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Guest Post: Five Things You Need to Know About the Economy

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Submitted by David Galland of Casey Research

Five Things You Need to Know About the Economy

At any point during the recent negotiations in Washington over the debt, did you seriously think for even a second that the U.S. was about to default?

Of course, in time the U.S. government (along with many others) will default. However, they are highly unlikely to do so by decree or even through the sort of legislative inaction recently on display. Rather, it will come about through the time-honored tradition of screwing debtors via the slow-roasting method of monetary inflation.

Yet most people still bought into the latest drama put on by the Congressional Players – a troupe of actors whose skills at pretense and artifice might very well qualify them for gilded trophies at awards banquets. Instead, rather than glittering statuettes, these masters of the thespian arts settle for undeserved honorifics and the pole position at the public trough. Followed by lifelong pensions.

But to the heart of the current matter, do I think that the latest antics out of Washington will have any more lasting effect on the trajectory of the economy than what I had for breakfast this morning (raw oats with a dab of maple syrup, milk, a sprinkling of strawberries, and half of a banana, sliced)?

Absolutely not. Sorry to say, but the trajectory of the economy at this point is well established, and closely resembles that of a meteor streaking through the night sky. What’s left of the solid matter of the nation’s accumulated private wealth is fast being burned off by an unstoppable inferno of government spending, inevitably leading to an earth-shaking crash.

I make this dire prediction not out of an aberrant psychology (I hope), or in an outburst of self-promotion for Casey Research because the big-picture scenario we have so long warned of is unfolding according to script, but rather due to certain fundamental truths about our current situation.

And that brings me to the five things you need to know about the U.S. economy (much of which also applies to the other large developed nations)…

1. The U.S. remains in the grip of a debt-induced depression. While personal levels of debt have eased somewhat since the crash, most of the improvements have come at the expense of debt repudiation, and are offset by the steep decline in housing prices that have left something like 50% of mortgages underwater. Meanwhile the debt on the balance sheets of the U.S. government and the country’s largest financial institutions remain at record highs – and much of that debt is toxic.

So, what’s the one thing that the heavily indebted – individual or institution – most fears? Answer: Rising interest rates.

2. Interest rates can’t stay low. Despite the debt, interest rates remain near historic lows – which is to say, well below the norm. At some point they have to at least revert to the mean, which would push the 10-year treasury rate north of 5% from current rates below 3%. But in reality, the levels of monetary inflation, the nature of the debt, and mind-numbing scale of the government’s other financial obligations – in total upwards of $70 trillion – all but guarantee that interest rates must go much higher than 5%. That in turn torpedoes the half-sunk real estate market and risks kicking off a debt death spiral as higher interest payments suck the financial juice out of the economy and causes debtors to demand even higher rates. Say hello to Doug Casey’s Great Depression.

The last time the U.S. economy found itself in such dire straits was back in the 1970s, when the problem was raging price inflation. Back then, though, the debt levels were considerably lower than they are now. Then, Fed Chairman Paul Volcker had the latitude to raise rates and by so doing helped to choke out inflation. By contrast, today the Fed is virtually helpless. Rates certainly can’t be pushed lower by any appreciable amount, and the Fed sure as hell doesn’t want them to go up. While the Fed has been a primary factor in controlling interest rates up to this point in the crisis, in the near future the direction of interest rates – particularly long-term rates – will increasingly be determined by skittish market participants. Specifically, the sovereign and institutional buyers whom the U.S. Treasury so desperately needs to keep showing up at their auctions.

To use a metaphor, the situation today is akin to a bunch of gunfighters facing off in a dusty street, hands poised over their six-shooters, eyes nervously shifting this way and that – to the eurozone, to the housing markets, to the situation in Japan, to the U.S. government spending, to the crumbling balance sheets of the banks, to the Fed. Everyone is anxiously watching, waiting for someone else to start making the first move. The standoff can’t last – and when the lead starts flying, there will be few places to hide.

3. There is no non-disruptive way to resolve the debt. I can’t stress this point enough. Simply, there is no magic wand that can be waved in order to make the debt go away. In order for this crisis to end, someone’s ox has to be gored, and gored badly.

Yet, because we live in a democracy, where any politician wanting to be re-elected has to cater to their constituency – and politicians make their careers by being re-elected – it is considered business as usual for the denizens of Washington to hand out bread and put on circuses. It is this situation that has brought us to this place in the first place.

But it is the flip side of that equation that provides a clear signal as to where things are headed. Namely that politicians will jump through every possible hoop in order to avoid making politically unpopular decisions – even if they know that failing to act will have serious and lasting negative consequences for the nation. The trick is to make sure that those consequences only become acute during the next guy’s watch.

The key point is that there is no easy fix, and there is no politically convenient time to take the draconian measures needed to rebalance the budget and get the nation’s finances in order. To actually take the measures needed to curb the deficits, let alone reduce the debt, would be political suicide.

So despite a lot of talk blowing out of Washington, if you have to make a bet, bet on the crisis continuing and getting worse. Greece provides a reasonable look at how things are likely to unwind. And the problems in Greece – problems which will increasingly include social unrest – are far from over. As I write, lenders are starting to pressure Italian bond yields up, clearly indicating the eurozone’s problems are only going to worsen, as will those of the US as we move toward systematic breakdown.

4. The monetary system is irretrievably broken and will be replaced. For a recent edition of The Casey Report I interviewed monetary scholar Edwin Vieira, who pointed out that every 30 to 40 years the reigning monetary system fails and has to be retooled. The last time around for the U.S. was in 1971, when Nixon cancelled the convertibility of dollars into gold. Remarkably, the world bought into the unbacked dollar as its reserve currency, but only because that was the path of least resistance. But here we are 40 years later, and it is clear to anyone paying attention that the monetary system is irretrievably broken and will fail.

What will replace it is still unclear, but I suspect that when the stuff really hits the fan and inflation rages the government will try the approach taken by the Germans to end their hyperinflation back in the 1920s, coming up with the equivalent of the Rentenmark – a dollar that is loosely linked to some basket of commodities and financial instruments. It won’t be convertible, because it would be impossible for bank tellers to exchange your dollar for a cup of oil, and a coupon off of a bond, and a chip of gold, or whatever makes up the basket – but it might restore some semblance of confidence in the currency. That’s one option. Another is that some government decides to make its currency convertible into precious metals; but that will only happen when all other less fiscally restraining systems have been floated and failed. Simply, at this point we can’t know what will replace the current monetary system, or when. All we can know is that the status quo cannot and so will not survive this crisis.

Between now and the point in time where the Fed throws in the towel on today’s fiat monetary system, you would have to be naïve in the extreme not to expect volatility, uncertainty, and wholesale financial dislocations.

5. The government is not your friend. Another simple truth is that the politicians, being just average humans, will always look after themselves first. They are well aware how difficult it is becoming to kick the can down the road and are only growing more desperate. And as the economy worsens and cries from the masses grow for the government to do “something,” the politicians will grow more desperate still.

As should now be clear to anyone, today’s political apparatuses are not operating based on any core principles – other than getting members of the government re-elected, that is. Thus the government of the U.S. and all the highly indebted Western nations are free to do almost anything in the name of the “public good.” Exchange controls? Higher taxes on the productive elements of society? Deliberate debasing of the currency? Outright confiscations for regulatory infractions? All of that – and literally anything else that helps mollify the masses and continue the charade – is likely.

Ironically, the worse the situation gets – and today’s GDP data again confirm the weakness in the economy – the greater the demands will be from the public for the government to do more, even though the government was mostly responsible for bringing us to this place. And so the government’s reach into your private affairs, and especially your finances, will only grow.

As this coincides with the rapid deployment of new monitoring technologies and procedures that allow the U.S. government in particular to cast its Sauron-like eye into every nook of the globe, the free flow of capital and legal avoidance of whatever new taxation schemes are passed will become increasingly challenging.

Summing up…

Unless and until the deficits and the debt are tangibly dealt with, expect things only to worsen and prepare accordingly. As there will never be a good time to deal with the debt, the situation will continue to deteriorate until there is a systematic breakdown.

Inflation remains the only politically viable way to continue the charade. Pretty much anything tangible will help offset the coming inflation, though the monetary metals of gold and silver will likely do better than most.

There is a lot of cash floating around. As equities are representative of a tangible (i.e., a share in an operating company), selective equities – especially those that provide essential services – will probably do okay, even if only keeping up with the inflation. Those of precious metals companies should do much better than that, but again, being selective is key because a lot of these companies actively pursue policies that are not advantageous to shareholders, most importantly steadily diluting existing shareholders by regularly issuing large swaths of new shares. While we expect volatility, and probably even sharp sell-offs, these should be considered as potential opportunities to fill in your portfolio with high quality resource companies.

Diversification across two or more political jurisdictions also makes a lot of sense to me. There is no place you can invest which doesn’t entail taking some risk at this point, but that fact only adds weight to the argument for spreading your assets around.

Finally, it’s important to remember that, as far as we know, you only live once. In some ways the transition we are going to live through is going to be pretty exciting. Perilous, certainly, but exciting as well. If you take the right steps, you should come out much better than most.

But if you overly obsess about this stuff – or the latest disingenuous move by the politicians – it will drive you crazy. Thus, it’s better to take the steps necessary to get in sync with the fundamental factors driving today’s troubled economy and then get on with your life.

 

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Wed, 08/03/2011 - 02:40 | 1519678 automato
automato's picture

Whatever you do, DO NOT ALLOW THE SUPER CONGRESS! This is HIGH TREASON!

Wed, 08/03/2011 - 03:34 | 1519723 BaBaBouy
BaBaBouy's picture

 

Super This ...

 

1700. Is In The Air ...

Wed, 08/03/2011 - 02:41 | 1519680 Caviar Emptor
Caviar Emptor's picture

Things you need to know: Gold, bitchez!!!

Wed, 08/03/2011 - 03:03 | 1519703 BaBaBouy
BaBaBouy's picture

 

GLD Etf added about 20 Tonnes just Today ...

Wed, 08/03/2011 - 03:19 | 1519718 Caviar Emptor
Caviar Emptor's picture

Central banks are accumulating even more. Eurozone individuals are scrambling for it

Wed, 08/03/2011 - 08:17 | 1519994 Pegasus Muse
Pegasus Muse's picture

Funny how those guys at GLD and SLV have no problemo aquiring 20 Tonnes of the Shiney Stuff.  It's almost as if they create it out of thin air.  Maybe Eric Sprott should give 'em a call and ask them how they do it.  lol 

Wed, 08/03/2011 - 02:46 | 1519684 molecool
molecool's picture

Strawberries AND bananas??! There goes the economy - we are doomed.

Wed, 08/03/2011 - 02:57 | 1519694 SilverRhino
SilverRhino's picture

Silver $41.44 ... goodbye trading range doldrums ....

Gold $1672 ... looks like Europe is in the process of saying Fuck You to the controlled American currency devaluation plan.

Wed, 08/03/2011 - 02:59 | 1519698 BaBaBouy
BaBaBouy's picture

 

TYLER ...

 

Do you ever sleep ?

Wed, 08/03/2011 - 03:29 | 1519721 XenoFrog
XenoFrog's picture

Sleep is for humans. Tyler was cobbled together from the parts of a thousand daytraders, economists, and a Ti-84.

Wed, 08/03/2011 - 04:03 | 1519733 indygo55
indygo55's picture

And at least one Johnny-5.

Wed, 08/03/2011 - 02:59 | 1519699 dust to dust
dust to dust's picture

 Argentina anyone? Nice move Mr. Galland. I might be next.

Wed, 08/03/2011 - 03:00 | 1519700 zorba THE GREEK
zorba THE GREEK's picture

Gold and silver are skyrocketing at this moment. The s**t is hitting the fan. It seemed to take forever to get here but it's

going down pretty fast now. 

Wed, 08/03/2011 - 03:04 | 1519707 takeaction
takeaction's picture

Yep...The pre open futures just went down big.  They were positive for a little bit...then woosh.  Going to be one hell of a day tomorrow.  VXX should go up 6%...lets see.

Wed, 08/03/2011 - 06:12 | 1519775 RECISION
RECISION's picture

Yes, in theory it should be going down about now - crash and burn.

an unstoppable inferno of government spending, inevitably leading to an earth-shaking crash

I thought so too. But I am coming around to the conclusion it isn't going to happen that way.

The whole point of kicking the can isn't to stop the inevitable, it is to stop in happening NOW.

The longer you kick the can (and here is the important part) the slower the devolution.

Is a crash at the speed of a glacier still a crash?  Not if no-one notices.

It will still scour the landscape clean, but so slowly that no-one really notices, or gets off their arse to change things. If it all happens slowly enough it falls below the pain threshold and the high priests keep their jobs and everyone keeps riding the slow train to nowhere.

Who cares if the whole system is bankrupt. If you manage it right, you get to stay rich for the rest of your life, and after that it is some-one else's problem...

For the PTB the object is not to redeem the system - it is to prevent revolution. 

And so we will die not with a bang but a whimper.

Wed, 08/03/2011 - 06:59 | 1519803 Withdrawn Sanction
Withdrawn Sanction's picture

"...For the PTB the object is not to redeem the system - it is to prevent revolution.

And so we will die not with a bang but a whimper."

True, but TPTB are not as in control as your analysis would suggest. The one thing they can't control are peoples' emotions and Panic doesn't do slow. To borrow from Hobbes, Panic is nasty, brutish, and short.

What will trigger the mob to panic? Who knows. There are lots of potential candidates and it's really a mug's game anyway to choose among them. But something will; it's only a matter of time. This whole credit mess is held together w/baling wire and chewing gum.

Wed, 08/03/2011 - 07:42 | 1519897 CrimsonAvenger
CrimsonAvenger's picture

Gave you a green arrow. Anyone who quotes Hobbes is alright with me.

Wed, 08/03/2011 - 03:06 | 1519709 Caviar Emptor
Caviar Emptor's picture


There is no place you can invest which doesn’t entail taking some risk at this point, but that fact only adds weight to the argument for spreading your assets around.

 

Hate to tell ya, that strategy pretty much ensures you'll lose big. The "throw some darts blindfolded" approach will get you poor fast. This ain't the dot.com boom. Smart money has been seeking safety. You should do the same. 

Wed, 08/03/2011 - 07:21 | 1519849 mayhem_korner
mayhem_korner's picture

Exactly right.  Markets are (or appear to be) finally running scared to safety.  For eurosheep, that seems to be a toss-up between US Ts and PMs.  So interest rates tank and the dollar remains supported relative to everything except gold.

I've been out of the broad stock market for 6 months now, with only some modest holdings in long-term-hold energy and raw materials.

Wed, 08/03/2011 - 03:06 | 1519710 Djirk
Djirk's picture

Nice job of summarizing the key issues. Although I do not agree that the solution needs to be so draconian. It is possible to do a systematic and regular bleed of toxic assets and end up with cleanish balance sheets.

Bush Sr did a nice job of cleaning up the S&L mess. After all that bad debt was eliminated, there was one of the biggest booms in US history, capital was raining from the sky. (Ok got a little crazy at the end, but there was real innovation and productivty gains) Can you imagine life without email or blogs like NeroHedge.

I think the bigger issues are the upcoming entitlement liabilities. It is percieved to be politically easier to inflate away those liabilities. But you saw AARP get all worked up when they started messing with the CPI. Retiring people are going to feel the lifestlye hit from inflation and will not be happy. This is the flower power generation, they were not shy about protesting and taking action in the past. A Washington clean up may be coming soon! Then maybe the balance sheets.

 

Wed, 08/03/2011 - 03:15 | 1519715 Caviar Emptor
Caviar Emptor's picture

If it were just a "balance sheet" problem, we'd be out of it already. Ben has claimed, advertised and proven himself to be completely uninhibited at using the money printing press (his words) and dropping the by-product from helicopters day and night. If the solution was just "cleaning up toxic assets" we'd be done since 09. Every major bank would have been cleaned up by now as the Swedes did back in the early 1990s, and as you stated we did with our S&L crisis. THere's been a banking crisis and real estate bust after every GOP administration since Nixon. We're very experienced at the cleanup, and it's usually over in under 2 years. Why not this time? Why is the business cycle failing only 2 years after the deepest trough we've seen in nearly a century? 

The answer (cheat sheet) is: we're not in a simple balance sheet recession. 

All the theory and tools in the Fed's repertoire are becoming impotent fast. Even after being repeated 2 1/2 times like QE. This rabbit hole runs deep. Really deep.

Wed, 08/03/2011 - 04:23 | 1519739 Djirk
Djirk's picture

you are right a lot of the synthetics are off balance sheet. 

all ben has done is a balance sheet transfer, not a clean up

agreed there are fundamental economic issues that have built up over 30+ years (US exports financial services and war democracy??!?!

freeing up capital that is servicing bad debt will make room for investment in fundamental economic change

Wed, 08/03/2011 - 06:09 | 1519772 Pay Day Today
Pay Day Today's picture

There's no such thing as a 'simple' balance sheet recession (using the term as Koo from Nomura uses it). And looking at just the basic on-balance sheet debt held by consumers, regional banks, and the IBs, no one yet has had the guts to eat the trillion or two in asset writedowns which has been urgently required for years.

What they've done is simply transfer toxic assets from the private sector to the public. That doesn't solve any problems, it just relocates it.

Wed, 08/03/2011 - 06:44 | 1519790 StychoKiller
StychoKiller's picture

Guess you haven't read:

"The Creature From Jekyll Island, a Second Look at the Federal System",
5th Ed., G. Edward Griffin, ISBN:  978-0-912986-45-6

There's a chapter devoted specifically to how much dinero was siphoned off by TPTB

to cover up the S&L fiasco!

Wed, 08/03/2011 - 08:01 | 1519948 grid-b-gone
grid-b-gone's picture

The S&L model would have been a better response, but the big difference today is that the perps do not do time. The Keating five are now the Entrenched 533 (535 minus Ron and Rand). The Goldman spawning machine has had another two decades of distributing offspring.

The individual is pretty much on their own. The message is clear, if you want to own anything, own it outright. Replace fiat money with a more stable store of value. Beware that PMs did not work all that well in 1938.

Specialized skills have always survived political and economic upheaval well. If you're short on tech saavy or nursing credentials, agricultural land could work. In any case, diversify.

Wed, 08/03/2011 - 03:16 | 1519716 Hobbleknee
Hobbleknee's picture

#5 is most important.  When will people ever realize this, and why do the sheeple insist on putting the government mafia in charge of our health care?

Wed, 08/03/2011 - 05:37 | 1519762 Hmm...
Hmm...'s picture

I can answer that:

because the sheeple are put in a Sophie's choice.  Put the Govt mafia in charge of their health care, or Private Corporations.  Private Health insurers and Private Health systems make Govt-managed health care look like a utopian dream.

I'm a doc (current private practice, ex-ICU doc) and I can't tell you how often people would come in with a life threatening illness and then find out that the insurance would not pay for one reason or another.  A favorite tactic was to stall and stall until the patient died.  Hilarious!  Caveat emptor and all that. 

In THEORY (not in practice) govt could/would counterbalance the power of Multinational corporations.  That is what people are hoping for.  that is why they were deluded and voted for Obama.  In practice of course, the various governments are all bought and paid for by multinat corporations. 

one of the reasons this broke down is because we have changed our campaign finance laws so that one $ = one vote.  another is because we have globalized and de-nationalized.  "free markets" and all.  HA.

I know most here are 100% govt haters, and you have this fantasy that without government we would all just be free to skip happily along freely...  but we are beyond that point.

without govt, we would not have your utopian ideals.  we would simply have the Corporations set up officially as head boss.  I've seen it in several governmentless countries that i've been to...  it's not pretty.

the "free markets" ideal is just that, an ideal. It is no more workable than "pure communism".  Free markets inevitably lead to monopolies that then trample all new innovation.  There is a reason we developed anti-monopoly and RICO laws long ago.

Wed, 08/03/2011 - 05:52 | 1519766 Hmm...
Hmm...'s picture

lastly:

yes I know, in the free market fantasy world a consumer could "choose" the best doctor or provider, and could "educate themselves" and "choose" the best treatment for themselves.  thus, all this "choosing" would eliminate bad insurers or bad medical practices.

I will just start by saying that the consumer cannot do these things.  I have 4 yrs university, 4 years med school, 3 yrs residency, 2 years hard research, and 2 years fellowship.  I had near perfect SAT and ACT scores, and scored in top 2% on my national medical board exams.

And yet I still have difficulty making a truly informed choice about medical options outside my specialty.

A whiz kid Apple executive or Facebook programmer doesn't have a chance.  And no, "research" on Google.com or mdconsult.com isn't going to do it.

I currently work for a well respected health organization that also has a health insurance plan.  (kind of like Kaiser).  we get top grades from customers.  I have to do all these ridiculous organizational meetings to get our customer (not patient, customer) numbers up, and our satisfaction surveys up.  Do you know what works time and time again, without fail?  I do.  Building hospitals/clinics with great architecture, Renovating our lobbies, putting in fountains, and putting Trees in the lobby.  lastly giving free coffee and snacks worked really well too.  (you know, cookies, donuts, etc). 
That did FAR more for our numbers and patient satisfaction than getting our diabetic patients under better control, or reducing post-op infections.
(we have renovated my clinic 3 times in 8 years.  complete to the studs.  we have just finished putting 2 story living trees at thousands of dollars a pop into over 20 clinics.)

do you know why?  because customers go into a business and choose based on aesthetics.  "Wow, a grand foyer with a huge fountain and a 2 story tree!  and the coffee is great!" 

so there is an arms race in medicine to build nicer and nicer buildings and single patient rooms with flat panel TVs and gourmet catered foods and all these bells and whistles.

Does that improve health care?  no way.  but it sure is expensive.  I wonder how on Earth we spend so much on medicine in this country?

not to mention this... and remember this well.  The JOB of a CEO of an insurance company is to maximize profit.  Profit happens if claims are less than receipts.  Thus, it is the JOB of a CEO of an insurance company to reduce claims.  The CEO of United Health Group gets $50-100m/year doing just that.

Therefore Govt healthcare sucks.  Private healthcare sucks worse.  of course we can go to an all cash medical system.  I'll not hold my breath on that.

Wed, 08/03/2011 - 06:18 | 1519776 Pay Day Today
Pay Day Today's picture

Obama was voted in to deliver the people a public healthcare option. Preferably one which would keep administration costs and fees to under 5% of monies paid in. He didn't, despite overwhelming public support for such an option. Totally sold out.

 

Does no one in the US understand that the business model of private health insurers is to make money by denying claims? And delaying them (as mentioned above)until patients are dead? Put another way: markets are a dumb way to deliver healthcare. And realistically, most states have no more than one or two truly major insurers anyway so there is very limited competition to start with.

Wed, 08/03/2011 - 06:50 | 1519793 StychoKiller
StychoKiller's picture

The JOB of a CEO of an insurance company is to maximize profit.  Profit happens if claims are less than receipts.  Thus, it is the JOB of a CEO of an insurance company to reduce claims.  The CEO of United Health Group gets $50-100m/year doing just that.

 

Draconian liability exposure, enforced by the courts would soon put a stop to ignoring patient care.  Alas, the courts make it all too easy to paper over bad patient outcomes.  Of course, get-rich-off-the-system patients and their ambulance-chasing lawyers share some of the blame too.

Wed, 08/03/2011 - 07:59 | 1519943 Greenhead
Greenhead's picture

I don't buy the theory that governemt will fix healthcare.  A lot of the problem is that the patient doesn't pay the bill.  Go to a reimbursement program and you would see patients actually negotiating for the lowest bill.  You would have to eliminate "group" coverage and make it all individual and force employers out of the market of providing healthcare coverage.  If you had to buy your own and negotiate the coverage and be responsible for getting reimbursed you would take a lot more ownership over the costs associated with the care.  A pretty lobby wouldn't make that much difference in that case.

Second, the government via the states dictates the type of coverage you can acquire.  Mental and nervous, pregnancy, drug rehab, hair transplants and so on are mandated by the states.  Each state regulates the type and number of providers in the state.  While I like local governance, let's open the markets up to create larger pools which creates more choices for consumers.

The collusion of government with the healthcare corporations to reduce competition is as much to blame as any of the other factors the good doctor is faced with.  Think about it, if pricing is not in the equation, why shouldn't folks want the best lobby, donuts and coffee around?

Wed, 08/03/2011 - 07:07 | 1519813 Overflow-admin
Overflow-admin's picture
The corporations

The monolithic "enemies" of the Shadowrun world (borrowing heavily from cyberpunk mythos) are the corporations, dubbed "megacorporations", "megacorps", or simply "megas" or "corps" for short. Megacorporations in the twenty-first century are global, with all but the smallest corps owning multiple subsidiaries and divisions around the world. They are the superpowers of the Shadowrun universe, with the largest corporations having far more political, economic, and military power than even the most powerful nation-states.

In Shadowrun, corporations are effectively "ranked" by the amount of assets under their control, including material, personnel, and property, as well as profit. These ranks are A, AA, and AAA; AAA corporations are top tier. Most corporations in the AA and AAA level are immune to domestic law, responsible only to themselves, and regulated only by the Corporate Court, an assembly of the ten AAA-rated corporations. All AAA-rated and most AA-rated corporations exhibit a privilege known as “extraterritoriality”, meaning that any land owned by the corp is sovereign territory only to the corp and immune to any laws of the country within. Corporate territory is not foreign soil but corporate soil, just like its employees are corporate citizens, though dual citizenship in a corporation and a nation is common. The AAA corps, as well as numerous minor corporations, fight each other not only in the boardroom or during high-level business negotiations but also with physical destruction, clandestine operations, hostile extraction or elimination of vital personnel, and other means of sabotage. Because no corporation wants to be held liable for damages, it has to be done by deniable assets, or shadowrunners, invisible to the system where every citizen is tagged with a System Identification Number (SIN).

 

Shadowrun / Cyberpunk / Fantasy / Coming soon to reality bitchez!

Wed, 08/03/2011 - 07:11 | 1519821 Withdrawn Sanction
Withdrawn Sanction's picture

Nice false dichotomy, Doc:  It's either giant corporations or giant government.

As for free markets inevitably leading to monopolies, that canard is as old as Marx, if not older.  The only way that can happen durably is for government to assist in the conferral and protection of said monopoly.

BTW, medicine in the US has not been a free market since the AMA lobbied for licensure laws, as a barrier to entry, in the 1930s and 40s.  Nice work if you can get it.

Wed, 08/03/2011 - 03:28 | 1519720 magpie
magpie's picture

QE a la Vreneli & Mrs. Watanabe up next ?

Wed, 08/03/2011 - 03:39 | 1519725 DrStrangelove
DrStrangelove's picture

http://nationaleconomist.blogspot.com/2011/08/us-sovereign-debt-downgrad...

Today Dagong Global Credit Rating Co. Ltd, an emerging Chinese credit-rating agency, downgraded US sovereign debt to A from A+.  Far from the S&P, Fitch and Mood's AAA rating, the Dagong rating won't be taken too seriously at this time.  To put the large discrepancy in perspective, the definition of AAA and AA on Fitch's International Issuer and Credit Rating Scales, the Issuer Default Ratings (IDRs) are only different in that AAA denotes the maximum level of credit.  The actual definition is mere lip service.  Dagong's definitions are very similar to those well known to us already. 

Dagong Global ratings definitions

This downgrade comes on the heels of a downgrade from AA to A+ in November 2010 after the Federal Reserve announced it would stimulate the bond market with QE2.

The report states: "By raising the debt limit the US temporarily prevents the government from debt default but it does not improve the national solvency; rather the heavier debt burden on the government will cause the US sovereign debt crisis to further deepen."

The report echos my sentiment with this next excerpt: "The pace of the US deficit cut is far lower than that of new debt growth and the fiscal policy of revenues falling short of expenditures will surely keep pushing the US government debt to a higher level. The deficit cut objective approved by the Congress matches the size of raised debt, yet there is an eight-year difference between the two objectives."

The report can be read here.

I found their four major points to be quite logical and compelling.

 

http://nationaleconomist.blogspot.com/2011/08/us-sovereign-debt-downgrad...

Wed, 08/03/2011 - 03:45 | 1519728 Outlaw Of The W...
Outlaw Of The Wasteland's picture

http://www.youtube.com/watch?v=_vKxhqSJvPk&feature=share

 

target their familes.  First born sons and youngest daughters.  There are only 535 of them.  Wipe them out once and for all.

 

Let's actually kill congress.

Wed, 08/03/2011 - 03:54 | 1519731 dust to dust
dust to dust's picture

 Acting-man has alot of  up to date charts.

Wed, 08/03/2011 - 04:03 | 1519734 praps
praps's picture

You fail to mention the only relevant thing about the economy.

The baby boomers are retiring. They are stopping spending. Nothing can be done to stop this. We face inevitable depression for the next 10 years. There will be no growth.

The debt that the baby boomers have run up during their party only makes the situation worse but it is not the primary cause of what we are experiencing now.

Wed, 08/03/2011 - 04:32 | 1519743 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

Only the BBoomers with brains have been buying gold and silver up to now. Imagine when the other 99.99999% of them start! fireworks!

Wed, 08/03/2011 - 04:38 | 1519746 Version 7
Version 7's picture

If an individual goes into debt and retires in the meantime, no longer producing goods and services, macro speaking it is their children and grandchildren that will have to pay it off, as the governments' practice has always been to simply spent the contributions as fast as they knew how, ie, there has never been any fund for SS. Adding up both, any debt that retirees accumulate ends up as a burden for the younger generations.

Wed, 08/03/2011 - 04:30 | 1519742 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

The last line is the important one: "get on with your life"

I gureen-dam-tee WTSHTF there'll be people who are diametrically opposed the zero hedge point of view (I mean dumbass optimists) who will come out fine - through luck, through personal contacts, through opportunism, through being sheaple...

yes buy gold, yes buy silver, yes buy guns and ammo, yes buy a farm if you can, yes stock up on dried food...but live your life too, be healthy, have friends, have interests, follow the arts

its like in that film, the pianist, when the nazi guy finds him and asks him wat he used to do before the war and he says he was a pianist and the nazi gets him to play - he's then so impressed that he helps hide him and bring him food until the wars over

its that kind of thing that will save your ass too. If the Jew had answered, I was a precious metals horder", the Nazi would've shot his ass off!!!

Wed, 08/03/2011 - 04:55 | 1519750 RealFinney
RealFinney's picture

That breakfast sounds delicious, all I had was a couple of over ripe bananas at my desk.

Wed, 08/03/2011 - 05:54 | 1519768 Snidley Whipsnae
Snidley Whipsnae's picture

Excellent post Mr Galland.

US debt will be defaulted upon but not until the dollar is printed into oblivion... Thus, we will experience a hyperinflation followed by a deflationary recession that will be unbeliveable to behold.

Those above that continue to point fingers at boomers or any generation of Americans that followed the boomers are wasting your time.

The Fed destroyed Capitalism in the first great bout of easy money printing during the 1920s, a credit contraction/correction followed, then a Great Depression, moderated in part by FDRs many socialist attempts to ease the pain of American families. Few realize today that communism was getting a real foot hold in America after the initial period of the Great Depression and FDR implemented social programs to prevent the out right destruction of democracy in America.

Have we yet seen enough of Fed manipulation to warrant considering replacing the Fed with real free market capitalism in America? Are we aware that the Fed in conjunction with major banks and the financial sector directed Gov fiscal policy have laid waste to our society?

Capitalism should always have booms and busts for that is the nature of the system. The real problems arise when central banks and governments use monetary and fiscal policy in an attempt to stop the small busts that occur naturally. Mr Market knows best and, in the end, the Fed/US Gov will find that their attempts to control markets have failed.

When small busts are prevented the debt build up gets larger, and larger, until a small bust is no longer an option.

We are there now.

Wed, 08/03/2011 - 06:29 | 1519783 Hmm...
Hmm...'s picture

Overall a good article, but a few huge gaffes

Yet, because we live in a democracy, where any politician wanting to be re-elected has to cater to their constituency

are you on drugs?  what are you talking about?  the only thing a politician need do is make sure their donors are happy.  Thus TARP passed without a pause, and our most recent legislation.  Despite "the constituency" being pretty clear that they wanted BOTH spending cuts on defense AND taxes on higher income individuals, AND they wanted to leave Social Security alone, they only got spending cuts that will be focused on SS and Medicare.

1 $ = 1 vote.

the constituency just gets the shaft at all turns.

even though the government was mostly responsible for bringing us to this place

wow... that's revisionist.  I seem to recall that a huge part of the reason why we are here is because PRIVATE parties entered into PRIVATE contracts that their ass couldn't cash.  (AIG anyone).  The mess in the governmental space is astronomical.  THe mess in the private space was even worse.  (Shadow Banking System anyone?)

but let's just give the private sector a free pass.  better yet, blame the actions of the private sector on the Government.  "waah... the private sector wouldn't have ever set up the Shadow Banking System if it weren't for Government!  waah... this would never have happened without Government!" (as you totally ignore the multiple depressions in the 1800's when we were very much SMALL government.

then the PRIVATE liabilities were FORCED upon the constituency AGAINST their wishes... causing an increase in PUBLIC debt.  (privatize gains, socialize the losses).  And this PRIVATE turned PUBLIC debt has caused a public debt crisis.  So we should cut social security.

The only thing worse than government is big business.   The only thing worse than government AND big business is a klepto-corporatocracy where big biz and govt team up against the public.  Unfortunately, that is the U S of A

Wed, 08/03/2011 - 08:03 | 1519955 Bob
Bob's picture

It was clearly a rant from a parallel universe where it is the popular democratic will that is driving us into the ditch. 

Wed, 08/03/2011 - 08:34 | 1520036 Bitch Tits
Bitch Tits's picture

I signed in just to give you this, Hmm...

+14,348,464,918,627.04

 

Wed, 08/03/2011 - 10:08 | 1520362 mahalopamala
mahalopamala's picture

The only thing worse than government is big business.   The only thing worse than government AND big business is a klepto-corporatocracy where big biz and govt team up against the public.  Unfortunately, that is the U S of A

Succinct and excellent summation.

After reading your posts on this article this morning, I am delighted to hear your insightful point of view.  Around our house we have been talking about "consumer/customer" vs. "person" or "human being".  When you call someone a customer, then they become a unit in an ever increasing wheel of complexity.  Therefore, we are systematically being dehumanized by TPTB corp-gov cabal and many folks just don't see it. 

One thing I like to do is to remind folks of their humanity.  I love to talk with teenagers especially- they have not completed the transition to brain dead just yet, and many love to question authority.

 

Wed, 08/03/2011 - 11:00 | 1520617 Bob
Bob's picture

As popular as it is to shit on the younger generation as clueless and stupid--particularly because it serves both TPTB and the provincial "anti-public education" crowd--kids maintain that remarkable ability to think freely until they enter what is euphemistically called "the real world" of adulthood, a.k.a., debt and wage slavery. 

One of the most thought-provoking books I've ever read was Self Made Man: From Eden to Extinction

http://www.amazon.com/Self-Made-Man-Human-Evolution-Extinction/dp/047115...

Among the gold there was the hypothesis that most early technological progress was the product of children "playing." 

Wed, 08/03/2011 - 06:56 | 1519801 eddiebe
eddiebe's picture

I believe the author makes the wrong assuption when he states:

'By contrast, today the Fed is virtually helpless. Rates certainly can’t be pushed lower by any appreciable amount, and the Fed sure as hell doesn’t want them to go up.'

This is what I assume:
Since the bankers thrive on interest, they will drive as much money into bonds by any and all means at their disposal, and then they will drive up the rates.
Looks to me like their game is working, and very few are noticing.

If you have'nt figures it out yet: The bankers aka the fed are not here to help the government or you! When trying to make predictions the foundations need to correspond to reality or what stands on them will not be supported.

Wed, 08/03/2011 - 07:08 | 1519819 Internet Tough Guy
Internet Tough Guy's picture

Crap article. Inflation screws the savers, the debtors love it.

Wed, 08/03/2011 - 07:47 | 1519909 overmedicatedun...
overmedicatedundersexed's picture

Bush jr "no nation building" yah sure you shit.

Bush jr " save our economy I will sign tarp mr paulson can do what he wants with the money risk free" well not an accurate quote but accurate enough.

Bush Jr " I am a compassionate conservative"  no you were a socialist adding to the progressive agenda. ala medcare D drug give away.

Bush jr" illegals doing jobs American's won't do"..getting to sound like each other Obuma and Bush.

the capture of our pols by elite NWO corps and banks was on public display with the recent debt hike and structural change on how congress controls gov finance..

got it yet?

 

Wed, 08/03/2011 - 08:09 | 1519938 Bob
Bob's picture

What’s left of the solid matter of the nation’s accumulated private wealth is fast being burned off by an unstoppable inferno of government spending, inevitably leading to an earth-shaking crash.

I understand that you're senselessly crooning to the blind passions of the "sovereign man" choir here, but really?  "The Nation's" accumulated private wealth belongs to a very small percentage of the population . . . and they're  losing LESS of it every day.  They're the people and institutions that the government PAYS interest on debt . . . rather than taxing them to increase revenue.  

Credit "crowd out" has no application here, with the Fed balance sheet absorbing excess supply of government debt.  Look at rates.

Yeah, inflation is costing some people money.  But they are the middle class--and they are not the primary holders of this "Nation's wealth."  (Funny that you can refer to it as the Nation's wealth, btw.)

The "private wealth" to which you refer is being preserved by transferring losses to the public balance sheet.  That's not spending.  That's government-corporate crime. 

 

Wed, 08/03/2011 - 08:37 | 1520053 Bitch Tits
Bitch Tits's picture

Bob, I would give you a vote up if the damn thing actually worked.

Wed, 08/03/2011 - 08:49 | 1520073 Hubbs
Hubbs's picture

Good post. Just saw this months issue of Managed Care in the doctors lounge -the growing power of managed care providers.

Hospitals are jumping on the band wagon to merge- and certain CEOs are getting rich in the process of reformatting their hospitals so they can merge (be aquired on the cheap) by big hospitals...for economies of scale and pricing power- in essence turning the tables on the insurance companies.

 

But wait! If hospitals merge for greater pricing power from health isnurance companies, then health insurance companies increase the premiums. This does not stop here. Companies and indivduals are unable to keep up with these increases and drop out to join the increasing ranks of the uninsured, with eventually will cause the bottom to drop out on these glorious kingdoms of health care. Fewer and fewer insured patients will exist to feed the beasts.  Ex private practice docs like me, an orthopedic surgeon,  have to shut down when the indigent burden gets too great.

The rage now is for physicians, especially ones just out of residency to be employed- no overhead hassles, maybe more money- going rate for employed orthopedist is 450K. Ex private practice docs like me, an orthopedic surgeon,  have to shut down when the indigent burden gets too great. But as hospitals run out of money, and more docs are herded into employed situation, their incomes will drop- and so will their productivity.

 

 

 

Wed, 08/03/2011 - 10:03 | 1520333 Blithering ORSA
Blithering ORSA's picture

Downgrade the UST to AA, and everything "cut" in the recent debt ceiling dick-dance will be swamped by the increased interest expense.  We need to figure out what to do about it when our government really does become insolvent.

Wed, 09/14/2011 - 04:40 | 1667333 chinawholesaler
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