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If a railbird tout gives you a tip on a horse, and you learn that three of the nag’s legs are so fragile they will likely break during the race, you will keep your money in your wallet. Similarly, if you’re told that some relay team is a sure thing, but you find out that three of the four runners weigh 375 pounds each, you won’t count on those tracksters to win a gold medal.

It’s the same way with the American economy. At least once a week, you hear some Wall Streeter exulting that manufacturing is showing signs of recovery. What he doesn’t tell you is that manufacturing is less than 10 percent of the economy. He won’t mention that sickly consumer-related activity is 75 percent.

The TV talking heads will rejoice that profits are doing extremely well and that productivity, or output per worker hour, is setting records. But the commentators won’t give the reason: companies are still laying off workers and not hiring back ones who were earlier laid off.

The unemployment rate in both the U.S. and San Diego hovers around 10 percent, give or take a hair on each side. But consumer spending is 70 percent of the economy, nationally and locally, and housing is another 5 percent. That’s three very wobbly legs under the stool. As long as unemployment remains so high, how can consumer spending, which dominates the economy, pick up?

I interviewed two analysts with excellent track records. One is local: E. James Welsh of Carlsbad’s Welsh Money Management and publisher of The Financial Commentator. He has been warning of excessive debt and speculation for a decade. The other is A. Gary Shilling of Springfield, New Jersey, an economist who has been pointing out for almost five decades that American consumers have been stretched too thin and are too deeply in debt. He predicted the 1970s megrims and the 2000 tech crash, warning of “internet nuttiness” as investors bought into the craze. Three years ago, he was belittled on TV when he predicted the current recession: “There weren’t any of those people who had the guts to apologize and say, ‘You were right,’” he says.

His economics Ph.D. from Stanford in the early 1960s focused on private-sector debt — consumers, corporations, financial institutions — and not on government debt. “Back then, if anybody worried about debt, they worried about federal government debt. I was much more concerned with the private sector,” says Shilling.

Basically, American consumers are wallowing too deeply in debt at the time that their job prospects are looking bad, Welsh and Shilling agree. Shilling notes that the average number of weeks on unemployment is 29 — almost double what it was when the recession began in late 2007. Almost 40 percent of the unemployed have been out of work for more than half a year. The number of unemployed per job opening has jumped from 1.5 before the recession began to 6.4. The University of Michigan consumer sentiment index is below 74. On January 1 of 2000, it was at 112. The government has extended unemployment benefits. More and more Americans are using food stamps.

Welsh points out that household debt amounts to around 97 percent of the total U.S. economy, up from only 44 percent as recently as 1982. And unlike in the early 1980s, when interest rates were 15 to 20 percent, the burden of this consumer debt can’t be lessened with lower rates, because today’s rates are about as low as they can go.

Americans have been on a spending binge. In the mid-1970s, they saved, briefly, 14 percent of their disposable personal income, but by 2007, the saving rate was below 1 percent. Now it’s around 4 percent, notes Welsh, and he believes it will go back to 8 or 9 percent.

In the U.S., 22.6 percent of homes are underwater — that is, the value of the home is lower than the mortgage. In Nevada the ratio is 65 percent, in Arizona 47.9 percent, in Florida 44.7, Michigan 37.3, and California 34.7. Home values are down sharply (almost 38 percent in San Diego from the 2005 peak). “The 1995-2005 housing bubble was driven by low mortgage rates, extremely loose underwriting standards by lenders, lax regulation, securitization of mortgages and, most of all, by the conviction that house prices could never fall,” says Shilling. He is not bullish on housing.

Both Welsh and Shilling believe that the current stock market recovery is not a portent of a stoutly recovering economy.

In China, consumer spending is 36 percent of the economy — a tiny bit more than half the ratio in the United States. Shilling notes that the Chinese savings rate is 29 percent, or about 7 times the U.S. savings rate. After taking out essential living expenses, 42 percent of Chinese want to put their spare cash into the future education of their children, according to Reuters. In the U.S., according to PriceGrabber.com, 84 percent of people consider their personal computer or laptop a necessity, with clothes dryers coming in a close second at 83 percent and cell phones next at 72. Global economists, aware that U.S. consumer spending can no longer support the whole world, want the Chinese to spend more and save less and Americans to save more and spend less, but we are too accustomed to those luxuries. It may be a tough slog.

In U.S. consumers’ “25-year borrowing-and-spending binge,” Americans were trained by retailers, advertisers, and the media that “instant material gratification was good,” says Shilling.

He believes it will take us 10 years to shed the past’s legacy of gluttony. Growth may be just 2 percent a year — far below the 3.3 percent needed to keep employment stable. “It took 30 years for the financial sector and the household sector to leverage up [get too deeply in debt], and now it will take 10 years to work off all that excess. If we did it in a year or two, we would have a depression, so it is lucky it will be 10 years,” says Shilling.

Welsh foresees woes for three to five years but says they may stretch out to ten. Excessive government debt will be unwinding along with excessive consumer debt. “Governments will be raising taxes and cutting back on services. It’s a debt pandemic,” he says. That will be a double-whammy on ailing households. Politicians won’t level with the public: “If you get out of the foxhole, you have your head blown off.” Says Welsh grimly, “There could be riots. There could be violence when politicians start telling people the truth.”

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Comments

Anon92107 Feb. 24, 2010 @ 1:08 p.m.

Don, you are most correct about democratic politicians also being arrogant, indolent, incompetent and corrupt just like republicans, otherwise America wouldn’t have had so many millions of jobs shipped to Asia so corporations can magnify their profits by using slave class labor in some other country while destroying the American Way of Life.

It occurred to me this morning while listening to Joe Scarborough, a former republican congressman, castigate “Just Say No” Senate republicans for voting against the Jobs For Americans bill yesterday proving beyond all doubt that republicans are the newest al Qaeda terrorists in America, carrying on the work of “W” who allowed his family friend Osama bin Laden to slaughter thousands in America on 9/11, plus the thousands who are suffering hellacious disabilities and premature deaths since then.

The greater tragedy for American Democracy is that during the last 10 years republicans have exported millions of American jobs to slave states like China while far too many, including some whose family members have lost jobs to China, continue to vote for republican anti-American politicians who are destroying the future of America.

What is wrong with the American education system when Americans vote for republicans that destroy their own future for a deranged political dogma that is destroying the American Way of Life!?

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Anon92107 Feb. 24, 2010 @ 2:28 p.m.

P.S. to comment “Governments will be raising taxes and cutting back on services.”

Don’t look now but our very own Mayor Sanders has been cutting back on health and safety services for years already, including most notoriously:.

o The 2007 firestorms got out of control, destroying far too many lives and property because Sanders refused to follow-up on many recommendations made after the 2003 Firestorms by highly respected firemen such as former Chief Bowman, including Sanders’ failures to coordinate effectively with federal, state and other California fire agencies

o Per your January 8, 2010 Blog, Sanders is the reason that “SD's Drinking Water 9th Worst of Major Cities”

o Sanders has already commenced implementation of Draconian cutbacks in Fire and Police safety resources that further threaten families throughout San Diego due to his continuous budget failures.

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Don Bauder Feb. 25, 2010 @ 7:20 a.m.

Response to post #1: Come now. While there is no doubt that Bush was close to the ruling family in Saudi Arabia (that's why Saudis were hustled out of the U.S. after the disaster), I don't believe you can say that he was a personal friend of Osama bin Laden. Best, Don Bauder

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Don Bauder Feb. 25, 2010 @ 7:24 a.m.

Response to post #2: Absolutely. The city is cutting back on spending for safety equipment, library and recreation hours, infrastructure construction and maintenance, etc., etc. as the mayor touts a convention center expansion, new city hall complex, and, probably a massive subsidy to the Chargers for the building of a new stadium. It is utter lunacy, particularly since the city is clearly insolvent. Best, Don Bauder

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Anon92107 Feb. 25, 2010 @ 11:36 a.m.

Response to post #3:

Don, there is absolutely no doubt that: 1) Bush and Cheney knew about the al Qaeda terrorist threat to America that had been under CIA and FBI surveillance for many years before they got into office, 2) that Osama bin Laden was the leader, and 3) that the Bush family were business partners in Saudi Arabia with the bin Laden family for decades.

The #1 fact is that Bush and Cheney knew about the terrorist threats against America and did absolutely nothing to stop it.

Also, Iraq was attacked on Cheney's orders so that his Cheney-Halliburton Military-Industrial complex could steal $Billions regardless of the consequences of his betrayals of the U.S. Military.

The Bush-Cheney administration is the role model for republican acts of "utter lunacy" throughout America resulting in "Too Much Debt, Too Few Jobs" with no end in sight.

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Anon92107 Feb. 25, 2010 @ 12:05 p.m.

Response to post #4:

A greater act of "utter lunacy" is that San Diego voters are doing nothing to stop the out of control threats to public safety against all of our families that have been committed with impunity by Murphy, Sanders and the republican establishment for decades.

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Anon92107 Feb. 25, 2010 @ 2:41 p.m.

P.S Again, I must keep pointing out that the most important fact of all is that Ike warned us:

“This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence – economic, political, even spiritual – is felt in every city, every Statehouse, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”

The tragedy today is that President Eisenhower's next paragraph has been totally marginalized by an arrogant, indolent and ignorant electorate, placing us in our greatest peril since WWII and 1776:

“We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

Indeed, “Too Much Debt, Too Few Jobs” have become our national destiny today because we let politicians screw up our entire country and have lost the Fight Back culture that made America great over and over again for centuries.

Bottom Line: We have let our elected representatives and their special interest puppeteers disenfranchise We The People throughout America.

In San Diego, “America’s Finest City” has crashed and burned, and our new City logo is the one the Chargers promulgated for us in their last game:

“We Surrender” on a White Flag.

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Don Bauder Feb. 25, 2010 @ 3:49 p.m.

Response to post #5: The Bush family is close -- financially and socially -- to the bin Laden family. Osama is an outcast in that family. The hustling of Saudis out of the U.S. right after 9/11 smelled to high heaven. But I don't think you can say that Bush was a personal friend of Osama. Cheney's role in the Iraq war was deplorable, and I intensely dislike all the money that his ex-company, Halliburton, has raked out of it. But I would be hesitant to say that Cheney ordered the Iraq war so that Halliburton could rake in bucks. Best, Don Bauder

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Don Bauder Feb. 25, 2010 @ 3:52 p.m.

Response to post #6: What's really lunacy is for the technically insolvent city to be cutting back on safety, libraries, and recreational facilities, and doing little maintenance or new construction on the sagging infrastructure, and at the same time consider an expanded convention center, new civic center, and subidized football stadium for the Chargers.

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Don Bauder Feb. 25, 2010 @ 3:56 p.m.

Response to post #7: Those were sagacious and prescient words by Ike. That is why those words are still quoted around the world. Best, Don Bauder

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Anon92107 Feb. 26, 2010 @ 10:34 a.m.

Response to post #8:

One of the problems we have is that good people give far too much of the benefit of the doubt to really bad people, frequently until it is too late.

Think about the fact that Bush had command of the CIA, FBI and U.S. Armed Forces for eight years and never killed bin Laden even though he bombed terrorist hideouts in Afghanistan and Pakistan with impunity for eight years.

We are told that bin Laden was an outcast, but we have been told eight years, and counting, of total lies and propaganda and I do not believe a word that Neocons like Bush, Cheney et al. have dumped on us until we are suffocating in it.

You can believe what you wish, it's a free country, but you had better start accepting the absolute fact that Neocons have been doing their best to take away our freedoms for over eight years, including using the Supreme Court to overthrow the Rule of Law, the Bill of Rights and the U.S. Constitution.

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Anon92107 Feb. 26, 2010 @ 10:39 a.m.

Response to post #9:

You might consider focusing on the fact that Sanders' threats to public health and safety are the worst case scenario threats all of our families are experiencing with far too many, increasing deaths, pollution, and violence so far under Sanders who has even exceeded the threat legacy passed on by Murphy.

This is a situation that continues to get totally unacceptable as Sanders and the Establishment keep fooling far too many idiot San Diego voters all of the time.

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Anon92107 Feb. 26, 2010 @ 10:48 a.m.

Response to post #10:

Focus especially on the President Eisenhower's concluding comment:

“We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

Bush, Cheney, Rumsfeld and all the other criminal Neocons have proved every grave warning Ike gave us to be true.

You might want to reread "The Rise and Fall of the Third Reich" because the Neocons are fooling far too many people into political, economic and social chaos once again. No one knew better about the realities of that fact than former General of the Army Dwight D. Eisenhower who saved the world from the role models the Neocons use today.

Too many voters in America are willing to raise the "We Surrender" White Flag without a fight, like the Chargers did in their last game, and San Diego voters have been doing for decades.

"Too Much Debt, Too Few Jobs" are just two of the totally unacceptable consequences we are experiencing because of this.

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Twister Feb. 26, 2010 @ 2:22 p.m.

Response to Post #1:

I'm beginning to learn a lesson here. I'm gonna keep my posts to one subject, as tempting as it may be to wander off the fairway into and scream. (Repentance oft I swore . . .) What part of the ballpark do most homers end up in?

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Twister Feb. 26, 2010 @ 2:35 p.m.

Response to post #4:

Talk's cheap. That's the central rule of politics.

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Twister Feb. 26, 2010 @ 2:54 p.m.

Response to post #8:

I would NOT be hesitant to say that Cheney ordered the Iraq war so that Halliburton could rake in bucks, as part of their MO is to cover/destroy/kill the evidence. What you and I and most Americans believe is that the Cheneys' of the world subscribe to our internal code; they do not. They think they are wonderful folks and that they are doing us a favor by doing exactly what they chide us for doing (e.g. financial irresponsibility), and let us pick up the tab while a trickle of our own money ends up in our noses. Heads down!

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Twister Feb. 26, 2010 @ 3:02 p.m.

Response to post #9:

Re: sagging infrastructure

If you want to see what San Diego will look like in a few short years (not a decade), look south, where the ricos (yes, the plural of RICO, as in our pasteboard law--and the pun IS intentional) have run the show since The Conquest. The main difference is that our ricos have been to culinary school and know how to boil a bunch of frogs.

CROAK!

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Twister Feb. 26, 2010 @ 3:04 p.m.

Response to post #10:

Quoted by the choir; ignored by most.

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Twister Feb. 26, 2010 @ 3:18 p.m.

Ok Don, you've hit a real homer here; I've been touting you for years, and finally you've slipped across the finish line on the rail.

I've known some of the "folks" John Kennedy called "sons-a-bitches," and fine they were; they could slip it to you (and the whole gol-durned county, not to mention the world) and sleep soundly--Ben Fairless and David Root among others. But lemme tell ya, those guys were angels compared to the corporate blood-suckers we've got on top now--what Lloyd Sigmon (an exceptionally upright guy) called "paper millionaires." Well, paper billionaires now. And that was before "securitization."

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Don Bauder Feb. 27, 2010 @ 12:09 p.m.

Response to post #11: I didn't mean to speak up for neocons as a group. I agree that their influence has been deleterious. Best, Don Bauder

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Don Bauder Feb. 27, 2010 @ 12:11 p.m.

Response to poste #12: We're aware of the possible scenario you mention. Voters get the blame, ultimately. Best, Don Bauder

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Don Bauder Feb. 27, 2010 @ 12:14 p.m.

Response to post #13: The voters must take the blame ultimately. Best, Don Bauder

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Don Bauder Feb. 27, 2010 @ 12:16 p.m.

Response to post #14: Left field stands? Best, Don Bauder

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Don Bauder Feb. 27, 2010 @ 12:27 p.m.

Response to post #15: In Washington, talk is cheap but getting the ear of solons is not. Best, Don Bauder

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Don Bauder Feb. 27, 2010 @ 12:29 p.m.

Response to post #16:That's trickle-down for you. Best, Don Bauder

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Don Bauder Feb. 27, 2010 @ 12:33 p.m.

Response to post #17: Let them eat frog legs. Best, Don Bauder

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Don Bauder Feb. 27, 2010 @ 12:37 p.m.

Response to post #18: Throughout mankind's history, there have been very few years in which some significant war was not being fought. Maybe it's in our genes. I believe war is organized theft. But it keeps going on. Best, Don Bauder

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Don Bauder Feb. 27, 2010 @ 12:41 p.m.

Response to post #19: Show me a billionaire and I'll show you a sociopath. Well, it isn't that bad (a lot of decent people simply inherited the money, and even some moguls have consciences), but it's close. Best, Don Bauder

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Twister Feb. 27, 2010 @ 4:18 p.m.

Cryptic response: Where we will all end up because we keep listening to Nero the Zero.

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Don Bauder Feb. 28, 2010 @ 6:19 a.m.

Response to post #29: Who is Nero the Zero? Me? Best, Don Bauder

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Anon92107 Feb. 28, 2010 @ 11:46 a.m.

Don, this is most certainly one of your most important blogs, i.e. highlighting "Too Much Debt, Too Few Jobs" but great investigative reporters like yourself just keep proving that most of us do not really care to think about protecting ourselves from unacceptable consequences of our actions.

These consequences are due to our excessive cultural desires to acquire or possess more than what one needs or deserves, and excessive desire for wealth or power.

Universities and religions have failed to motivate us to learn from and apply the lessons of history, especially the paramount imperative of morality to prevent the hellacious consequences of greed that we keep experiencing over and over again.

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Twister Feb. 28, 2010 @ 11:56 p.m.

Response to #30:

An allusion to the habit of fiddling while obsessed with diversions. Sorry for the opaque reference. However, I guess I was poking a bit of fun at your quick retorts, much as I enjoy them. I know you're busy, but I think when you do as good a job as you did this time (and as you should know I'm a big "fan"), you might sometimes be more on point. I'm not against fun, but I also think discussions should consist of points and responses to them. In that sense, maybe I did sling an arrow your way. But I don't respect you any less.

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Twister Feb. 28, 2010 @ 11:59 p.m.

Response to #32:

One of the best posts yet. Not cryptic, but to the point.

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Don Bauder March 1, 2010 @ 6:44 a.m.

Response to post #31: Look at it this way: "economics" used to be like "home economics." That is, the study of economics was about saving, conserving, getting the most out of scarce resources. Beginning in the Great Depression, the mission of "economics" was to stimulate the economy. How? Through excessive consumption, greed -- anything to keep the numbers going up. We institutionalized greed and gluttony in the name of "economics." Best, Don Bauder

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Don Bauder March 1, 2010 @ 6:49 a.m.

Response to post #32: Don't worry about shooting me slings and arrows. That's what blogs are all about. I dish out gratuitous insults and can absorb them. Just keep in mind that the blog is only one thing I do. Some columns take an enormous amount of time and research. Watch this week's. Best, Don Bauder

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Don Bauder March 1, 2010 @ 6:53 a.m.

Response to post #33: Something that is to the point wouldn't be cryptic by definition. Best, Don Bauder

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SurfPuppy619 March 1, 2010 @ 7:47 a.m.

The voters must take the blame ultimately.

Sorry Don, I disagree with you here.

Voters have limited choices in voting today, because of the $$$ needed to run for office.

I highly doubt there are any people in the House of Reps who are not millionaires, and I know there is not a single Senator today who is not a multi millionaire, with some like Dianne Feinstein worth over half a billion (with hubbys $$).

Look at the 3 candidates for CA gov., Whitman and Poizner are both worth HUNDREDS of millions, if not a billion or more. Whitman has ALREADY spent $39 million in the gov race and we are months away from the PRIMARY! Al Cheecki spent $50 million of his own money back in the 90's.

No, I don't think you can lay the blame on the voters when there is no real choice today. The activist conservative SCOTUS's recent ruling allowing corps and unions to give unlimited amounts of money in federal elections is going to do to the nation what has already happened here in CA (by public unions), and that is special interest money is going to buy and co-opt the legislature.

I know on the local and state level that I never voted for retroactive pension raises of 50%, or giving prison guards a 40% pay increase over 4 years, or allowing able bodied employees in good health to retire at age 50.

Maybe you can lay some of the blame on voters, but it is a small part :)

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Anon92107 March 1, 2010 @ 11:40 a.m.

Response to post #34:

Interesting History of economics lesson, especially the Bottom Line:
"We institutionalized greed and gluttony in the name of "economics."

I like reading your blog because it stimulates my thinking about what is really going on, and most of all I keep looking for a better idea to get us off of this path of self-destruction we are on so our grandchildren can have more to look forward to and enjoy than our generation was privileged to experience.

I agree wholeheartedly that "The voters must take the blame ultimately" because making sure our Democracy works is our greatest responsibility as citizens, and we have allowed both political parties to betray Democracy to the point where Washington is in chaos today while American voters are allowing them to get away with their threats to Democracy at our peril.

The real hell of it is that our universities and religions that were supposed to teach us how to live responsibly and morally have failed, but I'll reading and looking for a better idea to help us save us from ourselves.

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Don Bauder March 1, 2010 @ 2:04 p.m.

Response to post #37: Maybe it's the voters' fault for the state of affairs that you so accurately describe. How could the voters change the status quo? Maybe revolt would be the only way. Best, Don Bauder

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Don Bauder March 1, 2010 @ 2:08 p.m.

Response to post #38: Universities have definitely failed. They have sold out to big business. In fact, businesses are controlling universities' curricula. Churches, too, have dropped the ball by focusing on minor sins and not on the big picture. Best, Don Bauder

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MondoGrapes March 2, 2010 @ 7:25 a.m.

Response to post 37:

"It takes two to lie, Marge: One to lie and one to listen."

--Homer Simpson

While I agree with a great many things that Surf Puppy has posted here in these blogs, I must heartily disagree here. The voters and the general public deserve more than a little of the blame.

To be sure, there is no cut-and-dry, tidy little answer to what got us here, but the willful ignorance of the public and the eagerness to buy into whatever smoke-screen issue the two major parties threw at us while special interests had both hands in the cookie jar played more than a minor role.

There were/are many who believe that there is such a thing as a free lunch. There are still many who believe that prosperity can be gained without a healthy helping of elbow grease, blood, sweat, and tears. There are still many out there who believe they're going to get something for nothing. Don's right when he writes that greed and gluttony and a sense of entitlement have been institutionalized in this country. It is now part of the way we think. The example and the lies may have originated with our politicians and their banking masters, but we as a society bought the lie whole-heartedly.

We do have a choice/s, but change is not going to come easily. I don't know if it will take an outright revolt, or if a meaningful independent movement can get off the ground, but there are choices.

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Don Bauder March 2, 2010 @ 12:42 p.m.

Response to post #41: I love that line: "It takes two to lie, Marge; one to lie and one to listen." It reminds me of W.C. Fields's great line, "You can't cheat an honest man." One of the themes of my scam writings over the decades has been that the con man usually cons himself. He knows he is running a Ponzi scheme, but he thinks some windfall will come along to bail him out. He has conned himself so thoroughly that he is convincing to his victims. One problem with generating a revolution is that the financial scams are so deliberately complicated. Few understand them. Best, Don Bauder

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