When the U.S. is adding $5 billion in debt each day, and President Obama, ignoring and stomping on the will of the people passed his $2.5 Trillion spending plan called ObamaCare — it enrages me because I believe that President Obama is destroying the country, and the world economy, because he simply will not, and cannot, stop spending and borrowing.

Characteristically, he called for an expansion of his domestic agenda, which is all about spending.  Ninety-five percent of the jobs created recently were funded by the Federal government — 412,000 temporary U.S. Government Census jobs created by borrowing.

As one analysis said, “things that can’t last, don’t.”

When I saw this article, I had to reprint it (with permission) — it is wise and careful and clear and you need to know what is in it — for the future:

MODERN AESOP FABLE FABLES & FAIRY TALES

Dollars and Sense

By Alan Weeks

June, 2010

In Aesop’s fable there was a Grasshopper and an Ant. The Grasshopper was lazy; he ate and sang away the summer while the Ant piled up stores for the winter. When winter came, the Grasshopper begged the Ant for food. The Ant refused and the Grasshopper died.
Martin Wolf (1) provided a more complex modern version of this fable. In it, the Ants are German, Chinese, and Japanese; while the Grasshoppers are Americans, British, Greek, and Spanish. And, in this fable the Ant colonies produce many goods that Grasshoppers want to buy.
As it happens, Asia is full of Ant colonies. Among them, there is a rich colony called Japan as well as a huge, but poorer colony called China. These colonies wanted to become rich by selling goods to Grasshoppers at low prices and build up stores of Grasshopper money. Fortunately, or so it seemed, the Asian Ant colonies developed strong trade relationships with the very big, industrious Grasshopper colony called America, which had as its motto: “In Shopping We Trust”.
The German Ant colony wanted to sell its goods to the Club Med Grasshopper colonies as well as to the new colonies in the east. So a union was formed in which each new Grasshopper colony promised to act frugally just like the Ant colonies.
As the Ant colonies started producing more and more enticing goods the Grasshoppers wanted to buy, the Grasshoppers colonies wanted to repay in kind but the Ant colonies replied: “No, you don’t have anything we want, except maybe a spot by the sea. But, we will lend you the money. That way, you enjoy our goods and we accumulate stores [of wealth]”.
Being frugal and cautious, the Ants deposited their surplus earnings in supposedly safe banks, which re-lent to the Grasshoppers. The latter, of course, no longer needed to make goods, since Ants supplied them so cheaply. But Ants did not sell them houses, shopping malls or offices. So the Grasshoppers made these instead, and even asked Ants to come and do the work. Grasshoppers soon found that, with all the money flowing in, they could borrow more, build more, and spend more. Land prices soared.
The Ants looked at the prosperity of the Grasshopper colonies and told their bankers: “Lend even more to Grasshoppers, since we Ants don’t want to borrow.”
In order ‘to keep the good times rolling’, American Grasshopper ‘banksters’ discovered clever ways of packaging loans into enticing assets for Ant banks. These ‘banksters’ also invented ways to hide massive leveraged debt for themselves as well as for the Grasshopper colonies so that all could ‘keep dancing while the music was playing’.
Asian Ants built up piles of American Grasshopper debt and felt rich. However, when a crash came to the American colony, the Grasshoppers stopped borrowing and spending; the deficit exploded. But the government didn’t say to itself: “This is dangerous, we must cut back spending”. Instead, it said: “We must spend even more, to keep the economy humming”. And, so the deficits and debt grew enormously.

This made the Asian Ants nervous. So the Chinese leader told America: “We, your creditors, insist you stop borrowing just as European Grasshoppers are now doing.” The leaders of the American colony laughed: “We didn’t ask you to lend us money. We’re going to make sure American Grasshoppers have jobs. If you don’t want to lend us money, raise the value of your currency. Then, we’ll make what we used to buy and you will no longer have to lend to us”.
So the American colony taught their creditors an important lesson: “If you owe your bank $100, you have a problem; but if you owe $100+M, it does”.
The moral of this fable is: “If you want to accumulate enduring wealth, don’t lend to Grasshoppers”
A MODERN FAIRY TALE (2) The “Tooth Fairy” was born in January 1946 and has been the fairy idol of 400 million children living largely in North America and Western Europe, known collectively as ‘the Baby Boomers’.
The parents of ‘Boomers’ were rightfully called the “Greatest Generation”, and they earned that title by making enormous sacrifices and investments to build up a world of abundance.
The ‘Baby Boomers’ were raised to believe there really was a “Tooth Fairy”, whose magic would allow conservatives to cut taxes without cutting services and liberals to expand services without raising taxes. The “Tooth Fairy” did it by printing money; by bogus accounting; and by deluding the ‘Boomers’ into thinking they were creating wealth by borrowing from foreigners; or against their rising home values; or by creating exotic financial instruments to trade with each other.
The ‘Baby Boomers’ turned out to be what one writer called the “Grasshopper Generation”, because they’ve eaten through all that abundance like hungry locusts.
We believe the “Tooth Fairy” in the UK and Europe died in May of complications related to obesity. “We’ll certainly miss the Tooth Fairy”, some said following her death, which coincided with the 2010 British elections and rioting in Greece.
GOOD NEWS FOR OUR GRANDCHILDREN
The most striking thing about the British election was that it was the first Western national election “based on pain”. All the leading candidates warned voters “cuts are coming”, but none were even close to honest about how deep. The most effective British Conservative’s campaign ad was a poster showing a newborn baby under the headline: “Dad’s eyes, Mum’s nose, Gordon Brown’s debt”. Beneath was the caption: “Labour’s debt crisis: Every child in Britain is born owing £17,000 [over $25,000]. They deserve better”.
Sitting in America, the ‘Boomers’ may find it hard to grasp the importance of the British elections, and the Greek riots. Nothing to do with us, right? Wrong! We need to pay attention to the dramas playing out over there as it may be coming to a ‘theater’ near us.
After all, if Americans realized the total value of all their liabilities, including the unfunded future entitlements, they might easily be able to claim to be passing on to every child born in America, a much larger sum than the Brits, as a ‘gift’ from the “Grasshopper Generation”.
The good news is that there should be little worry that all our debt will be passed on that far. The bad news is we should take this extreme debt issue very seriously as the ‘Boomer’ generation will have to deal with the consequences. This is because the massive government responses have created sufficient financial distress to bring about crisis much sooner.
The fact is that the latest developments are strong signals that the global credit crisis is only beginning.

As Roger Altman (3) stated recently: “The really serious crises of the last 150 years tended to be long and drawn out, and had several stages, including a sovereign debt stage”. “This global financial crisis is not over, and it’s not close to being over”. “There are probably other large shoes that can drop beyond Europe”.
Some of us believe our global monetary system itself is also in crisis. The causes and potential solutions are far beyond the scope of this article, but here is something to ponder. Events now unfolding appear to be starting to shake the global monetary system. In grappling with the myth that paper currencies can be effectively managed, an observation made many years ago by John F. Kennedy about myths seems appropriate. “The great enemy of truth is often not the lie – deliberate, contrived, and dishonest – but the myth – persistent, persuasive and unrealistic”.
In the past, government was applauded every time it interfered with market dynamics to jolt demand. This created undesired and increasingly larger peaks and valleys in investment and consumption. Even now, many Americans expect the government will always be there to backstop non-functioning markets brought about by excessive risk-taking and delusion.
In addition, some Americans are still expecting the ever inviting ‘hand’ of government to be there to offer food stamps and stimulus in bi-weekly cheques.
However, the problem is, the U.S. has eaten through its reserves and the “lords of discipline”, the bond traders, are coming back with a vengeance. Therefore, after 65 years in which Western politics was mostly about giving things away to voters, it should in future be mostly about taking things away.
Goodbye “Tooth Fairy” politics; hello “Root Canal” politics!

The CEO of PIMCO (4), a veteran global investor, has lived through many a financial crisis. He recently described the new, perilous state of today’s global economy, this way: “The world is on a journey to an unstable destination, through unfamiliar territory, on an uneven road and, critically, having already used its spare tire”.
I agree with Thomas Friedman (4) this is a good portrayal. America used its “spare tire” to prevent the collapse of the banking system and to stimulate the economy after the subprime loan crash. The European Union used its “spare tire” on its own economic stimulus and then, to prevent a run on the European banks triggered by the meltdown in Greece.
Now that so many countries will have to bring down their deficits to stabilize their country, it could destabilize their social fabric, as the Greek riots have been showing. It’s very hard to see a good ending.
Furthermore, some of Wall Street’s biggest names say they are worried about the debt crisis in Europe, where all of a sudden the entire continent is deeply involved. The deep concern is how this might be ‘contagious’ and spread to other countries already in a fragile position.
As one example, it seems that China is also falling victim to Greek deficit contagion. China had been under growing pressure from Asia, Europe, and the U.S. to revalue its currency. The Greek crisis may have changed that. The 15% slide in the Euro’s value against the Yuan over the past 6 months has eroded China’s competitiveness in the market of its largest trading partner: the European Union. More importantly, many trade-deficit countries in Europe, such as Greece, Spain and Portugal, are having difficulty financing themselves and thus, for many years to come, they will be much less able to purchase goods from China.
China is also starting to experience a major domestic problem that should further erode the competitiveness of its exports. As one Chinese professor put it: “Our country is in a race to the bottom because our only advantage is cheap labour, and thus our development is built on a mountain of sweatshops”. Now, because the cost of living has escalated, many younger Chinese workers have been reacting strongly to the pressures and are starting to get good wage increases, which will reduce China’s labor cost advantage.
GLOBAL SOVEREIGN DEBT CRISIS
As a result of government bailouts and stimulus spending in response to the global financial crisis, gross government debts around the world have risen to unprecedented heights and are expected to continue in the future as recovery remains anaemic in many regions around the world.
Therefore, it should be expected that all economies which trap themselves by excessive debt, will succumb to a fate similar to Japan’s, and suffer anaemic growth for decades to come. The fact is that through globalization, nations have become more tightly integrated than ever before. Thus, we’re driving “bumper to bumper’ with every other major economy today.
In this kind of world, good leadership at every level of government and business matters more than ever. With very little margin for error, this is no time for politics as usual and no time for citizen complacency.
We need “leadership” today so that innovative actions can be taken that will generate new capabilities and resources, and being smart and disciplined about every dollar spent and invested. As unlikely as this may seem, it had better work out because we’re now living in a world with no more “spares”.
The real question remains: When will leaders around the world realize that it is not possible to get out of a debt crisis by increasing debt?
THE PERIL OF FINANCIAL REPRESSION
As Carmen Reinhart (5), co-author of THIS TIME IS DIFFERENT, a masterly study of financial crises through the ages, stated: “First comes financial crisis; then comes sovereign crisis; then comes financial repression”.
Her argument is very plausible and it is supported by the history of both advanced and emerging countries. “First, governments encourage credit expansion by the financial sector. As a result, a mountain of bad debt is piled up. Then, at some point, comes panic. At this stage, governments nationalize the liabilities of their financial sector and, more importantly find their revenues are collapsing, along with the economy. Huge financial deficits then emerge and public debts start to soar”. [Does that not sound familiar?]
“Moreover, many governments made matters worse by running huge and unsustainable deficits in good times. Regardless of the reasons, an unsustainable fiscal position, sooner or later, leads to a sovereign debt crisis, particularly if governments borrow from foreigners. Of course, when it becomes too expensive to borrow, governments invariably promise to mend their ways. However, it is often too late”.
“The next stage is to demand that their Central Bank buy their bonds, which starts a run on the currency. Then, as governments get more desperate, they look for ways to force institutions to hold their bonds and financial repression begins as Banks are forced to hold government bonds for LIQUIDITY; Pension funds are forced to hold the bonds for SAFETY; and interest rates ceilings are imposed on private lending TO PREVENT USURY. And, when all else fails, exchange controls are imposed to ensure nobody can easily escape from such regulations”.
Capital Controls legislation was signed into U.S. Law on March 16th of this year. On page 27 of the HIRE ACT was a section known as Offset Provisions, subtitled: A Foreign Account Tax Compliance. It is understood that this requires banks to withhold 30% of all outgoing capital flows over $50,000 and for full disclosure by foreign banks of non-exempt account holders. Foreign banks that by law are prevented from disclosing account holder information are required to return the money.
Is this not likely to encourage other governments to follow suit in order to keep money ‘trapped’ in their own countries?

And if so, could this be the beginning of the disintegration of financial globalization?
In this economic climate, many Americans probably understand that, at some intuitive level, they need to be smarter, more frugal, and make tougher choices in their private lives. And, more Americans are realizing they can no longer fake it or fool themselves, so they have much less tolerance for politicians who continue to do so.
As one experienced political columnist recently noted: “The important message buried in all the recent election returns is that voters are tired of being toyed with”. Hopefully, a new breed of politicians, supported by savvy pundits, will emerge in the U.S. to satisfy the stirrings among voters of both parties for authentic actions that it will take to fix the nation.
The prospect that this columnist could be right, is based on a profound statement expressed a long time ago by Winston Churchill when he famously observed that: “You can always trust the Americans. In the end, they will do the right thing, after they have eliminated all the other possibilities”. We will find out whether that is still true for the “Grasshopper Generation”.