Are we falling off a cliff?

It is now looking more likely that we will fall of a cliff starting July 1st. Extended benefits will be ending. Most states start a new fiscal year and they are all dead dead dead on revenue. Any benefit we got from the census will be in reverse gear. By August 1st approximately 1mm temporary workers will again be out of a job. Housing is falling off a cliff.
--http://brucekrasting.blogspot.com/2010/06/whats-ben-gonna-do.html

In this blog I have focused on the threat of hyperinflation destroying the value of the dollar. But it appears that the opposite is occurring. A depression may have started on July 1, where there is a vicious cycle for businesses of declining sales, so they lay off workers. These laid off workers reduce spending, to state the obvious, so demand disappears, and those who have jobs also increase saving and reduce spending because of the possibility that they will be laid off. Declining tax revenues causes local governments to cut budgets and lay off workers contributing to the misery. And the Fed is oblivious to it all because they and their buddies have already been bailed out and don't feel any pain.

There are two basic roads out of this. First, the Keynesian solution. Take Paul Krugman's advice and spend, spend, spend. Bailout out everything in sight starting with local governments. Give tax refunds to everyone making under $50,000/year in an amount equal to the SS taxes they paid last year. Basically flood the system with cash so we can go back to worrying about hyperinflation. How about this - buy up and pay off half of every residential mortgage in the country. This would stop foreclosures and stabilize the housing market and also help the banks. The problem of course is that Keynesian economics is insane, and it turns all normal virtues upside down - spending is good, savings is bad, debt is good, stealing (in the form of devaluation of currency) is good. In the long run, the Keynesian solution will destroy the country.

Then there is the honest road out of this. Let's declare a national or world jubilee and cancel all debts, and abolish all central banks, and get rid of the income taxes and the IRS. Of course the crooks in charge would never agree to this, so this has to be done on a personal basis. Get rid of all debts either through paying them off, bankruptcy or repudiation. Stop using dollars and banks except as absolutely necessary. Buy a safe and create an alternate economy based on barter or gold and silver or perhaps the Swiss franc. Stop speculating on the stock market and go back to farming or manufacturing. Buy food and goods such as clothing at local farmers markets and flea markets. Build your own house.

I say bring it on. The depression we will be facing causes pain like going on a diet is painful but it will be good for us in the long-run.