.  “The increase in debt of late has been government debt, which is a drag on the economy. Government debt crowds out savings and investment. “ (p. 148)

26.  “…deficits amounting to 40% or more of expenditures cannot be maintained. They lead to high inflation and hyperinflation.” (p. 167)

27.  “Hyperinflation completely destroys the purchasing power of private and public savings.” (p. 170)

28.  “Nearly half of federal outlays are linked to inflation, so higher inflation means higher deficits.” (p. 172)

29.  “…two-thirds of dollar bills are estimated to circulate abroad.” (p. 173)

30.  “Under Bernanke, the Federal Reserve effectively monetized government debt and monetized mortgage bonds held by … Fannie Mae and Freddie Mac.” (p. 174)

31.  “If we go into another downturn, will the Fed … provide more liquidity by monetizing even greater amounts of government liabilities?” (p. 174)

32.  “…total U.S. debt (public and private) is about three and a half times GDP.” (p. 176)

33.  “We are hurtling irreversibly toward a budgetary crack-up that will generate the mother of all crises in global bond and currency markets.” - David Stockman, Director of OMB under President Reagan (p. 181)

34.  “The current trajectory of the federal budget cannot be sustained.” – Committee on the Fiscal Future of the United States (p. 184)

35.  “…the United States may be the next empire on the precipice.” “…most imperial falls are associated with fiscal crises.” – Niall Ferguson (p. 187)

36.  “When people lose faith in U.S. debt, [T]he decline will happen quickly and unexpectedly.” (p. 188)

37.  “…official U.S. deficit and debt numbers are based on cash accounting.” “…federal law requires companies that have revenue of $1 million or more to use accrual accounting.” “It is illegal for businesses to keep their books the way the government does, hiding long-term obligations…” (p. 196)

38.  “These [special] tax rules – because they result in the loss of revenue that would otherwise be collected by the government – are equivalent to direct government expenditures.” – Martin Feldstein (p. 196)

39.  “The largest buyers [of our debt] have been the Chinese, the Japanese, the Russians, and the Saudis.” (p. 196)

40.  “…credit risks will burst dramatically.” – Dagong Global Credit Rating Company [Chinese] (p. 198)

41.  “…if present trends are left unchecked, we will need to find $15 trillion in the next 10 years, just to pay for U.S. government debt, without counting state, county, and city debt.” “…loans for business…” “A few mortgages? Where can all this money come from? The answer is that it can’t be found.”

42.  Argentina printed the money, leading to hyperinflation. The Austrian school of economic theory would slash government spending to the bone. “In Eastern Europe, they did not reform … they simply started from scratch and built new systems.” The Japanese “have had no new job creation for 20 years.” “…it is business startups that are needed.” “…unemployment is going to be higher than we like.” (p. 201-207)

43.  “Some Policy Suggestions” “lower taxes on offshore income so that corporations will bring it home and spend it here on job creating businesses.” (p. 208)

44.  Give a temporary green card to immigrants who can “buy a house for cash and pay for health care two years in advance.” “So many of them will start small businesses (which hire people)…” “…why not give every foreign graduate with an advanced degree a temporary green card, especially in the hard sciences.” “…attract more of the best and brightest immigrants…” (p. 209-210)

45.  “…keep the barriers to entry for new businesses as low as possible.” (p. 211)

46.  “…shrink the government (at all levels) back down to a size that we can afford and that will not crowd out new business and private investment.” (p. 213)

Tags: GDP, budget, debt, deficit, economy, endgame, inflation, mauldin, spending

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All of the past Presidents had promised to reduce the size of government but none have. In fact the number of government employees have risen under each President since Truman. The reason for this lies with both a week congress and an opportunistic Presidency.

In the discussion above we see social give away spending and tax incentives which do nothing to improve the debit crisis. Last night we saw President Obama spin his take on the war in Libya. Nothing in his speech addressed the huge costs he has committed to over through the Libyan regime. I estimated that it takes about 7 to 8 million dollars a day to support the bombing effort he has initiated. So we have added more the the deficit, killed off some Libyans and will if history can be read correctly, created another tribal government in an oil rich country. To what purpose we will not know until it's already accomplished. Witness our support of corrupt Iranian Shaw prior to his over through. Then our support of corrupt Iraq under Saddam Hussein as a buffer to Islamic Iran and the run-up to the first Iraq war.

We continue to be the world's largest consumer of world produce but have lost our manufacturing capabilities under the guise of world trade. We have allowed our greatest industries to hide their taxable income overseas due to congresses reliance on special interest groups pass laws. So the basis of taxes in the country is down while the debt increases.

Though and severe cuts in government spending is the only way we'll ever get control of the debt. Write to your congressman and tell him to cut the give away programs, war spending, and concentrate on our nation's economy.

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