The Country is Going into a Recession with its Finances in the Worst Shape Ever

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What the candidates will never tell you…

As we keep saying, democracy is fine, as long as you don’t take it seriously. The candidates for the White House job are eager to show voters that they are patriotic, religious and right-thinking men. What they don’t want to do is trouble the voters with real problems.

What kind of problems?

In our view, there are three major challenges facing the United States.

1) The country is going broke.
2) The military is out of control.
3) Standards of living are falling.

What? You haven’t heard the Democrats mention these things? How about the Republicans? Nope…?

As to the first, the country is going into a recession with its finances in the worst shape ever. In fact, if you believe Eli Broad, founder of Kaufman & Broad, the big building firm, this is the worst period in U.S. economic life since World War II. In his entire life, he says he’s never seen anything like it. And he’s 75 years old.

But here, we’re not talking about the economy itself. We do that every day. Here we’re referring to public finances.

Typically, in a recession, the government tries to “lean into the wind” to counterbalance the effect of an economic slowdown. Business stops investing so much. Consumers stop spending so much. The government – according to classic Keynesian economics – tries to take up the slack by spending more.

But where does it get the money? The feds already have a deficit of about $500 billion. And a “financing gap” of $57 trillion. In the coming recession, predicts Bill Gross of the PIMCO fund, the federal deficit will go to $1 trillion. Obama will likely be the next president. He’ll be tagged with the first TRILLION DOLLAR DEFICIT. But what can he do?

Obama says he’s going to cut spending. But every economist in the nation is going to tell him not to do it – not during a recession. It will only make the recession worse, they’ll say. Instead, they’ll urge him to spend more money. They’ll remind him that the Japanese used fiscal stimulus on a massive scale – equal to 10% of GDP – and it still wasn’t enough to light a fire under their economy. A similar fiscal stimulant in the United States would mean a deficit of $1.7 trillion!

Our old friend John Mauldin is sure we will “muddle through” somehow. “We always do,” he says. And it’s true; we muddle through most things. But a man does not muddle through a hanging; nor does an economy muddle through when its government goes broke.

More on these major problems tomorrow…

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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3 Comments on "The Country is Going into a Recession with its Finances in the Worst Shape Ever"

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Guest

Obviously a war is needed.

Willie DePoorman
Guest

Oversold?…, i hear it everyday.
surely the short sellers have made enough of a margin by now?
a relief rally would be really welcome right about now…
and why do we all copy the US markets so tightly?, i expected better than that! next we’ll be eating twinkies for goodness sake!
I’m only 1 week away from dumping all shares and moving into savings for some stability…

Callum
Guest

Short sellers? They are the ones that are keeping the prices real. However if they band together to short sell a particular stock, then they are just as bad as the long sellers that band together to drive the price up.

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