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