America has been on the path to economic serfdom for decades. Government spending has outstripped revenues for generations. There has always been a deficit and, even when there has been an annual surplus, it has been a mirage. The annual surplus of the Clinton years was based on imaginary tax revenues from imaginary dot-com valuations. The same imaginary money that allowed AOL to purchase Time-Warner allowed the government to post an annual surplus. When the bubble burst, the imaginary money vanished and with it the imaginary surpluses.

It is our own fault. We want it all. We wanted every American to own a home so we financed those homes imaginary money backed up with imaginary treasury funds. When you pump enough imaginary money into housing, you get imaginary increases in home values. People borrow against imaginary equity to take imaginary money and use it to buy boats, BMWs, vacations to the Caribbean and cocaine. Of course all that imaginary money causes the prices of boats, BMWs, vacations to the Caribbean and cocaine to increase.

No problem, the government can just borrow more money from the ChiComs and the Arabs. As long as interest rates are acceptable, they will keep loaning us money to use to back up mortgages for people who aren’t creditworthy, bread and circuses for people who don’t want to work and all manner of government services that nobody really needs.

Having lots of money to spend means more bureaucrats are needed in the central bureaucracy. See how that creates jobs? It creates good, jobs for bureaucrats managing the bureaus of the central bureaucracy. It also makes the political class that controls the central bureaucracy powerful. The power of controlling hundreds of billions of dollars is intoxicating.

It is a good life, huh? The proletarians get bread and circuses for free. The middle class get ever increasing home values and good, secure jobs in the central bureaucracy. The politicians get power. Everybody just keeps getting richer. What could go wrong?

What could go wrong is that he lenders could stop lending. Robert Samuelson points out the possibility today in an article in the Washington Post.

The fear is that foreigners (and Americans, too) will lose confidence in its value and dump it for yen, euros, gold or oil. If too many investors do that, a self-fulfilling stampede could trigger sell-offs in U.S. stocks and bonds. People have predicted such a crisis for decades. It hasn’t happened yet. The currency’s decline has been orderly, because the dollar retains a bedrock confidence based on America’s political stability, openness, wealth and low inflation. But something could shatter that confidence — tomorrow or 10 years from tomorrow.

Then what? If the government can’t borrow, it can’t make debt payments, provide bread and circuses or be powerful. What to do? Raise taxes through the roof? Well, that won’t appease the people who are already angry about fewer bread and circuses and a housing value bubble bursting. Besides, tax increases have diminishing marginal returns. At some point, a tax increase actually decreases government revenue. Tax increases won’t solve the problem.

That leaves printing money. Of course printing money causes inflation or hyperinflation driving down the value of the dollars held by foreigners. They will demand much higher interest rates to compensate and, of course, inflation and high interest rates destroy an economy by undermining investment. They destroy wealth like it is on fire. The only way to stop the disaster is to decrease government spending.

Let’s be realistic folks, that isn’t going to happen. People want their bread and circuses. People want their home values to appreciate endlessly giving them money to spend on boats and cocaine. People want government jobs and politicians want power. Medicare and Social Security have over $100 trillion (!) in unfunded mandates but you know and I know there is no political will to decrease spenidng there. On the contrary, we are seriously close to increasing them greatly with a government take over of national health care.

We continue to spend imaginary money at a breakneck pace. We continue to increase the speed at which we spend. We continue to increase debt to foreign powers. We continue to chip away at the ability of industry to create new wealth. We are even seriously discussing a new stimulus plans. We talk about more and more and more spending and there is no serious discussion of ever reducing it.

In the comment section on Samuelson’s column there is the usual debate. Some blame Bush’s tax cuts and deficit, others blame Obama and the Democrats. Some say we need to increase taxes. Some say it is the war or whatever… The reality is the continual Republican/Democrat battles are just a distraction. Both parties are responsible for the problem of spending imaginary money.

I had an epiphany today. In a flash it came to me. Republicans can continue to spend imaginary money by blaming Democrats. Democrats can continue to spend imaginary money by blaming Republicans. They can yell and scream at each other while we all take sides in the blame game. Meanwhile, the spending will continue unabated just as it has from Carter to Reagan to Bush to Clinton to Bush to Obama to whomever. It will never stop until the currency is completely debauched, the economy is in ruins and decades of slow, economic decline are our only future. That is how it is going to end. That is what is in store for our children. That is the future of America. We are going out of business.

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