A newsletter sent onward to me from Morgan Stanley describes the global sovereign debt crisis whose effects will presently be felt. It is no longer a question of whether sovereign debt default is possible; it is almost a matter of when and how bad. The current sovereign debt crisis is different from the high periods of indebtedness in the past in that it is going not to acquire assets but to pay for consumption. And not only present consumption, but future entitlement.
There is little prospect that the borrowings will ever be paid back from the objects of their expenditure. The only hope is that enough revenues from other sources will be available to retire the debt eventually. But the size of the debt is staggering and it is growing like a metastatic tumor.
The trillions owed by sovereign governments do not, for example, value unfunded government pension liabilities. The Morgan Stanley paper says, “the main problem is in the future.” The motto of Washington may once have been “I’ll gladly pay you Tuesday for a hamburger today.” Then they discovered pate de foi gras or just lobster, lobster, lobster. Although Washington was designed to play a smaller role among the fifty states than London or Paris in their respective countries, it has decided to match them in terms of services and entitlements. High speed train for high speed train, national health service for national health service, titanic bureaucracy for titanic bureaucracy. The result of that ambition is that the Federal Government is indebted for 358% of its tax revenues, with the UK and France at 162% and 169%, respectively. The US Federal Government has taken the path of borrowing money to meet its expenses because it cannot acquire as large a proportion of GDP as centralized European governments.
This path may lead to ruin. One way to think about the US Federal Government is to imagine it’s notional balance sheet.
| Assets | Liabilities |
| Net Power to Tax | Net present value of present and future entitlements and expenditures |
| Real assets (buildings, land, etc) | Debt |
Each of the Obama administration’s flagship policies can be examined in the light of how it has contributed to the deficit. From this it may be seen that the liabilities have the potential to grow far faster than the assets.
| Program | Effect |
| Bailouts | Propping up losing firms with borrowed money, increase in structural deficits |
| Health care | Net increase in future entitlements |
| Immigration “reform” | Net increase in future and current entitlements |
| Cap and Trade and Carbon regulation | Reduction in economic activity, increase in structural deficits |
The effect of a recession or depression on the deficit would be to reduce the taxation power of government, once again making it necessary for them to borrow to meet their promised entitlements and service the debt. This further distorts the balance sheet. Eventually if something can’t go on then it won’t. Morgan Stanley goes on to say that because structural debt (the degree to which governments outspend their tax base) and the effects of demographics on entitlements are so high that sovereign debt can no longer be regarded as completely safe. One day, maybe soon, the music will stop playing and then what? The crisis is global but it is particularly acute in countries like Greece and threatens to bankrupt the USA.
Although there are still some who believe that President Obama’s Keynesian cures will work, the counter-thesis may be that the supposed “cures” are in fact the cause of the disease. That the attempts to create European-style “rights” enforced by Euro-scaled bureaucracies on a Federal tax revenue base has created a bureaucratic monster in Washington sustained principally by borrowed money.
Whether President Obama’s decision to literally bet the farm on bigger government, more entitlements and greater regulation is to be regarded as his greatest achievement or the most fantastic blunder in recent history is what history will judge. As the economy begins to wilt under the weight of debt there will be a temptation by government to borrow even more to keep the moribund patient twitching under the artificial stimulus of money injected directly into the veins of particular economic enterprises. Whether it is possible to outrun your own shadow remains to be seen. Logic says that you cannot. It brings to mind the fate of the World War 1 German raiders who were living on borrowed time.
Admiral Maximilian Graf von Spee, along with SMS Scharnhorst and the other ships of the German East Asia Squadron, led the Royal Navy on a breathtaking chase across the Pacific, around Cape Horn, and finally to the Falkland Islands before being stopped. But it was only a matter of time before the superior numbers of the Royal Navy caught up with von Spee. As Winston Churchill said after the death of von Spee, “To steam at full speed or at a high speed for any length of time on any quest was to use up his life rapidly. He was a cut flower in a vase; fair to see, yet bound to die, and to die very soon if the water was not constantly renewed.”
It Always Catches Up With You
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OK, I got it – we’re in deep trouble. Very.Deep.Trouble.
So – what are we going to do about it?! I sure as heck don’t know.
We need PRESCRIPTIVE discussion, not DESCRIPTIVE discussion (something I, too, have been guilty of from time to time).
W: “There is little prospect that the borrowings will ever be paid back from the objects of their expenditure. The only hope is that enough revenues from other sources will be available to retire the debt eventually. But the size of the debt is staggering and it is growing like a metastatic tumor.”
Someone by the name of Charles Ponzi tried this a hundred years ago, but he was a piker compared to the US Government. F
The Real Old Salt:
Cut spending, cut taxes. Reduce excessive regulation, and accept that some additional pollution will result (because first world countries will actually start manufacturing a great deal more at home again), along with some additional safety issues and less diversity may be present in many workplaces.
Admit all social welfare programs are doomed, and curtail them. Set some lines- tell people who are on their pensions exactly how much they can expect. Facilitate the organization of community help groups (if they need comms, or whatever, get it for them).
Get emergency food and clothing supplies ready for the population, because for a period of time things will get rough. Having food and clothing for the down and out will help smooth this over. I suspect you don’t live in China or in Belarus, so the alternate solution will be unavailable to you. Soup kitchens are an inexpensive alternative to burning inner cities. Even so, you probably will have some inner city rioting- allow your police to do the job without judicial or poverty pimp interference.
Do what is necessary beyond that to encourage families to form and stay together. If that means eliminating no-fault divorce and really extreme domestic violence laws, then do so. This is survival we’re talking about, there’s no point pussy-footing around it. Give those families the tools to solve problems- let them defend their homes if they need to, let them decide the composition of their school boards and how to deal with bad teachers.
If this means you have to default on a portion (preferably foreign-held) of your debt, then do it. Sure, you’ll never be able to borrow again (outside of things like war bonds raised internally), but that’s where the mess started.
In short, get out of the way so that the regular folk can get their work done. There’s my solution.
Now ask me how much of that is politically possible.
There is no real problem for the USA as most Govt debt is in US dollars. A quick dose of hyperinflation will clean out the system. Weimar anyone?
OFF TOPIC; WAY OFF TOPIC; Beg your pardon Wretchard. Jusst need to pass the word
to a couple of people.
Walt, Buddy, any others interested. Saturday, 28 August, 0700 Eastern, the History Channel’s weekly feature “Heavy Metal” will feature the P38 Lightning.
Check your local listings for when if not in Eastern Time Zones.
No doubt RWE will correct any errors in the presentation. So will my WWII P38
Pilot friends.
Should be worth the effort to view.
Thanks again Wretch. Back to regulary commentary. I’ll join in soon as I figure out something to say.
Was this post supposed to tell us something we don’t know? Please. You can do better than this.
In a normal business, were it to default on debt and go through bankruptcy of one class or another, the items on the asset side would be used to pay off the debts on the liabilities side.
Now, given the above table, which lists “power to tax” and federal property, what does one do during receivership? Sell off citizens? (I’ve read the USG actually does classify citizens as assets, but that may be hooey.) Sell off federal property/land? To foreign governments? Are such things really, actually collateral? Or is is all just part of the smoke-and-mirrors that fools the market into thinking sovereign debt is as secure as if a given country were a corporation subject to defined law. Because, under most interpretations of international law, “sovereign” means noone can actually MAKE a country DO anything–just try to cajole them into paying, say.
I suppose a military invasion could constitute repossession, no?
I love to hear from the other well-read guests on collateralization of USG debt, and just how we could reasonably, legally expect the US citizenry (tax milk cows) and federal property to be treated.
–JC
It is no longer a question of whether sovereign debt is possible;
Er, you mean sovereign *default*?
IMHO, Obambus has no policies, he just hasn’t the least interest or capacity to deal with numbers, and he likes to see the government doing stuff.
But that’s Obambus’ excuse, what about the other Demonrats? Most of them do not share Obambus’ incapacity and thus “should know better”. Probably most of them do know better, but are just happy to be that bullet in the head of history.
Yes, von Spee was sunk. Not before he took a lot of good men with him, including Craddock who tried to stop him off the Chilean coast. I fear that there will be a lot of Craddocks sent to the bottom before this is finished.
j willie -
You can do better than this too. That was really out of line.
Sarkozy Outlines G-20 Priorities http://on.wsj.com/czPy2m
hmmm and if we go back to the pre 1971 rules ?
I never thought of this whacky solution before, nor heard it mentioned with respect to sovereigns, but maybe the path of least political resistance to deal with the unstoppable debt mountain, without just printing dollars, is to do the next best thing:
IPO.
The USG goes and lists itself on the Exchange. NYSE or Nasdaq?
In any normal corporate restructuring, for a going concern (and the government can be expected to live forever as long as the military holds up) the bond holders either get a haircut, or equity in the new enterprise, or both.
So why don’t we offer to exchange some of the debt for equity, and IPO it!
Benefits to shareholders would include potential dividends on budget surpluses, or maybe effectively some kind of income tax rebate. Or the spoils of war. It would also motivate shareholders to be activists to encourage surpluses, and the monetization of dormant assets.
Sovereign Equity to go along with Sovereign Debt. Other nations would soon follow. You could make fascinating long/short pairs trades. Indeed, “hostile takeovers” would have a whole new meaning.
And then we’d be one step closer to Neal Stephenson’s fictional world of Snowcrash, with the world run by quasi-sovereign and NGO franchises…
Rodney @ 4 said:
“A quick dose of hyperinflation will clean out the system. Weimar anyone?”
I’m an engineer and not an economist (by definition, I’m clueless). However IMHO, there will be a stock market crash within three months that’s worse than September 2008 followed by serious deflation. After buzzing on the bottom for a couple weeks, there will be a rapid ramp up of the stock market after everyone dives in thinking the system had hit bottom (I will have dived in along with everyone else). Anyone invested in gold at this point will have their pants pulled down. At some point during the ramp up, there will be a major sovereign default (Greece? Spain?) or Israel will call time on the Iranians. That will trigger a major follow-on crash in the stock market. Timing this follow-on crash will be almost impossible (get out as soon as the Israelis make their move). The system will sawtooth like this for a few more cycles until people loose confidence in the fiat currency and government bonds. After that loss of confidence, inflation will begin to poison the economic engine. That’s the point to go all in with gold, silver, real estate and tangible assets. If you can time this right at every point then you might be allowed to keep your possessions (probably not your job). However should you mistime this at any point then you could lose the whole nut. What ever you do, don’t trust anything said by Obama or any of his lackeys. Also it goes without saying to assume everything said by the MSM is a lie.
Stephenson’s a pretender, Gibson da man, made that world.
http://www.marketwatch.com/story/morgan-stanley-warns-on-sovereign-defaults-2010-08-25-171400
Is this pretty much wretchard’s newsletter?
Someone here at BC several months ago referred readers to The Automatic Earth, which has been following the international and US sovereign debt Ponzi schemes. The authors, Stoneleigh and Ilargi, have been predicting the inevitability of the coming disaster of deflation and what is likely to be the even worse aftermath of deflation, i.e, the whipsawing and hyperinflation mentioned by Eggplant. Stoneleigh and Ilargi convinced me that I should, at least, move assets to cash, which is likely a good short-term strategy. Here is a post from Stoneleigh:
May 26 2010: Economics and the Nature of Political Crisis
“Elites (top predators) will have a smaller peripheral pool from which to extract the tithes they have come to expect. No longer able to pick the pockets of the whole world, they will very likely squeeze domestic populations much harder in a vain attempt to maintain the resources of the centre at their previous level. This will be very painful for those at the bottom of the pyramid, who will be asked, told and eventually forced to increase their contributions, at the very moment their ability to do so declines sharply.”
“Damn’d art thou, Faustus, damn’d, despair and die!”
Early on when the administration first confiscated the bond holders money at Chrysler (to give to the UAW while calling the bondholders greedy) I called this crew “The Dukes of Moral Hazard.” Moral Hazard is the risk that the government will confiscate your property or income or force you to sell out or regulate you out of business. The Dukes of Moral Hazard are quite willing to do all those things. The American public may not want Cap and Trade but The Dukes will do it anyways. The Dukes will borrow billions and shower it on their favorites. The list is long but why go on.
Point is they are reckless with other people, though not so much with themselves.
Instapundit links to Megan McArdle who asks: What did Barack Obama do Wrong? And answers her own question with, “So no, I don’t think Obama could have done much differently.”
Funny, I think he could have done a lot differently. But then, I’m not an economist. Of course, she is an Obama supporter, and I ain’t.
Jim Cramer wrote about another group of Obama supporters — these on Wall Street:
In fact, I would go so far as to say that there is almost a universal belief among all of the large firms — mutual and hedge and research — that if this president gets his way and the House and Senate stay Democrat we are going to decline precipitously. It is so palpable that it overrides any data that could come out, whether it be earnings, or inflation, or spending, or employment itself.
But no one will say it!
It is amazing to me that no one will break ranks and say out loud what they say to me 10 times a day: “This president hates business, hates successful business people, and hates the basic way business is done in this country!”
http://www.thestreet.com/story/10837898/2/cramer-bad-data-has-silver-lining.html
Will the Dukes of Moral Hazard get renewed? Stay tuned.
The subject of this post is probably excruciatingly boring to some readers. But Megan McArdle is still asking What Did Barack Obama Do Wrong?.
Now I think that’s not the right question. It’s “what did government do wrong?” For a long time the ‘future’ has been based on the wrong model. ‘Progressive’ politics longed to bring all of society to a certain place. And guess what? We’re there. The problem is that Barack Obama did everything right by the lights of his guiding star. The difficulty was that his guiding star took him straight to Hades.
But mind you, McArdle is way ahead of the liberal crowd. She actually thinks he’s done something wrong. The others simply think he hasn’t explained it enough. “I’ve been incredibly underwhelmed by the various arguments that Obama just isn’t sending the right message–he isn’t populist enough, or he didn’t push for a larger stimulus or a public option, or whatever it is the writer wishes he had done.”
It’s a long way to Tipperary.
“Why this is the Obamanation, nor are we out of it.”
But really, that’s unfair. This is the Morgan Stanley depression, the AIG depression, with Paulson and Geithner, Summers and Bernanke, a bunch of one-armed paperhangers doing what they can do push armageddon off one day at a time, maybe at the cost of making it worse when it happens.
Can you make armageddon worse? Discuss.
hdgreen @ seventeen: In fact, I would go so far as to say that there is almost a universal belief among all of the large firms — mutual and hedge and research — that if this president gets his way and the House and Senate stay Democrat we are going to decline precipitously. It is so palpable that it overrides any data that could come out, whether it be earnings, or inflation, or spending, or employment itself.
That cake is baked. I doubt that who gets elected can change things except at the margins. Do cakes have margins?
A friend sent me this Morgan Stanley newsletter as well. It’s more important than might appear on the surface. Remember: MS is a fully paid-up, card-carrying member of the Ruling Club.
And look closely at what they’re saying:
The question is not whether governments will stick it to their bondholders; it only questions are when and how.
The Ruling Club stays in power in part because they convince people that they have the answers. They’re the experts. They’re the man with the plan. But when one of their members, one of the premier Wall Street banks, starts saying OUT LOUD in bold italic print that the government is going to impose “Financial Oppression” on their creditors (known to lesser mortals as welching), it is worth sitting up and noticing. They’re saying they don’t have answers. And that means a capitulation is not far behind.
Now, there are solutions. There are just no easy solutions. The Federal Government has made $50-100T of promises that can’t be kept. So they won’t. It’s not that they don’t want to keep them, it’s that they can’t. I want to play shooting guard in the NBA, but I can’t. I have to face the brutal facts about my pro basketball career. The nation has to face the brutal facts that Washington can’t deliver on the gargantuan promises it made in the past.
Something has to give, therefore something will.
Our best chance of coming up with viable solutions is to have states and localities take on responsibility for solving these problems. It is beyond the ability of the Federal Government to solve. They’re too complex at the scale of 300 million people. They’re solvable at the scale of 3 million – the original size of the American republic.
So we must return the responsibility and authority for these problems to the states, where frankly they belonged in the first place.
In my home town of Houston, the city is running a budget shortfall of about $40 per person.
In my home state of Texas, the state is running a budget shortfall of about $700 per person.
In my home country of the United States, the government is running a deficit of $4,700 per person (and this doesn’t count unfunded entitlements).
For the US to “bail out” the states is like Blago helping you with ethics advice.
The prescription is to restore self-governance by:
The root of our problems is that our capacity for self-governance has atrophied from underuse.
The will to self-govern is the will to say no. To ourselves, to others, and to our representatives.
No more Ruling Club. Break it.
No more Washington monopoly. Bust it.
No more atrophied body politic. Build it.
L3
Part of the problem afflicting “policy wonks” is that they may, without fully realizing the extent of it, be hostage to conventional wisdom. So when McArdle concludes that Obama couldn’t have done much different the statement springs not from mean-spiritedness but from an inability to imagine anything beyond the agreed upon menu of options.
What we need is a way of “thinking about the unthinkable”, as Tom Schelling once put it. Josh asks, “Can you make armageddon worse? Discuss.” That is a question in the same territory. I think you can impose an ordinality on aramaggedons as you can upon infinities. But McArdle’s economics doesn’t go there, and neither does anyone else’s unless it is Stephen King’s.
Maybe they conventional button pushers have shoved the system so far that no combination of button pushing will bring the train back on to the rails. That doesn’t mean it can’t be done, but we are going to have to invent the tools to do it.
I’ve argued that when heading into discontinuities two things count. A lot of connections and a collection of contingency memes. Fortune favors the potentially organized. Since the problems cannot be anticipated the game goes to the side with the smaller OODA loop and the richer lexicon of relevant memes. The real value of the Tea Parties isn’t the Tea Parties themselves, it is in the process of getting lots of people to think this problem through and make connections among themselves. It will come in handy when we sail off the edge of the earth. May the day never come, but it’s always handy to have a message in a bottle ready for the eventuality.
7. JC in KZ
Now, given the above table, which lists “power to tax” and federal property, what does one do during receivership? Sell off citizens? (I’ve read the USG actually does classify citizens as assets, but that may be hooey.) Sell off federal property/land? To foreign governments?
I’ve suggested that elsewhere and was told that I was full of shit. But I believe that is where this is headed, and is the reason why natural resources have been put off-limits to Americans. The goal of the One-Worlders is to turn the entire planet into the Third World, with a tiny hereditary aristocracy owning everything and the impoverished masses as their serfs.
The inmates have taken over the asylum and the traitors have taken over our government.
Sovereign countries cannot go broke according to our Fed Chairman because their central banks can monetize the debt simply but running the printing presses. He is a smart man but apparently has not considered what would happen if nobody would accept the paper in payment which brings us to the question of the nature of money, government, sovereignty, and ultimately morality.
Money as we know it today is a promise backed by the word of the sovereign that the goods and services you render today will be returned to you tomorrow in goods and services of a similar value in the future. That promise is enforceable by the sovereign, in our case a representative republican government, and because the sovereign claims a monopoly on the use of physical force in it’s territory that promise is as good as gold. Or it is as long as the sovereign actually does have a monopoly of force, Lets face it nobody takes Confederate Money these days not even in Richmond.
So as long as your government is strong enough to control it’s territory, fend off competing powers, and jail or kill it’s domestic enemies your money is good as gold right? Well not quite. You are still dependent on the sovereign actually keeping its promise to return present value for that scrap of paper that represents maybe forty hours of ditch digging or forty beautiful lines of code,
But what if the sovereign is a lying sack of horse manure contemptuous of the ignorant peasants clinging to their guns and religion who despises the promises his predecessors has made not to mention the history and culture of his benighted citizens? Well that might be a problem for some countries but not one like ours right? And if you have doubts about that they will all be cleared up for you in the not so distant future when the IRS knocks on your door and tells you they are going to empty your 401k today but not to worry you will get a defined benefit for it at some future date if we are still around and if we feel like it and if we can extract enough from the citizenry we have impoverished and if you are still around and not in jail.
This means governments will impose a loss on some of their stakeholders, in our view.
Cash hasn’t paid a dividend for two years now.
Cash hasn’t paid a real dividend more than about half the time since about 1991, thanks to Alan Greenspan.
The money I’m not making on my cash, is being given to the big banks, and they are pocketing it and paying billions in bonuses to their execs.
TPTB have been trying for two years now to ignite some inflation – and failing.
As I’ve been ranting on BC, I say the real problem is STRUCTURAL. I don’t think the Geithners and Bernankes of the world have twigged to it yet, they are second-raters at best.
I was hysterically waiting for the (hyper-)inflation to hit … two years ago. Didn’t happen.
Trust me, an MS newsletter that you saw, does not even contain their own best guesses, much less the billions and trillions in underhanded theft they engage in on a daily basis.
I’m a constructivist, I’m not really sure you can impose an ordinality on infinities.
It’s the Stay-Puffed Marshmallow Man.
#13 Eggplant
If things really crumble down silver and gold may be the way to go, but other tangible assets like land are not if the government can easily pinpoint the owners. Once the government gets hungry it will go after anything that it considers to be edible.
Don’t leave a paper trail. Don’t forget what FDR did. Turn in your gold for paper, and do it now, or else. They are already looking with hunger at people’s 401k’s. I fear that soon it will be that we will be forced to turn them over to the government for promises of social security like payments.
We’re from the government, and we’re here to help (eat) you. Coming soon to a reality near you.
I contemplate the possibility of a second American revolution in which the generations of Americans subsequent to my rotten Baby Boomer generation simply repudiate all sovereign debt (foreign and domestic) and start a second American Republic, based on constitutional principles.
The most radical outcome of this whole mess, and one I wouldn’t blame them for.
But this would be, in essence, an act of war against our major creditors (e.g., China).
What, then?
It is hard to know whether to hoard cash, pay down debt, or buy non-perishable food items to store in the basement with credit cards you never expect to pay off…
A sovereign default boils down to this, somebody is going to get screwed and it ain’t going to be what Willie Stark the fictional governor in All the Kings men called the behind guys. those guys are too clever, too connected, too ruthless, too informed.
Tcobb @ 28 said:
“They are already looking with hunger at people’s 401k’s. I fear that soon it will be that we will be forced to turn them over to the government for promises of social security like payments.”
Supposedly the Social Security Trust Fund long ago had all of its cash replaced with government IOUs. I suspect that at some point we will be “invited” to transfer our 401K money into the Social Security Trust Fund. When I see that coming, I will attempt to liquidate my 401K and transfer as much as I can to offshore bank accounts denominated in Swiss Francs. Unfortunately the Swiss have cracked down on foreigners having bank accounts in their country. Also it seems that getting a bank account in Luxembourg is almost impossible. Obviously the US government is employing some sort of coercion on Switzerland and Luxembourg. I haven’t yet figured out exactly what that coercion is. It worries me that our government is trying to plug all of the escape holes.
There is always the false dawn of Coronel before the masts of the Queen Elizabeth class battleships are seen poking up above the hills surrounding Port Stanley. That is where we now are. The battleship masts are clearly seen, yet still disbelieved. There will soon come inflation, then hyper-inflation, as the Fed prints money to cover the enormous deficits, paying off the bondholders in monopoly money as happened in a Germany Admiral Graf Spee did not live to see.
After World War 1 the German government of the Weimar Republic experienced a period of hyperinflation from 1921 to 1923, brought on, in part, by the war reparations inflicted on Germany by the Versailles Treaty ending the war, a war Germany lost but did not start. The London Conference of 1921 at which Britain and France demanded the reparations be paid in gold was the tipping point. In 1918 one gold German mark was equal to one paper German mark. By the end of 1923 one gold German mark was equal to one trillion paper German marks. Are we heading for a similar hyperinflation? The signs are not good. The Obama administration has saddled the US with trillions upon trillions of debt as far into the future as the eye can see. Foreign countries are looking around for an alternate reserve currency, and if that happens oil will no longer be priced in dollars, which means the US Treasury will have to buy whatever currency is then the world reserve. When the dollar is no longer the world’s reserve currency China will no longer buy our Treasury bills. What happens when China demands hard currency for the trillions of dollars in US treasuries it already owns? The next question is, is this all a part of the plan to degrade the United States, to reduce us to just another middle of the pack country, no longer the hyperpower, no longer the big kid on the block? There are some, perhaps many, in the Democratic party who would like to see the United States brought down a peg or two. Is massive debt and the destruction of the currency the Left’s dream of gaining permanent control of a weakened United States?
In Weimar people cried Why me?
As savings turned to smoke
A lifetime’s earnings now a sea
Of debt and in their poke
Instead of solid paper cash
That once bought bread and wine
They found the paper money trash
A billion marks to dine
The middle class gone in a trace
The solid burghers done
And now the US in the race
All started by the One
Who thinks a trillion here and there
Is nothing, what the heck
With trillions more ‘til cupboard’s bare
That’s how he’s stacked the deck
We know what fate befell them next
A Hitler was his name
O dreams that with the right pretext
He too can play that game
Let not a crisis go to waste
Is O’s bright guiding light
He’s got four years, that’s why the haste
To do the darn thing right
Just grow the debt by leaps and bounds
Print money like the snow
Providing O with ample grounds
To cry the Law must go
He dreams he’ll guide the broken Ship
Of State to calmer climes
And once he has a nice firm grip
The Post and New York Times
Will name him President For Life
Obama The Supreme
And then just won’t he twist the knife
Ah but a man can dream
31. Eggplant
You mean like Spain already has?
Spain uses social security fund to prop up the bond market
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100007427/spain-uses-social-security-fund-to-prop-up-the-bond-market/
Spain is putting all its eggs into one basket, and if it carries on like this, we may start to see a lot of Basques and Catalans crowding into one exit.
The state pension fund – the €64bn Fondo de Reserva, known as the ‘hucha de las pensiones‘ – is buying Spanish sovereign debt at a vertiginous pace.
The financial daily Cinco Dias reports that the share of the Fondo’s total portfolio invested in Spanish government bonds rose from below 50pc in 2007 to 76pc in 2009.
The Social Security minister Octavio Granado said it will rise to 90pc by the end of this year.
This isn’t a tinfoil hat site, far from it, and yet people here are incredibly pessimistic. I’m more pessimistic still but I’m an angry, socially and economically marginal loner. I would feel a lot better about this if I thought it was just me being paranoid but I’m afraid it’s not.
It’s no great stretch to say Social Security and Medicare are going to be cut back. But as much as liberals scream it is impossible to reduce spending without cutting these, it won’t be possible to cut spending only by these.
Many power systems have come and gone throughout history, largely because they trade the future for the present. If you really want to have power you have to say to hell with tomorrow, I’m getting mine now. The Western democratic social system buys peace- and power- by borrowing from the future to make payments now. In the long run? “We are dead!” Keynes replied. Well, *he’s* dead, but the rest of us are very much alive.
There is about $8 trillion in private pension funds in the USA. The probability of the Federal government not grabbing that money by “helping” individuals secure their future with the safety of US Treasuries is near zero.
Argentine did it in 2008. Spain did it. The U.S. Treasury and Dept. of Labor have already laid the groundwork. The rationale is the same as it is for nationalizing health care. The beneficent government must intercede to protect the public from greedy doctors, drug companies, and other capitalist pigs.
Obamacare got us 16,000 more IRS agents. Maybe they’ll need 60,000 more. It’s not too hard to imagine that the primary domestic activity of the Federal government will become confiscating private wealth, if it is not already.
Who knew that the road to serfdom would be a superhighway?
“Finally, it was time for the meeting, and Vilsack entered the room to see Obama sitting on a couch with his suit jacket off and his arms spread on the back of the couch. “He looked like a poster for Air Jordan,” Vilsack said. “He has a real wingspread.”
They talked about agriculture, of course, and Obama seemed surprised at Vilsack’s intensity. “You’re pretty passionate about this,” Obama said.
And Vilsack told him about a farm family with seven sons, six of whom had grown up to become doctors or lawyers. But the seventh son became a farmer and got too deeply in debt during the farm crisis of the 1980s, and one day he walked into his barn and hanged himself from a rafter. He was in his late 20s, and his young son found him there.
Then Vilsack talked about devoting his life to helping other farm families.
Obama slapped his knee. “You’re my guy,” he said.
“You won’t be disappointed,” Vilsack replied.”
—-
the media has a noose around your collective neck though you do not see it. good luck folks.
We need PRESCRIPTIVE discussion, not DESCRIPTIVE discussion (something I, too, have been guilty of from time to time).
http://www.youtube.com/watch?v=D22TlYA8F2E
strip the debt and fractional reserve aspects out of the fiat money. if England could do it for 700 years, then i don’t see how anyone could claim that it’s not viable.
http://en.wikipedia.org/wiki/Tally_stick#Split_tally_in_England
http://en.wikipedia.org/wiki/Henry_I_of_England#Activities_as_a_king
Eggplant @31 Supposedly the Social Security Trust Fund long ago had all of its cash replaced with government IOUs.
There’s no “supposedly” about it. The Trust Fund never had any cash or asset other than special U.S. Treasury bonds.
From the beginning until some point the past (or maybe still), the law allowed SS surpluses to be invested either in Treasuries or in other public and private bonds guaranteed by the U.S. government, but I don’t think the latter option was ever used, since it didn’t really make a lot of sense.
The SSA never sees the entirety of SS tax revenue. The Treasury receives it and spends it just as if it were any other tax revenue, except that it issues special bonds for any amount in excess of SS outlays.
Wretchard et al:
What must never be forgotten in this is the role of the public at large in creating the mess we’re in. Specifically, the out of control “inflation”, if you will, of lifestyle expectations. I forget his name, but there was a British MP who said that the root cause for this type of crisis can be attributed to folks having an unrealistic notion about how much material lifestyle their work justifies. He’s absolutely right. None of the things the elite or the big government collectivists do would be possible in a populace imbued with a different mindset than the one caused by the revolution of continuously rising expectations. In a very real sense, a population which has a sense of the historically accurate level of lifestyle expectations for a given amount/type of work is inoculated against getting to where we’ve arrived.
L3 #21
Dealing with it at a lower level of government is a good idea in theory, but I’m not sure it will work in all or even many cases. As a for instance – I have a buddy with a dental practice in MA. With all the problems MA is having, and with a complete lack of ideas and effort to fix their problems, particularly the public sector pensions there which are out of control, the lovely public sector lifers there found time last week to pass a law requiring all dentists and their staffs to wear name tags at all times while working. Not just government clinics, but every dentist, hygienist, and assistant, even in small one-man private offices. Not doing so and getting caught means losing your license to practice.
Granted, we’re talking about MA, but this sort of fiddling while Rome burns is probably not limited to there, and is indicative of the lack of will to solve any real problems at a level of government less than federal.
Although there are still some who believe that President Obama’s Keynesian cures will work, the counter-thesis may be that the supposed “cures” are in fact the cause of the disease. That the attempts to create European-style “rights” enforced by Euro-scaled bureaucracies on a Federal tax revenue base has created a bureaucratic monster in Washington sustained principally by borrowed money.
the media has a noose around your collective neck though you do not see it. good luck folks.
If we combine the above two paragraphs, the first by wretchard and the second by unleaded, we can get a peek at disease in the petri dish. It is a particularly virulent strain, it is resistant and prolific. And it is eating away at us from the inside.
First, we must ponder the imponderable. Wretchard starts from the POV of the “benefit of the doubt” position, perhaps because contemplating another intent is too horrible to imagine, or maybe because it helps to believe that an adversary isn’t willing to blow himself up in order to get at you. It is certainly easier to build defenses against sane foes. The committed lunatic, willing to destroy themselves in order to achieve their goal, requires merely that you outlast their ability to recruit and replenish. You can’t stop the NYTimes or Newsweek from imploding…by slapping the faces of 80% of the American public, they cannot pull out of a financial death spiral. But, they don’t care. They only care about spreading the propaganda. JournoList Kamikaze’s…or perhaps, Divine Windbags.
The unrelenting Truth Terrorists, hellbent on tearing down our Twin Towers of information…”news” and “public opinion”….by piloting hijacked facts into the unsuspecting cubicles of average Janes and Joes and melting the steel of our Constitution, leaving ashes and rubble in their wake.
The “Keynesian Cure” is much easier to bat about, it certainly should ward off the passing out of tinfoil hats by the trolls. It gives off an air of legitimacy to what might otherwise be viewed as “Robin Hood on angel dust”, or the Redistributionist Wet Dream that has befallen the rest of us when the Democrats seized absolute power with their supermajority control of all houses in the realm and put the likes of Nancy Pelosi at the point position for cramming Redistribution down the throats of the electorate.
No, it is much easier to believe in incompetence than in sinister design. Barney Frank now announces a desire to dismantle Fannie and Freddie. It was raped, pillaged and plundered, now it is to be discarded. To be replaced by what, you ask?
Don’t be silly. The State. And the State. And the State.
Keynes be damned. Gramsci be damned. Alinsky be damned.
This is about seizure. All property is theft, right? Proudhon be damned.
The best way to tear down the system, is to tear down the system. To kill capitalism, one must spend it out of existence. To replace it with Statism, one must crush the independent will of the people and make them dependent upon and subservient to the State.
Less private enterprise, more government. Less independent control, more government control. The government is Audrey III. Feed me. Feed ME. Congress is our Little Shoppe of Horrors. Sucking taxes out of us…bleeding us dry…because there is no other way. Bankrupt? Who cares? First the states like California, Illinois, New York. Then the country.
We are drowning in red ink. This is what Redistribution feels like. And the noose around our necks indeed has been invisible. But it’s starting to pinch a little on the adam’s apple. And the traitors in the mass media are willing to die to make it happen. The only solution is to outlast them all. Good night and good luck, indeed.
We shall soon see how a power structure based on maximum consumption survives in an era of drastically restrained private spending. No more five bedroom, five bathroom 4000 square foot houses with three cars, an RV and three snowmobiles and a boat. Whole families will live in 1000 square feet, carpool or bicycle, eat out once every couple of months instead of every couple of days. Some of us have been living like this for years, not out of choice but from necessity. That’s how the Greenies want you to live, anyway. But do they realize the consequence for public finance and government resources? Downsizing, paradoxically, may be the only way to starve the government monster. You can’t get blood from a turnip. Also, home schooling, church attendance and renewed emphasis on the family as the ultimate social insurance mechanism will arm the people with real weapons against the official attack on traditional culture. I see some hard times, but with bright prospects in the distance.
Anybody else going to Beck’s gathering in DC this weekend?
The gathering is themed as a fundraiser for the Special Operations Warrior Foundation, which helps wounded warriors and provides for children they leave behind when KIA. I will be there with a couple of friends who are Special Forces veterans. I am not a hero, but I like hanging out with those who are. What a privilege it will be to stand among hundreds of them.
One thing these guys understand is that you are not always the one in the story who stands triumphant among the burned out bunkers with your buddies, looking back at the beachhead you took. Sometimes you are one of the corpses laying on the beach or drifting with the eddies near shore.
Somewhere in his book on D-Day, Stephen Ambrose writes of how the first wave at Omaha Beach got slaughtered, but critically, they got their equipment to shore. So the following waves had plenty of guns and ammo and explosives.
Sometimes you have to get out of your comfy chair and be the spearhead. Sometimes you just have to concentrate on the mission and just do your part.
The main problem was, and is, that Obama and Company simply do not see the world the way the rest of us do. In fact, it could be argued that they see everything exclusively through the prism of their dogmas, and disregard everything else. Taking it point by point;
1. They do not see their immigration policies as creating entitlement problems down the road. They see them as creating an endless store of new Democrat-only voters to keep them in power, permanently.
2. They do not see unsustainable debt. They see a potential to “pay off” that debt with worthless paper money , much as Weimar Germany tried. (BTW, when the crash there came, Weimar’s biggest paper holder was the U.S. government. The default almost certainly helped trigger the 1929 Wall Street crash.)
3. Failing that, they see themselves demanding, and getting, “debt forgiveness”, after the pattern of Third World states in the last two decades. After which they expect to be able to go back to the same debt holders (i.e., the PRC) and… get more money. (After all, it worked for Zimbabwe.)
4. Failing even that (and here I’m getting paranoid even by my standards), they may believe that they can mollify (i.e., buy off) the old men in the Forbidden City by offering one or more of the following;
A. Signing control of GM, Chrysler, the banks, etc., over to the PRC in lieu of payment.
B. Offering the PRC MFN and first refusal on the majority of U.S. import trade, with Draconian regulations to punish U.S. firms that don’t toe the mark.
C. “Looking the other way” as the PRC retakes Taiwan, by force if necessary.
D. Or, in the last extreme, acquiescing to Chinese domination or even annexation of most if not all of WESTPAC. (The One to PLAN;” Remember the Tanaka Memorial? Go for it- just remember we have to keep anything east of Midway for domestic PR purposes. Have a nice day.”)
Keep in mind that the two basic principles of “progressivism” are;
1. (Progressive to everyone else) What’s Mine Is Mine- What’s Yours Is Negotiable.
2. Everything Is Fungible- Including Reality.
However you parse it, I do not see this ending well.
clear ether
eon
Very interesting that you compare the Obama administration to von Spee. But I am afraid it is a trifle inaccurate. Von Spee’s aim was to get back to Germany if possible ( a very long shot). I wish I knew what Obama’s real aim was- likely so does he.
And if I were one of von Spee’s relatives I’d object strenunously to comparing that brave and loyal professional naval officer to the gang of freaks, phonies, kooks and con men infesting DC these days….
#1 The Real Old Salt – We need PRESCRIPTIVE discussion, not DESCRIPTIVE discussion (something I, too, have been guilty of from time to time).
Reminds me of a video I recently viewed that makes the same strong point using a cannonball wound analogy. Toggle over to the 1:17 mark to see 40 seconds of the same point you make. Riveting!
http://www.youtube.com/watch?v=JU8RYCYYsPY
23. rickl
7. JC in KZ
Now, given the above table, which lists “power to tax” and federal property, what does one do during receivership? Sell off citizens? (I’ve read the USG actually does classify citizens as assets, but that may be hooey.) Sell off federal property/land? To foreign governments?
………..
Oh come on. Evict the illegals from the USA.
That knocks out the structural federal debt.
L3,
Be careful, there was a subtle change between what MS said (stakeholders) and what you said (bondholders). Someone is going to get left high and dry…but it might not be the bondholders. It might be, but it might not be.
The US does have the advantage of our debts being in our currency, but unlike what Rodney @#4 said, a quick dose of (hyper)inflation will not do the trick. For two reasons…the vast majority of our treasury debt is very short dated…and has been getting shorter thanks to the current crop of geniuses. It would screw the 30 year bond holders, but they are tiny compared to the two year bond holders who would very quickly get much higher interest. After all, it isn’t like we are going to start paying back the debt as it matures. We will need to borrow to replace it, and our duration is very short.
The second, and more important reason, is that the vast majority of US liabilities are already indexed for inflation. Social security and fed pensions explicitly so, medicare/medicaid/retiree medical de facto. (If inflation hits, the care gets more expensive, but still paid for). So while hyperinflation could take wealth from the few long dated treasury holders…that is too minor compared to the inflation sensitive liabilities where it gets passed through.
However that also points to possible ways out…for example, if social security were indexed to half of inflation…that would go a very long way towards both making it ‘sustainable’ Many believe the government is already doing this by keeping the CPI low compared to actual inflation. If medicare and medicaid were limited in some way (dollars per patient, or dollars/patient/year, or access to extremely expensive care limited, or end of patient life care limited) that would also go a long way towards making the current ponzi scheme ‘sustainable’
My point is not to advocate for any of these measures specifically, merely to point out ways other stakeholders could be ‘defaulted’ on as opposed to bondholders taking a shot in the shorts. Someone is going to take the shot in the shorts, but it is not clear yet who.
What is interesting is that it is probably not the standard answer for the last 60 years…the taxpayer. Not that they won’t try…but it is essentially tapped out. Increases in income or corporate taxes would likely create minimal new tax revenue, and possibly decrease it because the disincentives to doing taxable work have become so high. The other distinct possibility is either a flattening of the progressive tax rates (make the low tax brackets actually owe significant taxes) or adding a VAT/sales tax. They can’t squeeze the ‘taxpayer’ (really, top 20%) much tighter, but they can squeeze the bulk of the people who pay negative/no/low taxes. And they might.
The piper is calling for his payment, but it is not yet clear who is going to ante up. And just like the fairy tale…it will probably end up being the children.
DM @47,
Be careful, there was a subtle change between what MS said (stakeholders) and what you said (bondholders). Someone is going to get left high and dry…but it might not be the bondholders. It might be, but it might not be.
Good catch. There are lots of folks who will be impacted. I think the point that MS was making is that US Treasuries are no longer risk free, if they ever were.
As you point out, this situation is not really a question of one group or other getting the short end of the stick. There is no stick. It was taken away, burned, the ashes encapsulated in a gold sphere and dropped to the bottom of the Marianas Trench.
No one will be unaffected. But I’d still rather be here than anywhere else.
Cheers,
L3
Someone by the name of Charles Ponzi tried this a hundred years ago, but he was a piker compared to the US Government.
Ponzi had a disadvantage in that he had no way to threaten his investors with jail time (backed by deadly force) if they refused to sign up. The current shortfall in this sixty-year old pyramid racket is $16 Trillion.
What L3 said!
We need a Constitutional Convention.
Lets start right here, right now.
First thing we do is take away or cut back on Congress’s power of the purse. ALL budgets are done in arrears using ONLY the funds collected the year before.
Right now there are laws regarding deficits by the Feds. So when it looks like those laws will create a shortage of pork, they get re-written. Let Congress try and get a Constitutional Amendment every time it needs/wants more pork. HeHeHe.
If we the people control how much federal income is raised and how. Congress will have only the power to decide how it is spent. We will then be half way home.
Politically, we need to use the anxiety created by ongoing economic conditions to see to the future.
Once the means are there to prevent a re-occurrence we can then work on fixing the current problem.
It has to be done in that order because there is no consensus about what started this situation. Many opinions and I expect the “truth” is a mix of many things. But until there is such a consensus, fixing it is impossible.
I’m not explaining this well. We need an entire new system, if you will. One that automatically prevents economic troubles of this nature.
Then we can work on why and how. This sounds like “Sentence first, Trial later” when what I want to say is “Fix the problem, then fix the blame.”
If America was a shed it would hold a LOT of very sharp tools. I have no doubt that someone will figure out how to resolve the current mess. If we don’t have a new system ready to go, then the same old system will just produce the same old mess, only new.
Those that refuse to learn from their mistakes are doomed to repeat them.
But the seventh son became a farmer and got too deeply in debt during the farm crisis of the 1980s, and one day he walked into his barn and hanged himself from a rafter.
This isn’t really relevant, but there’s a poem by Edwin Arlington Robinson about a similar situation, a miller who realizes one day that “there are no millers anymore.” I copy it here only because it suits my mood, and it has a kind of elegiac quality I find very in tune with these harsh times, when so much of what was good seems to be blowing away like topsoil in the Dust Bowl.
“The Mill” by Edwin Arlington Robinson
The miller’s wife had waited long,
The tea was cold, the fire was dead;
And there might yet be nothing wrong
In how he went and what he said:
“There are no millers any more,”
Was all that she had heard him say;
And he had lingered at the door
So long that it seemed yesterday.
Sick with a fear that had no form
She knew that she was there at last;
And in the mill there was a warm
And mealy fragrance of the past.
What else there was would only seem
To say again what he had meant;
And what was hanging from a beam
Would not have heeded where she went.
And if she thought it followed her,
She may have reasoned in the dark
That one way of the few there were
Would hide her and would leave no mark:
Black water, smooth above the weir
Like starry velvet in the night,
Though ruffled once, would soon appear
The same as ever to the sight.
If it can’t go on, it won’t. The problem is getting the timing right. Ross Perot talked about exploding US government debt as an unsustainable problem almost 20 years ago. And he was far from the first.
But when the house of cards starts to collapse, it will go quickly. Then what?
Set aside the problems (and opportunities) for US residents. When the government debt bubble bursts — as it must, eventually — there will be a major knock-on effect on the US military. That will be the big difference compared to, say, Russia in the 1990s or Argentina or Weimar Germany. The lid will be off the pressure cooker.
Once it becomes apparent that the US is no longer able to keep the peace, it will be Katie-bar-the-door. China will take the ‘Stans, Iran, probably Australia. Russia will take Europe, maybe without even firing a shot. Israel will have to act against its neighbors and Iran, unless they act first. The whole deck will get reshuffled. The only assets that will be worth anything in most of the world will be the useful knowledge people have between their ears and their links to a strong community.
And when the dust settles, the world will go on. It has done so many times before. It will do so again.
Daedalus
Not sure if you are aware that social security (and federal retiree’s) cost-of-living-adjustments (COLA’s) are already indexed lower than straight inflation. If inflation exceeds 2% of the matching quarter from the preceding year, the COLA adjustment is reduced by 1%. Below a 2% increase, I believe the COLA is a match for actual inflation
A Nobody: “Now ask me how much of that is politically possible.”
Exactly. It’s not possible with all the obstacles in the way. The obstacles must be removed.
Leo Linbeck III: “No more Ruling Club. Break it.
No more Washington monopoly. Bust it.
No more atrophied body politic. Build it.”
Compact, condensed, easy to handle and manuever… beautiful, Leo!
Nobody, you propose the smooth the inner cities turmoil. I would instead propose to let the rotten edifice burn, figuratively and literaly, a sort of Chicago fire on a national scale. Only when the vote gardens that are tended by your described “poverty pimps” are salted will Leo’s ruling club and Washington monopoly be broken, leaving room and sunlight for just, effective localized government to grow and begin rebuilding.
To build, you first have to clear the wilderness. For all you self-projecting “reasonable” people out there, it will be them or us before it’s done. The barbarians vs. the citizens, and just as ugly as any time in history it’s come to this stage. Just read any crime report, or watch the self-exhibits on youTube. These aren’t people who can be reasoned with on a good day. When they’re hungry, and cold and dispossesed of all the luxuries and toys the government has been providing, they’ll come to take them by force.
Save those you can, but you won’t be able to save the unwilling.
In the present scheme of things, Congress periodically must raise our national government debt limit, to allow the Treasury to sell ( cough, cough) more T bills to raise money. It’s currently projected to do this again around January.
All it takes is for one house to say NO.
Force the Federal government to live within it’s means by just saying NO.
Yep, the Pubs will be called Racists are all sorts of terrible things. The media will will go bat sh*t. But it can be done.
Germany temporarily saved the Euro by just saying NO, a few months ago when the Euro was diving for the bottom and written off. It can happen here.
Those elected to the House have the power to say NO. If they do, capital will flow to the US, and the dollar can be saved. The markets are looking to reward those nations who have a credible plan to claw their way out of this mess. Those with a credible plan that they execute, will survive, those who don’t, won’t.
What we have to remember is that the purpose of money isn’t to create wealth but transmit information. If it should turn out to be that the information being transmitted is false — these assets are not worth what is claimed, this labor was never done etc. — then problems start.
And the problems have started.
Solving them will require making sure money transmit accurate information. Those who are charged with defining what money means, however, have acquired wealth by having the money lie.
An important step in fixing our problems is replacing these people with honest ones.
Interesting times, interesting discussion! My friend survived the flying cans off the shelf in the Safeway store in downtown Anchorage during the 1964 earthquake. He remembered what one of his neighbors told him: “Every disaster is a new opportunity.” So he bought a house that went off its foundation during the earthquake for $4000, put the boiler back in the basement, and raised his family, and is still there today in SE Anchorage.
Like the changes done during a major earthquake, there are disasters, tragedies, and there are opportunities. The Federal Government has really mucked it up this time. They have spent themselves into a hole that they cannot get out of. When deep in a hole, stop digging, but this advice is ignored. If the Federal government cannot change its ways to meet the reality of the situation, it will eventually fail if its course is not radically altered. It is simply unsustainable.
If yo depend on the federal government, then you are in deep doo-doo. However there are opportunities for those with good minds and independent spirit. It is imperative that like minded people meet and work together for their common good. Trade and barter. Set up a parallel economy. Hell, the Soviet Union did it with 50% of the GDP sustaining the rest. Look at the illegals. A whole parallel economy running on illegal labor and the federal govt ignores it.
The right way to solve this problem is to change out the congress. Unfortunately, the half that does not pay taxes will refuse to go along. So we will have to go through things the hard way in order to possibly learn.
Anyway, enough of this rambling. My point is to do all you can do to save this constitutional republic. But you better make good contingency plans if the saving does not work. Talk to your fellow smart people and start working on things now.
We will be installing a sane government in stages. Right now, on a personal self defense move, it is probably time to buy gold and silver while they are still cheap.
The problem is really simple. We collectively (Americans and the West) have been “grasshoppers” thinking that summer is going to last forever instead of being “ants” preparing for winter. Well winter is fast approaching and the nest hasn’t been provisioned. The weak will be culled from the herd. No two ways around it. It will be brutal, nasty and very unpleasant. Reality is like the Terminator, it can’t be bargained with. But it does have one benefit: it does tend to focus the human mind. We collectively are going to have to get focused and serious about the challenges ahead.
Think I threw in enough metaphors there ^-^
Washington is a self-pimping spending addict.
The cure is always imposed from without.
The Fedsury is ALREADY printing half of Federal expenditures. It does this by stepping in at the Treasury auctions.
This is the First Financial World War. War has now evolved to the point that it is being fought with central banks and currency.
China has made as many errors as anyone else. They are no tower of strength.
Russia goes through the Kabuki of being an expansionary power, but lacks the young manpower to carry it off. ( Georgia )
The fundamental problem is that we all can’t be retired as early as we’d like. In Europe retirement ages for some employees are astonishingly low.
If you’re 50 you make claim a full pension from the French state railroad.
If you’re 40 you make retire with pension if you are a Greek hairdresser. ( All of that standing, you know. )
And, generally, the French work shorter weeks. 37.5 hours is typical duty at a big French corporation.
BTW, European states impose super-taxes upon wise guys working overtime. It’s not the money, it’s the overtime that’s penalized.
The progression is deflation then hyperinflation. There is no intermediate inflation step. Hyperinflation is currency rejection by the rest of the world.
Because of the unique status of the USA, the flip point should come later than prior hyperinflations.
Our politicians will make it come, none the less. Gross money printing to buy votes is a political act, and is anti-economic.
Summers is a savant idiot. Too much of what he knows to be true just isn’t so.
He’s confused the destruction of our manufacturing advantage with slack capacity. He keeps driving with his eyes on the rear view mirror.
This ultra-high tempo of Federal spending is necessarily taking resources away from private use for the purpose of re-election.
Spending IS taxation when the spender owns the money press. So taxes actually have exploded upward — and the general public is unaware of the fact.
Right now the tax is spread to anyone holding liquidity balances nominated in dollars.
Such an easy out is going to be abused by Congress until events take it over the cliff.
Washington is a self-pimping spending addict.
Detox must therefor hit those receiving the sugar the most. Obviously, that is the Leftist edifice. Big Mama is going to have her purse strings tied. The Drones are going to be de-hived.
von Spee ran out of fuel,
the feds have run out of
_wealth_ to confiscate;
Make more, by removing
all Federal regulation
of business, including
patent and copyright.
If there is any secret
tech at area 51, make
it public, now; National
Security is best served
by creating wealth.
Wretchard’s metaphor of trying to outrun your shadow is apt. Think Wile E. Coyote as he runs off the side of the mesa and runs in place in the air for a second or two until the immutable Law of Gravity kicks in and he splatters on the rocks below. Problem is Cousin Coyote gets back up without every bone in his body being fractured and resumes the hunt. We don’t have that option.
I had a thought yesterday of Linda McMahon getting elected Senator from Connecticut and during a joint session of congress, Pelosi getting up to lie and demagogue and McMahon running on stage to body slam her off the turnstile. It grows weirder by the day.
http://www.youtube.com/watch?v=UVQKiqCZ9No
Dennis,
No, I didn’t know that. I don’t know much about social security except not to count on it. But that would be largely irrelevant to the point I was trying to make, we really can’t inflate away that SS liability. If inflation is 12% (and you’re right, the COLA is 1% less) the payments are still going up 11% a year. The inflation can’t make much of a dent in it.
Daedalus Mugged
I’ve noticed that any time someone talks about cutting spending, they never mention foreign aide. How much can we save by eliminating foreign aide to people that hate us, and withdrawing from the U.N.?
My granny used to say “Charity begins at home.” Lets quit giving money to people that don’t appreciate it, and use it to pay down some of this debt? Along with the other cost cutting measures being suggested on all side.
The ONLY math that corrects Social Security — and all of the other pensions — is lifting the retirement age.
Means testing does not come close to solving it.
The ratio of payers to retirees must be lifted. That can only be done by delaying retirement.
Every day of delay compounds the nightmare.
Shifting it from 65 to 70, both here, Europe and Japan would do wonders for government solvency.
What is obvious to an actuary is unbearable to all politicians.
BTW, 67 year-olds do NOT compete with teenagers for jobs. Walmart won’t use teenagers as greeters and McDonalds won’t use 68 year-olds to cook.
—–
I believe we will see import tariffs by 2011. The entire first world will want to stem the flow of slave-made imports from the PLA forced-labor factories.
Moderate tariffs should cause moderate effects. As it stands, China is cheating the system blind by stealing trade secrets from everyone. Even the Russians have woken up!
China should be kicked out of the WTO: she’s a fraud.
#64, since most foreign aid does the people of the recipient nations more harm than good, most of it should be cut. I don’t think it’ll add up to a significant fraction of the budget, but even so.
The UN, certainly, it’s a cesspool of corruption.
Long term, the 16th Amendment (Income tax) has to go. In addition to allowing the Income Tax, it permits the Federal Government to spend the money without apportionment, i.e., redistribute the wealth.
Walterc…
Every dollar of foreign aid normally carries the stipulation that it can only be spent on American exports, services, or salaries.
Don’t think Congress is going to let foreigners more control than an American State.
When Israel wanted to buy German diesel-electric subs for her navy with American military aid we squared the circle by buying majority control of the German shipyard. Its stock is tightly held, BTW.
In any event, the amount of money spent on foreign aid is pretty trivial compared to our troubles.
Focusing on it would stop us from addressing our real problem: we’re getting older.
O/T
72 dead illegals in Mexico murdered by Zeta coyotes. Interestingly some were from Brazil and some were from Ecuador. 5 years ago Guatemalians and indios from Chiapas started coming, now it is the bottom of South America. What’s next, Antarcticans?
Richard Fernandez is a treasure. In baseball parlance, he “brings it,” day after day after day. He is man of great humanity and truly astounding intellect and wisdom. Simply amazing; and, along with Mark Steyn, the best of our public intellectuals. I’m not fond of the term “public intellectual,” but I’m using it here for want of something better. I’m open to suggestions. In the meantime, I repeat, with pleasure: Richard Fernandez is simply amazing.
Roughcoat: Hear, hear!!
I’m assuming the title should read “Fair to sea yet doomed to die”?
“Reality is that which, when you stop believing in it, doesn’t go away.” – Philip K. Dick
The truth of this statement has not yet penetrated the exceedingly thick craniums of the Democrats and political left.
Barack Hussein Obama is compounding the financial problems he has created.
Wrechard’s “Balance Sheet” shows mounting liabilities in bailouts, 0bamacare, useless cap and trade policies causes investors to pull money out of the USA.
Nobody wants to invest in a bank that constantly loans one’s money out knowing it will never be repaid. Barack Hussein Obama is the bank manager who doing just that. Worse, the Barack has never had an honest job in his life – and most people would never deposit money in a bank with this type of manager.
With ever increasing bad loans comes ever increasing withdraws. The thing spirals to the ground and crashes in flames.
The whole situation must be reversed. It starts at the top. Barack Hussein Obama should be the very first person to accept 35% pay cut. The next people taking pay cuts should be his staff. Then, the entire House and Senate take the same pay cuts. Then continue cutting salaries down the tree.
At some point people will realize that there is a sense of financial responsibility in DC. At that point investor will return.
The financial system will be recapitalized even if it requires disbanding the EPA and 0bamacare. Once the waste and cronyism is excised investors will return.
Barack Obama is compounding the financial problems he has created.
Wrechard’s “Balance Sheet” shows mounting liabilities in bailouts, 0bamacare, useless cap and trade policies causes investors to pull money out of the USA.
Nobody wants to invest in a bank that constantly loans one’s money out knowing it will never be repaid. Barack Obama is the bank manager who doing just that. Worse, the Barack has never had an honest job in his life – and most people would never deposit money in a bank with this type of manager.
With ever increasing bad loans comes ever increasing withdraws. The thing spirals to the ground and crashes in flames.
The whole situation must be reversed. It starts at the top. Barack Obama should be the very first person to accept 35% pay cut. The next people taking pay cuts should be his staff. Then, the entire House and Senate take the same pay cuts. Then continue cutting salaries down the tree.
At some point people will realize that there is a sense of financial responsibility in DC. At that point investor will return.
The financial system will be recapitalized even if it requires disbanding the EPA and 0bamacare. Once the waste and cronyism is excised investors will return.
Disregard the duplicate post.
ALL budgets are done in arrears using ONLY the funds collected the year before.
Which means, Skip, the feds have to live on a mere $2.5 trillion. That actually still buys a lot of government, but it’s certainly a good start, and may have to be a realistic benchmark when all things are considered. The big government of the recent past did splendidly on that amount.
What is ironic is: if the budget were wrestled back down to $2.5 trillion with little or no deficit, the economy is likely to rebound sufficiently to generate even more federal revenue, like $3 trillion, with no tax increases. That’s where Americans will start to go nuts again, unless we have mechanisms to deal with surpluses. At a minimum, a surplus situation — either two years in a row with surpluses, or a percentage in surplus, or something like one of those — should trigger a requirement for Congress to lower taxes. States should give themselves similar requirements and mechanisms.
One of the most insidious things about prosperity is that government becomes prosperous as well, and both the people and the government start wanting more government largesse. No thought is ever given to the possibility of lean times coming back. We might want to enshrine the secular equivalent of Joseph’s admonition to the Pharaoh in the Constitution.
What’s next, Antarcticans?
Penguins would make for splendid maitre d’s since they’re already dressed for the job.
Leo Linbeck III:
“No more Ruling Club. Break it.
No more Washington monopoly. Bust it.
No more atrophied body politic. Build it.”
Compact, condensed, easy to handle and manuever… beautiful, Leo!
Yes, but never underestimate the left, which employs the same language. ACORN has been at work breaking the Ruling Club for decades. This is why Wretchard said that “when heading into discontinuities two things count. A lot of connections and a collection of contingency memes.” The non-left needs a cache of reality-based memes that will allow the non-left to control the terms of cultural debate.
The hypocrisy of the left is stunning. The left says it wants sustainability and equality but has mortgaged its children’s future. The professional left doesn’t care about the future, of course, only power, now. But the left’s coney-like fellow travelers probably really do believe all the rhetoric about “living for the seven generations,” etc., and they now are seeing, if they have eyes to see, that they have not been able to live sustainably for even one generation. These liberal fellow travelers, the ones with good intentions and children and grandchildren to consider, are the ones that need to join the groundswell needed to begin preparing for a future that is truly sustainable. They are still preaching Paul Krugman at me, however, so I’m not hopeful.
blert
“And, generally, the French work shorter weeks. 37.5 hours is typical duty at a big French corporation.”
hmm this is the official statment, but in reality workers make up to 40 and 42 hours in smalll and average enterprises, the big enterprises uselly don’t, but they get so many advantages elsewhere.
“BTW, European states impose super-taxes upon wise guys working overtime. It’s not the money, it’s the overtime that’s penalized.”
hmm, not in France since Sarkozy got elected, there isn’t any taxes on extra hours up to 40 (I believe, not sure up to 42)
“If you’re 50 you make claim a full pension from the French state railroad.”
well only the TGV drivers, though I think it was rather 52, anyway, all these particularities dated from the times when drivers had to fill the locomotives with Coal, this is a obsolete advantage that the unions try to preserve, but, as the french railways must open to the EU concurrence, this habit is going to disappear
“Germany temporarily saved the Euro by just saying NO, a few months ago when the Euro was diving for the bottom and written off. It can happen here. ”
NO, the euro is still under attack through Ireland, besides german banks are the less well capitalised (they didn’t clear up their bad investments into american housing bubble crisis from 2008), though they were betting against the euro, to fill their accountswhile swearing to ban short sellings
I hate to be negative but there may not be a solution. Macro economically we will see only decline and then more decline until it gets so bad that a new movement featuring individual sovereignty, freedom and responsibility may come once again (looks like our first try is falling to the forces of collectivism).
The problem is that everyone tries to exploit the overall situation to their personal advantage. But unlike with free capitalism you don’t need to be productive to compete in this new “Progressive” world. In fact you can easily come to the conclusion that it is a waste of your time to work hard, be responsible, provide services or produce goods – when there are so many others positioning themselves or creating new schemes to take it away from you without producing anything you want in exchange.
Progressives are creating their own version of the “The Tragedy of the Commons” but also setting up a power structure where some have more control over the common resource than others. Too many people will rush to get on the “winning” side before they will support any change.
However, Americans will rise up and fight once they see something clearly. That’s why perhaps articles like this one that simply “describe” are very useful.
Mike G. writes: “Progressives are creating their own version of the “The Tragedy of the Commons” but also setting up a power structure where some have more control over the common resource than others. Too many people will rush to get on the “winning” side before they will support any change.”
Great post.
Aardvark, unfortunately many of the progressives that I know don’t have any
children, so I don’t know that they can really feel that argument like those of
us who do.
The problem here is no one (RIGHT OR LEFT) is truly willing to accept what it is going to cost to fix this problem.
Worst and first cost – FREEDOM.
We will all have to die younger, pay more taxes, receive less benefits, have a far less comfortable lifestyle due to cost and, in the end ,the stupidity of all of the greed and unrealistic viewpoints, media hyping idiocy, lack of education and unwillingness to even open people’s eyes will result in a civil war that will kill millions and leave this country in a vastly reduced state.
Can we find our way back as a nation? Maybe…but we aren’t the people who will do so.
A future generation of hardened, fearsome, self-reliant, common-sense, ruthless, younger adults who look to no one but themselves for survival are generous with worthy neighbors but harsh with the lazy or corrupt will rebuild this country on the ashes of today.
People from the “Hang-em high” sort of folks that used to populate the West – pioneers and workers and folks with dirty fingernails and clean consciences.
We, the today we, are doomed and damned.
an add-on to salt lick,#42: First of all, I have high regard for the US Armed Forces. But one should not “go gentle into that good,sweet night”. I heard many years ago from a SF Vet of Nam: “we trained the locals in the front-line base how to defend themselves in a fire-fight, but among “us” [i.e. the SF instructors] we all new the secret escape route if the sh_t hit the fan, and we used it.
In order for the Left to continue sucker on their supporters, two things -
(1) You are entitled to some wonderful benefits;
and
(2) It is FREE of charge to you, some other suckers are going to pay for it.
We may be starting to see some (emphasis on only some) waking up to the unpleasant realities, but what they will do and if they can handle the information is yet to be seen. We definitely need to do a much better job at educating people who have different views than ours about the no free lunch lesson.
Marie Claude, my point was that the Germans’ opposition to a cycle of European bailouts largely funded by Germans combined with a small amount of spending restraint was sufficient to “temporarily” stop the slide of the Euro towards collapse many at the time feared. Key word ‘temporarily”. The point was to show that even a small amount of comparative fiscal sanity will attract international capital because the economies of all the major economic players are in deep trouble due to rampant over leveraging and over spending. Government fiscal sanity has become a scarce commodity.
You are most correct that the underlying causes of European financial woes have not been sufficiently addressed. The European banks are in even worse shape than their American counterparts, and that is saying something.
69. Steven Weingartner (aka “Roughcoat”)
Here is one from the ages;
chrysostom
In the debased Latin/Greek used in the twilight of the Roman Empire (Early Eastern Period) it means ‘golden mouth’. Referring to speech making. Or preaching. Not sure if St. John Chrysostom got his name there or if his name entered the lexicon because of his speech making ability.
“Focusing on it would stop us from addressing our real problem: we’re getting older.”
Considering the alternative, I look forward to that problem. I hope it plagues you for many a year to come.
Now of all of Fancy Nancy’s problem, I think that is the one she needs to address first.
Very grim prognosis. I guess suicide may be the voice of the American people, circa 2010. If not, then the conservatives will have to perform mass grassroots surgery, and sacrifice, and learn economics as well.
I skimmed a dozen posts. Very scary.
Aardvark @78,
ACORN has been at work breaking the Ruling Club for decades.
Not sure I agree with this statement. ACORN didn’t want to break the Ruling Club; it wanted to join the Ruling Club. Or, more precisely, it wanted to feast on the scraps that fell from the table of the Ruling Club by performing the ritual butchery necessary to keep the members fed. Unclean, perhaps, but useful to their betters.
There is a difference between wanting to use the ring of power for your own purposes, and wanting to destroy it. ACORN would never destroy its precious. Not like those tricksey patriots…
Cheers,
L3
Lots of good ideas. I’ll summarize, and throw in a couple more.
+++
These assume that the Republicans take the House and make inroads in the Senate in November:
(1) Defund the federal government agencies, excepting only the military, across the board by 10% in 2011.
(2) Pass legislation declaring a 2 year payroll tax and 2 year corporate income tax holiday. Inform Obeyme that if he vetoes the legislation, the federal agencies (EPA, DoE, DoA, etc.) will all be defunded another 10% for a total of 20% defunding — and he will have to manage the layoffs and pay cuts. My guess is he will sign. At which point corporations have a reason to start hiring again — without more jobs nothing else will solve it.
(3) Raise the eligibility retirement age for Social Security by 6 months every year until it reaches 75, then stop. However, first raise it to 70 in 2011.
(4) Legislate that no Social Security funds will be available to non-citizens, period, as of 2011.
(5) Defund Obamacare, and legislatively remove it (Obeyme won’t sign, but fine, being unfunded it can’t go into effect and he will be gone in 2012, and the next President can sign it — and it becomes a great campaign message against the Democrats).
(6) Legislate that all long distance (assume this to be defined as 50K miles per year) road freight traffic must convert to run on natural gas by 2017. That’s all 18 wheelers and many of the high usage (FedEx, UPS, local delivery service) vehicles. This will reduce our demand on oil sharply, with two strategic benefits: (a) natural gas is cheap and we produce it domestically and (b) we will reduce oil imports enough that we should be able to get by with only importing from this hemisphere (goodbye House of Saud).
(7) Legislatively overturn EPA mandates on nuclear power and declare that the Federal government will cover all insurance risk for the next 100 nuclear power plants built, and that for every nuclear power plant brought online before 2018 the Federal government will pay the operating company ONE BILLION DOLLARS in gold. Simultaneously inform the EPA that if they obstruct this at all they will be defunded by 50%. Advantage — nuclear power plant construction employs a LOT of people — and a lot of blue collar and union work. Electricians, metal work, pipe fitters, concrete work, roads, building, you name it. Lots of jobs would be created AND due to NERC requirements none of them would be illegals OR foreign contractors. And operating the plants would permit retiring the coal fired plants, thus actually cleaning up the environment. Everyone wins.
The above is the 7 point SunSword plan to getting the debt cut, reducing the size of the federal government, dealing with the Social Security problem, cutting down Obamacare, and cranking employment by cutting corporate taxes and payroll taxes while building nuke plants (and cleaning the environment by retiring coal fired plants), AND cutting our dependence on foreign oil while increasing usage of domestic natural gas (also leading to more jobs).
+++
There are ways forward, ways toward real abundance and prosperity, and even without significant sacrifice. All the lessons lie in the past. We could, but are not, going to do that without living some hard lessons first, and in truth that would be like giving the student the answer to the math homework. Nothing is learned, so nothing can be applied.
It is also possible that nothing will be learned even in disaster except that which brings further disaster. We did that in 1933, and even re-elected that party.
What could be worse or more ridiculous than Germany in the great inflation? But Germans did not starve, and came to prosper before other Europeans even while still saddled with the Weimar Republic, followed by that great economic genius Adolf Hitler.
This will be very unpredictable, for better or for worse.
SunSword at 92
Great suggestions to start a truly constructive discussion of what is needed and what is possible. I’d add one more suggestion to your list. Pass a Tobin Tax to raise revenues so as to balance the budget as quickly as possible. That will give some confidence that the debt might actually be paid off at some distant time.
The beauty of a Tobin Tax properly structured is that it collects the bulk of the money from those who both caused and benefited from the 2008 meltdown, the banks and trading houses that escalated our growing debt crisis by leaps and bounds.
Here’s a link to find out about this suggestion: http://tarpley.net/2010/03/16/tobin-tax-wall-street-sales-tax/.
I may not understand it as fully as I should but it seems like it’s pointed in the right direction.
SunSword,
> Simultaneously inform the EPA that if they obstruct [nuclear power plants] at
> all they will be defunded by 50%.
OK, but don’t forget due process for the watermelon groups who will constantly sue under all conceivable pretexts to obstruct construction of the plants.
SunSword @92 and Kinuachdrach @52 identify a problem but see a different outcome. SunSword thinks we can cut all spending except the military. Kinuachdrach sees, correctly in my view, that the more likely outcome will be to start the cuts with the military. That is already starting to happen with the F-22 and the Navy. Perhaps this is part of the Administration’s stealth agenda — that is to so ruin the economy that drastic cuts in the military will seem to be the quickest way to help the budget. Of course, this would embolden all the bad guys to plunder when the sheriff (that’s us folks) can’t afford to buy bullets.
This reminds me of my favorite Soviet era joke:
The husband was unemployed so when his wife went to work he was asked to do the shopping for the week’s meat. He went to store after store, waiting hours in line, but there was no meat to be found. Finally, at dusk, he located one small butcher shop. There was a remnant of a salami hanging on a hook, full of mold. Frustrated and exhausted he shouted, “Communism is a fraud. All we do is wait in lines and then end up with no meat!!!”
Suddenly he was tapped on the shoulder by an Army officer. “Comrade, come with me,” Shaking, the man was lead into the alley behind the shop. “You know, comrade, in the old days I would have had you shot on the spot. But we are trying to reform the country now, so I will let you off with a warning.”
Trembling, he ran home. As he walked through the door his wife noticed he had no packages. “Are they out of meat again?” she asked. “It’s even worse,” he declared. “They’ve run out of bullets.”
Regarding hyperinflation, how many of you think that default is a more probable outcome than hyperinflation? And which one would be worse in the short run, and then in the long run?
Batman, by some scenarios, a default is the most likely cause of hyperinflation, not runaway inflation in the normal sense. In the default scenario, the default causes the value and the faith in the currency to collapse, and as a result, the cost of everything skyrockets because the currency is rendered near worthless.
Printing press in hand, there is no way, ever, that the Fedsury will classically default — like some individual skipping credit card payments.
As the Continental Congress, and the Confederacy have shown, the printer runs and runs and runs, until the futility of further printing in unavoidable.
Somewhere out there, $100,000,000,000,000 notes from Zimbabwe exist. Only when the process reached a need for exponential notation did the German pressmen object. ( I rather suspect Mugabe couldn’t pay the printer in real fiat money. )
Lincoln’s Greenbacks are the only known case of directly printed money being made good. Gold and silver byway of the West did the trick. In fact, so much silver was found that the prior norm of 16:1 by weight value difference slid to 32:1. The silver miners were furious when the US Government abandoned the Constitution — without amendment — and shifted away from the Silver Standard to the Gold Standard. The British Empire, the trading colossus of the time was hitting gold all over the place: Australia, Canada and later South Africa. So she went off the Silver Standard and on to Gold.
( A Pound Stirling = a pound of stirling silver – troy – back in the day. A Scottish Pound also circulated — but not as well.)
ALL of the big empires of history were on the SILVER Standard: Rome, China, India, Spain, England, Holy Roman, America until 1873, etc.
Gold simply was too rare for daily trade items. A single gram is worth dozens of eggs.
Now it is true that Attila demanded gold, silver was tough on brigands riding horse.
It is also true that gold was used between the princes and nobility. They really had concentrated wealth.
But payrolls and public budgets were always expressed as silver specie. When the emperor wanted to print more money he debased the silver content. At one point, the denarius was merely dipped in silver for a flash coat.
The Morgan Silver Dollar was created to satisfy Western mining interests. Rather like a farm subsidy, the Mint was required to buy silver in the open market at a premium, if necessary, to coin massive runs of Morgan Dollars. These were bagged and banked, sitting idle for decades at a stretch.
Also, at this time, the US Government retired millions of dollars of Greenbacks and then, finally made Greenbacks directly convertible into gold specie. Once the law took affect, very few notes were redeemed. The standing offer had made the Greenback as good as gold.
——
Unless gold strikes a thousand times richer than California-Nevada pop-up in a hurry, there can be no prospect of FRNs ever being backed by specie of any kind.
Ben is just spiraling the drain. He can’t fix the Federal budget. All he can do is ratify the Pelosi-Obama excess express.
BTW, it is NOT true that the cost of everything is going up in hyperinflation.
It’s the currency that is collapsing!
The classic example is Weimar Marks for bread. The American wheat export market actually had steady to falling wheat prices in real terms. For Germans, destruction of their legal tender by their own government made it impossible for the middle class to function and reduced all of society to extremis.
For those in a position to stay on the wave hyperinflation can be a boon.
Such individuals have ready access to foreign currency, or…
Directly mine gold, silver, copper, or…
Farm, or…
Create and distribute food, or…
Provide critical services, or…
Have overseas assets, or…
Owe a ton of money, or…
You get the idea. You want to be above, outside or against the currency; which is kind of where Ben Benanke is.
Any wage slave is dead meat.
Any small business is dead meat if they extend trade credit.
Most pensioners are left starving. ( Russia, Weimar Republic, Argentina, et. al.)
Union employees can never renegotiate fast enough to stay ahead of hyperinflation.
Critical businesses that can make it through:
Utilities ( the more indebted they are the better )
( Of note Gates and Buffett are BIG utilities investors right now. )
Any business that ‘rents’ space short term and borrows long term:
Bowling alleys
Equipment rental
Mini-warehouses
Golf courses
Cold storage for food merchants
Some operations win huge on their debt but suffer operationally
Airlines
Motels
Hotels
Major commercial landlords
Huge beat downs for companies that ‘sell toys’
Apple
Microsoft
RIMM
Cash horde becomes trash and sales collapse…
For those lending long and borrowing short — total implosion:
Auto finance arms
Banks
Credit card issuers implode as they are unable to keep interest rates moving fast enough to stay up with the tempo during the run-away stage.
All in all, amazing things happen in hyper-inflation.
Of course, Japan, Britain, China, Taiwan all take huge beat-downs on their US Treasuries. These are positions so huge no counter-party can hedge them.
Pat @ 72:
What a joy to see you back! One doc to another.
Blert (#100),
Thanks! That is a very interesting thought experiment. Fore-warned is fore-armed.
Any others want to take a stab at “the best portfolio of the future”?
Maybe Belmont Club can make us rich!
M
As hyperinflation gets going, some dead ducks will float to life.
Companies in Chapter 11 that are over capitalized with debt can come flying back to health. This is a bad social outcome, but it will happen in hyperinflation.
Transit systems across the land will find themselves becoming debt free while ridership from the destitute is strong and rising. Their unions will become testy as wage rates just never quite keep up. Their ticket machines will be replaced by clerks since there is no way that they can scale up to the shattered currency.
Anyone closer to the currency teat will sustain a leap on the rest. This means that government contractors and the banks will get real healthy at the expense of everyone else. This is at the heart of Ben Bernanke’s strategy.
The banks screw up along with government so the both of them get the wealth from everyone else. The staggering magnitude of their error is so great that papering over it must destroy the currency.
That Iran, Russia, China, et.al. are fleeing the US Dollar is apparent. What bothers China is how to get out of her existing positions before all value is destroyed. As a first step she is getting out of dollarization. By 2011 one should expect that the bulk of her trade is in her own currency. Further, she may well decide to jump onto the gold standard FIRST.
China is the low cost producer virtually across the board. She is the world’s number one gold producer. She is still in a position to trade USD for gold, silver and copper at prices that will look very favorable not so far down the road.
If China were to jump to the gold standard, it would likely force Russia to follow suit. Russia is a top gold producer, particularly when compared to her trade flows. Shifting out of ZIRP dollars into ZIRP gold has to look pretty risk free from Moscow.
What increased demand kicks in for gold has to be as sweet as oil exports.
Kicking the USD off its International Money perch would delight Moscow, Beijing and Tehran.
(If Alexander hadn’t made off with Darius III’s gold horde Iran would be even better set.)
At some point there must be a run on the silver and gold merchants holding un-allocated bullion. All indicators point to fractional bullion reserves. In the case of silver no central bank anywhere has any meaningful amount to swap. Hence, the crisis must start with silver delivery.
It is already public news that the US Mint cannot met demand for bullion coins with domestic silver production. By law, the Mint is restricted to such metal. Canadian production of bullion coins is rocketing out the door. Like the Americans, Canada assures all buyers that her coinage comes from domestic production. It’s a good thing she produces a lot. ( This assurance was a marketing ploy to get the Maple Leaf going in competition with the Krugerrand bullion coins out of apartheid South Africa.)
The silver shorts are massively concentrated in banks that are too big to fail. So one can only conclude that today’s price in the pit is a massively distorted ( to the downside ) value.
Should specie come back into use, the demand for silver is going to explode. It is trading at the lowest level versus gold in about all history. ( 70:1 plus or minus )
A rising silver price would be a boon to Mexico. Her mountains are glutted with it. Right now, silver is valued so low that it is almost always a byproduct of lead-zinc mining. That’s peculiar right there.
For either traditional money-metal the amount available above ground is stunningly trivial compared to the amount of fiat currency.
As the Lincoln Greenback proved, paper money will be preferred for transactions. BUT, the citizens need the assurance that their governments will not debase such money to feed their own vote chasing urges.
The very essence of hidden debasement is absolutism. The powers that be can’t face the nation with taxes equal to their spending impulses. So they use this mechanism to bypass House spending resolutions and controls. It’s a TAX when the currency is debased by fiat printing. It’s SPENDING when the Fed uses its power to shunt the funds without Congressional authorization towards players the FED feels should benefit.
Batman, Blert, here ‘s a post at Zerohedge on a dollar collapse and hyperinflation:
http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen
#32 – Walt
“When the dollar is no longer the world’s reserve currency China will no longer buy our Treasury bills. What happens when China demands hard currency for the trillions of dollars in US treasuries it already owns?”
A guess. China takes Alaska and/or the California coastline for its oil reserves (who wants the state, really). We’ll be in no position to bargain.
China will do what the US Government did with Weimar currency: eat the loss.
We’re a sovereign. They just get stuck for their losses.
THEY”RE in no position to bargain.
Eliminate all corporate taxes. If you want jobs here you have to attract them. If corporations succeed we will all succeed. Besides all taxes that businesses pay are simply passed on to the consumer.
Eliminate all non-constitutionally required departments of the federal government. That would ba almost all of them. And don’t just move the people around in new jobs actually fire them. This would cut government spending by about 1/4th.
Seperate SS from the federal government and from congress. Require that it use standard accounting principles and that your payout be a reflection of what you paid in not what congress gave you so you would vote for them. Turn it into an actual retirement system not a welfare system
Eliminate federal welfare. Do it over 10 months. Fire everyone who works in the system and send a letter to all recipients telling them their benefits will be reduced by 10% each month for 10 months after which they are responsible for themselves. Good luck.
Restore our military to 2 million in uniform. We have been short changing the prime constitutional duty of the federal government.
declare a federal emergency on our borders. Apppoint a qualified general to seal off the Southern border and provide enough men both military and border patrol to do the job. Success would be zero illegal aliens crossing into the U.S. and zero drugs as well.
Actually do something about the illegal alien problem! First make it a felony to enter or stay in our country illegally. Tell the every federal, state and local government entity that they MUST identify and deport illegals where ever they are found. Require hospitals to notify law enforcement when a illegal shows up needing care. Test the 14th amendment. It was never intended to reward illegals for pushing out anchor babies. If the Supreme court declares that was the intent then so be it but the parents and other siblings must go. They would have the option of taking little anchor baby with them or making other arrangements.
Blert; Once we are knew deep in this depression the U.S. government will make private ownership of gold and silver illegal and you will be required to sell it to them at a price they set and that will not be the price you think it is worth. Having your investments in another country in an attempt to avoid devaluation of your own currency assumes that this is going to be a U.S. only depression. I don’t think that is a safe bet. Canada and Australia are resource rich and have small populations so they “might” avoid the worst of it and their currencies “might” avoid devaluation. But on the other hand they lean to the Socialist side in their governments and they require large amounts of income to keep their welfare state solvent. If other countries slow their purchases of resources from them their systems may well collapse.
Silver confiscation is unknown in history. Imagine the impracticalities.
Government: “We must confiscate your wedding gifts, necklaces, earings, and trophies.”
Overseas investments would typically mean mining operations, oil producers, grain exporters.
Holding any fiat currency, per se, is not an investment in this climate.
The essence of bullion coin ownership is the reality that — as yet — there is no paper trail exposing American purchases of Maple Leafs during their visit to Vancouver, Toronto or Montreal.
What is interesting is the absolute explosion of bullion silver demand by retail accounts. Only silver is practical as a medium for ordinary exchange. Even back in the gold era the specie stayed in the bank. Only trivial amounts crossed palms. That’s why collectable specie is so unworn versus the same age silver coins.
Try and find an unworn dime or quarter from the 19th Century. It’s tough. By comparison, Morgan Silver Dollars stayed in the Mint bag. A single dollar represented too much value for most transactions. ( Forget the Hollywood movie prices like a dollar for a drink. c.f. Once Upon a Time in the West)
Six bits would be a day’s wage for an adult farm hand at hard labor. ( $0.75 )
At the end of the trail a cowhand would get maybe $ 50 to 70 dollars for months of work.
That may seem low. When converted to gold it puts their wage to less than an troy ounce per month. So incomes have risen, but not as much as you might think – -if you price things in gold.