An Economic Storm Warning

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  • An Economic Storm Warning
    An Economic Storm Warning
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In a world far too caught up in the election process, there are signs that the future bodes ill for us, regardless of who prevails. I don’t say that lightly, nor do I wish ill on anyone. For me, current events are rather like watching a loved one succumb to the ravages of age and mental deterioration. As much as you love them, they are not the same as they once were, and they don’t know the difference.

The last ten years have seen a doubling of the national debt from roughly $13 trillion in 2010 to about $26 trillion in 2020. On top of that, government spending this last year skyrocketed. There was at least $3 trillion in additional spending above and beyond what the government normally spends. Put another way, government printed a whole lot of “new” money to pay for “relief.”

At the same time this spending was going on, the number of workers out of a job was at record levels. While “official” unemployment figures have dropped considerably, those numbers do not include people who stop looking for work. Parents with children out of school due to COVID may not be looking for work, so they don’t count.

This drop in employment has to mean a drop in Social Security payments. Workers are taxed at a rate of about 7% and their employer has to match it plus a little bit. If people aren’t working, they are not paying Social Security. So what’s wrong with that?

Well, what’s wrong with it is that through the wisdom of our elected representatives, there is no “Social Security Trust Fund.” Payments into the system are immediately paid to Social Security recipients. Just last year when the economy looked rosy, the trustees of the Social Security System warned that there was a danger of going bankrupt by 2035. That was before COVID.

Not only that, but true to form, Medicare payments have continued to climb. Government programs always cost more than projected. It’s a given.

But let’s go back to the government printing presses. There is a fundamental law of economics which says that the more common something is, the less it is worth. So if government creates more money, then by that fundamental law, it will be worth less than it was before. You can use smoke and mirrors to hide it for a while, but sooner or later, the chickens come home to roost in the form of inflation. When it does, it will spell trouble for all kinds of people, but especially people who have saved their money in the hopes of a comfortable retirement.

I remember the days back in the 1970’s when anyone with savings was casting around for places to put their money in an attempt to keep up with an inflation rate that reached 18% in 1980. Why did that happen? Well, Jimmy Carter, a Democrat, was president, and the Democrats held the Senate with 61 seats to the Republican’s 37, and the House with 277 seats to the Republican’s 158. Democrats always like new programs that cost lots of money.

Democrats in complete control of the government, and increased government spending led to “stagflation”, a poisonous combination of economic stagnation and horrible inflation. About the only good thing that happened was deregulation of the trucking industry.

What I am saying is that an economic storm of epic proportions is coming. Like a hurricane, there is nothing that is going to stop it. And there is no way to escape such a storm. It’s going to hit us. The only question is how well we weather that storm.

We can try to prepare. Unfortunately it is hard to know exactly how to prepare. One role of government is to create a stable economy so that people can plan. Our economy is anything but stable, and it is impossible to plan. We can only do the best we can. As one of the Tarzan novel characters said so often, “It’s going to blow pretty soon pretty hard.”