Thursday, January 29, 2009

Reality Hasn't Sunk In Yet

America needs a giant bitchslap to wake up to reality.

Might as well be me.

Stop talking about what Obama will do to "help you retire." Most of you will never retire. If you're like the average consumer, you didn't save, you overconsumed, you spent it all, and an unlucky few of you got taken in by the bank and investment con-men. You don't have the savings to retire, and the remainder of people who will be working don't have the income to support you.

Social Security is bankrupt and will go away. It's unsustainable. It's a government version of Bernard Madoff's "investment plan."

Medicare is bankrupt and will go away. It's another federalized Madoff plan.

Prescription drug payments are bankrupt and they will go away. Ditto.

Government can inflate the currency to cover the "payments," but in that case, inflation in prices will more than make up for the government checks. Government can only raise taxes on the smaller Gen X and Gen Y so high before people stop working or go underground.

We're in The Great Liquidation. Big government cannot survive -- it has finally hit the credit limit. It's not going to pay your way anymore -- your generation's borrow-n-spend ways were bound to be halted one way or another, and it looks like the laws of physics and economics will be doing the stopping rather than a collective burst of sanity by those in power.

Stop fantasizing about "when the economy comes back." It will never "come back" the way you knew it.

That Lexus you're driving? You can't afford it. Did you put down 20% and finance it over four years, with the price of the car being no more than 1/3 your annual income? Of course not. Better keep it well maintained, you're going to be driving it for a long time -- if you can keep up on the payments.

And damn, those parts are going to be expensive when the transmission goes or you need a new axle. Suddenly that American-manufactured four-cylinder car you were making fun of doesn't look so bad, does it? D'oh!

The expensive vacations and fancy toys and HELOCs are all gone. Forever. Or at least until you're well into your 80s.

You're going to be working longer hours, for less money, for cash that is depreciated, and at higher tax rates. And you're going to smile and be happy you even HAVE a job -- even though it's paying you 40% less or even worse. It sucks, we should be angry about it, and perhaps we'll even do something about it. Maybe.

Obama is not going to save you. Obama has no meaningful work experience. Obama has never made a payroll, never developed a business plan, never allocated dollars for marketing, never had to scramble to make ends meet in a bad quarter, never made a profit doing anything in the private sector. His experience with the business cycle is nil.

Ditto all the "leaders" in Congress, who developed the lovely regulatory and policy architectures that they now decry as "inadequate" and "allowing this situation to develop." They're not just dumb -- they're dumber than most of us.

We wanted a life without pain, easy money, toys without sacrifice. We wanted "free drugs," "free health care," "free housing." We wanted zoning laws to "keep our property values up." We clamored for it, and the government gave it to us on credit.

Now the bill's due, we can't pay, and it's all going to go away. Forever.

There's no going back. Stop pretending a magical law or another trillion dollars in borrowed money advanced to us by China will wipe away reality.

It's time to face the music.


G Rex said...

Third rail! You touched the third rail!!! Please withdraw this post before my parents have heart attacks. No wait, forget it - they figured out years go that social security was a myth.

Miko said...

Unless we add price and wage fixing to our mix of bad economic policies, wages will eventually catch up with inflation. Of course, if the Austrians are right that inflation is not just a monetary phenomena but also a function of expectations, the government's going to need to convince us that it will stop inflating the currency. So, not happening soon. But eventually the bailouts will stop, the malinvestments will liquidate and be put to more productive uses, and we'll start to grow economically again. The average person won't know enough to understand precisely *why* Obama's economic policy doesn't work, but after seeing the effects they'll figure it out inductively. It took about 10 years after the 1929 crash to build up an anti-New Deal coallition in Congress; with so many more channels of information available today I can't imagine it will taken even half as long this time. (Although, it'll still take a while to recover even after we stop throwing gasoline on the fire.)

If social security is dead in any meaningful form by that time or even if private savings is an option, today's youth may even be better off since they'll have the opportunity to invest in our growth rather than in a magic Ponzi.