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John Rubino: Out of Good Options

user profile picture Adam Taggart Oct 26, 2013
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In this week's podcast John Rubino provides an excellent explanation of why governing has become such hard sledding of late for our politicians. Since they have enjoyed an ever-expanding pie so far in their careers, they don't have any professional experience of prioritizing spending, which the sluggish economy is now demanding of them. They are, simply put, the wrong people for the job:

Once you borrow more money than you can ever hope to pay back, the system becomes ungovernable. You cannot do the things you used to be able to do, which is to basically buy votes with new money, because you are out of money. And that is what is happening to the U.S. right now. So we have a whole generation of politicians who have never had to stiff major constituency. They have always been able to find the money to keep the people who put them in office happy. But suddenly, with these debt ceiling things and QE maybe being scaled back, etc., etc., the amount of money that is available is no longer sufficient to keep everybody happy.

It used to be that the Democrats and Republicans would basically cut deals in which the Republicans got an expanded global military empire and the Democrats got an expanded entitlement state. And they were both more or less happy. But now there is not enough money for both of those objectives to be satisfied.

Now they are at the point where the money is not sufficient to satisfy both of those objectives. And so somebody has to lose. And these politicians have never had to do this in their careers. They have never had to stand before an audience and tell hard truths. And they do not have those skills. The system has not been selecting for blunt honesty in the political system right now. So you have got John Boehner and Nancy Pelosi who have never had to do this before.

And yet they have to find a way to do it, or they have to convince the Federal Reserve to continue to print new money into the horizon, and get the political system to raise or just suspend the debt limit, and then just cut loose – at that point there is not even any pretense of fiscal sanity in the system. And I think we are heading to that point right now because the alternative is to tell the truth, make constituencies mad, and risk the stock market tanking, and all the things that started to happen when Ben Bernanke intimated that QE might at some obscure time in the future be scaled back by 5% or 10% and the stock market started to collapse.

So, we are reaching the point where we basically just give up in the political system and say look, we cannot stop the spending from growing. We cannot stop the deficit from expanding. So we are just going to have to finance it. We are going to have to put the pressure on the dollar in the system as the safety valve. So we are going to depreciate the currency, and we are just going to let it run from there.

And at that point, everything changes.

Because right now, people do not really know what the future of government policy is going to be because you've got all these cross-currents. But once they give it up, once they completely suspend the debt limit and don't even attempt to scale back the entitlement state and the global military empire, and it becomes clear to everybody that that is policy going forward forever, then I think things get really interesting. And we can talk about what specific markets would be most hurt and most benefited by this. But I think it becomes a really fascinating market, with some analogs in the past that are both interesting and scary, like Weimar, Germany, and Zimbabwe.

Click the play button below to listen to Chris Martenson's interview with John Rubino (49m:41s):

 

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