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America’s Remaining Sovereign Credit is Our Life Force. Guard it!..

In the 1980s, as I was just starting out my career, my wife and I lived modestly to save for a down payment on our American dream. Our lives were in stark contrast to one of the couples in our group of friends who always seemed to have more toys than the rest of us. They went on foreign vacations, drove fancier cars, and seemed to always dress in the latest styles in their carefree lifestyle. A few years later, the husband of our friends took me aside to quietly ask my advice. It turned out they had become addicted to credit.

They had been living beyond their means and now had credit card debts exceeding 90,000 dollars. I counseled my friends to establish and live within a budget. They cut up all but one credit card. The husband took a second job and they began the long journey of paying for the goods and services that they had long ago consumed. While they became enslaved to their past consumption, others who had saved for our dreams went on to accomplish them.

By the 1980s, Americans had grown accustomed to believing in the hopes our parents had for us of a better life than they, the “greatest generation”, who had come before us. As America’s culture shifted to two income families, it seemed we would in fact be able to achieve the allure of a higher living standard. Our houses were bigger, our technology was fancier and our stock market was higher flying. And while many Americans were unfortunately accumulating more consumer debt, the growing values of our stock market portfolios and homes, also both buoyed by massive debt, falsely assured us that our individual investments were offsetting our debt.

Beginning in December 1991, when America’s Bureau of Economic Analysis began to emphasize Gross Domestic Product (GDP) over GNP, Our government announcements of rising GDP, broadcast across America’s media, reinforced our mistaken belief that America’s productive economy was growing. The outside material signs of America’s wealth, our stocks, our houses, and our stuff, along with this new measurement GDP, hid the fact that America was living beyond her means and consuming her future much like my friends had consumed theirs.

The confusion not exposed by the media or clearly understood by the lulled public was that GDP included consumer purchases from borrowed money. Rather than represent a true domestic output, GDP rather added the output of the future that was borrowed to pay for earlier consumption. As Americans borrowed to fuel a growing stock market, to bolster rising housing prices, to feed our government entitlements, we also collectively increased America’s GDP. But instead of representing a healthy, growing, productive capacity, our growing GDP really only reflected that America was collectively spending beyond its means on obsolescing goods.

To feed our burgeoning GDP, America’s credit limit was repeatedly reached and irresponsibly increased by a Congress that was unaware or unconcerned that our domestic economy was failing from within, and our banking experts repeatedly supported their recklessness by purporting that our rising debt contributed to a rising GDP, as if this was undisputedly a good thing for America. Neither our banks, our congress, nor our leading economists explained that in order to grow current GDP by adding debt for consumables, America would have to “take a second job later” to pay for it.

Unlike productive debt that is spent on assets and services to increase future economic output, much of government and consumer debt during the last three decades purchased obsolescing goods and services that were unproductive yet that contributed to a rising GDP. Of course, much of our accumulating business debt that would typically be spent on building future economic capacity, was transferred instead overseas along with its opportunity for future economic and job growth.

Now debt is a critical success factor for a country. The ability of America to take on debt to acquire needed infrastructure, manufacturing capacity, intellectual capital, startup funding and labor is critical to its economic growth. Because the collective capacity of a nation’s people and businesses to carry debt is finite, it is imperative that America not squander this precious commodity by living beyond its means. Flash back to our last three decades. We wasted much of our country’s private debt capacity that could have been used to grow future productive output on fleeting moments of excessive living and have since grown our private debt to the limits that this credit deprived economy will permit under our Federal Reserve led banking structure.

America now has few bullets left in her arsenal. Her multinational corporations grabbed what credit was left at the end of the last decade’s credit binge and are now hoarding some capital that could be enticed back into America. However, it will likely be spent elsewhere unless our politicians act on the issues I am attempting to clarify here. In addition to our large corporations’ funds, America still has some sovereign debt capacity with which to jump-start our private economy.

Unlike each of our private citizens’ debt capacities that are limited by income or our businesses’ debt capacities that are limited by growth potential as perceived by the banking industry, America’s debt potential until recently has been perceived as boundless. Our fiat currency has been accepted the world over as reserve currency and has been buoyed by the world’s belief in its retained value. Unfortunately, our banking industry’s recent forays have perhaps forever diminished the world’s belief that America’s debt capacity is infinite, creating a worldwide perception that we are approaching a finite, even if yet unknown, debt limit above which much of the world now thinks America could accelerate into hyperinflation and collapse.

This trepidation that has crescendoed since the credit crisis began culminating with our Congressional spectacle has highlighted that while the Congressional debt ceiling is just an artificial cap, America is fast approaching a real cap in our ability to increase borrowing, imposed by our inability to absorb accompanying higher interest rates. America must preserve our remaining credit while we weigh our options on how to invest in our collective future. We are on course to waste our remaining precious commodity chasing the last of our obsolescing American way. Our federal budgets are targeted to repeat the errors of our past for the remainder of this decade or until the world shuts off our debt spigot.

Urgent care is required. Laser focus on helping to redirect multinational corporate investment of remaining capital back into America is imperative. Our other domestic businesses will also clearly require credit to restart our failing economy and our future depends on saving a portion of America’s remaining sovereign credit for their resurgence. We also know that America’s transition to tighter credit will require additional reserves and that our current budget projections cannot be allowed to recklessly consume our chances for a turnaround. These budget projections must simply be obliterated from any legitimate national dialogue as farcical.

One thing is for certain, America’s future productive output will require capital input and we have few remaining internal sources. America’s credit card is, under any future scenario by whatever legislated means we finally compromise as a way forward, therefore critical to our survival as a nation. So rally round the great compromise,” Our remaining sovereign credit is our life force. Guard it!”

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America Please Don’t Shoot the Budget Messenger….

Many years ago, three other gentlemen and myself met weekly at a modest diner. Our tastes were all similarly modest so we agreed to split the bill three ways. After a few months, a fifth person asked to join our lunch group. He had a much more aggressive appetite. Although he spent about twice that of the rest of us, he felt aggressively entitled to split the bill equally as well.

Without verbalizing their unease, others reacted by slowly increasing their lunch choices to balance their perceived slight. Since my appetite had not changed, the cost of splitting the bill soon stretched beyond my modest budget, and I politely left this burgeoning group. Soon after, a few others understood the budget bulge and the burgeoning bunch’s budget collapsed.

While all Americans are taught a simple understanding of home budgets and how they must balance or bust, somehow over the years, America was inculcated through a cognitive disconnect regarding politics’ Wizard of Oz and his magical black box of budget mayhem. Pull up any American article from a decade ago or even two, and you will see how the messages regarding our economy were the pied piper fluting us down the path to ruin.

In the early eighties, debates centered on retirement accounts and how they were a better solution than planned benefit retirement programs. Our retirement investments shifted into the stock market and were funneled into direct foreign investments. As resulting stock market ratios increased beyond belief, our investment advisors told us of the new market dynamics in which these ratios made sense.

As our manufacturing base left America, free market advocates explained how cheap foreign goods more than made up for lost jobs and how the new American economy would be information and service based. Of course, as our schools continued to drop in international rankings and our students failed to graduate from high school in ever greater percentages, proponents of our learned universities pressed upon us how America was the land of innovation and that no other country could compete with our exceptionalism, even as our grade school teachers explained how every student was exceptional and why competition was therefore inappropriate.

Over the last two decades, as our medical costs began to spike while our mortality and morbidity rates crept lower, we heard correctly but misleadingly that America has some of the world’s finest medical institutions in which the world’s elite come to for leading edge services. All the while, our insurance rates leaped higher at double digit rates, even while denying these leading edge services to the masses, until we spent double per capita of any other industrial country in the world. Yet, our medical costs mirrored our national budget in that hidden pricing passed through insurance without attempting to connect these increases to the consumers understanding of growing insurance rates.

Our military costs accelerated higher over the last decades until our defense budget, including defense budgets items hidden in other departments, now was 200 percent of all other countries’ military budgets combined! Yet, with 300 bases spread throughout our 50 states and with major military manufacturing and research facilities supporting local and state government budgets and creating opportunities for jobs in most, our communities did not connect the business of defense with the massive deficits it caused to America’s budget.

During our awesome run-up of housing and commercial real estate values when traditional rent rates to real estate price models failed to come close to making any economic sense, everyone from agents to mortgage brokers showed us how historical models no longer were relevant because they failed to consider the double digit rise in asset values that would continue ad infinitum.

When inflation seemed too high, we were told why core inflation should not include two of our most basic needs, food and energy. When massive amounts of dollars were flying off our printing presses to cover deficits, we were told why historical money aggregate numbers would no longer be tracked as these exploding values seemed to be discognitive by their very existence. When our trade deficits began to grow, we were told trade deficits were a good thing because they reflected an economy ripe with investment opportunities and flush with consumer confidence.

Our most esteemed and beloved President proposed trickledown economics stating that greater earnings to the rich would be invested in America for net benefit even as record amounts of investments were being transferred to China. Our most learned economists advocated that lower tax rates would bring in higher tax revenues. And when our investment banks got caught with their pants down, our central bank and treasury forcefully told the American public that the only thing that could be done to save America and the world was to print two trillion dollars and give it to the banks so they could pull their pants up.

Now, even as we are told, and with good reason, that our economy, and that of the world as we know it, may melt down if we do not raise the debt ceiling and reduce our deficits, most Americans still do not understand that between our military spending and federal healthcare spending, the two combine to consume every American federal tax dollar collected, and that the rest of our entire federal budget is borrowed. Yet even with such a massive debt and deficit facing us, we have been conditioned to caution any would be town crier against speaking frankly.

Any effort thus far of individual public figures to stand up and tell the American public the truth about the calamity of our historic political failure has been met with the severest of gamesmanship. Our public debate continues to look more like musical chairs. Unfortunately, each truth teller is left standing without a chair to sit in when the current news cycle is up. If only we could pull a Roman Senator from history and place him in the halls of Congress to tell the story of his empire’s ruin, perhaps our leadership would listen. Yet, they say that even if Jesus himself were to appear hovering above the earth in the second coming, most of us would not listen to his message. Instead he might find his musical chair taken away during the second coming’s news cycle.

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Congress’s Debate Over the Debt Ceiling is a Bright Red Goldfish

Reacting to the announcement yesterday that Dàgōng Guójì Zīxìn Pínggū Yǒuxiàn Gōngsī, the increasingly powerful Chinese credit rating agency, suggested they will downgrade the U.S. regardless of whether the US Congress reaches an agreement on raising its statutory debt limit, I simply replied “Ominous”. Reacting to my simple statement, a fellow social media traveler and investment professional responded stating that, “Dàgōng has about as much credibility as a Greek tax collector and that threats of a downgrade are about as ominous as a goldfish”.

It concerns me that our nation is walking into this debt ceiling debate foggy brained enough to suggest that dire warnings of the world will have no effect on our isolated debt discussions. Nonetheless, China, with the United States, the European Union, and Japan, now comprises 70 percent of the world’s GDP. Among these industrialized giants, Dàgōng has downgraded all but its own sovereignty. With the U.S., EU, and Japan’s currencies up against the ropes, what does saying that Dàgōng’s downgrading of U.S. Credit has the omnipotence of a goldfish really mean?

Prior to one of my many moves for my company, our young family lived in Ledyard, Connecticut in an A-frame home overlooking a dock on a deep, clear lake called Long Lake. Preparing for the move, my wife searched diligently for a new home for my 2 year old daughter’s bright red pet gold fish because we could not take it with us. She even went with my daughter Sarah to the pet store where it had been purchased to see if they would take it back, as my daughter had grown very fond of the little fella and very much wanted to secure a home for it but with no avail.

Finally the day came when Daddy had to do the tough sell. I took my wide eyed little girl down to the dock with her pet goldfish in its bowl. It was a very solemn moment as I spoke to her about why her little fella couldn’t come with us while her mother stood stoically a few feet back on the dock. We both said our goodbyes to the little fishy and peered over the dock as I let the bowl into the clear waters of the lake.

As we watched the little guy slowly get adjusted to the water and tussle its wavy fins and tail slowly out of the bowl, I could see my daughter’s wide eyes fill with a tear. It was something to see this little bitty bright red gold fish slowly and bravely flutter deeper into the water downward toward the watery flora below. A calm came over us knowing that it seemed content in the vast expanse of its new home. Then suddenly from the deep, as quickly as my daughter’s eyes and mine could grow wide in horror, a large mouth bass swooped up from the hidden depths below and engulfed this little fellow within its protuberance agape.

As the bass turned swiftly into the deep below, I quickly grabbed my daughter by the shoulder and turning her to her own dear mother while covering up the shock of my folly, I said, “Aw, how sweet, his mommy came up to meet him!” We didn’t speak again of the little bright red goldfish……………………………

So, perhaps even if the threat of China’s powerful credit rating agency, Dàgōng, downgrading America’s credit rating has really only “about as much credibility as a Greek tax collector”, the signal it sends to the deep, clear lake of our world’s financial system could be as quick and horrific as that ominous gray day on my dock on Long Lake.

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In 2012, America Must Elect a Turn-Around Specialist

America must conquer real threats if we are to reverse the inevitable slide into the annals of ancient empires following the downward slope from England to Rome. If we fail to overcome our formidable obstacles, historians will dissect America’s recent political machinations and federal budgets to interpret why we failed to reverse course as we battled our decline. My guess is that our descendents will wonder how America ever became so transfixed on military and healthcare.

Fear has driven America to the brink. To escape the jaws of death, we have become obsessed with healthcare, spending twice what the rest of the industrialized world spends and more than the incomes of most people in the world. Half of our health care budget is desperately spent in the last six months of our lives. America’s combined federal medical expenses of Medicare and Medicaid exceed $740 billion dollars annually.

To ensure that no 20th century military will ever rise up against us, America’s military budget has grown larger than all other countries on the planet combined. we expend $1.4 trillion dollars (shocking) annually including the DoD budget ($653 billion), military budgets of other departments such as NASA ($153 billion), the war on terror ($162 billion), current wars in Iraq, Afghanistan, and Libya ($200 billion) plus $484 billion of carrying costs from past military spending. Ironically, our obsessively growing military budget may prove the old saying that pigs get fat and hogs get slaughtered.

Since our civil war, no battles have been fought in America and 2,977 American lives were lost to foreign terrorists. 9/11 exposed our vulnerability to terrorism, but we lose more Americans to deadly American-on-American violence in two months than we have lost to terrorism and foreign invasion in 150 years. The odds that you will be murdered are about 1 in 200 in your lifetime, and considerably worse if you live in a city. 16,000 Americans are murdered and 1.5 million are victims of violent crimes every year. Our real threat of internal violence has grown to overwhelm our potential threat of external violence, yet America continues to spend $1.4 trillion dollars annually against potential foreign invaders and only $150 billion dollars on police, federal enforcement and prisons combined.

So we spend a combined $2.2 trillion dollars to protect ourselves from the perceived threats of foreign invasion and from dying 180 days before our time. $2.2 trillion dollars is 100 % (ONE HUNDRED PERCENT!) of federal revenues collected in taxes from the American people. To pay for our obsessions, all other services and interest on the debt are paid for with borrowed money. How have we let our fears overtake reason and push America to the binge spending brink of what may be coined by historians as America’s Greatest Depression?

Rather than crowd out our budget with perceived threats, America must assess our greatest threats and opportunities going forward and they must then be supported by our budget. Our debt has unfortunately been allowed to bubble into a historic crisis that could threaten to pull the world’s reserve currency into hyperinflation, so it has become our most urgent threat. Yet as our political leadership chooses to gamble with the debt ceiling, they have placed military and healthcare costs that consume 100 percent of our federal taxes in protected fortresses of untouchable expenditures. With this display of political bravado, they have boxed the impossible solutions of either eliminating the rest of government or raising taxes to a level that would plunge America into an austerity led depression.

The fable being spun inside Washington’s beltway is that minimal cuts can be made from military and healthcare as Congress and the President fight hand-to-hand combat to eliminate their political opponents’ favored programs. Are we to believe that America can turn around its deadly retreat with the table scraps given to us by our military and healthcare industry? Our political leadership continues to misread their vital mission of the people’s work. America knows it is not elimination of political opponents’ pet projects that will right our course but it is the charting of the true north of America’s best opportunities that must be protected by our budget.

In business, companies that present such insolvent balance and P&L sheets as exist in America’s federal budget, are subjected to the rigors of the turn-around specialist. All budget items no matter how large or small are prioritized as to their future value for the company and those below the expected revenue line are slashed. We must now subject our country to this difficult rigor that can best be accomplished with consensus of the American people.

The secret of the turn-around specialist’s success is that they know their employees will have been subjected to the harsh realities of drastic budget alignments and will end up hating the turn-around specialist as much as they love what he did for the company. The specialist knows when their vital work is done that they must leave the company to find the next financial disaster to correct.

The turn-around specialist work that America must endure is not for the weak of heart and will be distasteful to politicians that wish to be elected next term. But it must be done. The men or women, including those running for President, that stand up before the American people stating they will do the hard work, pledging only one term, are perhaps the only ones capable of getting the job done.

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America’s Future – Building Block #1: U.S. Debt – Do we increase, decrease or default?

One of a few critical building blocks of American policy that will be required to right our ship of state is stabilization of America’s debt. The seeming annual deadline to vote on raising the debt ceiling is set for August 2nd. While the Republicans have threatened to default unless the ceiling increase has corresponding cuts to the budget, and while the world anticipates corrective action, we may only see hollow political chatter without material cuts because it is not yet America’s season for freefall from treasuries default.

However, it should be the season for reason. Some economists tell us that recent fear of historic deficits comes only from those ignorant of economics. They say we can print money at will without retaliation because of our sovereignty and world reserve currency status, that we owe this debt to ourselves, and that we can inflate the debt away. They surmise that we are nowhere near an insurmountable debt maximum. But how can they be so confident that America’s ballooning debt is not an issue?

Learned pontifications have confounded us through continued clamoring of countering arguments since 1990, when the debt ceiling was raised 33% to 4.1 trillion to contain our previous housing bubble, the savings and loan crisis. We have just exceeded our latest federal debt ceiling of $14.29 trillion dollars. Total American obligations of all public and private debtors are over $55 trillion, and including government’s unfunded liabilities, we owe $168 trillion. Even if we could balance the budget today, each working American is already obligated in some form to pay the world one million dollars. Who is right? How much American debt is too much debt?

In placing their faith in the pseudoscience of modern economics, our scholars fail to mention that the majority of currencies in history no longer exist. Hyperinflations do occur with regularity, 21 countries in the last 25 years. Debt levels do collapse governments, small (Zimbabwe) and large (USSR). Unfortunately, by the time societies recognize they have reached the beginnings of hyper-inflation, their currencies are already on a glide path to extinction. How close are we?

Prior to WWII, America paid down its debt between wars but our perception of debt changed in 1945. Backed by 70% of the world’s gold, the dollar was the world’s hope for rebuilding, and hence became its reserve currency. In 1944, the architects of Bretton Woods envisioned the dollar as the lynchpin to a system in which central banks maintained stable exchange rates to support balanced trade between industrialized countries, with minimal international indebtedness. They did not foresee the corrupting power they entrusted to the United States that would later subjugate the emerging world to a devaluing dollar.

Control of the world’s reserve currency proved too powerful an elixir for America. Perhaps we convinced ourselves that exporting inflation was a fair trade for granting Europe and Japan seed capital, and for our supplying our trading partners with military security. Nonetheless, for the past six decades the U.S. taxed the world $15 trillion through devaluation, and borrowed another $14 trillion, diverting substantial growth capital from emerging countries to fund America’s sustenance.

Without a realistic alternative, the world reluctantly accepted losses of their reserve currencies, but devaluation has not been without cost to America. The collapse of Bretton Woods spurred the growth of a $300 trillion FX market that has quickened the demise of the dollar’s reserve currency role. FX arbitrage and speculative volatility also precipitated the Asian crisis, causing the Asian monetary zone to closely align, lessening a need for dollar reserves. Including Europe’s drive to a common currency and China’s rise, all reduced the dollar’s power and made the possibility of an alternate monetary system possible. And America’s choice to drastically export dollar devaluation to provide investment banks buffer for unwinding of credit default swaps has brought the world to the brink.

While largely diminished, the dollar still yet dominates but for how much longer? After $2.6 billion of quantitatively eased dilution, Bernanke has fatefully claimed an end to QE, but only after President Obama announced a decade long expansion of trillion dollar budget deficits, replacing QE in name only. Is there no limit? If a limit is reached and the world fully rejects the dollar, history has shown that its fall will be too rapid to save. We now have imminent signs of that moment’s approach:

• China rejecting the dollar – For eight years, China purchased 20% of the U.S.’s deficit, buying 50% in 2006. However, for the last year, China has been a net seller of U.S. debt, reducing its total holdings 30%, and dropping its treasuries 97%. China has signaled that its risk of holding U.S. debt is greater than its risk of causing U.S. interest rates to rise, which will limit our investment in China, and will cause us to purchase less Chinese goods. Their risk equation has pivoted.

• Fed’s acquisition of treasuries – In 2011, the Fed has been the chief buyer of U.S. treasuries, purchasing over 70%, as opposed to 10 % during the last decade.

• Private investment shies away from the dollar – Investment firm Pimco, managing the largest bond fund in the world, cut its holdings of US government-related paper from $237 billion to zero for the first time in the history of the firm, stating the U.S’s problem is worse than Greece’s.

• Regionalization of reserve currencies – Asian, European, and Middle Eastern trading blocs all are all moving away from dollar denominated trades. As an example, China’s and India’s central banks agreed to direct currency exchange as of 2011.

• Commodity inflation – While the U.S. government quoted core inflation is up a mere 0.4 percent, Americans have felt the results of a real 12% inflation and much higher commodity inflation.

• Debt rating concerns – As of June, 2011, Moody’s has threatened to reduce the U.S.’s debt rating unless imminent progress is made on reducing America’s deficit

• American public losing faith – Most telling is the behavior of the American people. With 28% of home prices lower than the underlying mortgages, record numbers of Americans have chosen strategic foreclosures. 25% of foreclosures are from those that have chosen to walk away from debt obligations even though they still have the wherewithal to pay them. Feeling betrayed by America’s financial institutions’ “contract” with Americans for stable money, stable employment, and stable pricing, Americans increasingly no longer feel compelled to honor their financial contracts. The underpinnings of the dollar are on shaky grounds.

Our political and financial leadership now have choices to make. The Fed has signaled no more QE and the President has signaled a decade of continued historic deficits, but those announcements are political balloons that have been lofted toward their constituents. What should America’s true strategy be for our mounting debt?

We have but limited choices. 1) Debt can continue to increase at historic rates, perhaps preserving our banking system in its zombie state, but risking the loss of world credit, a spike in interest rates, crowding out of government services, and the march toward hyperinflation. 2) The rate of increasing debt can be reduced by either budget cuts or tax increases, but either measure may precipitate a return to America’s recession, increasing unemployment, decreasing GDP, and without substantially austere measures, continuing down a path toward loss of world reserve currency status. Or 3) America can take drastic measures to eliminate the deficit and to begin reducing the debt, most likely causing a rapid downward spiral of GDP which, similar to Greece’s predicament, will create an imploding cycle of further austerity measures and GDP reduction.

Considering that credit agencies have already fired lowered debt rating shots hair-raisingly close to America’s bow, the first option of continuing down our current path of printing money to fund our federal deficit is daring fate to draw us into the abyss. The world is quickly shutting off America’s Fed spigot of money printing. If we continue printing money, we risk paying higher interest on existing debt, crowding out needed government services and shocking America back into recession. The EU’s prescription for Greece has enlightened us that the third option of severe austerity is a prescription for thrusting America into obscurity with little hope of return. Therefore, we must now immediately embark down the second path of significant but directed deficit reduction. Sound choices of which reductions to make is a topic for a near future building block post and would be an interesting response from readers.

While the middle choice of materially lowering the rate of increase in our debt and over time reaching balance is our hope of recovery, it risks sending America into a double dip recession. If we reduce public spending without subsequently increasing private spending, demand will decrease, most certainly causing a downturn. Increasing taxes, without correspondingly increasing earnings of those paying them, will crowd out private spending, also decreasing demand. To successfully navigate our debt hazards, any decrease in government spending must be accompanied by a similar increase in private spending.

To increase private spending, either consumer demand must be increased with corresponding availability to credit, or private business spending must be increased with a corresponding potential for demand for its goods or services and a corresponding availability of credit. To keep this post to a reasonable limit, these issues are items for a future building block post.

Consumer credit is maxed out. Historic consumer debt combined with loss of housing and stock market equity and lowered prospects for employment have dried up any chances of a consumer led recovery. Loosening of credit without a corresponding increased demand for employees is unwarranted and spurring demand for employees is unfortunately another building block topic.

State and local governments are operating outside of constitutional authority in the red, and foreign governments have reduced credit to the federal government. Therefore, deficit reduction must initially be accompanied by increased domestic business spending if we are to avoid a recession. Increased spending must have the potential for successful creation of new profits. Sources of new spending must come from private providers of debt and capital, bank debt in combination with private business equity. America can no longer allow our banks to set the agenda for the path forward. The current prescription of repairing bank balance sheets while limiting credit is no longer feasible. These issues are also a subject for another building block discussion.

Some in Congress suggest we have a fourth option, that of initially maintaining the deficit by cutting taxes to spur growth while reducing government spending accordingly, eventually growing tax revenue through increased growth of the economy. While the idea has much conceptual merit, its implementation in previous Congresses was spurious. Private capital from lowered taxes was siphoned into overseas investments with little if any net benefit to the domestic economy. Much work from Congress, the courts, our executive branch, including trade negotiators and national strategists, business and labor must be done together as a community if we are to establish the real environment that can actually benefit from reduced taxes. (yet another building block discussion)

Initial prescription: Material reductions in government spending with corresponding highly incentivized, private investment that directs spending to domestic projects and increases domestic employment. Ultimately, in a timeframe considered realistic by world markets, the deficit must be eliminated through combination of reduced spending and increased GDP that strategically grows the domestic economy, creates full employment, and retains innovation. (More meat in future building block discussions)

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