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The Dumbest, Richest Investor Around
The US Taxpayer has long been the dumbest, richest investor around. You know the kind – a little overweight, with cheery disposition, not understanding how he’s been “over-served” when in slurred speech he thanks the bar tender for the sales receipt on which he signs his name – plus adding a generous gratuity – for his “new good friends”.
The “diffuse interests” of the US taxpayer suggests that for all practical purposes, a very few ruling elite (elected and appointed officials) operate with little interference in controlling capital flows, selecting somewhat arbitrary “winner” and “loser” business sectors (and now individual “winner/loser” companies), and micro-managing industries in which the authorities have never worked and fundamentally do not understand. It’s an unrealistic assumption that the “average” person with a job, a family, and a “real” life is able to defend himself from the full-time professionals that have extensive resources and full-time attention that are intent upon betraying the public trust.
It wasn’t supposed to be this way: The US Government never before had this type of authority. The citizens never granted government these types of powers. The three branches were to serve as checks-and-balances on each other to protect the defenseless – the smallest minority -- the individual citizen.
We need not seek blame on conspiracies, nor sociopaths, nor narcissistic control freaks (though people conspire every day, and many individuals in power are shown to have impressive character flaws). Rather, never underestimate the impact of bad management; of clueless “leaders”; and of stupid people in large groups (in reference to economists and the US Congress).
The idea itself is ludicrous that the USA’s regulatory structure and budget can be trusted to 535 politicians in Congress (strike one), most of which are lawyers (strike two), and all of which are beholding to populist noise and their own image in the mirror (strike three). These people don’t understand the world and how it works. Sadly, the same can be said for most economists, who never saw the economic crisis coming, and afterwards assure us it’s not a big deal, because their prior blindness should be entirely understandable.
“Drinks for everyone” he’s happy to announce. (“If I get enough overtime next week, I’ll be able to cover this before the bill comes due next month,” he thinks to himself.)
Usurpation of power is fun, which is why it is practiced by all three branches of the US government. Who doesn’t love to spend other people’s money for charitable largess in his own name? What court doesn’t want to project its personal bias, laws be damned? What politician doesn’t want to promise the most things to the most people, even if it means exceeding his authority and the laws of math and physics? Don’t we all “deserve” a new car and dinner in a really nice restaurant?
Like celebrities that are never told “no”, this ruling class is comprised of teenagers who continue to stay out past curfew, performing increasingly outrageous neighborhood pranks, in search of true boundaries. Sadly, no authority is making efforts to establish boundaries, and the absence of consequences for decades has taken us far beyond the point-of-no-return.
Every country in the world has promised its citizens future services for which some unspecified third party will pay. Those services will never come.
He’s a happy drunk, and for much of the evening, quite amusing. “The life of the party” he reminds himself, as the rest of the room watches the painful display with amusement, and sometimes with cheers, and periodically with uncomfortable glances.
The US Government is bankrupt. Other large nations in Europe and Asia are even more bankrupt. The entire world banking system is bankrupt. Though everyone knows this, it is in no one’s best interest to say so. Thus, we all look away.
The fundamental problem is the illegal governmental accounting that pretends “cash flow” is the same thing as addressing liabilities. In reality, reserves are never created against liabilities. As long as we keep filling out credit card applications each month, we’ll be fine. For any business, or any individual, or any institution in the world (except for government), these practices would land you in jail.
Like “geologic time”, we now operate on a scale that is so big that the human brain was not designed to comprehend it. The implications are so unthinkable, that politicians and central banks all over the world continue to pretend to come up with “plans” to “fix” some ill-defined symptom with a non-specific target.
While simpletons may privately hope while publically deny their current plan to inflate our debts away, the world cannot borrow itself prosperity. It cannot drink itself sober. Alternatively, welfare states the world over have betrayed their populace with the promise of future services – pensions, medical care, and food stamps – which will never be fulfilled.
The math and demographics make it impossible, and inflation does nothing to provide these services (in fact, that sinister tax makes matters worse).
As the evening wears on and the novelty wears off, increasing moments of awkward silence do not go unnoticed. Even through his stupor he notices the abatement, and so gropes with ever more outrageous dance and gestures to revel yet again in former celebrity.
“We thought Social Security was bankrupt decades ago” the people reassure themselves, as if that alone is justification that it can continue a few decades more. No, it will not.
The jig is up. We only await the accountants, who apparently spent the evening in the toilet. We expect them back any time now, for the waiter has brought the check, and everyone is politely pretending to reach for their wallets, knowing they are empty, with the expectation (and hope) that someone else will grab the check first to pick up the tab.
There is no “someone” to pick up the tab.
Not an academic discussion, this final accounting is not ten years away. It will be addressed now, by the current generation. All debt that cannot be repaid will default, and these private and national debts cannot be repaid.
As 2009 closes with the commencement of “phase two” for the default cycle initiated in 2007, we will only see acceleration of this destruction. Curiously, people are not interested in hearing that the destruction actually occurred long ago – at present, we are only talking about correcting past accounting that was made in error. The loss was created when the document was originally signed. On the day of signing, the document was never worth the net-present-value that was claimed through bad math and even worse assumptions.
The evening wears down, and the others fetch their coats while giving wide berth to the slobbering man in the middle of the floor. While any of them could have called for him a cab, instead the night ends with the crowd filing out, one-by-one, pretending they don’t see him even as they step over the sprawling figure on their way to the door. Sadly, in his half-conscious state, he doesn’t even see them go.
He is to be pitied, really.
Not long from now people will wake up and ask the (terribly stupid) question, “Who could have known?” This will be followed with the even more stupid question, “Where did the money go?” Rather, like Madoff’s classic ponzi, everyone knew it was fraud because they were all in on the game; and the money is not to be found because it never existed. Sadly, those two points are so painful and difficult for people to hear, that they still don’t believe them long after the bubble burst.
None of this matters, because the system is coming down. It’s not ending because it is unjust, or because we don’t like it. Its termination is through the one thing politicians cannot control: math. We are at the end of an exponential progression that even now, the US Government officials and even most economists don’t understand and cannot repair.
The details exist to see and understand, but for the most part, politicians and the general populace don’t care enough to know them, and most economists hold a world view that makes them blind.
Perhaps the next system will be more respectful of individual rights and freedoms, which are ultimately based in property rights, for that defines limits on what an authority may usurp.
It is possible the drunk hit bottom that night, and returned to a life of moderation. It’s possible he’s so ingrained with his routine that you will see him back at that bar tonight, a bit worse for wear, leading the inevitable path to a failed liver, a shortened life, and a perpetual lethargy that denies him so many of life’s other joys.
Individual States will fail, and the US Federal Government will default. We will be in good company with nations around the world similarly defaulting. Baby boomers everywhere will come to understand the most elemental aspect of exponential progressions, and of misplaced faith in these frail institutions among men. Instead, people will increasingly look to their neighbors, because like Katrina, there’s no government not so bold as to arrive late with a great plan to make the problem worse and ensure more people suffer than any before previously thought possible. We are at least fortunate that we didn’t get as much government as we paid for.
“We want a solution that promises us no consequences!” all the people cry out, and the politicians are only too happy to oblige in a way that tortures the people all the more, fruitlessly attempting to hand off reckoning and liabilities to any non-voting demographic, and finally to the not-yet-born.
It is absolutely astounding that humans put up with this, but sadly, this is nothing new in terms of human history. Only the scale makes it more impressive.
“Mercy” is what we receive when we do not get what we deserve. Let none of us get what we deserve.
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Brilliant article. Kudos my friend.
Nailed it.
The pieces are in motion.
Great article! I might add that around my company there is this attitude that, "everything will work out OK, it always does." Then I tell them that even Rome fell...
All of the above, including the author, ignore the elephant in the room: No entity as diverse, as huge, as spread out, and culturally tossed 'salad'ified, as the United States can ever be run as the Founders envisioned, and enshrined it.
It is nearly impossible to operate a small state like Rhode Island without the eventual corruption, larceny, highway robbery, and venality of the political class for they are chosen from a people that is essentially corrupt. It almost makes an atheist believe in the myth of Original Sin: Man was born to be evil, bad and perverted.
How on earth did those vaunted founders ever think that a nation that would rapidly (relatively) grow to 400,000,000 people and counting, EVER be run but in the most abysmal fashion possible? The answer is: they didn't. Franklin himself said it. ".....if you can keep it."
China? Singapore? They both operate under Iron fisted despotic central control. That's the only way a nation of
more than 50 people can be run with any modicum of efficiency and even then you must pray for a benevolent dictator.
The experiment in republican democracy reached FAIL a long time ago. Now, as put above, the piper must be paid and that will, as above, be very painful for those who will have to make major adjustments, less so, the less adjustments and expectation deadfalls you have to endure.
Apparently it has. Now in the time of the internet, we should give democracy a chance. The further away from anarchy we pretend to be the more sustainable the system will be.
Democracy is mob rule. Democracy means I can do whatever I want, as long as I have more guys than you have. Democracy means that 51% of the people can take everything from the other 49%. Democracy means war.
The United States is a Republic that so respects the individual that it confers limited powers on government -- exactly so the individual cannot be oppressed by 51%, 80%, or 99%. This is the Constitution, followed quickly by the Bill of Rights.
Feudalism was sustainable for hundreds of years. Dictatorships are also highly sustainable -- and very efficient.
In contrast, the larger the state, the smaller the individual. The greatest atrocities in human history, about which we all flinch, is accomplished by children-with-character-flaws in charge of a very strong central government.
Are you sure? Either you have misused your tenses or just haven't been paying attention. These systems pretended to be very far from anarchy. If your point was that sustainability is not the only goal, then you are right. A government that comes as close as possible to having the maintainence and respect of contract law (property rights and other forms of the contract fall under this category) as it's main objective is the other goal. I believe democracy will achieve this best. Democracy will mean laws will be as simple as possible so everyone is able to understand them and vote on them. In a few instances there will be laws that might enduce summaries but there will never be one thousand pages bills passed, which I see as a part of the oppsetion equation that allows the very few to opperess the majority with the help of the government in our current system. Maybe some sort of limitations on wording will have to be passed, like a prohibition of numbers in the wording of a law. I anticipate a much smaller government with such a system. The number of laws will be much lower than today because there are very few things the majority will actually agree on. The only problem that I can anticipate with such a system is the increased power in the judicial branch of government, which will have to be much more complicated than the legistlature in order to interpret wording of the law. But yes....I realize that in a way this is mob rule I am proposing. But it is better than tyranny/oligarchy/technocracy that we have today in the form of a representative republic.mikla spaketh:
TumblingDice respondeth:
touché
<mikla searches for clever response ... fails to find one ...>
Oh, now that's clever: I did not consider that such a democracy would encourage the "de-lawyer-ification" of the legislative process. Interesting, and that's an idea I like.
IMHO it's a major problem that the current legislative process intentionally obfuscates issues with the words used. Commonly "voter initiatives" are mis-titled, or mis-phrased, so as to confuse the most people, and encourage passage of something the people would not want if they understood it. (Remember that in many states, the "Title Setting Board" comprised of political officials establishes the initiative's title, which is often used to influence the vote itself.)
We agree that thousand-page bills, multiple issues, and language used for confusion (not specificity) is a serious problem -- I'd like that reformed. However, the current "voter initiative" or "voter referendum" process is closer to a "Democracy-like" system, and IMHO, that system is screwed up almost as badly (but not quite) as the full legislative process.
For example, California's "voter initiative" process is a major reason for their impending bankruptcy -- their free-and-easy populist process made them a mess. (It didn't help that their elected officials are similarly gutless morons.)
I fear a new "Democracy-like" system may not fix that - ?
It is unfair to judge the merits of a more democratic process while it is a subsystem of an absurdly systemically corrupt and captured government. The nature of the monetary system California exists under was always going to lead to unsustainable debt that must be repaid with further debt. But beside that I think the democratic process in the state hasn't been as much of a failure as you contest, there were some good initiatives:
http://en.wikipedia.org/wiki/List_of_California_ballot_propositions
among the notable propositions is one that I think made a great deal of sense, the People's Initiative to Limit Property Taxation:
http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29
Ultimately, it is impossible to judge it in any sort of empirical manner because it has never been tried. I have posted an attempt at a rational evaluation in response to Shameful, a few posts above here, if you would like to explore that avenue.
Depends on your term of democracy, you mean a majority rule system. We kinda know that doesn't work without ground rules, otherwise the majority will vote itself goodies from the public coffers.
If we are starting off a new system why not let at least one place go anarcho-capitalist? I know at least a few people would like to have a go at that.
Anarcho-capitalism sounds good but I don't think it is practically possible or sustainable. I feel like the only system that has any chance of lasting and get closest to that goal is democracy. A democracy would not be able to help itself but have simple laws that people can vote on and seeing as most people cannot agree on most things there would be a minimal amount of laws. One thing that must be done, however, if such a system were to exist would be to prohibit numbers from legistlative text.
Democracy rolls into a dictatorship. If you can I would suggest Discourses on Livy by Machiavelli. Wrote about the problems of a pure democracy far before America and he saw the problems coming. Democracies are not sustainable because of human nature. If me and another person want to take goods and services from you and we out vote you we can, that is not fair or just, and we can do it under the cover of government.
Now I would agree that anarcho-capitalism is not for everyone, which is fine. I see it as a voluntary system anyway, take it or leave it. The problem we have is people want a government, but the main problem with government is you can't leave. Like if I own my property and want to opt out of the state and state services they won't let me. Instead they force me to go into the system and fight for my share of the pie, and indeed your share. Some people are better at fighting for this pie then others and will get more then their share, which is where injustices come in.
Personally I'm still a big fan of the Articles of Confederation, a small pathetically weak central gov. That is what is needed to keep tyranny at bay. To an extent states can be self regulated because should a state become to oppressive eventually people will leave. We see that now in CA, and NY. Taxes and regs have gone up and now people are starting to filter out of those states. However it's much harder to leave the US.
This is always a problem. We can only try to limit it. It boils down to the prisoner's dilemma in game theory. (I don't use game theory in any sort of practical sense because of it's foolish assumption, but I do see it as a good instrument for framing the problem.) There will always be short term views amongst people, and if you think in that time frame, the most rational thing to do would be to act against (and take) instead of to act with (and make). There is no escaping it. Pure anarchy, although it is tempting, will only exacerbate this problem since there will be no threat or punishment against violating property rights and contract law so the short term tendencies that would be suppressed under government would run amok.
It is a hard balance to strike in terms of having people cooperate and make things instead of defecting and trying to take something unearned via some sort of violation of property. In our world the latter is under display most obviously in the form of the government being a conduit in this looting. But on the other hypothetical side of this, there is also the looting that would occur in the context of a weak government that cannot properly enforce property rights.
I believe Democracy, in some sort of Constitutional form, would blend the private and public sector in such a manner that the looting would be open for all to see, and as a collective we can make the honest choice between striving for the short and the long term, instead of lying to ourselves as we are now.
PS If you seek a more free market system I would suggest either Korea or Hong Kong. In Korea the taxes and regulations are much lower (at a price of other freedoms, however, such as total control of the ms media). The garbage tax is a user tax: you can only use a certain kind of bag that costs extra to throw your garbage away... Many things make sense here.
I don't dispute your point. Rather, we can agree that no "perfect" system exists (albeit some systems are less perfect than others).
The assertion is simply that we are at the end-of-the-line. It was a good run. It's done now, and here's why. Amazingly, some people will be surprised by this. We shall now reset with a different system (no, for many reasons, it will not be the same system).
If you want deeper meaning and insight, then yes, I assert fifty corrupt state governments under a weak Federal government is superior to what we have now: The forced looting of North Dakota by the largesse-providing politicians in California.
In this, the founders and I are in agreement.
Regrettably, your last point collapses when you look at some facts for a change: http://www.taxfoundation.org/research/show/22685.html
Californians pay more federal taxes than the services they receive, and North Dakotans receive more services than they pay for. Of course, this doesn't fit your narrative of the virtuous "real Americans" vs. the pathetic liberal coastals, so please feel free to ignore it.
Gotta love accounting.
First, the Federal Government deficit spends. It spends so much more than it takes in that spending has little resemblance to any tax base. That's a major part of our problem. Thus, by that measure, all states receive more services than that for which they pay.
What's not in the numbers you reference is stuff like $billions in "loans" from the Federal government to California, which California does not pay back (indeed, these will be "forgiven").
<http://www.cnn.com/2008/POLITICS/10/03/california.loan/>
What's also not included is California getting the "full faith and credit" backing of the Federal Government to lower California's debt costs, and then pass the default to the Federal Government anyway:
<http://www.cbsnews.com/stories/2009/05/27/politics/main5044692.shtml>
The money quote:
Oh, good: I feel better now.
What's also not included is the $1Trillion in mortgage backed securities the Fed purchased in the past year ... how much of this came from North Dakota? How about California?
How many of the "big banks" are located in North Dakota? Didn't those banks just get some kind of TARP thingie, contributing to the tax base for the states in which they reside? *cough* *Wells Fargo* *cough* *California* *cough*?
Let me know when we're serious about talking about North Dakota possibly defaulting, or getting any of these benefits.
Let us herald the coming Age of the Technocrat.
(One can hope.)
Good piece btw. Somewhat emotional, but good nonetheless.
great work and nicely knitted together. An informative and entertaining read. Thank you for your work and energy on this piece. Timing is everything, and we shall continue to wait and see what this powder keg will do in the global scheme and over with timeframe. Meanwhile, its a continuation of the "dueling printing presses" around the world.
Yeah, okay, meantime, I'm seeing a 60%+ rally from the March lows, so I'm confused. Things are terrible, so the market is undergoing one of the biggest, quickest rallies in history?
Good luck with that.
What do *you* think the P/E should be for the S&P500?
The speed at which its thingies are seeming to rip themselves to shreds is stunningly mind-blowing. Myself I'm watching treasuries very carefully, IMHO bells and whistles of the collapse are there gonna light up first, before acknowledging to friends family "the end is Nye"
How will you be able to tell, and what aspect of treasuries are you watching? What I mean by that is we know the Fed is monetizing a lot of treasury issuances, which to me is a massive warning bell...well it's more like a nuke going off right above the dollar. But as the Fed is willing to monetize we in effect do not have market forces at work in the treasury market. The printing press has replaced the market. To me this means the treasury market is not any sort of indicator at all and I have to try to look at things like precious metals/commodities and see what is pure inflation. Oil for example, look at the price vs. demand now. Demand went down but the price went up, to me that is a sign of money printing.
I'm interested in what about treasuries that you are looking for, because I don't get it.
Uncle Stupid aka Uncle Sappy is like a drunk and horny old reprobate cruising Times Square for sex--the question is not loosing money--it is a question of how much and will he get beat up and then blackmailed as well.
Mikla.....
My complements to you....
You nailed....particularly in the first segment....
It is of no coincidence therefore that the US Govt. and US businesses grow more and more dis-functional every day....
It is incredibly stupid to allow a politician to have any form of serious input regarding the legal impositions about a matter for which they have no background whatsoever....
The solution is simple...
A politician should have no input whatsoever regarding a subject for which they have had no background....ie DeFazio and Harkins and others want to impose laws which will wipe out the entire securities industry via a transaction tax....
When you check their biographies....neither have any practical experience in these areas....but think that they are capable of their regulation....
From the NYP....
Of all the dumb ideas to come out of Washington, the "trading tax" takes the cake.
Many US jobs move overseas every day due to the ever-increasing cost of doing business in America. Think autoworkers, whose unions have gotten them great deals zipping in rivets or inspecting upholstery for $80,000 a year -- plus benefits.
Have those contracts really helped their cause? Certainly not. Just look at the global share of US auto production for the past three decades -- it's a fraction of what it once was.
So why would you want to add unnecessary cost to the one US industry that is running well? Under the "trading-tax" plan, the government would place a tax on every share of stock bought and sold.
If you want capital formation, which our country desperately needs, you cannot tax the distribution of it. Bank loans, mortgages and even credit cards are clearly at a standstill, and very difficult and expensive to get.
Unless Washington and its New York representatives want the Big Apple to become the next Detroit, they had best tread lightly.
Finance functions wherever there are data and telephone lines -- London, Hong Kong or anywhere. The Beltway needs to incentivize -- not penalize -- capital formation and distribution, if it wants sustainable, stimulus-free economic growth. Major financial institutions need clarity and bona-fide assurances before they can go out and lend again -- even Fed chairman Ben Bernanke said this in his recent testimony.
President Clinton lowered capital gains taxes. If today's lawmakers were thoughtful, they would modestly tax over-the-counter derivatives to support the new cost of regulating them -- but that's it.
Everyone likes to blame Wall Street -- sometimes it pays to look at who's doing the blaming.
Jonathon Trugman is a New York-based investment manager.
Read more: http://www.nypost.com/p/news/business/crippling_stox_trade_tax_is_dc_dop...
...........................
One of the latest ventures that Harkins was involved in was corn based ethanol....Even thogh every Ag Econ Dept. in every land grant college has deemed corn produced ethanol not feasible since 1980....Harkins ....even with no background insisted that the public purse subsidize the effort....Had you sold short all the ethanol stocks when he was pushing them you would have made a fortune...
The US has to curb the current system and create a system that is not so dis-functional....
Hey wait thats not right you heard the president this week.
HE fixed the situation last January. We have nothing to worry about. The president comprehends the situation perfecly and has responded perfectly, he's absolutely sure of this. We will now have a lasting and perfect recovery.
If as a people, America keep on electing people who never had a proper job in the real economy all their lives to be president, then it is not surprising that most politicians today are not only not going to lead us out of the current economic mess, but are most probably leading us halfway down the path of the first failed hyper power. As a people, we have failed ourselves and failed our children by the devolution of our duties to throw out incompetent politicians, corrupt vested interests and self-serving technocrats. We have failed.
Mikla.....
My complements to you....
You nailed....particularly in the first segment....
It is of no coincidence therefore that the US Govt. and US businesses grow more and more disfunctional every day....
It is incredibly stupid to allow a politician to have any form of serious input regard the legal impositions about a matter for which they have no background whatsoever....
The solution is simple...
A politician should have no input whatsoever regarding a subject for which they have had no background....ie DeFazio aand Harkins and others want to impose laws which will wipe out the entire industry from U
Recent examples....
The securities industry...transaction tax....those wanting to make tax impositions that would actually ruin the indusry.....
Medicine....check the backgrounds of the legislators....no previous actual experiences....for the majority wanting to regulate it.....including the US President....nada...
Alternetive energy.....in particular Harkins and his earlier
sure thing regarding corn based ethanol fuels which has left countless businesses busted....raised the costs of land and food....and for over 30 years most of the Ag Econ depts in the US land grant colleges have had these studies proven that corn and other crops were not feasible years ago....
To be sure....this nonsense has to stop....or THEY will create a giant Haiti out of the US....
The solution is simple....no nonqualified people get to participate....That´s it....
The US must make sure that the people utilized in important policy decisions are the best in their fields....and not from populist type media sales people trying to get votes only....
Isn't in strange that there is this underlying assumption that the private sector will pay for all of this, when we lost trillions, and then trillions were piled on in the name of liquidity, and we still just want to pay off our credit cards first? I think the stock market's little St. Vitus' dance will go on a little longer, but it is no longer a measure of anything but the level of denial prevalent on Wall Street and at the Fed. Unless the wingnuts are right and this is all a prelude to a global takedown in the name of the "Black Nobility" who want nothing more than to reinstate feudalism.
If I have the choice between the system we have now and feudalism, I chose feudalism! The medieval peasant only surrendered 50 days of his labor every year to his lord. I would love to have a tax rate that LOW! And at least the feudal lords would reward productive classes to an extant instead of attacking them and trying to drive them off. A feudal lord was also unlikely to destroy his nation, as it was heredity property. Property that was expected to be kept in the family, should he try his family might correct that action. This is not to say I want feudalism only that it would be superior to the kakistocracy we have now, at least with a hereditary dictator there is a chance that he might not be pure scum.
Isn't in strange that there is this underlying assumption that the private sector will pay for all of this, when we lost trillions, and then trillions were piled on in the name of liquidity, and we still just want to pay off our credit cards first?
I think the stock market's little St. Vitus' dance will go on a little longer, but it is no longer a measure of anything but the level of denial prevalent on Wall Street and at the Fed.
Unless the wingnuts are right and this is all a prelude to a global takedown in the name of the "Black Nobility" who want nothing more than to reinstate feudalism.
Isn't in strange that there is this underlying assumption that the private sector will pay for all of this, when we lost trillions, and then trillions were piled on in the name of liquidity, and we still just want to pay off our credit cards first?
I think the stock market's little St. Vitus' dance will go on a little longer, but it is no longer a measure of anything but the level of denial prevalent on Wall Street and at the Fed.
Unless the wingnuts are right and this is all a prelude to a global takedown in the name of the "Black Nobility" who want nothing more than to reinstate feudalism.
I agree that we got in this place because people were complacent and trusted in their elected crooks. However I disagree with the idea that we all deserve this. Some of us are young people who were born into this nightmare system and when they found out about it openly opposed it, even while being ridiculed by their peers and elders.
We cannot pull out of this death spiral because people would have to accept that their lives and their prosperity was a lie. They would rather crash into oblivion believing that lie. The hope for all is that they will be able to "get theirs" before the system collapse, and the collapse is coming faster and faster as we enter into the black hole of infinite debt.
Doubtlessly this punishment will fall upon all of us, the just and the unjust. However for many people they do not "deserve" to have what is coming happening to them.
Of course you are correct -- today's five-year old doesn't "deserve" this, nor does today's thirty-five-year-old that didn't leverage up to his eyebrows.
The issue is with society: As a whole, people all over the world bought into promises that could not be kept. For various reasons, people could not or did not defend themselves against their government that acted in their name. While not everyone will vote for a given president, or for a given war, the society "as a whole" earns the costs and benefits of such actions.
This article is intended as a gentle nudge to help explain to newly awakened people how and why the nightmare is only beginning. Further, what comes out the other side will be a new system ... get used to the idea. The new system could be better or worse, depending on how smart we are in this time of trial ...
I can understand people doing that, everyone wants something for nothing and few are willing to listen to the simple wisdom of "If a deal sounds to good to be true, then it is". As a society, yes society greedily took the goodies without thinking about where they came from or how they would be paid for.
Also I'm not certain that all the world will end worse off, at least in the itermediate to long term. Not every nation has jumped on board with the welfare/warfare model. For example look at China now compared to 20+ years ago. China is full of problems of every stripe(Corruption, pollution, overcapacity, water, etc), but they have made impressive strides and an industrial based economy is inherently more stable than a service based one. That is not to say that I do not expect great problems in China, I do, as I expect great problems in most of the world. However I expect better results from then as well as most of the developing world (BRIC for example) compared to the traditional Western powers. Part of that boils down to psychology of the people. In China the citizens do not expect the government to step in and provide for them, such as housing or food stamps or welfare. When things continue to get worse in the West the citizens will expect those things which will only further tax the already weakening private sector, pushing it towards total collapse.
What we are looking at now is a fall of an empire, much like the end of Rome. The parallels I can draw between the US and late empire Rome are staggering, even our monetary policy. There will be a lot of upheaval, likely many unfortunate deaths as well. The change will be enormous, perhaps even cataclysmic because people cannot accept that it is even happening even when this change is knocking on our front door. I don't know about you but I'm hoping our fall will be as relatively peaceful as that of the USSR, but I'm concerned it will not be.
What direction do you see us, America and the West, heading towards? I'm inclined to think that most of the west will go towards a socialist/fascist model that befell Pre-WW2 Italy and Germany. On the other hand I think the social upheaval in the developing world has a chance of creating more freedoms, at least in some cases, but that could just be wishful thinking.
I'm with you on looking like the USSR. Russia and the US were like two brothers that went separate ways - one seeing the glass half empty, the other, half full. Our optimism has gotten us a long way, but we have blood on our hands. In fact one could say the average American is much more guilty of the sordid blowback from the CIA's activities - if you spoke out in Moscow they just took you off the streets. Here, we expect that someone else will do the protesting. And we expect pundits and demagogues to explain everything for us. Assuring ourselves, "If the conspiracy were true than there would be too many people talking about it."
In fact, we have become so complacent as a society that pinching ourselves no longer works. We stand by, watching others suffer through their daily lives, and are thankful somehow that it is not us. In the USSR there was still community. As in, people still really knew their neighbors, and cared about how well they were doing. Hey, stacked up in those apartments, it's not like you didn't know what was going on - saying a kind or stern word here or there could actually help keep things quiet for a while.
Now we are experts at hiding our deficiencies and weaknesses. We can't stand one another over even the slightest idiosyncrasy. The television is a horror factory of moral depravity: we love to discuss the marital infidelity of housewives and see at least one person get stabbed, shot, or hanged on a daily basis. Yet if you put an unloaded gun in the hand of a random stranger they would recoil, 'what an awful thing!'
It seems that we really are asleep. We cannot imagine something happening to us. It's like a sick reverse lottery, "...please not me, please not me..."
So what do we do? We keep buying six-packs and lottery tickets.
Truly the scale of this whole poorly designed bridge is impressive. The elected children are more worried about who is and isn't attending the next scheduled event - not the Mack truck without brakes. The upper class live their lives going to events; clubs and bars if you are in the bottom half of breadwinning - if you're not in jail already.
People don't want to see reality, it's harsh and painful. I went through my time of trying to deny that America was heading into the trash heap. Saw what was happening but I thought it could still be turned around. I only accepted it when I was trying to convince someone about what was happening and she gave me the line of "If you don't like it you can just leave". That woke me up to the possibility that I like the other rats(bankers) can flee the sinking ship. I know a lot of other places in the world will be in trouble but I get the feeling that the good old US of A will be the epicenter of the nightmare. Now I'm grounded because of commitments, but looking at places where I'd like to run off to.
While I think the "reset" is imminent, and living in a failed state is no fun, I'm not convinced overseas is better.
Europe is worse in terms of leverage, natural resources, demographics, political stability, and individual protections. Many parts of the Pacific Rim are similarly dangerous to an ex-USA worker.
(I concede that the US is *not* the best example for a market economy in today's world, though.)
I've thought about it too (leaving the US). While it's nice to think there's an island-country out there for me, and there may be, remember that the US will experience a re-inventing that could look all manner of different. We will again see the rise of manufacturing, and we have the natural resources and open space for quite a lot of rebirth.
While the times that are and which will come are dark and dire, make sure you look twice before you leap.
I appreciate the advice but personally my hatred of collectivism would drive me made here. My background of growing up listening to Soviet era horror stories has soured me to any experiment of the "Worker's Paradise" variety. I would consider a collapse here the best possible thing, however if the disintegration begins while the current president is in office I have no doubt he would take up the mantle of Lincoln and pursue a civil war. Now I must ask what do you think Lincoln would have done had he had nukes? And this in my mind is the "best case" scenario.
What I see as more likely is America plunging into a full socialism/fascist police state. Americans are to used to getting things from the state, and I think many will cry out for this. I don't think guys like me would be to welcome and I'd prefer not to experience the American version of the Gulag Archipelago. What is boils down to is at this point I'm willing to take the plunge into a relative unknown rather then stay on a sinking ship. Granted if the collapse happens before I can get out of school then I'm boned since I get the feeling that might be harder to expat out post collapse.
America has bountiful resources, but will we be allowed to touch them? Present trends so no. After the crisis flash point if we go police state than I don't believe we will. Both political parties know that wealth and economic freedom brings social and personal freedom and it is the goal of the state to squeeze and oppress not to liberate.
I totally agree with you about Europe, and it's not even on my radar. About the only country I could easily get into is Latvia (grandparents fled so I can claim citizenship) but Latvia is basically the poor economic backwoods of the EU so don't much care for that. All the problems of being in the EU and none of the bennies...maybe for retirees.
I'd like Canada except they are a bit to closely tied to the US, and if things truly go pear shaped you will see 30 million+ America's in Canada in a short period of time, illegally or legally. I think we will crash their system when we go down because America's will storm the border looking for a better life.
I agree that things might get a little rougher in the Pacific rim, but I think they will come off it a bit better even though they will have a hard go of it. Right now I like Singapore, and I'm nominally positive on Australia. So for all their problems those are the two I'm considering. I'd like to look at China and Taiwan, but I get the feeling that China might be going to war soon, at least within 5 years. Just an itch but I get that feeling, over capacity, massive male pop, resource shortages. social upheaval, it makes for a heady brew for conflict
I'm doing my best to make myself more marketable in the international sense. Such as boning up on my computer programming skills (my current job) and learning Mandarin. But this is what America has come to, brain drain and capital flight. Right now I have a BS, getting an advanced degree, planning on getting another BS and maybe another master. All the while I've held down a job, have very little debt (took school debt to invest in PMs), and work a high skill, high demand job, and I want out of here. The brain drain to America helped make it great, the brain drain away from America will cripple it in it's hour of need.
When you say imminent, how soon are you projecting? After all me leaving is a moot point if things collapse before mid 2011.
Collapse takes time. We will have big single-day events, and indeed Iceland went down in about 36 hours, but since the dollar is the world's reserve currency, that will drag it out a bit (we have more options for futile "Hail Mary" passes).
California and New York should collapse in 2010. However, I'm amazed the Fed pulled off the treasury purchases through the end of 2009 as well as they did, so it's possible to slip anything six months. Still, because much of this is legally dubious and without precedent (there is no mechanism by which California can declare bankruptcy, or rewrite its constitution under these scenarios, though both will happen), the lawyers and courts will have a big impact on the schedule -- almost anything can bump six months to a year.
You won't see martial law in the USA, except possibly in weird short-term scenarios in urban centers. Generally, that shouldn't be something to fear. Ditto for restriction of movement, including exodus.
In short, I don't see any reasonable scenario where you won't be able to do what you want in mid-2011.
You touch on other topics, which are big issues, but not crazy (though I'm sure some will call our entire discussion crazy ... but I don't). We're talking about possibilities, and probabilities. While you're concerned our national default is happening with our most socialist president ever (and I'm concerned too), you'll notice this tribulation helps to make him *unpopular* as well.
It very well could be the popular "backlash" takes us to a very independant, non-collectivist structure (which I actually think is somewhat likely, and would support).
Good news: This will take years (like two, maybe five, not ten), and any possible erosion of our liberties will take longer. Rather, it's more likely we'll have more liberties, because a bankrupt government has no authority to speak and enforce regulations on its citizens.
Speaking of Fed Reserve tricks, what is there to prevent the Fed from entering the muni/state bond market to prop them up? The only decision I see is do they want to let the states go down and play the currency destruction game a little longer or move in and pull the states up but hasten the dollars death.
I agree that martial law would only happen in the urban centers and for a short period of time. But don't you expect them to quell at least any initial attempt at uprising? After all predator drones work just as well here stateside. A buddy of mine worked on the microwave gun that makes people think they are on fire, and let me tell you that is made to be an anti-crowd weapon.
I was less concerned with the leaving as most tyrannies close the borders later on, but I expect capital controls so might be hard to get money out of the country. But then I would be more than a little surprised if we didn't see price and wage controls at some point.
Okay I agree his spending makes him unpopular but what will the other choice be? America is trapped in the two party system. I disliked George Bush, just like I disliked Clinton. I was disgusted at my choice between McCain and Obama. What is there to prevent another George Bush (or worse) from getting into power if there is another election. Hell there is talk of Dick Cheney taking a run at it. Can you imagine, a 2nd Obama term or a run with Darth Vader? In some ways I'm more scared of a "conservative" dictator because the military is more apt to follow their orders.
While I would like to be optimistic like you are and think that this will end in greater freedom I'm more than a little concerned that even if we did have a popular backlash it would end up being like the French Revolution with comparable results, IE military dictator at the end. After all I know a chunk of the "conservatives" would welcome a military junta.
One point we do need to remember is even a bankrupt country can support 1 privileged group. Look at Zimbabwe or Wiemar or Rome. In the case of Rome and Zimbabwe they chose to support their military while the currency dies. In Wiemar the industrial sector was saved, so it's possible that the military in some form could continue to receive funding based on additional currency debasement and capital loss.
Our estimates are about in the same time frame then. I had initially though that depending on the accounting fraud the Fed can pull that the dollar could last 2+ years. I'm not even sure the dollar death will end it though. After all with media support the dictator in chief could rally America to an imaginary enemy, like currency speculators are working with the terrorists now to being down America because it's so free...or some such fable.
Nothing. That makes perfect sense, given how they've handled 2009. I've also seen the rumors on the web about them maybe forcing their toxic MBS holdings onto money markets -- these can be "Hail Mary" attempts, but even if attempted, they will ultimately fail (though yes, it's possible that resets the clock for even a whole twelve months).
All the Fed does these days is shift who becomes the "loser" (usually the taxpayer, sometimes individual companies).
Options are limited, because local law enforcement and National Guard won't turn on its people -- there are a lot of problems with asking for that, although a couple exceptional cases may exist. Still, even if it happens, one or two case studies will quickly show why that is/was a bad idea, and it won't be attempted again.
The US population is armed, and military operations in such an urban terrain is unlikely to be attempted.
It's true that US politics forms coalitions *before* the elections, as opposed to parliamentary systems that form coalitions *after* elections.
This tends to encourage a two-party system in the US, while under parliamentary rule, "fringe" groups tend to have more power because they provide the last increment for a coalition to gain majority.
I prefer not giving "fringe" groups such power, so I prefer the US system.
Your frustration, IMHO, is because the current system is "broke" (and I'm similarly frustrated). Both parties are run by morons. However, both parties are currently in cival war with themselves. We'll see how it shakes out, but it's clear the citizens aren't happy with either party, as Congressional approval hovers between 20%-30%.
You're right that in the last election, both parties put up the worst possible candidate. You're also right that time-after-time, there's almost no way to claim candidates are the "best and brightest". I'm just amazed people want to grant these lotto winners such power, and I think people are starting to realize how unwise that might be.
My optimism is largely based on the Federal Government's inevitable bankruptcy -- the Federal Government will shrink and yield power to the states and the citizens, because it will not have the money to continue calling the shots.
That was my thought on the Fed. Their job is to keep the ball in the air as long as they can, which is why I expect to see further insanity come out of the market.
I have to disagree about suppressing the people. Look at the G20 in Pittsburgh. Cops are willing to repress people, and I'm sure segments of the military are as well. I'm also willing to bet our "leadership"; would be more then willing to invite foreign troops to help suppress the citizens here. Anything to maintain control. I'll tell you right now I expect that when there is the first sign of an uprising the media will claim it's "white al-quida" or "al-quida working with militia groups". Which I find to be a riot...so Muslim hating red necks are working with Muslims to bring down America? It's insane on it's face but they'll try to feed it to us.
The whole party system is flawed, and the Fed Gov has far outstepped it's power. The system has been broken since Lincoln and particularly FDR, and we have just seen a power creep since then.
And yes the people are unhappy with both parties, and? Both parties will block a 3rd party, it would interfere with their looting. Both parties will continue to put up the worst possible candidates because fixing the corruption would damage both parties financially. Personally I would rather we pick our elected officials like we have the lottery. And yes that means I would be fine with a backwoods redneck or some ancient blue-haired lady as president, can't do any worse then we got, might as well go random.
While I agree the Fed will go bankrupt, to me all that means is they will go more open authoritarian and crank up taxes and regulation in response. Maybe that would be the last gasp of tranny, but those in power will not let go of it easily.
You raise good points -- it's very dynamic, and I'm also watching that closely.
I'm watching California and New York closely, because I think those will establish "inertia" on how the US restructures.
For example, I expect California to declare formal default (possibly even in 2010), and then re-write its constitution (will take longer than just 2010). That will be messy, and it will be interesting to see if it re-structures to a totally different state (like New Zealand did in the past), or if it merely becomes a vegetative ward of the US Government (as happened with Washington, D.C.).
States like California, New York, and New Jersey are such "basket cases" that there's no hope. For example, you could fire every public employee in California, and that would still take you only 20% of the way towards fixing the *annual* budget (much less the future liabilities that still lie under the rug). New Jersey will soon need 150% of the entire state budget just to cover pensions for teachers that have already retired.
If these states re-organize away from the Federal Government, I expect to see the rise of state and regional currencies. They wouldn't be backed by anything, but they would have intrinsic value because they would be "claim vouchers" against future liabilities to the state, and thus people would want them (at some reasonable price).
This past year's California "IOU's" almost went that route, but fell short.
For example, each retired Baby Boomer will need new "Californibucks" each year to cover their property taxes and vehicle registration fees, so a market can be established, printed for "free" by the state, with that nominal unit also serving as a medium of exchange.
If each state or region did a similar thing, the market could enforce discipline through conversion rates between currencies from "irresponsible" states and those with more fiscal discipline, including states that may back their currencies by actual assets.
Part of the problem with the US Dollar is that currently no such market discipline is possible, because of collusion among the world's central banks, and difficult political comparisons among sovereign nations. (Regional currencies could enforce discipline on each other where world currencies currently do not significantly enforce discipline on each other.)
Beware the rise of a charismatic leader -- IMHO, that influences the issue greatly.
Doubtlessly these states will fail and will go hat in hand to the Federal Government. Then the Federal Gov will go hat in hand to Asia and the Federal Reserve.
Pretty much the whole of America is in a budget crisis, the reason is simple we have a grotesque and bloated bureaucracy. I have friends who work for the state, and all they do is sit around and watch movies all day. Maybe 3 hours of work each week, tops. Because they are state employees it would take dynamite to remove them and they are not the exception, they are the rule.
I disagree that states will issue their own currencies and accept them in return for taxes. Doubtlessly they will issue them, but they won't be worth anything. We saw this just recently with CA, the state would demand taxes on the IOU's that were issued and would not accept their own IOU's in return, but for a broader historical context look at Rome. Rome would issue clipped and diluted coins, but only accept older purer coins for taxation. Rome has a fascinating history of monetary devaluation during it's decline and collapse.
As for a charismatic leader, that is baked into the cake in my mind. Look how the media got behind Obama, to the point of calling him the Messiah. Imagine what the media will do when a guy even slicker comes along with the same kind of banker/elite backing Obama has? The people have been trained to not think for themselves but to look for a leader to tell them how to think.