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Now We Can Stop Paying Attention
Published : November 08th, 2012
836 words - Reading time : 2 - 3 minutes
( 7 votes, 4.9/5 ) Print article
 
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Two years, billions of dollars worth of political ads, and a nearly infinite number of platitudes and lies later, the election is finally over and we're...back where we started, with a divided government run by the same people, likely to pursue the same policies and spend a similar amount of time in gridlock. Not all that surprising when you think about it, since the country is evenly split between two outmoded but antithetical worldviews.

 

What is surprising is that anyone thought the outcome of this election mattered in the first place. The sad reality is that the institutions that dominate the system no longer care who is "in charge." And all it takes to illustrate this point is a quick glance at the following chart of America's total debt, which is the sum of federal, state, and local borrowing, home mortgages, credit cards, student loans, business loans, etc.

 


 

Note that between 1980 and 2008 it rose steadily under both republicans and democrats. Even during the supposedly fiscally responsible Clinton years (1990 - 1998), while government debt fell a bit, total debt soared. Why? Because there are two ways for a government to fund its overspending: The first is to borrow, as happened in the 1980s under Ronald Reagan. The second is to convince individuals and businesses to do the borrowing and to buy stuff with the proceeds, thus producing taxable income that helps balance the government's books. Either way, systemic debt goes up.

 

In the 1990s the Clinton administration chose the second strategy, using easy money to fuel a housing boom and tech stock bubble. The result was a torrent of borrowing, spending, and IPOs, which boosted federal tax revenue and produced a few years of balanced budgets. The government - for those who were focused only on the public debt - looked well-run. But to the tiny handful of Austrian economists out there, the fact that total debt was soaring, and that the average loan was becoming more and more speculative, led to the conclusion that we were creating a debt bubble that could only end with an historic bust.

 

That bust came in 2000, and republican George W. Bush was forced by its magnitude to leverage both the public and private sectors, producing a housing bubble combined with record government deficits. That bubble burst in 2008, leaving incoming democrat president Obama with a traumatized private sector incapable of leveraging itself further. He saw no option but to run deficits that a generation ago would have seemed physically impossible.

 

The system, in short, demands ever-increasing amounts of debt and couldn't care less whether republicans or democrats provide it.

 

Someday the markets will put a stop to the borrowing, but until then it really doesn't matter who we elect or what they promise. Debt, after it reaches a certain level, is all that matters - not immigration policy or health care or marginal tax rates or short term interest rates or gay marriage. All are irrelevant compared to the institutional momentum of increasing leverage.

 

Total debt is now about $175,000 per citizen, or $700,000 per family of four. The average family's income is something like $50,000, so it's clear that we've long since passed the point where a return to a 1980s version of placid normality is a viable possibility for the country, any more than it would be for a typical family that woke up to find itself $700,000 in debt. Going forward the choice is to inflate or die.


So Why Bother Watching?

 

This story is at least a decade old, and it's getting tiresome for all involved. For the majority who expect positive change from each election the disappointment must be exhausting, as each inevitable compromise moves their latest hero one step closer to impotence. For the small number of people who see the underlying truth, this show is even harder to watch because the obvious, inevitable ending just won't come. The zombie that should have died for good after the 2000 tech stock crash keeps shambling along, wreaking havoc or boredom, depending on whether you're in its path or watching from a safe distance.

 

The solution? Accept that time spent obsessing over a process with a predictable result but unpredictable schedule is time wasted. So just stop watching. Make the right - and by now obvious - financial and lifestyle choices and then tune out. Turn off the TV and stop reading the business and political sections of the paper. Use the resulting time to develop yourself and cultivate your community. You know what's going to happen, more or less: A decade hence your gold will be worth a lot more and everything else quite a bit less. And you know your friends will suffer and need your help. So prepare for the things that you can predict.

 

Once the markets stop providing unlimited leverage and the system crashes for good, then tune back in and add your voice and your capital to the debate over what to build in its place.

 

 

 

 

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John Rubino

John Rubino is the author of The Coming Collapse of the Dollar (co-written with James Turk), How to Profit From the Coming Real Estate Bust (Rodale, 2003), and Main Street, Not Wall Street (William Morrow, 1998). A former Wall Street financial analyst and columnist with theStreet.com, he currently writes for Fidelity Magazine and CFA Magazine He lives in Moscow, Idaho
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