STIGLITZ: The Ideological Crisis of Western Capitalism

STIGLITZ: The Ideological Crisis of Western Capitalism: "STIGLITZ: The Ideological Crisis of Western Capitalism
The US economy's troubles should have taught Americans (and others) that they need greater equality,stronger regulation, and a better balance between the market and government. Instead, resurgent right-wing economics once again threatens the global economy – or at least Europe and America."

The Market Ticker - The Truth About Budgets, For Both Left and Right

The Market Ticker - The Truth About Budgets, For Both Left and Right: "

The lies are flying fast and furious this weekend (and all last week for that matter) related to the "debt ceiling" and partisan wrangling has reached a fever pitch, with some representatives now claiming that the Republicans are "racist" for refusing to raise it.

Let's look at the facts, and deal with them - because we really have no other choice here. I apologize in advance for the length of this post, but there's simply no way to make it shorter.

I'm going to start with some indisputable history. We'll begin with this chart, because it tells us exactly what the outcome of each quarter of economic activity has been since 1953. It draws on two official data sources - The Fed's Z1 and The BEA's GDP series:

I've presented this chart many times before (although the previous versions had a sign extension problem during the 09 time period which was just recently caught) and it is important to understand what it shows you. This is simply a graphing mathematical ratio relationship of the number of dollars of GDP created and the number of dollars of new debt created anywhere in the economy. It does not distinguish as to where the credit is created, just that it is, nor does it distinguish as to how the GDP is created (e.g. is it consumption, net investment, etc) If, for each dollar of GDP expansion there was one dollar of debt expansion, then it is "0". If there are two dollars of debt expansion for each dollar of GDP expansion, then it is "-1". And if there are two dollars of GDP expansion for each dollar of debt expansion, then it is "1". Mathematically it is "((Quarterly Change in GDP) - (Quarterly Change in Debt)) / ABS(Quarterly Change in debt). Yes, it is possible for this calculation to throw an error (attempting to divide by zero) if the change in debt is exactly zero.

Therefore, for any quarter in which this indicator is positive, debt is being used predominantly for expansion of output, and is productive. The more-positive, the more productive. For any quarter in which it is negative debt is being used for either speculation or consumption and is destructive. The exception is if debt is actually contracting.

Here's another way to look at it that addresses this problem:

The amusing part of both of these charts is what they tell you about the sustainability impact of the collapse: What happened during that time was actually net good! From Q2 2009 through Q1 2010, we had actual debt-adjusted positive growth! Note, however, that we're right back to our sinful ways and again, other than during the "collapse" we never had positive GDP growth from 1980 onward. From a formula perspective this one is ((Change in GDP - Change in Debt) / Previous GDP). Since the GDP is never zero, this one cannot error out. It also expresses the change in terms of percent of GDP as opposed to a ratio between GDP and debt itself, which may be more-useful to some.

The problem, which ever way you choose to express the ratios, is this: Since 1980 there has not been one three month period in which GDP expanded faster than new debt did, except during the collapse itself.

Read that again: There has not been one quarter in which actual economic expansion occurred, on net, funded by improvements in actual economic output since 1980 during the so-called "great economy" we have enjoyed over the last 30 years. Not one time, even with the introduction of the personal computer, the introduction of the Internet, and with the so-called "great productivity" improvements that we have been sold as "facts" by the so-called mainstream media. Only the collapse produced net-positive results even though they felt like Hell on Earth for the population as a whole!

We have literally put the nation's forward "progress" on the credit card in each and every three month period since 1980!

This is the root of the problem we now face and there is nothing we can do about history; it is fact. We can only change the future.

This is what that chart looks like in terms of what we actually had to do to achieve that horrific outcome:

This is the quarterly change in dollars of GDP and debt in the economy in all sectors since 1953. You will notice that while the best we've ever managed to achieve is around $250 billion in net GDP additions, we have added approximately $1,300 billion in debt in one single quarter. Again, these are historical facts and nothing we can do will change them. This is where the distortions in our economy have come from, and they have occurred in both Democrat and Republican administrations along with Republican and Democrat Congresses. President Clinton, for whom many pine, in fact promoted private business Ponzi Finance at a faster rate than he was "helping" on the Federal side.

Ironically, it was George HW Bush (Bush the Elder) who was the last President to make any sort of actual progress in getting those two lines to cross, albeit unsuccessfully. As for President Obama, the collapse in credit accreation was due to the economic meltdown, but it was short-lived as you can see. The reason for that is found here:

Federal Debt creation skyrocketed starting in 2008, Bush's last year. But it has only accelerated under President Obama. To those who claim that President Obama has somehow "inherited" Bush's problems, irrespective of whether you believe that or not he has continued the destructive policies of his predecessor in this regard.

President Bush tried to cover up an economic depression. We know this to be factually true for the following reason:

The last calendar year of Bush's Presidency, 2008, he ran government deficits as a percentage of GDP to 10%. Absent that deficit spending, since GDP is defined as "C + I + G + (x-i)" GDP would have contracted by at least 10%. This is 2nd grade mathematics - specifically, subtraction. Since the cessation of that deficit spending would have a multiplier effect (and economists fight over exactly how much all the time) the actual contraction would have been more than 10%. The 10% line is the barrier behind which economists call an economic contraction "Depression."

Ergo, we have been in an economic depression for the last three years which government has covered up through massive deficit spending exceeding 10% of GDP. Again, this is mathematics, and irrespective of whether you wish to believe it or not, these are the mathematical facts. Again, both Democrats and Republicans are equally responsible.

Unfortunately the news gets worse. As I pointed out in the spreadsheet on Friday, our government currently spends about 11% of it's budget on interest. It cannot, of course, spend more than its budget on interest, nor can it spend anywhere near all of it, since there are functions of government that are essential (even if only to provide lighting to the Capitol building!) If we continue to expand government at 5% (over the last ten years it has in fact been 7%) annually and interest rates do not go up at all (3% blended, roughly) then at present rates of government debt creation within ten years more than 20% of the budget will be interest payments, in another 10 it will be nearly 40%, and so on.

You can see the problem immediately - for each decade the percentage of interest payments in relationship to the budget doubles.

You might look at that spreadsheet and deduce that we have some time. You'd be wrong. We already used up our "reserve" of time by suppressing interest rates via The Fed. This bought us a few years of time, but that bullet has now been spent.

The reason we cannot continue on the present course is that the important factor is the spread between government debt creation and government revenue increase. But remember, government revenue can only go up as GDP does in a sustainable fashion. That's because government by definition gets its money by imposing tax upon production. If taxes rise faster than GDP does the attempt to raise taxes fails over the intermediate term for the same reason that debt cannot rise faster than GDP (you can think of taxes as simply an interest payment on GDP if you wish; mathematically they're identical.)

Right now we have about 2% of "reported" GDP growth on an annualized basis. We are borrowing and spending, however, almost 12% of GDP. That means the "spread" is about 10%.

In order to actually begin to increase stability in government debt, that spread must be negative! Making it "less positive" slows the slide in stability, but does not reverse it.

And that's where the problem comes in that confounds accurate analysis of where the event horizon lays. Let's assume we stop deficit spending tomorrow. GDP contracts by 12% from where it is now immediately and the spread does not change. That is, government has not improved its fiscal sustainability at all!

It's worse; in the short run sustainability will get worse because of the aforementioned multiplier effect. That is, GDP will contract not to -10% but to something more based on that multiplier! So in the short run, until that works its way through the system, you actually go further into the hole!

Most economists agree that this effect requires somewhere between three and six quarters to stop percolating. That is, when you stop (or increase) government deficit spending the GDP impact is "absorbed" in somewhere between nine months and a year and a half. What we do not know, and nobody can give you can accurate number on, is what the "knock-on effect" percentage is going to be.

We thus cannot go to the "wire" before we decide to take this problem on and fix it. If we do we will blow up for certain. There is also nobody, myself included, who can give you an accurate read on exactly where the cliff-edge is. I don't know, they don't know, nobody knows. But what is absolutely certain is that the longer we take to deal with this the higher the probability that we will initiate a downward spiral where government revenues effectively collapse while interest rates skyrocket, making it impossible for the government to cover its debts. This is what happened in Greece; they danced too close to the line and when they tried to pull back went off the edge instead.

The following facts are in evidence and cannot reasonably be disputed:

1. We do not have ten years to get to the point where government deficits grow slower than GDP does. We may have five years. It is possible we're already beyond the event horizon and squandered our chance in 2007. Nobody knows exactly where the cliff-edge is, and anyone who claims they do is lying. The longer we take to get to sustainability the greater the risk is that we're too late, and there are no "mulligans" in this game.
   
   
2. The mathematics are immutable facts in regard to the sustainability of what we're doing. There is no arguing with the law of exponents. Those "economists" who claim otherwise are lying. If they do not understand the spreadsheet linked here and elsewhere it's due to willful blindness - the properties of exponential functions are taught in middle school. There is no complicated math required nor can you change the outcome of exponential functions irrespective of what sort of mathematical model you throw against the wall.
   
   
3. Due to the immutable law of exponents the longer we wait to get government debt level growth below that of GDP the worse the economic damage will be. It does not matter if you cut spending or raise taxes; both are immediately subtractive to GDP since taxes must come from either "C" or "I" in the GDP computation and spending comes out of "G". This is subtraction, which is typically taught in second grade. No amount of arm-waving can change these facts.
   
   
4. We cannot avoid recognition of the economic depression we entered in 2008. The worst GDP change we recorded in 2008/09 was -4% annualized. We must, inevitably, absorb at least three times that much damage. "Postponement", known in the media as "kicking the can", makes the problem worse. To illustrate my back-of-envelope computations show that the total damage necessary in 2000 to restore balance was approximately 10% of GDP. Now it's at least 20% and may be more. Not far from that level is catastrophic collapse.
   
   
5. Printing money, QEx and whatever else cannot change this outcome. Distorting the interest rates on government debt, which is what QE does, temporarily changes the amount of time you have before everything blows up but for any positive interest rate you blow up anyway. Simple emission of currency (which is what unbacked QE eventually devolves into if you keep at it long enough) destroys the purchasing power of each unit of currency (the dollar) which cannot work either; due to slippage and offshoring of labor this simply destroys your tax base and therefore trashes the government's coverage ratio (or the ratio of interest payments related to tax revenues.)
   
   
6. The best time to take the economic hit is right now. The second-best time is over the next two years. If we don't get this adjustment in federal spending and revenues completed by that time, it may not matter what we do. This is simple mathematics - every year we fail to accept this hit the size of the hit we must accept grows! This means that the charades where there is a claim that you have "cut spending" when in fact you really just didn't increase it as much as you planned must stop. The facts are simple: Over the next two to three years the size of government must shrink by about half, tax revenues (not rates) must roughly double, or some combination of the two. But remember: both cutting spending and raising taxes will reduce GDP dollar-for-dollar. Therefore the question is not which is "more harmful" to GDP - both will be. The question is simply "what services are the people both desiring government to provide and are willing to pay for here and now through taxation." For any service which is either undesired or the people will not fund it in the present tense government cannot provide it. Period.
   
   
7. We must fix the medical system. If we don't, nothing else matters. Notice I didn't say "Medicare" or "Medicaid." I said the medical system. I have written extensively on this and cover it in depth in my upcoming book Leverage, which is currently in copy editing and will be out soon (estimated publication date is currently in November.) The simple fact of the matter is that we can write checks with technology in the medical space we cannot cash, and we've tried to cover this up with all sorts of ridiculous and destructive distortions, from EMTALA to providing $1m births "free" to illegal immigrants to cartel-like behavior in diagnostics to barring re-importation of drugs and devices. It's simply outrageous that the local Best Buy must post a price on their 46" TV and honor it for everyone, yet I cannot walk into a doctor's office or hospital and get a price on having my gallbladder removed which must be honored for everyone. This sort of behavior is illegal in many other industries (see the Sherman and Clayton Acts specifically) but the medical and insurance industries are, through various devices, exempt.
   
   
8. We must fix the tax and trade systems. While we cannot prevent the economic contraction we can try to blunt it's impact by putting a stop to the incentives to offshore production that are based on near-slave labor, environment arbitrage and tax preference. These are big issues and must be debated in the open and fixed. Among the problems with the tax system is that many Americans have literally no skin in the federal tax game. That must end. So must the fiction of a "Social Security" and "Medicare" trust fund. Either cut them loose and turn them into true trustee arrangements (in which case you can opt out and walk away) or stop lying about them and fold the entire mess into the general operating budget. When it comes to taxes either a flat tax only on people (no corporate income tax) with zero deductions (yes, I said zero!) or The Fair Tax on consumption makes sense. What doesn't make sense is what we do now. Key among the things we must stop doing is allowing deductibility of any interest expense - by anyone. There's much more (again, covered in the Ticker over the years and in Leverage.)
   
   
9. We must have an actual energy policy. A real one. This is a tough, tough issue but we must face it. 30 years of blowing Arab Shieks is not an energy policy, but this must be dealt with anyway. Roughly half of our military expenditure goes, directly and indirectly, to securing energy supplies. We import about 1.5 billion barrels a year from nations that are deemed "dangerous or unstable" by the US State Department. If $300 billion a year of our military expenditures go toward protection this access, directly and indirectly, then each of those barrels does not cost $100, it costs $300 and our net cost of a barrel including domestic and "friendly" imports (think Canada) is approximately $200! This is idiotic and must stop. It cannot, however, stop with "greenie" promises and premises - they do not work when analyzed on the basis of thermodynamics. There are solutions (again, I've gone over them extensively in The Ticker and they feature in Leverage as well) but what we cannot do is continue on the path we're on today.

These eight points are ones I'm willing to have a debate on with anyone who cares to - whether in the comment section of The Market Ticker, on Capitol Hill either in private with the staff of legislators or in public via testimony (taking as long for questions as the Reps and Senators involved would like.)

I recognize that the short-term pain involved in addressing these issues will be considerable. There is no way to avoid that outcome - there wasn't in 2007 and there wasn't in 2001. The economic pain required is significantly worse now than it would have been in 2007, but that doesn't matter. We either do it or we go off the cliff - that's indisputable and is easily proved. Those who argue otherwise have the burden of proof upon them to show how, given the relentless reality of basic mathematics, they're going to avoid what is before us. The "Ryan Plan" originally put forward was bereft of this ability, as have been President Obama's claims - both relied on utterly unreasonable assumptions for GDP growth in the future along with doing nothing to address the underlying debt ponzi that has been accumulated over the previous 30 years.

I understand fully that partisan political bickering and deadlock are first and foremost how Washington DC scores "points." But today we can no longer pretend that we have time, nor that phony-baloney "solutions" will work. Three years into the alleged "solutions" that were put forward by both Republican and Democrat administrations nothing has been resolved, employment has not come back and deficits have not stabilized. The claims made over these previous years, in short, have been shown to be false.

These issues, and the debt trajectory for our government and nation, must be addressed now.

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Active Volcanoes of Debt

Active Volcanoes of Debt: "

“Markets rocked as debt crisis deepens,” proclaimed The Financial Times yesterday.

“Race against the clock to save the euro,” screams Le Figaro this morning.

The Dow fell 58 points yesterday. Oil rose to $97 a barrel, while gold went up $13.

What’s up? We don’t know. But we see a lot of banana peels on the financial sidewalks this morning. Be careful, dear reader; be very careful.

One headline tells us that the French plan has been abandoned. Another tells us that a new rescue plan is in the works. Still another contradicts the first two.

Germany doesn’t want a Europe where money is transferred from the ants to the grasshoppers; it doesn’t want Greeks and Portuguese using the Teutons’ credit card. France doesn’t want a Europe in which its banks are allowed to go broke because of nothing more than their own incompetence. And Italy doesn’t want a Europe without bunga-bunga parties.

We live in a world in which thinking people must be embarrassed by their own governments; still Italy is a special case. The country is the planet’s 3rd largest debtor, with debt equal to 120% of GDP.

In this situation, the Italians cannot allow any doubt as to their ability to govern their country responsibly and to make good on their debts. Yet, prime minister, Silvio Berlusconi, nevertheless fired the only person in Italy in whom investors had confidence, his finance minister, Giulio Tremonti.

“He’s not a team player,” said Mr. Berlusconi. “He thinks he’s a genius and that everybody else is a cretin.”

Meanwhile, the Telegraph reports that Mr. Tremonti lives in a house – rent-free – owned by a political ally who has just been arrested on corruption charges.

“The government ceased to exist months ago,” according to an editorial comment in La Republica. “We have a band of poltroons dancing under the volcano, and the volcano is about to erupt.”

Daily Reckoning readers have been watching the plume of smoke rising for months. But not just from the Vesuvius in Italy. We see smoke rising from the Krakatowa in Asia and the Mt. Saint Helens in North America too.

For sure, Europe is in trouble. George Soros says it needs a “Plan B.”

But the way we see it, the whole world needs a Plan B. And maybe a Plan C too.

In Europe, governments are broke. They have borrowed too much. They can only service their debts if interest rates remain low…or if they get bailouts. So far, the central authorities have come to the aid of the peripheral states. Greece, for example, is such small potatoes that the authorities can afford to make its troubles worse. That is, they can give it more and more credit so it can continue pretending that it is good for the money.

But lenders have recently begun to suspect that larger debtors – notably Spain and Italy – are going to be in trouble soon too. Compare both nations to the USA and you will find that they are not in especially bad condition. Italy, for example, has a deficit less than half the US deficit. As for its debt, it is about the same as the US, depending on how you calculate it. But while Italy’s government debt to GDP ratio has degraded by only 11% over the last 10 years, the US debt to GDP ratio has worsened by an unbelievable 45%.

Nevertheless, investors judge the US a good credit risk. This morning, they still buy US 10-year notes yielding just 2.9%. As to the Italians, investors aren’t so sure. Its credit default spread has gone up 92% since the beginning of May, putting its cost of borrowing near 6%, substantially raising the risk of a default. At about 7%, the game is over.

Italy faces a major refinancing challenge. Beginning in August to the end of 2013, it must borrow an estimated half a trillion dollars to keep going.

“Italy must itself send an important signal by agreeing on a budget that meets the need for frugality and consolidation,” said Angela Merkel. “I have full confidence that the Italian government will pass exactly this kind of budget.”

Whence cometh this confidence?

In our view, it is misplaced. The Italians will be as hopeless at controlling spending as the Greeks…and the Americans; governments do not accept austerity until it is forced upon them.

Our thoughts are focused on the big picture. What we see is neither an Italian problem, nor a Greek problem, nor an American problem.

In our view, the whole structure of modern, developed social welfare democracies is ready to topple. And not just because of the latest financial crisis. The crisis that began in ’07 is just a flashpoint…just part of a huge turnaround that has been underway for years.

Guess how much the Italian economy has grown in the last 10 years?

Zero.

Guess how much net average wages in France have gone up since 1975?

Zero.

Guess how many net new employees the Japanese have added to the workforce in the last 20 years?

Zero.

Guess how many new jobs the US economy has created in the last 10 years?

Zero.

Guess how much the average hourly wage in the US has gone up since 1975?

Zero.

Guess how much the real, private sector economy of the US has grown in the last decade?

Zero.

Guess how much US housing – and household wealth – has increased since the beginning of the 21st century?

Zero.

It seems almost unbelievable, because it contradicts everything we thought we knew. Italy may be mismanaged. Greece may be a basket-case, but the US was supposed to be the most dynamic, adaptable, capitalistic, forward-looking, technology-absorbing, growth-oriented economy the world has ever seen. How could it go nowhere for more than a decade? How could an American’s labor not increase in value, while the economy becomes more efficient and more productive?

Mr. Martin Wolf, the influential strategist from The Financial Times, who has guided much of the world’s elite opinion for the last several years, has finally realized what you have known for years. We are in a Great Correction:

The fiscal crises we see are a legacy of the west’s private and public sector debt binges of recent decades. As the McKinsey Global Institute tells us in an update of last year’s study of the aftermath of the credit bubble, this is an early stage of a painful process of de-leveraging in several economies. “If history is a guide,” noted the 2010 report, “we would expect many years of debt reduction in specific sectors of some of the world’s largest economies, and this process will exert a significant drag on GDP growth.” So it is proving, with disappointment almost everywhere.

But Mr. Wolf is no fool. In his latest column he announces that he is going to do the smart thing – he’s taking a vacation! He’ll be back at the end of the summer.

Regards,

Bill Bonner,

for The Daily Reckoning

Active Volcanoes of Debt originally appeared in the Daily Reckoning. The Daily Reckoning provides 400,000+ readers economic news, market analysis, and contrarian investment ideas. The Daily Reckoning features articles on the debt crisis, the debt ceiling and the day QE2 ended.

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We’re Number One: More Reasons for the Decline of the American Empire

We’re Number One: More Reasons for the Decline of the American Empire: "

You will not find today’s Daily Reckoning much to your liking. Because it creeps upon an idea that will probably make you feel uncomfortable. At least, that is the effect it has on us.

But first, the latest news from the world of money.

Yesterday, the Dow fell 12 points. Gold shot up $30. And oil is headed back towards $100.

Gold refuses to go down. Stocks refuse to go up. But over the last ten years, gold has gone up big-time, while stocks have gone nowhere.

Why? Because America topped out in 1999.

We went to church on Sunday. The church was built in the 1860s by a group of Maryland Episcopalian planters who were breaking away from a pro-Union parish. Physically, it is a marvelous example of ‘carpenter gothic’ architecture from the mid-19th century.

Since we had been living in Europe for the last 15 years, we had few opportunities to attend our local church. But it once played an important role in our lives. Our family went every Sunday, and your editor was an altar boy for several years.

So, he put on his Sunday-go-to-meeting clothes – coat and tie – on Sunday morning, returning to the church he knew as a child, and took his place in a pew in the back of the church.

The first thing he noticed was that he was the only one wearing a tie…or a coat. The rest of the congregation looked as though it was ready to order foot-long hotdogs or spread out beach towels. A man who must have been 55 years old came in a pair of baggy shorts – the kind you would normally dip in soapy water and use to wash the car. Over his broad stomach he wore an olive-drab tee-shirt of the sort worn by Tennessee auto mechanics. This was a level of informality we had never before seen in an Episcopal church. Or any church, for that matter.

We were reassured when the choir appeared at the back of the church. It looked normal. Clad in bright red and blue, traditional vestments. With the cross going before them. But wait…there were two flags flanking the cross. One was a flag for the Episcopal Church. The other was the stars and stripes of the USA. Politics and religion – the state and the church – marched side by side up the aisle, as the choir pumped out a joyful hymn.

This church had become very pro-Union! Later, the choir sang two patriotic songs – “God Bless America” and the purely securely “America the Beautiful.” Never before had we heard praises to Caesar sung in a church.

But it didn’t seem to bother anyone. Christ and Caesar, Caesar and Christ… Most people like to see them together; they are as happy serving one master as the other. They like it even better when they have two of them.

It didn’t bother us either. After all, the morrow was the 4th of July. Maybe they did this only once a year….

Meanwhile, on the Internet, a site called “Economic Collapse” anticipated the high spirits of Independence Day with a list of 20 “not-so-great categories” in which the US really is Numero Uno. Its author first assures us of his loyalty:

I love the United States. I love the American people.

Then, he opens fire:

America is like an aging, bloated rock star that has become addicted to a dozen different drugs. America is a shadow of its former self and it desperately needs to wake up before it plunges into oblivion.

If you do not believe that America is in bad shape, just read the list below. The following are 20 not so good categories that the United States leads the world in….

#1 The United States has the highest incarceration rate in the world and the largest total prison population on the entire globe.

#2 According to NationMaster.com, the United States has the highest percentage of obese people in the world.

#3 The United States has the highest divorce rate on the globe by a wide margin.

#4 The United States is tied with the UK for the most hours of television watched per person each week.

#5 The United States has the highest rate of illegal drug use on the entire planet.

#6 There are more car thefts in the United States each year than anywhere else in the world by far.

#7 There are more reported rapes in the United States each year than anywhere else in the world.

#8 There are more reported murders in the United States each year than anywhere else in the world.

#9 There are more total crimes in the United States each year than anywhere else in the world.

#10 The United States also has more police officers than anywhere else in the world.

#11 The United States spends much more on health care as a percentage of GDP than any other nation on the face of the earth.

#12 The United States has more people on pharmaceutical drugs than any other country on the planet.

#13 The percentage of women taking antidepressants in America is higher than in any other country in the world.

#14 Americans have more student loan debt than anyone else in the world.

#15 More pornography is created in the United States than anywhere else on the entire globe. 89 percent is made in the USA and only 11 percent is made in the rest of the world.

#16 The United States has the largest trade deficit in the world every single year. Between December 2000 and December 2010, the United States ran a total trade deficit of 6.1 trillion dollars with the rest of the world, and the US has had a negative trade balance every single year since 1976.

#17 The United States spends 7 times more on the military than any other nation on the planet does. In fact, US military spending is greater than the military spending of China, Russia, Japan, India, and the rest of NATO combined.

#18 The United States has far more foreign military bases than any other country does.

#19 The United States has the most complicated tax system in the entire world.

#20 The US has accumulated the biggest national debt that the world has ever seen and it is rapidly getting worse. Right now, US government debt is expanding at a rate of $40,000 per second.

The truth is that America has changed. Most of us don’t even say hello to our neighbors anymore.

The United States was once the most blessed nation on the face of the earth, but now we are literally falling to pieces.

Does anyone have any ideas about why this could be happening?

Well, yes. We do have some ideas. But don’t think for a minute that we’re going to give you earnest advice on how to make the country a better place. There are approximately a million civil servants who are paid to do that! You can see for yourself what a good job they have done.

No, we’re just going to explain how America became a country of fat poor people who – when they’re not watching TV – are murdering and raping their fellow citizens.

In fact, we already have. It’s in a book. About 5 years ago, with Addison Wiggin, we wrote Empire of Debt. We predicted how America’s imperial mission would evolve. And we said it was unstoppable. Forget the debt ceiling. Forget the budget cuts. Forget the idle ranting and raving, posturing and pretending…this Bozo is going bust! Congress has raised the “ceiling” so often – 94 times in the last 94 years, the Capitol might as well be an open-air building. We wrote:

“The imperial spirit has gotten the best of her. She no longer plays a role that she can understand and control. Now, she is an imperial power: she must read from the script that has been thrust in her hands. She must provide security for the entire world… Someone has to do it. It is her turn to wear the purple, whether she wants to or not. Thus did she become the dictatress of the world; but no longer ruler of her own spirit – or her own finances.”

Like a clown shot out of a circus cannon, America’s trajectory is fixed. Just look at the “Number 1” items above. They are the marks of an imperial power in decline. Overseas, the imperial garrisons squander her military might. At home, the masses degenerate, squandering her wealth.

And here’s the worst part: America will continue in this direction until she falls on her head.

More to come…

Bill Bonner

for The Daily Reckoning

We’re Number One: More Reasons for the Decline of the American Empire originally appeared in the Daily Reckoning. The Daily Reckoning provides 400,000+ readers economic news, market analysis, and contrarian investment ideas. The Daily Reckoning features articles by Addison Wiggin author of Empire of Debt and Bill Bonner author of Financial Reckoning Day and The Idea of America.

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What Successful and Unsuccessful Monetary Policy Look Like

What Successful and Unsuccessful Monetary Policy Look Like: "

Via Matt Yglesias we learn about the incredible recovery of the Swedish economy and how an aggressive monetary policy played a key role. Specifically, the Swedish central bank expanded its balance to sheet to 25% of GDP versus the Fed's 15%, it set an explicit and clearly communicated inflation target, and charged a negative interest rate on excess reserves. Swedish authorities also were not afraid to see their currency depreciate. All of these steps would horrify the hard-money advocates in the United States, but I would ask to them to consider the benefits the Swedes are now enjoying: lower unemployment, higher real GDP growth, and less overall human suffering.

Just in case there are any lingering doubts about the benefits of more aggressive monetary policy, take a look a the level of nominal spending in both Sweden and the United States. Nominal spending in both countries takes a big hit, but only in Sweden does nominal spending undergone a robust recovery. In fact, nominal spending is about back to its trend level: (Click on figure to enlarge.)

It almost appears as if the Riksbank, the Swedish central bank, has a nominal GDP level target. Three cheers for the Riksbank. Now take a look at the U.S. nominal GDP:

These figures indicate U.S. monetary authorities could learn something from the Swedes. Therefore, let me make a modest proposal: all incoming Fed officials, whether regional bank presidents or board governors, should spend six months interning at the Riksbank. And while we are at it, let's also make all incoming ECB governing council members go through the same internship. The world would be a much better place.

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