The Economic Future Just Does Not Look Great

By Porter Stansberry in the S&A Digest: April 23, 2009

Watching the government rack up debts that will be impossible to repay while narrowing the tax base (at least 50% of Americans pay zero federal income tax) at the same time is very scary. It seems more and more certain the deficit will spiral out of control. Not only has the government gone mad with spending and corruption, but it also expects about 10% of the population to pay for essentially all the costs. The math simply doesn't add up: 10% of the population can't (and won't) pay for all of the costs of a socialist federal government.

And, by the way, before you respond with the typical Democrat vs. Republican nonsense, this problem has nothing to do with traditional politics. Both parties have grown the size and responsibilities of government. Both parties have added to the national debt. And both parties support the narrowing of the tax base - because that's what makes good political sense in an unlimited democracy. Promise the voters they can live at the expense of their neighbors - and the next five generations.

Unfortunately, we know from history this kind of political system can't last for long - for lots of reasons. One important reason: The rich will leave. Or they will stop working. They will hide their incomes or only invest in tax-protected vehicles. And we know the political response will be tougher laws on emigration, taxation, more money printing, and eventually, capital controls that make it impossible to protect yourself from a massive currency devaluation. That's the script. We've watched the same things happen dozens of times around the world following World War II and the introduction of a global paper currency standard, which allowed governments to run huge deficits and finance their activities through inflation and devaluation. We just never thought we'd see it happen here.

Today, the idea of leaving America in search of freedom and financial security seems like absolute madness. But it won't for long. And by the time most people wake up to the very real threats to their standard of living, it will be too late. Again, before you respond with some crazed invective about how this isn't OBAMA!'s fault, blah, blah, blah - save yourself the trouble. The trends I'm talking about are cultural and fiscal, not ideological. Read the original Communist Manifesto. It's nearly identical to today's government policies. Any politician who tries to oppose the landslide of modern entitlements is immediately labeled a kook and is unelectable.

Whether you think we ought to have free health care and drugs for retirees, more military spending than the rest of the world combined, a bankrupt retirement scheme based on government debt, government guarantees for the banks, etc. doesn't matter to me. I'm not interested in pie-in-the-sky ideas about how the world should work. I write about how the world does work. And I can tell you this with 100% accuracy: You cannot support the world's reserve currency when you are the world's largest debtor, when you plan to finance annual deficits exceeding $2 trillion with progressive income taxes and money printing. Our economy is a charade. And when it falls apart, the consequences will be devastating.

Inflation or Deflation? That is the Question.

I think we all recognize that we are in a time of change. The leader of the US has promised change. We are all beginning to wonder what this change will actually be. Some are now having second thoughts for voting for change. We are where we are now. And the question is where are things going.

I do think we are in for change...we have seen it start. What I am assessing is what will this change be. Will it be more of the same? I think we can easily concluded that the answer is no. We are in a major state of change...more financially, economically and politically. This change could have serious and significant affect upon us all.

I have been thinking about this for some time, concerned with the situation. The question that we all need to ask ourselves and assess is whether the change will be (1) inflationary or deflationary or (2) hyper inflation or Great Depression 2.

I reject the first option of inflationary/deflation case. We are not in a situation that we will have either moderate inflation or deflation/recession.

The current environment indicates major forces in play; with economic events that have not been seen for 50-80 years.

So what will it be? HyperInflation or the Great Depression 2? Or will all of the action by the governments be successfull and return us to the norm?

Enough for now. Post your comments...what do you think? And what do you think should be done, and what are you doing ?