Slippery slope, halfway down

Is U.S. Now On Slippery Slope To Tyranny?

By THOMAS SOWELL Posted 06/21/2010 06:13 PM ET

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"When Adolf Hitler was building up the Nazi movement in the 1920s, leading up to his taking power in the 1930s, he deliberately sought to activate people who did not normally pay much attention to politics.

Such people were a valuable addition to his political base, since they were particularly susceptible to Hitler's rhetoric and had far less basis for questioning his assumptions or his conclusions.

"Useful idiots" was the term supposedly coined by V.I. Lenin to describe similarly unthinking supporters of his dictatorship in the Soviet Union.

Put differently, a democracy needs informed citizens if it is to thrive, or ultimately even survive.

In our times, American democracy is being dismantled, piece by piece, before our very eyes by the current administration in Washington, and few people seem to be concerned about it.

The president's poll numbers are going down because increasing numbers of people disagree with particular policies of his, but the damage being done to the fundamental structure of this nation goes far beyond particular counterproductive policies.

Just where in the Constitution of the United States does it say that a president has the authority to extract vast sums of money from a private enterprise and distribute it as he sees fit to whomever he deems worthy of compensation? Nowhere.

And yet that is precisely what is happening with a $20 billion fund to be provided by BP to compensate people harmed by their oil spill in the Gulf of Mexico.

Many among the public and in the media may think that the issue is simply whether BP's oil spill has damaged many people, who ought to be compensated.

But our government is supposed to be "a government of laws and not of men."

If our laws and our institutions determine that BP ought to pay $20 billion — or $50 billion or $100 billion — then so be it.

But the Constitution says that private property is not to be confiscated by the government without "due process of law."

Technically, it has not been confiscated by Barack Obama, but that is a distinction without a difference.

With vastly expanded powers of government available at the discretion of politicians and bureaucrats, private individuals and organizations can be forced into accepting the imposition of powers that were never granted to the government by the Constitution.

If you believe that the end justifies the means, then you don't believe in constitutional government."

Watch out, that last step's a doozy

"The IMF has done what is perhaps one of the most thorough studies on recessions that share the combination of a global recession and financial crisis — like the one we’ve recently experienced. And its study shows that the recoveries of past recessions with these dualities tend to be longer and slower than normal recoveries — typically around five years until economies sustainably resume trend growth.

That means, if you mark the start of the recent crisis as late 2007, we’re less than three years in! Therefore, you should expect more bumps in the road ahead.

History also shows us that financial crises are generally followed by sovereign debt crises, which is where we are now.

And Sovereign Debt Crises Tend to Play Out in Four Stages …

Stage #1: Burgeoning Deficits

In a financial crisis government spending increases dramatically in attempts to stabilize the financial system and stimulate economic activity. Tax revenues fall. Fiscal surpluses turn into deficits … and economies with existing deficits keep piling it on.

How it’s playing out …

All of the Emu’s members are guilty of runaway spending.

All sixteen members of the European monetary union have violated treaty limits on allowable budget deficits — some to the tune of more than four times as much! Moreover, the leading economies of the world have all seen their deficits shoot higher, some to record levels.

In fact, the deficit spending that’s gone on in recent years can be summed up as follows: Over 40 percent of world GDP comes from countries that are running deficits in excess of 10 percent.

Stage #2: Ballooning Debt

When economies are contracting or even growing slowly, bringing these deficits back down to earth becomes an unenviable challenge. Governments have to make ends meet by turning to the markets. Then those burgeoned deficits turn into growing debt loads.

How it’s playing out …

When debt reaches 80 percent of GDP threshold, the borrowing costs for governments starts ticking higher and so does the market scrutiny. The IMF says five of the top seven developed countries in the world will have debt levels exceeding 100 percent of GDP in the next four years.

Ratings agencies have become increasingly pessimistic on Greece, Spain and Portugal.

Stage #3: Downgrades

When deficits and debts rise and economic activity appears unlikely to curtail fiscal problems, the credit worthiness of the government falls under intense scrutiny. And that’s when we see downgrades.

How it’s playing out …

Greece’s sovereign debt rating has been downgraded to junk status. Spain has lost its AAA rating and the UK could lose its AAA status if its deficit isn’t addressed. Japan’s outlook has been cut to negative and rating agencies have even warned the U.S.

Stage #4: Defaults

Higher borrowing costs can push troubled countries into default.

This is the final and most deadly stage. That’s because downgrades only make the vicious cycle of weak economic activity and growing dependence on debt worse.

When investors see more risk, they require more return. Therefore, the borrowing costs for these troubled countries rise. Then it becomes harder to finance spending needs and harder to finance existing debt. And that’s when we see defaults.

How it’s playing out …

When S&P downgraded Greece to junk status, it warned debt holders should be prepared to receive just 30 cents on the dollar.

What’s more, even with a $1 trillion rescue package committed by the EU and IMF, the long-term solvency of Greece looks bleak. And not just for Greece. But Spain, an economy that represents 12 percent of GDP for the euro zone is shaking as I write this column — rumored to be next in line for a massive funding request.

In sum, a sovereign debt crisis has arrived. The fuel for contagion: Fear.

And unless governments can demonstrate they’re willing to take tough steps to reign in debt, crisis can spread quickly.

As I said, history shows us that financial crises tend to be followed by sovereign debt crises. History also shows us that sovereign debt crises tend to lead to currency crises."

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Remember, sovereign crisis that brings on a currency crisis which is like Armageddon is what I have predicted for eight months now. So, having the International Monetary Fund saying this is the likely path we're on step three of is not heartening.

Inherited deficits

Obama was whining the other day about having inherited huge deficits. that's rich. As the chart above shows, by his shockingly dishonest rosy predictions he will triple the Bush deficits. In real life numbers, as opposed to Obama's fantasia numbers, he will more than QUADRUPLE Bush's worst deficits. Note, it hasn't actually accomplished anything either, besides fully funding every criminal scumbag organization he's tied to.

The actual deficit this year, though no one will admit it yet, will be $2,300,000,000,000 for one year.