I’ve Long Said, “We Haven’t Seen Anything Yet...The Worst is Yet to Come”...and Peggy Noonan Explains WHY That’s Right...

When the Keynesian meddling in the U.S. mortgage market finally imploded the Housing Bubble and brought on a staggering Global Credit Crisis and an ongoing recession, I said and have since, that “We haven’t seen anything yet...the WORST is yet to come.”

I am more convinced of that than ever.

Since the previous milqtoast Keynesian left office, our current hyper-Keynesian-in-Chief has ratcheted UP the Deficit to a mind boggling $1.6 TRILLION...4X what it was at his predecessor’s highest, the National Debt has surpassed $12 TRILLION (approaching 80% of GDP) virtually assured of rising to over $15 TRILLION (or more) before the end of Mr. Obama’s first term.

Unemployment has risen to near 10% and despite the fact that economists are now claiming the Credit Crisis is largely behind us and the recession appears over, we aren’t merely in the midst of a “jobless recovery,” we’re actually in what might best be described as a “job-shedding recovery,” which would seem an oxymoron.

Here’s why I believe the worst is yet to come.

This recession is structurally DIFFERENT.

The government meddling in the credit markets have deeply, perhaps fatally eroded international confidence in U.S. investment vehicles.

Worse still, a new administration has approached a problem caused by Keynesian (big-government) economic policies and treated it as though it were a failure of a “too free market.”

The result has been that they’ve applied MORE Keynesianism, even hyper-Keynesianism to a Keynesian disaster!

What is ongoing right now is the settling of the crash...the building, or structure is down, but the dust hasn’t settled yet. None of us actually see how bad it really is.

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How bad is it?

Well, Wall Street is NOT, contrary to our over-optimistic reports “coming back.” It’ll probably never come back to what it once was. With it is gone tons of revenues that the local, state and federal government all depended upon.

To make matters worse, high tax, Blue states like California, New York and New Jersey are hemorrhaging people AND tax dollars. They will lose Congressional seats with the 2010 Census and Red States like Texas, Florida and Arizona are about to gain seats.

But that’s the least of our (“the people’s” problem, that’s a mere political shift), what’s staring those in places like California, New York and New Jersey in the face is a fiscal tsunami that no one appears to see coming.

New York state lost 1.6 million people between 2002 and 2008, New Jersey lost 800,000 between 2002 and 2006. These weren’t “the freeloading poor,” who left, these were retirees who could no longer afford the tax burdens on a fixed income, and the entrepreneurial class...these people took tens of BILLIONS (USD) in tax dollars away with them.

Those states all have mandates for things like Medicaid spending, Education spending and Municipal Pensions locked in by their state Constitutions. They can’t cut those things, so they’ll be forced to raise taxes even more...chasing even MORE of the most productive remaining people away from those states.

Massive public sector layoffs will ultimately and inevitably ensue and by the time that shock wave hits, the dire 1970s will look like the “Roaring 20’s” by comparison.

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With all this economic dislocation, those places will suffer a return to some of the worst levels of violent crime those locales have ever seen. This time, much if it may be fueled by “the rage of a once privileged class” – government, or public sector employees...or more aptly by then, former employees.

As Ms. Noonan remarked in her prescient column, “No one believes the bad time is over. No one thinks we're entering a new age of abundance. No one thinks it will ever be the same as before 2008. Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They'll miss the meaning of this moment, too.”

She’s right. No one trusts “the experts” any more, in fact, fewer trust in government or Corporations either.

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Too many of us are convinced, after seeing the parade of dolts touted as “experts” sounding like utter nitwits, that “there are no real experts.” In short that “They’re all full of sh*t.”

Peggy Nonnan goes on, “The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.”

And once again, absolutely RIGHT!

Actions and inaction have consequences.

The previous administration’s inaction in the realm of enforcement (taking, or at least leaving the teeth out of the SEC and the CFTC) allowed Derivatives markets to run amok, and for schemes like the “Credit Default Swap” to come into incredible overuse, while it’s actions (ponderous overspending and regulation – Oxley-Sarbannes was one of the most expensive and far-reaching pieces of financial regulation in decades) put a four-anchor drag on an already slowing economy.

And today, the Liberal Democrats have pressed down on the Keynesian throttle, which is heading us toward a seizing of this incredible engine of prosperity.

How?

How about this from Peggy Noonan, “Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

Yes, “THEY” will stop.

The producers CAN and WILL ultimately stop, once the rewards are set too low and the costs and risks too high.

And what THAT would do would be to make what’s about to happen to hapless locales like California, New Jersey and New York a nationwide phenomenon.

Imagine a government without the revenues to take care of its most basic mandates, let alone fulfill the incredible and unrealistic promises it’s made over most of the last century? Imagine the massive jettisoning and cuts in once untouchable programs, like Medicare, Medicaid, Social Security and the myriad anti-poverty programs, just as the private sector gasps, in gacking up even more jobs, while government at EVERY level shedding personnel in a panicked attempt to balance the books to repay the mere interest on a debt it can no longer even finance! Imagine sky-high interest rates (25% and more), massive unemployment (over 20%) and inflation we haven’t seen in decades (15% or higher)...with literally no place to turn!

Ms. Noonan knows this all too well as she concludes her piece, “We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists — they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.”

So, THIS is that “long winter of discontent” that we now face, this is the nightmare that awaits.

There’s no question about it’s coming, the problem and our disaster right now appears to be that NONE of us have either faith or the moral courage to believe in and realize that freeing the individual (economic freedom) and unleashing the innate ingenuity of free men is not only the best, but the ONLY path back toward prosperity.

Such freedom is out of vogue today, because it’s been proven so “UNFAIR.”

See Peggy Noonan’s entire Op-Ed in today’s Weekend Wall Street Journal (10-31-2009) at http://online.wsj.com/article/SB10001424052748703363704574503631430926354.html?mod=djmr_octuse6npurl2