|
|
There are three
types of economic thought: classical economics, behavioral economics and
Austrian economics. Classical "Wall Street" economics has morphed
into a make believe world where debt doesn't exist. The only variable that is
measured is the debt payment. I have a degree in economics but unfortunately
I am also an accountant, so thinking about both schools of thought gives me a
headache.For my own sanity I have given up most thoughts of classical
economic theory.
Once in a while I let myself think about Austrian economics where total debt
is actually a variable. But this thinking is mostly just folly. The
accounting balance sheet in the Austrian model does not allow for limitless
debt so it presently can't be used by our government or our financial sector.
If a real balance sheet was put it in place now it would be like opening the
covering of a glass bottomed airplane at 45,000 feet without warning your
passengers. And of course this event would be worse in our country's current
condition because most of our population thinks we are on the ground and not
flying high at the peak of maximum attainable debt load.
Anyway in my folly, I have heard some of the more thoughtful Austrian and
behavioral economists use the idea of "bubble-nomics"
to describe economic events like our recent period of excess. This would be
the fiscal and monetary manipulation of an economy by a government creating a
false period of prosperity followed by a real period of slower economic
growth.
But I don't think that the idea of "bubble-nomics"
is a true representation of our present situation. A bubble is a balloon that
inflates to the point of maximum expansion. This is a very rigid and boring
concept to describe a period of very extreme human behavior. Plus no matter
how big the bubble gets it doesn't really burst. It just creates a hangover
as the economy goes back to normal growth minus the false growth from the
bubble.
It's more like a party. Our government spikes the economic punch with either
fiscal or monetary manipulation and our country starts buying a lot of drinks
for the house. If our citizens become really intoxicated we start to use
extreme debt to keep the party going. And if the party gets really, really
out of hand we bring our kids to the saloon, sit them on a stool by the bar
and tell the bartender to charge the drinks to "them".
Borrowing money from children to keep an economic party going has happened
only once in human history to my knowledge. But boy this has been a great
party. The bartender is just now getting the tab ready for our kids to sign.
Hold that thought! I think our kids still have a little credit left with
China and The Middle East.
Hey maybe we could invite Iceland, Spain, Portugal, Ireland, Italy and Greece
to the party? They are all in extreme debt but I don’t think that their
kids have a Chinese credit card yet.
Well, it's just a thought.
But anyway, eventually someone has to sign the bar tab and we will need to
get back to our lives of working and saving. The economy will get back to
normal - minus the distortion caused by the bubble or the party or whatever
metaphor floats your boat.
At the end of the 1920's that's what happened. We partied until we couldn't
party anymore. Then the government spiked the punch and we started the party
again until 1933 when we just couldn't borrow anymore. The bar tab seems to
be the tipping point that shuts down the extreme party.
In 1933 total debt to GDP shot to 350%. At no time in our country's history
has it been even close to that number. Well not until now. We have raced past
350% and now we mostly don't even keep track of the number anymore. All tiers
of government, federal, state and local are using unfunded liabilities
instead of stated debt so no one knows the exact amount of what has been borrowed.
Our financial sector has learned this trick also.
How much debt does our country hold? No one really knows and nobody really
cares. In Wall Street economics debt doesn't exist so it never needs to be
paid back. But as an accountant I have been trained to assume that debt does
need to be paid back by someone, at sometime in the future. I am sure that
Japan, China and The Middle East would agree with me on this point.
Anyway, since we have been allowed to bring our children to the bar and
charge their Chinese credit card to party we might be able to create more
debt than was humanly possible before. Of course no one knows the number but
let's say that "real" debt to GDP is 450%. Once we hit the debt
wall in the next few years like we did in 1933 then GDP could go down 20%
thus spiking the debt to GDP ratio to 563%.
It's really a shame that our government and our financial sector are using
hidden accounting tricks to state their debt ratios. If they were required to
use real accounting standards then we could have an all time record. Over
500% of debt to GDP! No one has done that before – Yee Haw!
Hey has anyone thought of asking North Korea to give us a hard money loan?
Just kidding.
It's not wise to take money from countries that don't like us. Maybe we
should just stick with borrowing large amounts of money from China and The
Middle East.
Once we are through partying and "our friends" decide not to lend
us any more money then our kids will set up high interest payments to all of
“their” creditors.
The bar tab will shut down the party. Everyone will have to go home.
Then and only then will our country go back to a normal life. Back to just
worrying about working and saving.
And of course paying off the massive debt from the past 15 years.
Calling the last 15 years a "bubble" does not do it justice.
The biggest party the world has ever known will be over.
Let
the hangover begin.
Charlie Husen
Tax Home
Charlie Husen owns a tax accounting business in
Pleasant Hill California. You can contact him at charlie@incometaxhome.com.
|
|
