The United States of American (WE) needs to reduce our spending. WE have two basic paths available to us to perform this task. The first is that WE voluntarily reduce our spending (WE at least have some control). The second is that rest of the world mandates our spending reduction, they either do not buy our debt at the offered rate, or force us to accept it loan shark rates (WE have no control). Can you say Greece!
The first path has two forks that we could take. The first fork is a Crash Dive/Jump off the Cliff (Tea Party anyone?). A jump off the cliff excess spending, and let the chips fall where they may, with all of the chaos and economic shocks that ensues. The second fork is a controlled decent. The reduction of spending in a controlled and orderly manner in order to reduce the shock it is going to apply to the economy.
The Crash Dive/Jump off the Cliff path does not appear to be very reasonable in that WE do not know the extent of damage that will occur in our country and economy. It is hoping that we do not exceed structural limits when we try to return level flight, in attempt to keep from hitting the ground. This method can be quick it can also leave long lasting scars on the country and the economy.
The control decent is a more reasoned approach. It will allow for some mitigation of damage that will occur in our country and economy. This path is longer than the Crash Dive path. This path is not a large and possibly fatal shock to the system, but please do not under estimate the fact that it will still be a significant shock, and some of it’s effect will be very unpleasant, and not limited to a few select individuals. WE all gained from the situation getting here, WE all should stand some of the loss getting down.
WE are a debt addicts. Like all addicts, when the addictive substance (Debt) is removed, the withdrawals are not pleasant. WE will have to endure the withdrawals and hopefully come out on the other side with a better understanding of who, what and where WE are. There is no guarantee that WE will come out on the other side.
Regardless of which path we choose or is chosen for us by others, things will not be the same in America. Many individual will suffer. Many will suffer because of decisions that they made. Remember that a decision not to make a decision is a decision. If I had to guess the very young and old will suffer more than any element of our society.
Some industries will disappear never to return, some will be mere shadows of their former selves. Some existing industries will rise to new prominence. New industries will emerge. It will be very unsettling times as the power structure is recreated.
This will be a time when the economy will not grow it will even shrink. Unemployment will increase. Initially government revenue will shrink, as the economy shrinks. We will have limited means to provide anything in the way of relief to our own. WE have already expended most if not all of that ammunition.
WE cannot and should not expect help from others, the world is not a kind and gentle place.
Do WE have the will to take control of our nations path; at the present time I would say NO. The friggin ship is sinking and the bridge crew is arguing about where to place the tables and chairs.
I have always held a belief that all systems are self-correcting. I have also held the belief that you do not want to be around when a system self corrects, because the old rules do not apply, and you do not know what the new rules are.
WE (The United States Government) have been spending like there is no tomorrow, and if we keep spending like we are there will be no tomorrow. The graph below show just how bad it has gotten lately.
I am not calling for isolation of the United States, but we need to be far more prudent on when and where we spend our money and forces overseas. The cost associated with supporting various cold war institutions must be reviewed with an eye to their effectiveness in supporting the national goals of the United States. Everyone says that they need help, and that may be true, but we only have a limited amount of treasure and bloody that we should be willing to spend, so we must choose wisely.
Some of spending reductions are going to be no brainers. Most of these no brainers will affect people outside of the United States. WE have declared victory in Afghanistan, and the game of musical chairs between us and the other NATO allies has started in Afghanistan. The Iraq Government has informed us by their silence that we are expected to leave by the end of the year. All of these events should cause the examination of our current armed forces structure, and missions. Some of these no brainers will affect people inside of the United States. The reduction of forces in the Middle East, and the possible reduction of operational tempo of our existing forces will affect foreign companies, or the foreign subsidiaries of American companies. The possible of reducing the size and shape of our standing armed forces, will directly affect the American people by increasing the number of unemployed. The possible reduction or cancellation of various weapon system, will have a direct affect on both the top and bottom line of American companies, and indirectly affect Americans who own their stocks and bonds. It will affect the American people again by increasing the number of unemployed.
The spending reductions are going to be tough to come up with and tough to maintain because it for the most part will only affect millions of Americans. In many cases it will reduce the standard of living for many, as direct government payments and subsidies are withdrawn. Additionally a significant portion of our economy will see a reduction in demand for goods and services as government spending is reduced. The knock on effect is that many of these organizations will be disproportionately hurt as find that they too much production capability for the given demand, and they to will have to make adjustments, that also will add to number of unemployed. Remember that these organizations also disproportionately gained on the way up, their main problem may be that they became too dependent on one customer, which one could argue is a gross failure of their management.
Finally there will be the changes to the rules that WE have been operating under for all these past years. It will take time for the economy to adapt to these new rules.
Some will argue that a particular no brainer spending reduction is so small that it does not significantly contribute the overall cause. My rebuttal is that for every small spending reduction on a no brainer results in a possible easing of a tough spending reduction. So let us take care of the small one first, to get a better handle on the tough ones to follow. The tough spending reductions will be hard.
The spending reductions will particularly affect those who did not save for a rainy day. Spending reduction will particular affect those who have significant amounts of unsecured debt and no sources of income. In all probability the negative effects will disproportionally affect the very young and very old. Many will say that it is unfair, to punish these individuals, and they maybe correct. But everyone has the choice of being either a Grasshopper or an Ant. I was always told that life is not fair, nor just, and that everyone pays for their decisions, one way or another. I was also raised to expect the best, but plan for the worse.
But to those that say that the situation is unfair, remember that many of these individual choose to life for today, and not think about tomorrow.
There is one group regardless of which path is taken that it will be extremely hard on, that group is our elected representatives. Some will argue that it is not there fault; they did not start this cycle. My answer is crap, you did not stop it, nor in many cases you did not attempt to slow it, or stop it, or show your displeasure of the situation via you vote. From my vantage point you were there for today, and not tomorrow.
The one path that WE must avoid is to have the world dictate the terms and conditions to us either via the value of our currency, the interest rates we pay, or a combination of the two. WE have had a fairly easy time of it given that our currency is currently the worlds reserve currency, the moment that condition fails, the situation will be much worse for us.
Whatever path is taken: “It Will Suck to be an American” for the next few years, because there will be no deus ex machina.