Show-Stoppers; Part 3
Good Morning all you independent minds out there, your King of Simple News is on the air.
In yesterday’s comments, Clyde B made a statement that I had never really considered. Have you ever had something right in front of you for years and suddenly there it was in clear view for the first time? That is what Clyde’s statement did for me.
Here is what Clyde B said, “One of the most puzzling and perplexing thoughts coming out of this whole insane cap and trade tax increase scheme that the House passed Friday, is that our leadership is no less gullible when listening to the so called scientists decrying ‘global warming’ as they are the economists when describing the need for economic growth.”
Exactly Clyde! We know with great mathematical certainty that exponential growth will destroy our planet and most of the people with it. And yet, our leadership promotes greater exponential growth with each waking hour!!
On the other hand, there has been great debate as to the cause of global warming and our leadership is on it like white on rice. The real irony in Obama’s global warming plan is that he has mandated that emissions be cut by 83% by the year 2050 while at the same time promoting exponential growth. No problem with that, Obama’s plan is a mortal cinch; we won’t have enough oil left on the planet in 2050 to create CO2! http://en.wikipedia.org/wiki/Hubbert_peak
Show-Stoppers!
By Mike Folkerth © 2009
DEBT:
Our skyrocketing National and personal debt levels did not begin their stellar climb in just the past few years. The last truly balanced budget came in the year 1969. Coincidently, or perhaps not such a coincident, in 1970, the United States hit peak domestic oil production (maximum oil production on American soil).
Since that pivotal year of 1970, our funded National Debt has climbed from around $371 Billion to some $11+ Trillion in early 2009. This is an increase in funded debt of more than 2964% over 39 years. That does not include Social Security, Medicare, government pensions, etc. that add some $53 Trillion in additional unfunded liability.
This also means that with the 1970 debt remaining as a constant, our National Debt has risen an average of 76% per year over that 39 year period. America hasn’t experienced real growth in our economy for years; we have instead, substituted real economic growth, with growth of government and growth of debt. We all understand how such a plan works out in our private lives.
In 1971, the U.S. was forced to abandon the gold standard forever. It was impossible to continue to back our exponential growth model with gold, therefore rather than admit that the U.S. had reached zenith for balanced growth and make the difficult, but necessary adjustments, the decision was made to back exponential growth with exponential debt which is backed by nothing more than our government’s ability to borrow and tax. In short, we began borrowing against the future; a classic Ponzi scheme.
I graciously thank babylontoday.com for the following charts. Please look at 1970 and you will gain great understanding for the true beginning of our current decline. A picture is worth a thousand words.
To demonstrate the insidious nature of exponential growth, in the first 204 years of our nation (1776 - 1970), there had been approximately $500 Billion issued in Fed M-3 money stock. While the Fed quit publishing M-3 values in February of 2006 (for obvious reasons), it is estimated that today there is approximately $12 TRILLON in M-3 money stock and counting!
M-3 money stock should not be confused with actual physical dollars in circulation, as the greatest share of the Federal Money Stock exists as credit and balance sheet entries only.
This may be a good time to consider just how much a Trillion dollars is. If you were to start counting at the rate of one dollar each second, and count continually night and day to a Trillion, it would require doing so for 32,000 years!
As late as 1980, America was the largest creditor nation on earth; today we are the largest debtor nation on earth. In 1980 our National Debt for the first 204 years as a nation had yet to eclipse the first Trillion dollars. Yet, in just the past 29 years, that debt has risen to more than $11 Trillion and is expected to double in the next eight years! This, my friends, is not the product of political persuasion, but is instead a real time and stark example of the long term consequences of a system that depended on exponential growth for our very survival. The exponential function is a worthy opponent.
Anything that can’t go on forever; doesn’t.
The question for this section is then, “If we were unable to collect sufficient taxes to pay our debts during the best economic years that this country has ever experienced, and if it were necessary to increase the federal debt by 2964% (in constant dollars) over the most recent past 39 banner years; how then in today’s world of foreign competition and diminishing resources could we possibly grow our economy to pay for the additional Trillions of debt that are accumulating annually?
Did no one really understand the consequences of massive personal and National Debt? Not hardly; a couple of our old friends, Tom and George, understood oh so well.
“No generation has a right to contract debts greater than can be paid off during the course of its own existence.” - George Washington to James Madison 1789
“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.” ― Thomas Jefferson
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We cannot eat debt. We cannot shelter ourselves with it, heal the sick with it, or even provide for our future with it. Debt serves no purpose but to divide our society by oppressing some and denying the liberties, equalities, and responsibilities of creation for most. The upper class owns these debts for the most part and profits by them. The lower class in a true sense owes the debts, created by the upper class and is forced to service them year by year. This is forced servitude that is contrary to our entire moral and political heritage. Our society will not survive the increasing economic and social crush of these debts. Our national debt does not provide national security, it guarantees the eventual disintegration of our nation. But will we force the upper class to halt the growth of debt? The answer is, no. The growth of debt will be disingaged however when the exponential function plays out. Many futile attempts to revive it will follow due to the ignorance of our population, to understand the very basic and very simple principals of exponential growth. -bb
There isn’t any reasonable explanation for what our government is doing until you realize why they are doing it..
It’s all short term.. To get them re-elected next term.. They have to respond to those who enable them to win the next election..
In a word, our government is working for Wall Street.. Only when I realize that, does it start to make sense..
Like Madoff’s Ponzi Scheme, they had hoped to correct their error.. Until they realize all is lost, then there is nothing to do, but keep treading water.. Until the end..
Like Madoff’s scheme, there is nothing left except to wait for it to collapse under it’s own weight.. The enslaving debt..
WmA..
Mike,
Thanks for the kind words.
BillyB,
I don’t see all debt as bad. Were it not for the ability to borrow, I probably would never have had a paid for home.
In my opinion, what makes debt bad is when it is not repaid, such as our borrow and spend government has been doing.
I worked for a large corportion that had enormous growth during the years before the Carter administration doing just what the gov’t. has been doing. Fortunately we stopped the practice before the massive inflation hit and drove the cost of capital through the roof.
Some Debt, such as the purchase of a house that you can afford without any creative financing is about the only good debt I can think of. Buying a $750,000 home on a yearly income of $28,000 does not qualify as good debt. A $80,000 fixed interest rate of 5.75% mortgage on a $100,000 home with $20,000 down payment does. Provided the home is in a good neighborhood and not grossly inflated and that you are making a good income.
Credit Card debt at a variable interest rate is not good debt. A car loan is not good debt because in both cases what you’ve bought is depreciating faster than the interest rate on the credit card or the car loan. Cash is king in both cases. With cash in hand you have the power to negotiate the sale price on most items or just walk away and visit the next store or dealership.
Unsecured debt is the devils playground.
Thanks for the comments. I took the day off and helped a friend pour concrete! More on that later.
Our monetary system and our physical system must balance. Once debt and the money supply exceeds the total value of the physical system, we have a condition referred in real life as bankruptcy. America is broke.
On the question of good debt and bad debt, I covered that question in some detail in my book.
We have lost yet another 467,000 jobs in June. Mr. Obama continued his, “It took years for this situation to materialize and it will take a while to get out of it.” In other words, “George did it.”
Between unemployed and discouraged workers, we now have 19.6 Million people without work. As jobs continue to be lost over the next year, Mr. Obama’s “George did it,” routine will wear thin. As the old boys down at the barber shop say, “That dog won’t hunt.”
Those who continue to cling to the political party solution will be sorely disappointed.
I wanted to share this article and video.
‘We’re in the Middle of a Crash’: Nassim Taleb
http://www.cnbc.com/id/31706523
There’s some interesting subject mater covered here.
George,
Note that Taleb is yet another “one trick pony.”
He talks about debt as being the largest problem, yet debt is man made and could be eliminated if absolutely necessary.
What he doesn’t talk about are the physical barriers. He wants the banks to own 70% of the home? They already own 125% of the value!
Why aren’t the people paying their mortgage? 20 Million people in the U.S. are unemployed. What would Taleb suggest that we do about that little inconvenience?
That is why I wrote Show-Stoppers. It is necessary to view the collective problem areas in one document, not viewed one at a time such Taleb and the others on the panel present them.
Thanks for the great example of those who seek out a single cause for all that ails us.
Mike,
Taleb did over focus on debt as it is, but one layer of a very smelly onion. He did make a couple of statements that did point at the jobs issue. But he more or less just touched the surface.
“You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that’s breaking,” Taleb said.
“We’re in the middle of a crash,” Taleb said. “So if I’m going to forecast something, it is that it’s going to get worse, not better.”
He shows signs of getting it, but then grabs on to debt like a pit-bull on a bone. Hooked on more of a symptom than a cause. But a symptom that makes the problem worse.
It’s a vicious circle:
1. Debt is incurred by companies to grow.
2. Debt is incurred by governments to grow.
3. Debt is incurred by people to buy everything they want.
4. Jobs are outsourced to China, India, and other cheep labor markets to help the over leveraged companies grow in a continued attempt to make a profit.
5. Laid off workers begin to default on their credit card debt, car loans, and home loans.
6. Along the line the price of oil, energy, and other finite resurrects double or triple in the span of weeks, if not days.
7. Governments go in to deeper debt in an attempt to bail out Wall Street and the Banks that are ‘Too Big to Fail’
8. Business that are over leveraged with too much debt go bankrupt or out of business all together.
9. More and more people are out of work with consumer debt growing out of control.
10. The federal government prints more money and goes deeper in debt, as state governments face bankruptcy and begin to issue IOUs.
11. All along the way the exponential function of debit, compounding interest, and depletion of finite resources eat away at us all like billions of parasites eating away at a cancer riddled host.
George,
Yep, Taleb never mentioned growth as the root problem.
He let on as if fixing the financial problems would lead us out of the wilderness…sure.
The list that you posted is a good one showing the progression of a failed growth system…to bad Obama doesn’t have such a list!
Taleb did make one important point, “government is only making the situation worse; they don’t seem to understand the problem.” Amen to that!