Welfare Nation: Addiction, Denial and Magical Thinking
  (February 1, 2010)

Any nation which borrows/prints 20% of its GDP every year is essentially a debt addict on welfare.

If you depend on borrowed money which will never be paid back and freshly printed notes for 20% of your expenses, you're on the dole. Since we will never pay it back, the borrowing of the money is just a sham; stripped of deception, it's welfare, a "gift" from future taxpayers to the current beneficiaries of Federal largesse and swag.

The Federal government will borrow approximately 10% of the entire U.S. GDP--$1.5 trillion-- for fiscal 2010 and another $1.3 trillion for fiscal 2011. Barring intervention from an alien race of superbeings, these stupendous deficits will continue until Doomsday (implosion of the status quo).

Additionally, the Federal Reserve conjured up another $1.5 trillion--$1.2 trillion squandered on mortgage-backed securities to prop up the housing bubble from its ultimate retracement, and $300 billion in direct purchases of Treasury Debt. Add in hundreds of billions thrown into Fannie Mae and Freddie Mac, and indirect purchases, loans, guarantees and other props, and the true extent of the "free money welfare" is staggering.

In our pride, denial and hubris, we as a nation still fancy ourselve a productive Empire. That is a falsity, a facade, a delusion we cling to the way an addict clings to his illusions: we're not addicted to debt, nosiree. We're just borrowing trillions of dollars every year to get through a "rough patch."

If trillion-dollar deficits are required from now until Doomsday, that's an addiction to debt. Claiming otherwise is the magical thinking of an addict in complete denial.

Let's set aside the pathetic bleatings of denial and the magical thinking which borders on psychosis for a moment and face the painful truth: what will happen should the Federal government stop borrowing and spending $1.3 trillion each and every year? What will happen when the Fed stops spending $1.2 trillion each year to prop up the housing market? What will happen when the Fed stops buying Treasuries to prop up the market for securities which will never be paid back at anywhere close to current value?

What will happen when the nation has to live within its means, without resorting to these trillions in welfare every year?

We all know what would happen: the U.S. economy, addicted to credit, debt and leverage, would crash.

Like an addict going cold turkey, there is no way to restore health except to end the addiction to borrowing and creating trillions in "free money."

What can we say about someone who believes that piling up more debt in an economy already crushed by debt will somehow create new demand for more debt and thus "consumer spending"? We would have to say that is magical thinking, the equivalent of thinking that one can eat cheesecake, Big Macs, fries and sodas every meal and not gain weight. It is magical thinking on a scale so colossal that it borders on psychosis--a complete detachment from reality.

Welfare, addiction, denial, magical thinking: these are not foundations of a healthy economy or mindset. They are a "sickness unto death," to borrow a phrase, an alienation, a hubris, and a state of denial so profound that the sanity of the addict/believer must be questioned.

That is the current mindset of the nation's leaders and much of its populace, who prefer the grand illusions of permanent adolescence, a childlike state in which they don't want any new taxes but they also don't want a single dollar of their entitlements cut, either.

Can there be any more profound detachment from reality than this childish demand that we live beyond our means indefinitely?

As spoiled, delusional teens eventually discover, adulthood requires realistic assessments and trade-offs; there is no free lunch, no "borrow/print trillions each year so I get every dollar of the swag that's mine." There will be consequences, amd denial, addiction to debt and magical thinking are not strategies with any great longevity.

It's painfully clear: any nation which borrows/prints 20% of its GDP either destroys its currency or it defaults on it ballooning debts/obligations. There are no other choices in the road ahead.

The permanent adolescence of the American voters insures that every politician who dares to cut entitlements will lose, and every politician who seeks to raise taxes by $1.3 trillion will also lose. (As they should, in my own view. As always, the rentier-predatory Power Elites will largely escape taxation and thus the burden will fall on the dwindling productive class/small business, creating a feedback which will impoverish what's left of the productive citizenry and drive tax revenues ever lower.)

In response to this magical thinking, the politicos pander to the childish voters, promising that yes, Virginia, we can "borrow our way out of this," fund essentially unlimited entitlements and not raise taxes--in fact, we can cut taxes and reach the same magical place even sooner!

There is no way addiction, denial and magical thinking on a national scale will end happily.

If you haven't visited the forum, here's a fun place to start. Click on the link below and then select "new posts." You'll get to see what other oftwominds.com readers and contributors are discussing/sharing.

DailyJava.net is now open for aggregating our collective intelligence.

Order Survival+: Structuring Prosperity for Yourself and the Nation and/or Survival+ The Primer from your local bookseller or from amazon.com or in ebook and Kindle formats. A 20% discount is available from the publisher.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

NOTE: contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

  Thank you, Mark W. ($100), for your outrageously generous contribution to this site. I am greatly honored by your support and readership.   Thank you, Rhone, ($120), for your ongoing stupendous generosity to this site. I am greatly honored by your support and readership.

Or send him coins, stamps or quatloos via mail--please request P.O. Box address.

Your readership is greatly appreciated with or without a donation.

For more on this subject and a wide array of other topics, please visit my weblog.


All content, HTML coding, format design, design elements and images copyright © 2010 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.

I would be honored if you linked this wEssay to your site, or printed a copy for your own use.



consulting   blog  fiction/novels   articles  my hidden history   books/films   what's for dinner   home   email me