Bernanke Is Getting Scared....

This is the true deficit, measured simply by the amount of Treasury debt (including intergovernmental games) outstanding.

Why is this important? Because every dollar that the government borrows and spends is one dollar that pulls forward demand from tomorrow and spends it today.

This game continues, as it did in the housing market, right up until you can't get any more credit to do it with.

But more importantly as you put forward this sort of distortion in the market the economy becomes habituated to that deficit spending and incorporates it into GDP!

This then turns that deficit spending into a mandate on an ongoing basis lest you have a recession - or worse.

Now let's look at how big that distortion has become, as a percentage of GDP:

This is where your problem begins. While government deficits have varied over time, during the 2000 decade they became both embedded in the economy and at a high and continuing level of about 4-5% of GDP.

That is, the so-called "recovery" in 2003-2007 was false; it did not consist of organic demand from the marketplace, but rather it consisted of government's fraudulently inflated demand.

Contrast this with the 1990s when private demand rose fast enough that the government was able to slowly withdraw stimulus via deficit spending, to the point that it actually approached zero! That's REAL economic growth.

But now we've gone even further, and in the last two calendar years have put up nearly 10% and nearly 12% of GDP distortions, respectively. Let me remind everyone that in the world of economics a 10% economic contraction is the formal definition of economic Depression; ergo, we have been in one for the last two years and are today!

That cannot happen without the economy undergoing the very adjustment in matching of output and final private demand that the government has spent ten years trying to avoid.

This is the ugly truth that Bernanke doesn't want to speak of, but he knows it to be true. But neither he, nor the government budget folks, are willing to come out and tell the people the truth - since 2003 we have managed to compound a 58% distortion to our $14 trillion GDP!

To say that the adjustment occasioned by withdrawal of that support would be catastrophic would be the understatement of the year. We never got anywhere near this level of distortion in the 1920s and 30s - the distortion reached about 25%, top to bottom. The adjustment produced what we call The Great Depression.

Let me be clear: We have a $14 trillion economy that has accumulated a fifty eight percent net deficit, or more than double the distortions that had to be absorbed in the 1930s.

It is obvious that sudden withdrawal of that support would lead to an instantaneous and catastrophic economic collapse.

If you're wondering why I have spent three years arguing strenuously against the policies that our government adopted to try to "stem" the crisis, you now should understand - we are now absolutely dependent on the ability to maintain this level of distortion and will be able to withdraw it only slowly, if at all.

Any event that causes us to have to withdraw it suddenly WILL RESULT in the loss of our economy and republic.

The risk taken on by those who promulgated and adopted these policies is criminally negligent. Of course since the actors who did so work for the Federal Government criminal negligence isn't punishable as it's not a felony to do this as a government employee, even though such acts in the private sector certainly are punishable.

This is the precise set of actions that has led Greece to find itself in the box it is now in. Portugal is headed down the same road, as is Spain, Ireland and Italy. All five are at risk of economic collapse.

We are inexorably headed for the same result if we do not accept the economic adjustment that is necessary to bring both private demand and GDP into balance.

There are means available to massively stimulate private demand but none of them include federal deficit spending. I have covered some of these in the past, including my particular favorite, adoption of The Fair Tax. Sadly such real reform is radically and diametrically opposed by the interests in Washington DC as doing so removes the tax system as a means of social engineering, control, and corporate lobbying.

In truth, ladies and gentlemen, he is not "concerned" - he is terrified. He, like I, is well-aware of the above graphs and facts, and since he knows how to use a calculator (or even a paper and pencil) he also knows the extent of the economic distortion that has been built up over nearly a decade of borrow and spend politics.

Our opportunity to solve this problem will expire, and as Greece has discovered that expiration is likely to come with little or no warning, and once it arrives there will be no real options available to us that avoid a disorderly economic collapse.

you do remember that the rats controlled the House TWO years before bama didn't you?...and that the messiah was sitting his skinny little arse in the Senate TWO years before the presidential election......you do remember the constant hinderance the rats put up to ANY reform or changes to Fannie and Freddie don't you ?.......

.if you don't realize the sh^t that this country is in, that if we only had won a few more Senate seats intead of having close calls in several states, we wouldn't be in this mess....

if people can't figure out the good guys vs the bad guys, then either they're not really reading and listening or they just aren't really conservatives to begin with...

I see it coming already.....the "conservatives" and the pubs are going to eat each other alive INSTEAD of focusing on a complete shift in the house and senate that would STOP the insanity going on immediately...

we'll dink around and divide the patriots and then some idiots will run third party and some idiots will vote third party and SHAZAAM....the rat gets elected again and again and again..

I absolutely believe that there are many plants on blogs and forums that are paid to disrupt and agitate.....

RE :” This is where your problem begins. While government deficits have varied over time, during the 2000 decade they became both embedded in the economy and at a high and continuing level of about 4-5% of GDP. That is, the so-called “recovery” in 2003-2007 was false; it did not consist of organic demand from the marketplace, but rather it consisted of government's fraudulently inflated demand. Contrast this with the 1990s when private demand rose fast enough that the government was able to slowly withdraw stimulus via deficit spending, to the point that it actually approached zero! That's REAL economic growth......The Obama administration estimates budget deficits will total $5.1 trillion over five years and hit a record $1.6 trillion in the year ending Sept. 30. The $1.4 trillion deficit in 2009 was equal to 9.9 percent of gross domestic product, the largest share since the end of the World War II. ...That cannot happen without the economy undergoing the very adjustment in matching of output and final private demand that the government has spent ten years trying to avoid.

This is the ugly truth that Bernanke doesn't want to speak of, but he knows it to be true. But neither he, nor the government budget folks, are willing to come out and tell the people the truth - since 2003 we have managed to compound a 58% distortion to our $14 trillion GDP!

To say that the adjustment occasioned by withdrawal of that support would be catastrophic would be the understatement of the year. We never got anywhere near this level of distortion in the 1920s and 30s - the distortion reached about 25%, top to bottom. The adjustment produced what we call The Great Depression.”

Look like we are following the Greece model of bankrupting the country. Go back to 2008 when the two parties picked two liars to tell us how more candy(debt) would fix our spending and debt problems magically, and the bigger spender and liar (Obama) won. Now he has hired a national debt commission to tell us the bad news, we really will have to pay for his (as well as Bush's) gross and wasteful spending, something he repeatedly told us wouldnt happen. They promised us it was free (to us.)

....the true deficit is measured simply by the amount of outstanding Treasury debt (including intergovernmental games); has never decreased materially since 2001. Important b/c every dollar the government borrows and spends is one dollar that pulls forward demand from tomorrow and spends it today. This game continues, as it did in the housing market, right up until you can't get any more credit to do it with. But more importantly as you put forward this sort of distortion in the market the economy becomes habituated to that deficit spending and incorporates it into GDP!.......

GOOD FOR GOLDMAN, BAD FOR AMERICA (G/S the major toll collector on govt's red-ink railroad)
BY TERRY KEENAN, anchor of Cashin' In, Fox News Sat 11:30 AM.

EXCERPT G/S morphed into a commercial bank to take advantage of gov't handouts, yet Goldman is really a hedge fund on steroids, with trading accounting for 69% of gross revenue in the first quarter........ a big chunk of its trading involves US govt debt -- federal, state and local...... G/S has a huge vested interest in the US digging a deeper and deeper hole.........trading govt IOUs is big business.....one of the few growth markets on Wall Street. IPO's, M&A's, etc, have yet to recover but the US will borrow a record $3.25 trillion in the current fiscal year -- four times as much as in 2008.

With its biggest competitors out of business, G/S is a major toll collector on Washington's red-ink railroad.......a "debt tsunami" that will lift Goldman's fortunes. G/S plays on the bankrupting of America -- the more we borrow, the more they make........ ........but the American public should know this side of the G/S profit miracle. .......Through savvy trading and management, G/S set aside $11.4B this year to compensate its employees on a playing field cleared of its top competitors and soon after Uncle Sam bailedout G/S with $10B TARP -- and millions more through AIG, all paid for by taxpayers. G/S benefits nicely from the govt borrowing binge that was triggered in part by the banking crisis that started in Wall Street's own backyard.

SOURCE http://www.nypost.com/seven/07192009/business/good_for_goldman__bad_for_america_180130.htm

==============================================

REFERENCE Goldman Sachs Will Be Sitting Pretty With Emanuel in the Obama White House
By: Timothy P. Carney, Examiner Columnist, Nov 21, 2008

Goldman Sachs always has clout in Washington, as evidenced by the firm’s alumni serving as Treasury secretaries under both Presidents Bush and Clinton. Today, in these tumultuous times of bailouts and meltdowns when the investment banking leviathan needs Washington more than ever before, Goldman can leverage its most valuable asset yet—incoming White House chief of staff Rahm Emanuel. Goldman Sachs is the giant of Wall Street, and more than any other investment bank, Goldman is surviving the current financial storm.

Traditionally a Democratic booster, and one of Barack Obama’s top sources of funds in this past election, Goldman has always had some particularly strong allies within government. Emanuel is one such ally. An interesting early chapter in the Goldman-Emanuel relationship took place in the setting of Bill Clinton’s campaign for the White House in 1992. Clinton hired Emanuel as his chief fundraiser.

At the same time, however, Emanuel was on the payroll of Goldman Sachs, receiving $3,000 per month from the firm to “introduce us to people,” in the words of one Goldman partner at the time. This is certainly a noteworthy relationship, but it’s one that has almost entirely escaped scrutiny. (snip)

In his four terms in Congress, Emanuel has raised $74,750 from Goldman, making the firm his number four source of funds. Goldman has helped Emanuel. How has Emanuel helped Goldman? The most obvious answer, as mentioned in this column two weeks ago, is in Emanuel’s lead role in shepherding the “$700 billion” bailout—first proposed by former a Goldman CEO, Bush Treasury Secretary Henry Paulson—through the skeptical House.

Of course, back in the Clinton days, Goldman benefited from NAFTA and the bailout of the Mexican currency, with Emanuel pushing NAFTA through Congress, and Rubin hammering out the peso bailout. Did Goldman improperly funnel money to the Clinton campaign by subsidizing Emanuel’s salary in 1992? Did Goldman’s help to Clinton spur the Democratic president to push NAFTA and the Mexican bailout?

The answers to these questions are opaque, and with Emanuel burrowed deep within the Obama White House, the continued relationship between Goldman Sachs and Obama’s right hand man won’t be easy to follow.

Watch which regulations of Wall Street Obama fights for. Watch where the bailout money goes. And don’t be surprised Goldman soon sitting pretty once again.

http://www.washingtonexaminer.com/opinion/columns/TimothyCarney/ Goldman_Sach_Will_Be_Sitting_Pretty_With_Emanuel_in_the_Obama_White_House_112108.html

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.