By Patrick Wood, Editor

Econ­o­mists (and gov­ern­ment leaders) are missing some key ele­ments of eco­nomic reality that will deter­mine our course of suc­cess or failure over the next three to five years.

First, there is the dearth of tax rev­enue at all levels of gov­ern­ment. Cal­i­fornia recently demon­strated that a state cannot buck the market of reality for­ever, and is now being forced to dis­mantle much of which it bragged about over the years of eco­nomic prosperity.

While Cal­i­fornia, as usual, gets exces­sive press cov­erage, there are at least 32 other states in sim­ilar or worse condition.

Even­tu­ally, this will catch up with the Fed­eral gov­ern­ment and it won’t be pretty when it does.

Sec­ondly, banks have reverted to hiding toxic assets again. This time, it’s loans and invest­ments in com­mer­cial real estate. The value of many shop­ping malls and office build­ings have fared much worse than res­i­den­tial real estate values. But, it’s rel­a­tively easy to refi­nance a home com­pared to a $5 mil­lion office building that is 30 per­cent vacant.

Sooner or later, the banks are going to have to play “mark to market” with these dete­ri­o­rating assets.

Thirdly, the expanding bubble of gov­ern­ment debt will soon burst. Even the nation’s auditor, the Gen­eral Accounting Office, has stated that spending and debt levels are unsus­tain­able. The unfunded lia­bil­i­ties of the U.S. is now in excess of $65 tril­lion, and will reach $80 tril­lion by 2012 if cur­rent levels of encum­brance con­tinue. This vir­tu­ally guar­an­tees that the U.S. will be forced to declare bank­ruptcy if it doesn’t change its ways, and soon.

Fourthly, demo­graphic forces are pitted against eco­nomic recovery. As the aging pop­u­la­tion leaves the work­force, there are not enough young, skilled workers to replace lost earn­ings. The number of chil­dren in our society con­tinues to decline, meaning that fewer workers must sus­tain a larger older generation.

Pop­u­la­tion decline is the result of a con­certed effort to sup­press growth. It started in earnest during the late 60’s and early 70’s. The bible for over­pop­u­la­tion issues was Paul Ehrlich’s book, The Pop­u­la­tion Bomb, written in 1968.

The legal­iza­tion of abor­tion in 1973 (Roe v. Wade) has reduced our poten­tial pool of youth by at least 40 mil­lion. Gov­ern­ment pro­grams have been aimed at pro­ducing smaller fam­i­lies. The gay lifestyle has not pro­moted family or reproduction.

The result of these demo­graph­i­cally neg­a­tive forces has been to drop our repro­duc­tive ratio to well under 2.1 chil­dren per family, which is below the level required to sus­tain a pop­u­la­tion… and hence, our economy activity.

Econ­o­mists can rattle off sta­tis­tics and make almost any­thing look rosy but the Amer­ican people know better. These are the ones who are living real lives in real com­mu­ni­ties and working (or not) in real jobs. These are the ones who once com­prised the opti­mistic middle class that is now in real danger of becoming the des­ti­tute class.

In short, the economy is not poised for a return to glory. In reality, it is appointed for fur­ther dete­ri­o­ra­tion and even­tu­ally, dis­in­te­gra­tion. Even if there were things that the gov­ern­ment or the Fed­eral Reserve could do to mit­i­gate these issues, they are clearly going in the oppo­site direction.

For instance, Vice Pres­i­dent Joe Biden recently told a group of AARP mem­bers: “Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bank­rupt?’ The answer is ‘yes’, that’s what I’m telling you.” (Listen to Audio).

With leaders like this, who needs enemies?