Monday, March 21, 2011

Liquidity trap, what is it?

When Congress runs out of debt capacity and it is time to restructure government. I do not think our Congress will ever see 19% of the economy flow toward government programs. Congress is in a pickle. The next leg down for federal revenue is about 14% of the economy, if my Fibonacci theory is correct. (I take a Fib series up to 21, then scale the 21 down to 19 and see the value of the second to last number, which becomes 14.5%) This is the new federal allocation.

So what happened?
Washington DC no longer has some special privilege in the world, our European centric government does not have a strong partner in Europe anymore and the large US states are being drained of liquidity to sustain the unsustainable. Normally the skew in Washington DC is managed by the bailout process, paying off the groups that lose out to political skew. But the bailout debt has been used up, and we now have shortages of energy.

Our federal government is not static, a constant as in the Keynesian equation. Power in Washington DC ebbs and flows over our history, and we are undergoing one of our fundamental changes. So, no panic is required, the outcome will be better than what we have.

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