This is Civil War…Only We’re Fighting it at the Conference Table Instead of on Battle Fields

Harry Dent & Rodney Johnson | Friday, March 01, 2013 >>

As you well know, today is sequester day.

You’ve also no doubt heard, because the media’s been harping on about it like a nagging wife, that politicians are gridlocked on this issue… no one is willing to compromise for the good of the country.

There’s just one problem…

That’s NOT what happened at all.

What REALLY happened, and continues to happen, is our representatives in government are doing what we voted them in to power to do: represent us.

The recent movie, Lincoln, showed a time when voters and citizens were extremely polarized over the North/South split and major issues like slavery. Our politicians were extremely divided and contentious then… just like they are now.

But even back then, they were just representing the extreme split among voters who were literally fighting each other in the Civil War.

It’s not the politicians who couldn’t find common ground on the budget cut.

It’s us.

We, the voters, are more polarized than we’ve been in the last 150 years.

About 30% of the voters root for the Tea Party and they are farther to the right than ever. For them, this debt ceiling debate is a matter of moral principle. They see the truth that we have a runaway debt problem with no one at the helm willing to face it or solve it.

They don’t care if shutting down the government threatens the economy short-term. The longer-term results are more important to them. So they fight to the death on this issue.

Another 30% of the voters are on the complete left, represented by comedians like Bill Maher and economists like Paul Krugman…

Bill claims the Tea Party is literally holding back human evolution because they live in the past and fight every progressive issue. Paul thinks the problem is that the government is not printing enough money or running high enough deficits to stimulate an economy that will be okay once we get out of this deflationary spiral. (I’ve changed my mind… they’re both comedians.)

The liberal side sees the average person paying the price for a debt crisis that banks created. “And that’s not fair,” they say.

“We can’t afford to have this debt crisis deleverage and cause a ruckus like the Great Depression,” their logic goes. “That’ll impact the average citizen who stood by innocently as the bubble inflated.”

This group doesn’t care how much debt it takes. Just prevent this crisis!

So we’re split neatly in three. And nothing’s solved.

Who’s Right?

I side with the Tea Party on the broader debt issue…

We have to face this debt bubble rather than endlessly extending it. We must swallow some foul-tasting medicine for a few years so we can survive this debt-affliction.

Thomas Friedman put it best when he said: “If we don’t have a difficult decade, we will have a bad century ahead.”

The current policy of kicking the can down the road is nuts. The Japanese have already proved that endless money printing sends your economy into a coma from which you never recover.

Why haven’t we learned those lessons from Japan?

What we need is a lady with balls, just like the Iron Lady Meryl Streep recently portrayed in the movie The Iron Lady. We don’t need a bunch of wimpy men! Sadly, that’s exactly what we’ve got.

Thatcher was a true leader. In the early ’80s she argued for austerity in the worst recession since the Great Depression. She didn’t bow to pressure. She didn’t take the easy way out. And thanks to her, Great Britain – and the world – boomed out of that recession.

Paul Volcker, as Fed chairman, took a similar stance in the U.S., unlike wimpy Ben today. In the good old days we faced the problems instead of kicking the can down the road and we came out faster and stronger as a result.

That said, I also agree with the progressives that the Tea Party is holding onto an idealized Mayberry view of the economy and government as if we were still living in small town America.

Hey, Tea Party. We’re over 80% urbanized. We aren’t living on the little house on the prairie anymore!

But, the point is not about who is right or wrong here. The point is that both of these camps are more polarized than any time since the Civil War.

There IS NO compromise possible here.

We will continue to have battles that go right down to the very last second before a temporary compromise is reached to keep our world from collapsing around us.

The truth is neither side has the solution.

It will take a major crisis and a literal state of “bankruptcy” to get voters focused on reality again… for us to put in place representatives that can – and will – come up with real solutions to the greatest debt bubble in history and the extreme levels of inequality in wealth and incomes.

For now, don’t look for real solutions ahead. Look to protect yourself from this inevitable crisis and the harsh reality we must face.

Harry


From the desk of Rodney Johnson…

No Matter the Outcome…
We’ll Feel this Pain for Years

There’s an old parenting trick I’ve used to settle arguments in my house. When something is to be split between two kids, I let one draw the line and the other choose which half they want. This ensures equality, at least to a degree.

Unfortunately, this only works on positive things. What do you do when the kids have to split something they don’t want, like chores? In this case, there has to be some oversight to ensure that both kids are doing their part.

With Congress and the White House, there is no such oversight.

At this point, we have sequestered budget cuts which no one wanted but they both supported.

When push came to shove, they couldn’t agree on what to do instead of the cuts. The House wanted straight cuts after agreeing to tax hikes in January… but they would allow for more strategic implementation.

The White House and Senate wanted more tax hikes in addition to minimal cuts.

No one budged.

Now we get the meat cleaver cuts… with a twist.

As much as the White House claims no ability to adjust cuts, that’s not specifically true. The administration can take steps to ensure orderly flow of activities and businesses that affect the public…

But don’t look for that to happen.

Instead, expect the administration to make the implementation as difficult, inefficient and painful as possible for the public. You’ll likely see this in the form of flight delays (air traffic controllers), longer airport security lines (TSA) and a slowdown in the supply chain of dairy and agricultural products (food inspectors).

Why?

To show what a bad outcome the Republicans have caused.

In the end, the two sides agreed to something they didn’t want… then couldn’t agree on how to avoid it… so we as consumers end up paying the price.

At least we can say there was a 2% reduction in spending. That’s something worth noting as you look up at the delayed flight signs while you stand in line to be x-rayed.


Rodney

What Killed the Middle Class?

Today real incomes of the middle class are 5% lower than they were in 1970 and 12.4% lower than in 2000… when they peaked! How could this be?

In our new infographic What Killed the Middle Class?, we take a look at some shocking numbers to show how bad it’s become and what has been fueling this middle-class revolt.

 

LEARN MORE
Categories: Life Cycle

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.