Medicare

The majority of Americans seem OK with just waddling through life, accepting the lies and misinformation blasted from the boob tube and their various iGadgets by their owners, gorging themselves to death on Twinkies and Cheetos, paying 15% interest on their $10,000 rolling credit card balance, and growing ever more dependent on the welfare/warfare state to provide and protect them from accepting personal responsibility for their lives. A minority of critical thinking people have chosen to question everything they see and hear being spewed at us by the propagandist mainstream media. What do 'we, the people' want? As it seems the entitlement “free shit” mentality permeates our culture. The question is whether we will stand idly by, fiddling with our gadgets, tweeting about Honey Boo Boo, or will we regain our sense of duty to the future generations of this country.

Polticians lie. Obama and Romney are politicians. They talk. Therefore they lie. They lied big time during the debate. Are our choices between evil and lesser evil?

If the US Government were applying for a loan, what would its credit score be? ConvergEx's Nick Colas estimates it at 655 (based on www.myfico.com) - which is higher than we suspected - but consistent with the structural belief in both sovereign and personal debt rating systems that historical payment patterns matter more than ability to pay, leverage, or loan amounts.

As Mr. Lehrer stumbled through the evening and the incumbent's odds of a repeat fell as fast as his frustration appeared to rise, a few things became very clear. President Obama spoke for over four minutes longer than Governor Romney in this evening's slug-fest. However, the fast-talking Mitt managed to squeeze in over 8300 words as opposed to Barack's 7400 words. The word-clouds below suggest each of the candidates' focus tonight with Obama appearing focused on his opponent 'Governor Romney' with heavy use of the words 'Got' and 'Medicare'; while word-wrangler Romney focused on 'People', 'Get', 'Going', 'Government', and 'Plan' (and no 'zinger'). If you are still standing after the drinking games, here are the details...

The highlights from Bill Gross' latest monthly piece:

• Armageddon is not around the corner. I don’t believe in the imminent demise of the U.S. economy and its financial markets. But I’m afraid for them.
• Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.”
• If the fiscal gap isn’t closed even ever so gradually over the next few years, then rating services, dollar reserve holding nations and bond managers embarrassed into being reborn as vigilantes may together force a resolution that ends in tears. The damage would likely be beyond repair.
• The U.S. and its fellow serial abusers have been inhaling debt’s methamphetamine crystals for some time now, and kicking the habit looks incredibly difficult.

If we look at what's skyrocketed in price (healthcare, college tuition), we find they are government funded and supported. This is not a coincidence. Inflation is generally viewed as a monetary phenomenon (print money excessively and you get inflation), but let's use a very simple definition: any loss of purchasing power. If your income buys fewer goods and services, for whatever mix of reasons (geopolitical, weather, monetary, fiscal, etc.), that's inflation "on the ground." Government spending and intervention fuel inflation, and the Federal Reserve enables that spending and inflation by monetizing Federal deficits. Eventually, declining wages lead to demand destruction, as households consume fewer goods and services. But inflation that is being driven by government spending will not decrease, as the demand is being supported by a borrow-and-spend Central State supported by a monetize-Federal-debt-til-Doomsday Federal Reserve.

• China carrier a show of force as Japan tension festers (Reuters)
• Draghi Rally Lets Skeptics Dump Spain for Bunds (Bloomberg)
• China’s Central Bank Injects Record Funds to Ease Cash Crunch (Bloomberg)
• Obama warns Iran on nuclear bid, containment 'no option' (Reuters)
• When Would Bernanke’s Successor Raise Rates? (WSJ) that's easy - never
• Italy's Monti Downplays Sovereignty Risk (WSJ)
• Portugal swaps pay cuts for tax rises (FT)
• Madrid faces regional funding backlash (FT)
• Berlin Seeks to Push Back New Euro-Crisis Aid Requests (WSJ)
• Race Focuses on Foreign Policy (WSJ)
• China Speeds Up Approvals of Foreigners’ Stock Investment (Bloomberg)

By now everyone has heard the infamous Mitt Romney speech discussing the "47%" if primarily in the context of how this impacts his political chances, and how it is possible that a president "of the people" can really be a president "of the 53%." Alas, there has been very little discussion of the actual underlying facts behind this statement, which ironically underestimates the sad reality of America's transition to a welfare state. Recall Art Cashin's math from a month ago that when one adds the 107 million Americans already receiving some form of means-tested government welfare, to the 46 million seniors collecting Medicare and 22 million government employees at the federal, state and local level, and "suddenly, over 165 million people, a clear majority of the 308 million Americans counted by the U.S. Census Bureau in 2010, are at least partially dependents of the state." Yes, Romney demonstrated potentially terminal lack of tact and contextual comprehension with his statement, and most certainly did alienate a substantial chunk of voters (most of whom would not have voted for him in the first place) but the math is there. The same math that inevitably fails when one attempts to reconcile how the $100+ trillion in underfunded US welfare liabilities will someday be funded. Yet the above is for political pundits to debate, if not resolve. Because there is no resolution. What we did want to bring attention to, is something else that Mitt Romney said, which has received no prominence in the mainstream media from either side. The import of the Romney statement is critical as it reveals just what the endgame may well looks like.

The profit motive

"Yellow journalism" – which seems almost the only kind we have these days dominates our newsflow, but the truth is out there. As with everything else though, it's subject to Pareto's Law. So, 80% of what's out there is crap, and 80% of what's left is merely okay. But that remaining 4% of quality, uncensored, free information flow is extremely valuable. The terminal corruption of the major news corporations and the lack of interest in seeking the truth among the general population augurs very poorly for the prospects of the US and the current world order. This creates speculative opportunities, but prospects for mainstream investments are not good. Western civilization is truly in decline and far down the slippery slope.

Bernanke knows this. I wish he would admit to it.

The disregard for the future and the fundamentals of fiscal well-being is about to reap consequences. The Powers That Be counted on "time healing all," as if the mere passage of time would magically heal a broken economy and political machine. Time heals all--unless you have an aggressive cancer. The system has been pushed to extremes: the expectations are impossibly high, the promises are impossibly generous and the sums of money demanded by the vested interests "just to stay afloat" are stratospheric. The "run to fail" levers have all been pushed to the maximum, and it is simply too politically painful to make any real-world adjustments that might save the system from imploding. Nobody wants a crisis, yet a crisis is the only thing that can save the system from implosion.

The odds of some instability erupting globally in 2013-14 seem high, but what the trigger might be remains unknown. The fragility and vulnerability of systems pushed to extremes are like sandpiles: it doesn't really matter which grains finally trigger the cascade; the system's rising instability is the causal factor. Where does this put us? If the ultimate crisis is another decade away, we might as well enjoy what we can in the meantime and assemble the pieces of a semi-sustainable life: income streams that we own/control, a very low cost of living, and property in areas that are universally desirable, i.e. they have decent weather, surface supplies of water, concentrations of intellectual and financial capital, and ideally, a functioning local government that isn’t hopelessly corrupted by vested interests. Any disadvantages in these resources can be offset by a solid network of friends, family, associates, business contacts, etc., i.e. social capital. I think it is safe to assume the promises of Social Security, Medicare and pensions will be chipped away by one force or another (inflation, taxation, “austerity,” etc.) and so those who have written these out of their own personal expectations will be psychologically primed for self-reliance embedded in local support networks.

Both Mitt Romney and Barack Obama will give us happy talk about maintaining entitlement benefits (e.g., Medicare and Medicaid) that cannot possibly be sustained. They will talk about energy self-sufficiency. They will talk about creating jobs. They will tell us that we can somehow ‘grow’ our way out of our economic distress. But neither candidate will admit that technology now destroys more jobs than it creates, because to do so would be to commit political suicide. The fact is that none of the happy talk will ever come true. Instead, the Federal Government, with the tacit approval of both major political parties, continues to run trillion-dollar-plus deficits year after year in a futile attempt to spend our way out of our economic problems and to sustain an economic model that cannot be sustained. Those who believe that bringing manufacturing back to the US will also bring back jobs are trying to fight a war that has already been fought and lost. Why? The answer is technology. It’s actually a fairly simple process now to bring production of many items back to the US, simply because of automation and robotics. A factory filled with robots can operate 24 hours a day, 7 days a week, 52 weeks a year, so long as the raw material inputs keep flowing into the factory. Robots don’t take breaks, don’t make mistakes, don’t call in sick, don’t take vacations, don’t require expensive health insurance, and don’t receive paychecks. A fully automated robotic manufacturing facility might require only 100 workers, while a traditional assembly line facility might utilize 3,000 workers. That’s a huge difference in the number of jobs. The simple fact is that most of the lost manufacturing jobs are never coming back.

If you haven't heard yet, the United States of America just hit $16 trillion in debt yesterday. On a gross, nominal basis, this makes the US, by far, the greatest debtor in the history of the world.  It took the United States government over 200 years to accumulate its first trillion dollars of debt. It took only 286 days to accumulate the most recent trillion dollars of debt. 200 years vs. 286 days. This portends two key points:

1. Anyone who thinks that inflation doesn't exist is a complete idiot;
2. To say that the trend is unsustainable is a massive understatement.

This is banana republic stuff, plain and simple... and smart, thinking people ought to be planning on capital controls, wage and price controls, pension confiscation, and selective default. Because the next trillion will be here before you know it.