This IS NOT an inventory recession, this IS a credit recession, LIKE 1930’s.

All the recessions since the 30’s have been inventory recessions. This is a credit expansion collapse recession and was caused by the same thing that caused the depression of the 30’s, too much debt.

That normally takes about 5 years to play out as deleveraging restores a balance that is needed for sound growth.

While we can create illusions of growth with bubbles, stimulus and under reporting CPI as we have done since the 80’s we can’t have real sustainable growth as long as we don’t purge the system of all the things that have put us in this mess.

The government accountants basically have reported to Congress we can’t grow or tax out of this and cutting spending puts us in a depression. Unfortunately, now, the only way to avoid a depression is to continue deficit spending from now on. With one in four jobs dependent either directly or indirectly on government spending, trying to balance the budget leads to a depression.

The states are just now realizing their budgets are not going to improve and will continue to get worse. This is leading to more cuts in spending, more layoffs and less buying from private sector suppliers to government. That leads to more layoffs, more lost tax revenues and further budget problems.

This is showing up in states having trouble now, meeting the matching fund requirements for Federal Money they accepted.

Also, we have record numbers of people filing for Social Security who were planning on working longer and more filing for SSI due to the loss of jobs and little hope of finding a new one. The means more drain on tax revenues that are still declining even as cities and states try to raise rates on some taxes.

This is the culmination of decades of bad policy that was hidden with stimulus spending, subsidies, moving money from infrastructure maintenance and other needs to other tax revenue demands such as social programs. The private sector can no longer support the demands for tax revenue we have and the growing deficits are driving nations away from the dollar and will eventually mean not enough money will be available to lend us. Already, the back-door games the FED is playing to monetize debt in ways that hide it from the public, may be exposed and bring to an end some of the foreign lending we need so badly.

If interest rates rise, the CBO says interest on public debt could quadruple in the coming years and end up being the biggest consumer of tax revenues when compared to current demands for tax revenues by our biggest spenders, defense, S.S. and Medicare.

The low interest rates are both a blessing and a curse. They have reduced the cost of debt for now but, will devastate the budget going forward. There is not much about this recession that is like any we have experienced before, including the great depression when the dollar was not in its current high risk position, we didn’t have all the social spending needs and until World War II, defense spending wasn’t consuming so much of our budget.

- Jan Paul

Related Posts:

• Caution: This is not going to “recover” like any recession you have lived through!
• The Federal Reserve is reported in several articles to have said in one of their meetings, “No net new jobs for 5 years.”
• It takes years of deleveraging before jobs can come back.
• Government needs to fill up the gap for consumer spending to delay the collapse
• The stimulus bill has very little infrastructure spending.

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