Saturday, September 17, 2005

The Great Game

For those of us who work in the financial industry, these are interesting times. But even those who have nothing to do with Wall Street have a stake in what's happening below the surface of our economy. This is particularly true in light of the government's response to Katrina, which will impact all of us. This post will focus primarily on oil. As I'll explain, I believe oil is the most important issue facing us right now, but not for commonly accepted reasons. This is a long post, but I don't think you can fully understand major geopolitical issues including Iraq, Iran, and China without also understanding some seemingly unrelated issues that are coming to a head right now. I'll try to keep the wonkishness to a minimum and make this accessible to most readers.

First, we need to dispense with some of the myths about oil that have gained acceptance recently through sheer repetition. One of these is that the relentless rise in the price of oil "acts like a tax on the consumer." This is nonsense. Taxes, as painful as they are, at least have some domestic benefit for those who pay them. Taxes build roads, maintain the military, and pay for public education. The majority of money we fork over at the gas pump simply leaves the country. It builds roads in Riyadh, Tehran, and Caracas. Another chestnut is that "oil is doing the Federal Reserve's job for it", which I heard yesterday on a business news show -- the implication being that Alan Greenspan and the Fed don't need to raise interest rates since higher oil acts to slow the economy just as higher rates do. More nonsense. Oil does not do the Fed's job; it reflects the job the Fed is doing. All else being equal, the more money the government prints, the higher oil goes. And indeed, over the past year all else has been equal. Despite the constant media hype about Chinese demand, last week Morgan Stanley analyst Andy Xie noted that oil's demand-supply relationship has not changed this year -- but oil prices are up about 70%.

You can thank easy money. Although the Fed continues to raise interest rates at a snail's pace from historic lows, the financial system is flush with liquidity. In real terms, monetary policy is easier now than at any time since the early 1970's when the U.S. was paying off the debts from another expensive war, and Federal Reserve chief Arthur Burns kept rates too low to help Nixon get re-elected. (By the way, you can listen to Nixon and Burns on the Oval Office tapes secretly discussing manipulating the economy and government statistics to boost Nixon's 1972 re-election chances at this link. It's a must-listen for anyone who naively believes the Federal Reserve is immune from political pressure as it is supposed to be. It's also relevant, as records indicate that current Fed chairman Alan Greenspan has been visiting the White House far more often than any of his predecessors.) This leads to another oft-spoken absurdity about oil: even though it's near an all-time high, "it's still well below its inflation-adjusted high" of the 1970's. In other words, the price of oil is rising due to inflation, but we've printed so much money over the past 25 years that we've made oil cheap! So goes that line of reasoning, which is cognitive dissonance, denial, and circular logic all wrapped into one. Want a good prediction on where oil will be trading a year from now? Tell me exactly what the Fed's monetary policy will be and how much liquidity will be created or drained over the next twelve months, and I'll give you a pretty good guess on where oil will be trading.

Of course, one doesn't need commodities like oil and gold (the latter hit a new 18-year high this week, by the way) to understand how much money the government is printing. Our wallets are good indicators. The price we pay for gas at the pump is only one manifestation of oil prices. Oil is reflected in the vast majority of our purchases including clothing, food, furniture, heating and air conditioning, and building materials. The government understates actual inflation by a variety of methods, one of which is stripping out the cost of food and energy to arrive at a "core consumer price index." But it's impossible to strip out inflation's unsettling and dangerous social consequences.

The rich and the poor both suffer during inflation. But on a relative basis, the rich do far better. Those who are hurt the most are middle and lower-income workers whose only source of income is a fixed salary, and senior citizens living off a retirement income that does not change while the cost of life's daily necessities inexorably climbs. Staying ahead of inflation takes capital; money must be leveraged and invested in hard assets to keep pace with the constant and ever-increasing debasement of the currency. All that Fed-created money flows through intermediaries including banks and brokers. That's one reason why the stocks of companies like Goldman Sachs, Lehman Brothers, and Bear Stearns are trading at or near all-time highs right now. Of course, insiders at those firms and others (such as the homebuilders) with a seat at the money-creation parade have done extremely well for themselves recently. Everyone else's inflation is their booming economy.

There are not many recent historical examples of an advanced industrialized nation relying on the fuel of debt and money creation to the extent the U.S. has done so during the past few years. Argentina is one, as well as Germany during the 1920's. The latter was a fascinating period. As Germany struggled to pay the debts and reparations from World War I, it resorted to epic printing of money. This impacted and disrupted German society on every level. Restaurant prices changed while customers ate. Workers immediately ran to buy something -- anything -- after receiving their paychecks, because prices rose by the hour. The wheelbarrows used to cart piles of money to the supermarket to buy food were worth far more than the paper money itself. In one account I remember reading, a Berliner came across an expensive bag left on the street and immediately discarded all the contents -- including the stack of worthless cash it contained -- and kept the bag to sell a few hours later.

But parts of German society did quite well during this chaos, particularly those with access to the river of money creation. This included the staid banker class, as well as leveraged stock and real estate speculators -- in other words, today's investment bankers, hedge fund managers, corporate insiders, and real estate flippers. At the height of its inflation during the early 1920's, Germany's stock market began a stunning climb that masked and defied the underlying economic chaos. This happened because people were desperate for any type of return on their money in order to meet their ever-increasing daily living expenses. Twenty-five year old stock traders got rich, while prudent savers and middle class pensioners lost everything to inflation. It is impossible to overstate the impact this had on traditionally conservative and ordered German society. The nation was turned upside down, and people were both fascinated with and enraged by the chaos that defined their daily lives. The public's reaction to this paved the way for the rise of Hitler, who railed against the "greedy money changers" who had benefited from the economic insanity. Importantly, Hitler's appeal increased exponentially after the great credit collapse of the early 1930's, when the inflation and debt creation of the previous decade unwound quickly. We know what happened after that.

Make no mistake: Weimar Germany was an extreme historical example of monetary policy gone bad. We ain't there yet. But the fact remains that our current level of debt and reliance on fiat money creation has very few historical parallels, and that is one of them. It would be foolish to disregard it simply because so much about Germany in the 1920's and 1930's is easily dismissed for its madness. Think about recent news reports like this:
One cab driver says he watched in amazement as a New York gas station billboard price was changed from $2.91 a gallon to $3.49 even as he filled his tank on Wednesday night.
Or this:
Jim Jundt was so determined to rein in his spending on gasoline that he got out of bed early and rode his 14-year-old quarterhorse mare to work.

Jundt lives 15 miles south of Minot and works as a mechanic at Goodyear Tire & Auto Service in the city.

He said he and his co-workers had been talking about rising fuel prices, and he joked that he would ride his horse to work if gasoline ever hit $3 a gallon.
Or this:
Amtrak announced Friday it will raise fares nationally to counter higher energy costs, with Northeast Corridor commuters holding monthly rail passes seeing a fare hike of about 50 percent. Amtrak said fuel costs have risen nearly 40 percent over a year ago and are expected to remain high.
Prices changing while customers wait on line, rising costs forcing people to alter daily behavior, the cost of basic public transportation skyrocketing to reflect ever-increasing energy prices, real assets like property and gold surging, hedge fund managers and real estate speculators profiled and praised constantly in the media -- while prudent savers and those living on fixed incomes fall farther behind every day, and rising inflation contributes to the bankruptcy of companies like Delta, Northwest Airlines and many others. Remind you of any similar historical examples?

As Germany proved in the 1920's, rising asset prices can occur despite deadly underlying weakness. I can't count the number of times I've heard financial pundits assert that all is well because real estate is strong and the Dow is only a few percentage points off an all-time high. Indeed, it "appears" everything is fine. And that's crucial. There is a huge amount at stake. This administration's fiscal program must work, or at least appear to work. If it does not, the entire strategy of encouraging consumer spending and priming the economic pump via tax cuts for the upper class will be discredited for a generation or longer. As a result, the pressure to take extraordinary measures is overwhelming. After 9/11, the Federal Reserve decided that it was never a good time for a recession or any type of economic weakness, including in stocks. That's incredibly dangerous. Recessions are needed to cleanse malinvestment and overcapacity. When government believes it has the ability to repeal the natural business cycle, bad things eventually happen; one truism of the financial markets is that there is no free lunch.

To maintain the facade that all is well in a system built on debt, policymakers must try to ameliorate the undesirable side effects of both inflation and rising rates. And that's exactly what the Fed has been doing for the past few years. Despite slowly raising rates, the Fed has been hurling liquidity at the stock market in an attempt to buoy prices. Remember, the Dow Jones is composed of only a handful of stocks, but it's the most important barometer of public psychology in this country. The behavior of that small group of stocks can paper over a lot of distress under the surface. Intervention in the stock market can occur in several ways. Ample liquidity is overt and indirect; the Fed tells everyone what it's doing, and liquidity flows through various intermediaries and eventually into stocks, bonds, and other assets. There's also another method: covert, direct intervention. This has been the subject of much debate in the financial community for many years. Some veterans of Wall Street believe that the government -- meaning either the Federal Reserve, the Treasury, or a proxy party working on their behalf -- has intervened in the past to directly prop up the stock market. Among those who believe this, the main question is how often it occurs. Based on my experience and various things I've seen and heard, I'm in the "often" camp. Last week, a respected investment house put out a report on this, which you can read here. It's interesting, and I recommend reading it. I believe the time has come for a national debate about this. If government-sanctioned intervention in the equity market is indeed taking place (as it has openly in Japan for many years, by the way) it has serious implications. These include the use of public money to buy stocks while corporate insiders are selling, select Wall Street trading desks profiting from knowledge of the intervention, and the ability to intentionally boost the market prior to an election or other event. Remember, much can be justified when a nation is "at war."

All this is important because it creates an atmosphere of moral hazard. Reckless risk taking is encouraged, because the public sees the government give a wink and a nod that it will be there as a backstop should problems occur. Often it's far more than a wink and a nod. President Bush just announced that the government is going to throw hundreds of billions of dollars into rebuilding the Gulf coast states after the hurricane. If you knew the government would pay for your temporary relocation, rebuild your house, give you a job, and send you a nice check after a natural disaster, would you buy insurance? Would you live in a place less vulnerable to a natural disaster? Would you evaluate your overall risk profile rationally and take appropriate measures to protect yourself? And importantly, what incentive does government have to live up to its own responsibility to prepare for disasters if the printing press is always available as a salve when something happens?

This national atmosphere of moral hazard has important implications. Don't think for a minute other nations do not see it. That might not matter in a less interdependent world. But since U.S. dollars are the planet's de facto reserve currency, the nations we send our paper money to have a keen interest in its real value. There are unmistakable signs of increasing tension about this. One is the declining value of the dollar relative to other currencies. Accompanying this has been the diversification into gold by foreign central banks, including China, Russia, Argentina, Venezuela, India and nations in the Middle East; gold closed this week at its highest level since 1987. Another more ominous sign of skittishness about the dollar is the increasing sentiment among nations in the Middle East, led by Iran, to trade oil in euros instead of dollars. Iran is taking this a step further and planning its own oil bourse to rival those in London and New York, the only two markets where oil trades internationally. This would mark an important shift in the oil and currency markets. (As a sidenote, in late 2000 Saddam Hussein made a big huff about accepting euros instead of dollars as payment for Iraq's oil.) Since oil is currently priced globally in dollars, using a different currency for both pricing and transactions would remove the only way outside of direct military action the U.S. exerts control over a critical natural resource it does not own. This poses a direct threat to dollar hegemony and thus the system of debt creation upon which we rely.

The relationship between oil and the dollar is paramount, because oil is the Achilles heel of the United States. If we owned all the oil on the planet, a major constraint on our fiscal and monetary policies would not exist. In other words, we could essentially print all the money we needed to pay off our debts with far fewer consequences, since we would not have to pay other nations for a critical natural resource. Unpleasant and politically inconvenient downturns in the natural business cycle could be avoided, the government could print money to support the stock and real estate markets endlessly, interest rates could stay low permanently, and there would be no limit on the ability of the nanny state to respond to every natural or man-made disaster with hundreds of billions of dollars in freshly-printed handouts. But this is not the case, and our efforts to make it so have us on a collision course with reality. To illustrate this, think about how you would react in the following hypothetical scenario.

Assume everyone in your town requires an ever-increasing number of widgets every day to live. You are in an enviable position: You are the only widget maker in town, and you have a widget-producing machine in your backyard. However, your machine is old and past its peak, and you're having trouble meeting the town's demand.

For a long time, you've had an informal arrangement with your neighbor. He has a stable, longtime business that produces simple pieces of paper embossed with the phrase "Good For One Widget". Unlike your machine, however, his never breaks down and runs flawlessly 24 hours a day. He has the ability to build as many of these machines as he desires. The arrangement you've had with your neighbor has generally been acceptable to the townsfolk; they like the way the "Good For One Widget" pieces of paper look, and they get their widgets when they need them.

Over the past few years, your neighbor has married, started a family, remodeled his house, and grown fond of taking expensive vacations. To pay for all this as well as his own need for an ever-increasing daily number of widgets, your neighbor builds several more "Good For One Widget" machines which he proceeds to run at full capacity around the clock.

You've also started a family, and have responsibilities and desires similar to your neighbor's. You wish your machine ran as well as his, and you're beginning to get worried about what will happen when your machine stops running completely and you still have a family to support.

One day your neighbor calls you, complains that the unreliability of your widget production is affecting him, and demands that you get your creaky machine running better to meet the exponentially-increasing production of his machine. You slam the phone down, frustrated that you were not blessed with a flawless machine. You realize you have an important choice to make: Work hard night and day trying to squeeze as many widgets as possible out of the remaining life of your machine, or let the price of your widgets rise to earn as much as you can while you still have the ability to produce them at all.

If you were the widget maker, what decision would you make?

Now assume you own the "Good For One Widget" machine, and your name is Alan Greenspan. Your widget-making neighbor's name is Abdullah. Does that change your answer?

This is where the rubber meets the road in the great game. It's where the media cheerleading, manipulated economic statistics, deficit spending, off-balance sheet liabilities, and statist central bank intervention is all called to account. Everything about Washington -- monetary policy, fiscal policy, and politics in general -- is the art of the possible; whatever can be done is done, until it can be done no more. But we cannot print oil. And to the extent we've entered a period in which the majority of wars will be fought not over religion or ethnicity but over natural resources, that has extremely dire implications -- as much for those who own the oil as for us.

249 Comments:

Anonymous susansam said...

Highly compelling post, and informative as well. Lots to think about here. This one should be read far and wide.

9/17/2005 12:29 AM  
Anonymous Anonymous said...

Is it ignorance, tunnel vision, greed or our inability in this country to care about or handle issues until they are in crisis mode or to think outside the box.

I have so had it with our energy/oil situation.

We can conserve. Why isn't it a part of our national consciousness? How utterly absurd and really quite stupid that we the people(or perhaps sheeple) have to wait until it hits us in the pocketbook. Do we have to wait for big brother to tell us. DUH!

Why don't we have cars that get 50 miles to a gallon? That's a no brainer.

Why don't we use alternative energy sources that have been around for decades. Other countries are so far ahead of us in this area. If we had put as much money into developing these as we have put into the war in Iraq, we would have had some of these mainstream and very cost effective by now, and we wouldn't be polluting the environment as we're doing with oil and coal. Greenhouse gasses anyone! We still don't believe we have global warming!

Why haven't we made alternative energy a top priority. Could it be because our leaders and their supporters are from the oil industry?

Why do we even remotely consider the possibility of nuclear energy as an energy source, with its toxic waste.

Why is it when we think of environmental issues, we only think of animals or wilderness and not the fact that where we get our energy has national security implications as well as economic and health issues.

When are we going to wake up!!!

9/17/2005 12:54 AM  
Anonymous Anonymous said...

I just read this several times, not because it confused me but because it was so interesting. Thx TCR.

9/17/2005 12:54 AM  
Anonymous Anonymous said...

TCR,
I would be interested in your estimate of what a national program to create energy independence would cost. Since there currently is no viable replacement for oil, it would be quite expensive---trillions?

9/17/2005 1:29 AM  
Anonymous Anonymous said...

TCR,

Would it correct to say that conservation won't have any real effect here? If we are now globally constrained for oil, and nationally constrained for gas production, then my conservation (or our nations) will only lead to the next guy deferring the decision. Granted, I'm personally better off, but the oil situation doesn't improve.

The cost to replace oil would be huge, probably trillions. There is no one replacement - it'll be many replacements. Natural gas appears to have the same problem as oil, though we're not foreign dependent on it, it's running out as well.

For electricity, you're looking at nuclear or solar (assuming the new full-spectrum solar plays out). If that can be solved, then you can consider a range of portable energy source replacements - either battery or hydrogen/fuel cell. This also clears the need for heating oil.

We need something to replace kerosene (jet fuel) which we just don't have any lead on. The military will come to a dead halt if the oil supply dries up. There's a ton of secondary petroleum products - lubricants, other accelerants. There's also products produced from oil - pesticides, plastics, rubber, and so on that will need some kind of replacement. Simply put, there's almost nothing in your life that isn't made from or made by using oil.

The best, first step would be for this nation to get comfortable with nuclear again. Modern designs are very safe. There's some very promising hope for solar efficiencies to get high enough to become more cost-effective, but you're looking at a 10-20 year pay-off which is beyond the range of most consumers and even businesses. We'll need subsidies.

This nation will need to get used to conservation. It's not the heat and lights that will be the problem but the mass conversion. The enormity of packaging, plastics, foam, wrappers, and so on that gets wasted. This will be among the hardest to replace because if it isn't now made form oil it's made using a process that involves a large amount of heat and energy. Plus, it's all unnecessary.

The portable fuel will be a problem unless we can ramp up the electricity production to such a high level that we can afford to produce hydrogen for fuel cells. Battery technology has hardly improved over the last century and there's not tremendous hope on the horizon.

The problem as I see it is there's going to be a last-man-out mindset on this. Nobody wants to invest in alternatives until the cost of oil forces it to happen, but innovation and infrastructure changes take time. We could move our electricity from coal/nat gas/oil to coal/nuclear, but it'd take at least a decade of spending with no return. Who other than the government will sign up for that deal?

9/17/2005 4:12 AM  
Blogger Anodyne said...

You were right, TCR, that was a long post.

I’ve read some of your political posts (lots of heart and common sense), but this is the first financial economics posts I’ve worked through, so I’m starting from scratch. You’ve connected a lot of dots here and I’m not sure I have all of the lines in focus yet. Some questions and clarifications if you don’t mind.

It there an Austrian School view of business cycles embedded your argument, with some three-way collusion among the Oval Office, the Fed and Wall Street substituting for the traditional misguided government do-gooder catalyst? (Btw, thanks for the Burns/Nixon link).

I was a little confused about the moral hazard argument as it concerned both individuals and the government. In the former case, are you just arguing that government is supplying de facto insurance so individuals need not purchase it from private insurers? If so, what are the differences you contemplate in the risk taking behavior of an individual implicitly insured by the federal government as opposed to one insured by a private insurer? Or are you arguing that a private insurance market would not be viable in this case, so the risk taking behavior would not occur in the absence of government? If a private insurance market didn’t open or was prohibitively costly, do you see any role for government insurance to promote individual risking taking behavior in order to provide a public good?

In the case of the government, are you arguing that the incentive to shirk when there is access to a printing press dominates any offsetting incentive (say to provide protection to citizens to improve future election of party candidates and/or to avoid personal reputation loss), to the extent that failure of the government to perform its preventative responsibilities is virtually guaranteed?

Finally, could you clarify the widget metaphor? We were to assume that everyone in the town requires an ever-increasing number of widgets every day to live and the widget maker was at full capacity with declining productivity. But then you stated that “… the townsfolk; they like the way the "Good For One Widget" pieces of paper look, and they get their widgets when they need them. I don’t see the tension here that engenders an intermediary role of the paper money in this closed economy. Is there an intertemporal widget savings/consumption issue you were trying to float that invevitably leads to excessive consumer credit relative to supporting asset values? And/or is there a potential underinvestment in widget making machinery on the horizon?

9/17/2005 4:39 AM  
Anonymous Anonymous said...

Very interesting, but the obvious unasked/unanswered question is:

How does this all end and how can one protect oneself from how it is going to end?

9/17/2005 5:05 AM  
Anonymous Anonymous said...

Two things:

Can the United States print money to avoid having to buy oil? Would it be possible to finance other methods of energy harvesting inside the US's control?

If the US was energy-independent, what effect would a long-term liquidity programme do to the rest of the world? Why would anyone use USD if they were declining in value --- and wouldn't that kill the US's soft power?

9/17/2005 5:16 AM  
Anonymous Anonymous said...

Our country is controlled by the rich and corporate America. Sounds leftwingnut, but it's true. No real progress in conservation or increasing fuel efficiency will be made until Congress has the backbone to turn away the oil and auto lobbyists and start doing something that will make a real difference. Given that our president is an oilman, there is absolutely no chance that this will happen.

My husband and I are adjusting our investments to try to protect ourselves when Armageddon comes. If anyone has any smart ideas concerning investment, please post for us all to read.

9/17/2005 9:15 AM  
Anonymous jill said...

GREAT post. Sobering and a bit scary. Like others I'm sure, I read it a few times to let it sink in.

9/17/2005 10:28 AM  
Anonymous JWC said...

Scary Scary. I'm going to print it off and study it. One of the best things that you have written.

9/17/2005 11:31 AM  
Anonymous Anonymous said...

PBS had some of the best programs on the financial crisis Trillion Dollar Bet was about LTCM. They also had a program on the 1998 crisis. Who knew, just by the general media, that it was so bad.

Danial Gross brought up the Spectrem Affluent Investor. Interesting to look at the world from the rich perspective and everyone else. Who is fueling the economy now? You really begin to realize that we are all connected and affected.

Your blog, and the Special Report you mentioned, makes one wonder what do Republicans really mean when they say "free market". If the financial markets crumble and enough pain is felt by enough people, the chaos in New Orleans will be nothing. Maybe there is a reason Bush is pushing for more and more martial law. If you can't lead by ideas and example, you lead by guns. Oh my.

I've thought this for a long time now, that the whole relationship between risk and reward has been messed up. Those that can because of their position or moral standards take the reward, and the little guy is picking up the risk.

God help retirees depending on market returns for future life expenses.

Regarding the comment, If anyone has any smart ideas concerning investment, please post for us all to read. - There are 4 types of people, those that ignore, those that hide, those that are doing the crime, and those that try to help our country and people. How about getting active in our government, or holding our representatives accountable. As far as investments, read the book "Bull" or "The Number" or The Price of Loyalty. The thing about investments are: those in first do the best (if the asset does well, whether it is real or not), the rest of us are just the herd, and if everyone did it, there wouldn't be any advantage. Get as much education and skills as you can so you can earn money or barter and be an asset to our country. I don't mean any disrespect, but I think it was Charles Allmon that said we'd be better off if there were fewer brokers on Wall Street, or something like that. A financial professional is like a doctor, but instead of our physical health, we are putting our financial health into their hands. But unlike the medical profession which demands high education, training, licensing, transparency, peer review, etc. the financial professional can be the guy that failed at everything else. Doctors, lawyers, CPA's have a fiduciary responsibility towards their clients. Not so stock brokers. The only reason I bring this up, is that one is either part of the problem or part of the solution; Wall Street doesn't have to support Government mismanagement; they could lead instead of jumping into bed.

It seems the Republican party has turned into the party of abortion and gays during elections so they can control the masses with emotion, while on the other hand creating financial and other havoc in office. Where are the real conservatives?

Thomas Friedman had an interesting article, "Singapore and Katrina" and starving a government.

Ted Tuner was on David Letterman last night and was simply awesome. He mentioned Lester Brown's Plan B, "Rescuing a Planet Under Stree and a Civilization in Trouble". He also mentioned that the US spends $400-500 billion a year on their military budget (that we know of). The rest of the world spends the same amount collectively. Just think if a portion of that was used for education or healthcare. He listed some leading world problems and their costs:

-$15 billion a year for universal primary education of all children.
-$4 billion a year for adult literacy
-$10 billion a year for reproductive health and family planning

Total cost: $62 billion a year. US Military budget $400-$500 billion but, the U.S. wouldn't have to pay the entire $62 billion; it would be spread out across the world. "You don't stop terrorism with tanks, you stop it with hope," says Ted.

"There's nothing wrong with America that can't be fixed by what's right with America." - Bill Clinton. I felt that way at one time, I hope that is still true.

9/17/2005 1:11 PM  
Anonymous Anonymous said...

Interesting post; thanks for sharing.

I'm interested in learning about economics, but I know virtually nothing on the subject. What's a good but not-too-abstract source for the basics?

9/17/2005 1:47 PM  
Anonymous Anonymous said...

Interesting Article:

"The looming national benefit crisis
By Dennis Cauchon and John Waggoner, USA TODAY

The long-term economic health of the United States is threatened by $53 trillion in government debts and liabilities that start to come due in four years when baby boomers begin to retire. (...)

A USA TODAY analysis found that the nation's hidden debt — Americans' obligation today as taxpayers — is more than five times the $9.5 trillion they owe on mortgages, car loans, credit cards and other personal debt.

This hidden debt equals $473,456 per household, dwarfing the $84,454 each household owes in personal debt. (...)

"As a nation, we may have already made promises to coming generations of retirees that we will be unable to fulfill," Federal Reserve Chairman Alan Greenspan told the House Budget Committee last month.
(...)


USA TODAY used official government numbers to compute what the burden means to the average American household. To pay the obligations of federal, state and local government:

o All federal taxes would have to double immediately and permanently. A household earning $100,000 a year would see its federal taxes double from an average of about $20,000 to $40,000 a year. All state taxes would have to increase 20% immediately and permanently.

o Or, benefits for Social Security, Medicare and government pensions would have to be slashed in half immediately and permanently. Social Security checks would be cut from an average of $1,500 per month for couples to $750. Military pensions would drop from an average of $1,782 per month to $891. Medicare spending would fall from $7,500 to $3,750 annually per senior. The Medicare prescription-drug benefit enacted last year would be canceled. (...)

To bring attention to the problem, USA TODAY prepared a consolidated financial statement for taxpayers, similar to what corporations give shareholders. The newspaper totaled federal, state and local government liabilities, taken from official documents.

Key findings:

oTotal hidden debt. Federal, state and local governments today have debts and "unfunded liabilities" of $53 trillion, or $473,456 per household. An unfunded liability is the difference, valued in today's dollars, between what current law requires the government to pay and what current law provides in projected tax revenue.

oSocial Security. The retirement program has $12.7 trillion in obligations it cannot meet for current workers and retirees at the current Social Security tax rate.

oMedicare. The health care program has a $30 trillion unfunded liability for people now in the system as workers or beneficiaries. The $30 trillion reflects the value today of the more than $200 trillion in deficits over 75 years to cover current workers and retirees at existing levels of benefits, tax rates and premiums. Medicare's new prescription-drug benefit, which starts in 2006, accounts for $6.9 trillion of the program's financial ill health.

How much is $30 trillion? The gross domestic product, the entire economic output of the USA, was $11 trillion last year. (...)

Like a home mortgage

The $53 trillion in liabilities is like a mortgage balance: That's what it would cost to pay off the debt now. The actual cost would be higher because of interest payments. A $100,000 mortgage at 5% interest, for example, actually requires $193,000 in income to repay over 30 years.

Under corporate accounting rules, a corporation would record a $100,000 liability on its books if it promised to pay $193,000 in medical benefits over 30 years. That liability would reduce profits immediately, when the promise was made, although the money would be paid over 30 years. Otherwise, shareholders could be fooled into thinking that the company was better off than it really was.

In fact, the company had committed $193,000 in future revenue — worth $100,000 today — to a retiree and couldn't use the money for shareholder profits.

Government doesn't follow this accounting rule. If it did, the federal deficit in 2004 would be $8 trillion, not $422 billion. The $8 trillion reflects the value of new financial obligations Congress approved without any way to pay for them, plus the year's operating deficit.

Government accounting rules are more lenient because, unlike a business, Congress can take whatever money it needs through taxes and renege on promises by passing new laws. Theoretically, the president and Congress could end all health care for the elderly tomorrow and cease Social Security payments the next day — or double or triple tax rates to pay the bills. (...)"

http://www.usatoday.com/news/nation/2004-10-03-debt-cover_x.htm



"The Debt To the Penny

Current Amount
09/15/2005 $7,918,009,471,434.33
"

http://www.publicdebt.treas.gov/opd/opdpenny.htm



Oh, and does anybody remember Bush referring to U.S. Treasury Bonds as 'I.O.U.'s'?

"WASHINGTON — President George W. Bush’s Social Security road show ran off the road last week and he can’t seem to get it back on track. The uproar was unleashed April 5, when he cast doubts on the creditworthiness of the federal government.

Posing beside a file cabinet at the Office of Public Debt Accounting in Parkersburg, W.Va., and holding a U.S. Treasury bond as a prop, Bush intoned, “A lot of people in America think there is a [Social Security] trust … But that’s not the way it works. There is no trust ‘fund’ — just IOUs that I saw firsthand … The retirement security for future generations is sitting in a filing cabinet.” He then lapsed into his pitch for private retirement accounts, “assets that you can control … that the government can’t take away.” "

http://www.pww.org/article/articleview/6810/1/264/ (et. al.)

Not really helping asserting peoples trust in the gov's 'fiscal responsibility'...

9/17/2005 3:45 PM  
Blogger SimoneDB said...

Wow. Very nice analysis. What you recommend Abdullah and Mr. Greenspan do? Or is there only one ending to this story, the one described above in 1920s Germany?

9/17/2005 3:59 PM  
Anonymous Anonymous said...

IBD, Investor Business Daily, makes reference to the Sprott Investment report.

The more I think about it, I guess I'm surprised that these folks find it a new revelation that the US government has a hand in the markets. I thought it was pretty well known already.

Cheney has said often, and he specifically told Paul O'Neill - when O'Neill was warning of a looming fiscal crisis - that Reagan proved deficits don't matter. I've always thought this was reckless thinking.

Wouldn't you love to know what Cheney's Energy Task Force discussed and came up with for future solutions.

9/17/2005 8:51 PM  
Anonymous Jay C said...

Excellent post, TCR: and, like some of your other commenters have noted: more than just a bit scary.
Unfortunately, for the vast majority of the population out there who don't (to their great disbenefit) read The Cunning Realist, economic "problems", especially potential ones, tend not to have much of an impact on their thinking. Unless and until they lose their jobs, that is. I'd like to think that there are serious folks in the Government (both the Executive and Fiscal Branches) who have done some major pondering on this subject with a view towards dealing with a possible Weimar scenario; but reading both the general and the specialized media: I've come to realize that, at least under this Administration, it's probably not so.
Economics is called The Dismal Science for a reason!

9/17/2005 10:22 PM  
Anonymous Anonymous said...

glad i live in a rural area, we have the ability to at least manage and function autonimously to a degree, most of us do our own repairs and have the mindset of "hmm, there has to be something i can do with that..." when looking at an old water pump, and the answer isn't to use it as a cute little decoration, it's to clean, oil, and store it carefully because it will work if the old sump pump or the city water gives out...

the conservation movement of the 70's isn't gone, it's just been usurped by the continuously higher and higher stress of todays economy based on oil.

the permafrost in the arctic is melting, global warming is accelerating, and we are likely past the tipping point there, looks like we are happily dancing toward the same economically.

i recall a discussion among a number of us E6 and above with our divO on how the us might be attacked and crippled after a GMT on the subject that focused on the soviets and emerging nuclear powers like india... the discussion however, involved a small group who could likely attack our infrastructure, our info services, our banking and economic infrastructure, attacks on financial institutions like the world trade center (yes, by name even) snf nuclear facilities by plane, and by the introduction of an agricultural or medical contagion or political infirmity through star chambering...

gee, and we were just talking...

excellent post TCR


feral

9/18/2005 1:10 PM  
Anonymous Anonymous said...

"The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed."

Alan Greenspan 1966
http://www.321gold.com/fed/greenspan/1966.html

9/18/2005 3:00 PM  
Anonymous Anonymous said...

I thought Fareed Zakaria, from Newsweek was pretty interesting:

'...Bush will go down in history as the most fiscally irresponsible chief executive in American history. Since 2001, government spending has gone up from $1.86 trillion to $2.48 trillion, a 33 percent rise in four years! Defense and Homeland Security are not the only culprits. Domestic spending is actually up 36 percent in the same period. These figures come from the libertarian Cato Institute's excellent report "The Grand Old Spending Party," which explains that "throughout the past 40 years, most presidents have cut or restrained lower-priority spending to make room for higher-priority spending. What is driving George W. Bush's budget bloat is a reversal of that trend."
...
Today's Republicans believe in pork, but they don't believe in government. So we have the largest government in history but one that is weak and dysfunctional. Public spending is a cynical game of buying votes or campaign contributions, an utterly corrupt process run by lobbyists and special interests with no concern for the national interest...'

9/18/2005 5:26 PM  
Anonymous Anonymous said...

Sprott ain't all that.

9/18/2005 7:33 PM  
Anonymous Anonymous said...

I blame Bush. Life is so much simpler since I found Bush and can lay all my cares and woes on him.

9/18/2005 7:38 PM  
Blogger muckdog said...

I just found this, and despite some disagreements with you, extremely thought provoking. Good job.

I don't think that our inflation threat lies in higher energy prices, though. I'm more afraid of the hundreds of billions that will be spent to rebuild a city below sea level.

And I wouldn't be surprised if the greatest endangered resource is water, not oil. Hopefully, neither resource is required to make widgets; so we can always get a job making them.

9/18/2005 8:35 PM  
Blogger SINGER said...

TCR-

Got your blog from Ritholtz..

Anything else to read on Weimar other than "Economics of Inflation"

Thanks,

Dave L Singer

singerconsultants@yahoo.com
http://singerprofitcharts.blogspot.com

9/18/2005 9:22 PM  
Anonymous Anonymous said...

And I wouldn't be surprised if the greatest endangered resource is water, not oil. Hopefully, neither resource is required to make widgets; so we can always get a job making them.

And what reasoning brought you to that conclusion?

Water is not a consumed resource. We may dirty it up, but we turn out almost exactly as much of the stuff as we consume. The challenge with water is twofold - remediation and delivery. So long as we can clean it (we can, with energy, which takes us back to oil) and can transport it (we can, with a minor amount of energy, which again takes us back to oil), then we'll never have a water problem.

Now, California and other place may have a water problem because those issues aren't being addressed, but it's not really a global crisis.

OTOH, the amount of oil is a fixed resource. More will be made, in a few million years if you're willing to wait. Discovery is moving very slowly now - there's not much untapped left out there. Quality is declining - it's souring in almost every major field - more sulfur means more processing means less yield per barrel.

Consider two developments to guide you on the state of oil:

1) Since the US refining capacity is maxed out, why haven't any new refineries been built in the last 3 decades? Surely this administration would support that, yet nobody in industry is interested in doing it. Why? They know it's unlikely to be profitable.

2) Saudi Arabia has begun buying offshore platforms. Now, getting oil out of dry ground is way cheaper than offshore - so why would they be spending the money if they didn't have to?

And alas, oil is used for making almost all widgets right now - either directly, for power, or for transportation. And as for the $200B - it's really not a significant number in the greater scheme. It's important because the administration would still like to cut taxes by $200B, which is idiotic. It's also important because there's a chance that it won't work and we'll spend $200B for the sake of giving the economy a little boost but be stuck right back where we started - and that too is idiotic. But there's more than $200B in pork in each year's transportation bill, and nobody has been outraged about that over the years.

9/18/2005 10:56 PM  
Blogger George said...

Anonymous sez: Why don't we have cars that get 50 miles to a gallon? That's a no brainer.

Clinton/Gore spent $3B on the Partnership for a New Generation of Vehicles project. This was an American Auto Industry consortium aimed at creating a practical 5 (6?) passenger car that got good gas mileage. DaimlerChrysler demonstrated a car that got something like 70+ mpg in combined city/highway. It used clean diesel (yes, there really is such a thing- uses a soot-eating catalytic converter) and some kind of advanced strong but lightweight chassis. Crash performance was like a normal car. It looks kind of like a Honda Insight's big brother. The cost penalty was said to be $3500 per car. Bush killed the PNGV program, replacing it with a Hydrogen/fuel cell fantasy that might become reality in 15 or 20 years. In other words, they killed a program that would have been good for America, though perhaps not so hot (at least at the time) for Detroit, and certainly not for big oil... and replaced it with political cover.


Why do we even remotely consider the possibility of nuclear energy as an energy source, with its toxic waste.

Because the only other industrial strength baseload capacity is Coal. The lethality of coal is mind boggling. Due mainly to particulates, coal kills literally thousands of people each year in this country, mostly through increased cardiovascular and pulmonary disease. Nuclear kills... no one. (Does Karen Silkwood count?) A coal plant emits more radioactivity than a nuclear plant, not to mention the mercury and other heavy metals. And then there's the CO2. Personally, I don't consider running a gigantic experiment with the earth's climate to be a "conservative" choice. Nuclear waste is not as big a technical problem as some would have you believe. Existing waste will decay to background levels in something like 200 years. The "100,000 years" nonsense is for them to decay to zero, a somewhat ridiculous standard given that sleeping next to your wife exposes you to a lot more than zero mrem from the radioactive potassium in her body. (lends new meaning to "why dear, you are positively glowing!")

George

9/19/2005 1:00 AM  
Anonymous dave said...

a robust and thought-provoking post sir. but isn't this what america has wanted for so long: a world with a single economic free-market capitalistic system. i'm in my 50s so i clearly remember all of america's cold war rhetoric. and do you know what? it provided an incredible material standard of living for over 50 years. now the bill is coming due. play-time is over. permanently.

9/19/2005 3:28 AM  
Blogger CM said...

Thanks George, I was just about to respond to this comment too:

"Why do we even remotely consider the possibility of nuclear energy as an energy source, with its toxic waste."

The fact is, we have suffered such a backlash from the ridiculous 1950's love of nukes-- "hey, how about an atomic mousetrap!"-- and the later realization that not everything radioactive is cool (Three Mile Island, Chernobyl, etc.), that we have set our energy policy back decades. Atomic power offers non-petroleum based energy in a manner that, as pointed out above, is actually safer than coal. Do I want one in my backyard? No, but then I don't want a coal-fired power plant across the street, either. Another angle on nuclear power that is especially important now is that atomic power plants can be used (during off-peak hours) to generate hydrogen for use in a variety of alternative fuel applications-- it takes energy to free up hydrogen, after all. Like the liberals with their environmental concerns in the ANWR and conservatives with their ties to Detroit, everyone is going to have to give a little on their pet issues if we are going to make it. In the long term (and maybe not so long term) we are talking about the very existence of our culture.

9/19/2005 1:19 PM  
Anonymous Anonymous said...

"Now, California and other place may have a water problem because those issues aren't being addressed, but it's not really a global crisis."


It might not be an crisis for the U.S. (as of yet), it certainly is a global crisis:

"Water shortages will leave world in dire straits
By Dan Vergano, USA TODAY

More than half of humanity will be living with water shortages, depleted fisheries and polluted coastlines within 50 years because of a worldwide water crisis, warns a United Nations report out Monday. (...)

Based on data from NASA, the World Health Organization and other agencies, the report finds:

* Severe water shortages affecting at least 400 million people today will affect 4 billion people by 2050. Southwestern states such as Arizona will face other severe freshwater shortages by 2025.

* Adequate sanitation facilities are lacking for 2.4 billion people, about 40% of humankind.

* Half of all coastal regions, where 1 billion people live, have degraded through overdevelopment or pollution (...)"

http://www.usatoday.com/news/nation/2003-01-26-water-usat_x.htm


Then again, those people with inadequate access to drinking water / sanitation are most likely the ones living on a couple dollars a day (and less), so they won't get us in serious trouble...

< / cynic mode off>

9/19/2005 1:42 PM  
Anonymous Antonie said...

"Oil is like a girlfriend. You know that she will leave you at some point in the future. To avoid a heartbreak, you should leave her behind!" Fathi Birol, chief economist of the IEA. (via Jerome a Paris)

9/19/2005 9:23 PM  
Blogger 277fia said...

From the April 1997 James A. Baker Institute for Public Policy report, "The Political, Economic, Social, Cultural, and Religious Trends in the Middle East and the Gulf and Their Impact on Energy Supply, Security and Pricing":

"Moreover, as the US considers its future role as the protector of the free flow of oil from the Mideast and into Asia, it will have to address domestic constituencies that may not fully understand the global nature of oil economics and will as such, question US military policies in an environment where the imports entering the US may not in great measure be from the Mideast but rather from Venezuela, Mexico, Canada and Latin America."

9/19/2005 9:32 PM  
Anonymous Anonymous said...

The modern population boom dates to the introduction of oil into widespread use in the mid 19th century.
If I recall correctly, the population then was 1 billion. Without oil, we cannot sustain 7 billion people. Period.
There is no current substitute for the main uses of oil, in agriculture and transportation of good---none. I have no idea what the consumption curve will look like when we hit peak oil, but I'd say that transporting goods and feeding ourselves has got to take a higher priority than tooling around in cars.

9/20/2005 12:25 AM  
Blogger 277fia said...

Small political stories:

#1
On 12/9/02, President Bush nominates John Snow, former chairman of CSX to be secretary of the treasury.

On 12/18/02, CSX announces it would sell a majority stake in its container business to the Carlyle Group for $240 million in cash and $60 million in securities.

On January 31, 2003, Governor Pataki signs a bill to reduce property taxes for CSX to "remove a roadblock to construction of a second rail line along the CSX right-of-way." CSX has never indicated that it intended to build a second line.

To compensate for revenues lost to local governments and schools, the bill requires the state to set aside $70 million to be paid to these entities over 10 years. At the end of that time, the local governments and schools will have to make up for the revenue in some other way.

On 4/22/2004, the Port Authority announces that it will spend $32 million towards the restoration of the Staten Island Railroad which will link the Howland Hook Marine Terminal with the CSX Chemical Coast Line in New Jersey. The Port Authority will also build a new intermodal rail terminal.

#2
Since 1996, the People's War in Nepal has steadily gained popular support of poor peasants in the countryside. The corrupt and reactionary Nepalese government has been in constant turmoil, fraught with infighting, over how to crush the Maoists.

In 1997, Texana Resources Company bid an won the right to search for oil in Nepal in two blocks along the border of India. Max Mazy is the president of Houston-based Texana.

In March 2000, a US sponsored conference in Katmandu was held to adress the question of how to help US companies tap into the growing South Asian energy sector.

In June 2001, Nepal's crown prince reportedly opens fire in the royal palace, killing the king, queen, a prince and five others. The crown prince later dies from self-inflicted wounds. It is now generally believed that the king's brother who inherited the throne conspired to commit the murders.

In June 2002, James A. Baker secretly visits India to meet with senior officials of the Prime Minister's Office and the external affairs and petroleum ministries.

The agenda was three-pronged: 1. Lobby Indian support for a US plan to attack Iraq 2. Persuade two Indian oil companies to drop their exploration and production plans in Iraq and 3. Persuade one of the oil companies to partner a US energy company exploring Texana's two oil fields.

In January 2002, Colin Powell goes to Katmandu to meet with Nepal's king, now the prime minister, and generals of the Nepalese Army. In May, the prime minister flies to Washington to meet with George Bush. Congress provides $20 million in military aid to Nepal.

As of April 2005, the Texana oil exploration is on hold along with a major hydroelectric power project as a result of rebel activity.

#3
Charles Gargano, vice chairman of the Port Authority and president of Empire State Development Corporation, is a Bush pioneer.

In 1979, Gargano is named for his part in the $2 billion Southwest Sewer District scandal in Suffolk County, NY. Mr. Gargano is known to have ties to the Lucchese mafia family.

In 1980, Gargano finances Alphonse D'Amato's election campaign with proceeds from the sewer scandal.

In 1982, Ronald Reagan appoints Gargano to be under secretary for transportation. After one year, Gargano returns to Long Island.

In 1987, Gargano and several other businessmen apply for a state banking license and are turned down by the state banking commission, primarily because Gargano and another sewer scandal participant are involved.

In 1988, George H. W, Bush appoints Gargano to be ambassador to Trinidad-Tobago.

In June 1991, a gas company drillling offshore in Trinidad experiences a bizarre accident which resulted in the demise of the gas field.

In June 1991, Gargano returns to Long Island.

In 1992, Enron is awarded gas exploration rights in Trinidad to replace the previous company. There are no other bidders.

In 1999, Enron exchanges shares of Enron Oil & Gas (EOG) for EOG's China and India operations. EOG contributes $600 million in cash to Enron. EOG retains the Trinidad business.

On 9/19/2005, EOG trades at $72.70 per share.

In 2001, George W. Bush appoints Anthony Gioia to be ambassador to Malta. Malta derives 80% of its revenue from trade with Libya.

Goia, a Rochester NY macaroni king, is an associate of Gargano and a Bush donor.

Colonel Gadhafi is rumored to be offering $100 million for help in getting US sanctions lifted.

In May 2003, Gargano visits Malta and gives a speech to the local business association.

In September 2004, George Bush lifts Libyan sanctions.

In December 2004, Gioia returns to NY.

In July 2005, Gargano appoints Gioia to the Erie Canal Harbor Development Corp. to oversee Buffalo projects.

In September 2005, the LA Times reports that the CIA permitted Libyan intelligence chief to interrogate an anti-Gahdafi prisoner held in Guantanomo.

9/20/2005 1:43 AM  
Anonymous Anonymous said...

nice timelines 277fia,

and we all know it isn't an isolated thing, don't we. look at all energy. look at the environmental safeguards and national science foundation, look at redistricting and medicare and the courts...

look at election irregularities and the newborn infant death count in this country.

9/20/2005 9:23 AM  
Anonymous thirdeye said...

Until Joe Sixpack can't afford to go to NASCAR races there is NO ENERGY CRISIS!

9/20/2005 3:11 PM  
Anonymous scott_api said...

Thirdeye gets the prize. Gas shot up to $3.50 a gallon near me, and there was widespread panic for almost 10 days. It's back to the high $2's so life goes back to blissful ignorance.

If gas continues to rise gradually, no-one will notice until it affects something like NASCAR. I vaguely remember an Indy 500 race in the late 70's where one of the pit crews was pouring the drops out of the refuel hose back into the tank in the pit, and the commentators mentioning it. We had gas lines around the block back then (guess I am showing my age). Until people get slammed in the face with this (NASCAR races not running, or new restrictions on NASCAR about fuel) it’s never going to be a big deal to people. John Kerry tried to make energy independence a National Security issue. Part of the reason it failed was Kerry himself, the other reason is that ‘Joe Sixpack’ doesn’t see anything as a National Security issue if it doesn’t involve explosions.

9/20/2005 3:46 PM  
Blogger Mr. Naybob said...

Cunning Realist,

Love the missive, we are on the same page.

We can print oil if we want read up here.

http://naybob.blogspot.com/2005_09_04_naybob_archive.html

And more on the market manipulation or intervention

http://naybob.blogspot.com/2005/09/market-manipulation-speculative-abuse.html

The Nattering Naybob
A Cunning Linguist

9/21/2005 1:55 PM  
Anonymous mr. hedley bowes said...

TCR, a timely and well considered post.

Mr. Naybob, your archive post offers an excellent analysis of the array of energy sources available. I am of the opinion that in the short term, energy is our greatest national security issue and we are literally sitting atop a googleplex of BTUs. Pebblebed nuclear sources are compelling. Wind energy and wave generation turbines are also immediately at hand. There's enough thermal energy in this planet and enough solar energy striking it to power countless turbines: the economics of these resources are now becoming viable. Here in the NW of the U.S., there is a small but growing market for biodiesel that is becoming increasingly competitive with petroDiesel. I also see retrofit improvements to hybrid vehicles (adding rechargeable battery systems) that increase fuel economy in urban range (30-40 miles) to 100mpg and more. Combine the two technologies, biodiesel and enhanced hybrids, and we have a sustainable personal transportation solution that is marketable NOW. While these solutions will not immediately reduce import dependence, they do provide a sustainable component to the energy mix.

In my estimation, Kerry was right and in terms of national energy security (among a long list of other issues) Bush blew it.

9/22/2005 1:27 AM  
Anonymous Anonymous said...

fascinating post TCR!

9/22/2005 6:49 AM  
Anonymous Anonymous said...

You sure do sound like Peter Navarro. Have you read him?

9/26/2005 12:23 AM  
Anonymous Anonymous said...

SAVE YOURSELVES

The situation looks worse the more you look at it.

US Nobel Laureate Slams Bush Gov't as "Worst" in American History
http://www.commondreams.org/headlines03/0729-06.htm

I.M.F. Says U.S. Debts Threaten World Economy
http://www.nytimes.com/2004/01/08/business/08FUND.html?hp=&pagewanted=print&position=

Bush drives the nation towards bankruptcy.
http://www.rense.com/general49/bankrupt.htm

Drowning, First-Class Style
http://www.tompaine.com/feature2.cfm/ID/8019

American trade: hurtling towards the tipping point
http://www.unsustainable.org/view_art_un.php?AID=291

Some think the dollar has fallen too far. On the contrary, it has not fallen by enough
http://www.economist.com/opinion/displayStory.cfm?story_id=2404984

Bush Wants To Bankrupt America
http://www.informationclearinghouse.info/article3977.htm

Jobs Bloodbath to Come
http://news.ft.com/cms/s/37588278-1bb1-11d9-8af6-00000e2511c8.html


It gets worse:


I Really Cannot Understand Why Anyone Would Do This
The numbers in the back of the 2004 Budget documents project that the budget year that began when Clinton was still President will be America's last surplus year, ever. The policies proposed in the 2004 Budget are projected to see the deficit widen steadily to 17.5 percent of GDP by 2050. By that date debt held by the public is projected to be 229.4 percent of GDP -- a debt and deficit level that no economy could possibly sustain.

What does this mean? It means that the (not very bad) economic news of the past year coupled with the provisions the Bush Administration has put into its 2004 Budget will, if enacted, put the U.S. once more on the path to national bankruptcy.

Why would any administration deliberately unbalance the long-term finances of the federal government?

http://www.j-bradford-delong.net/movable_type/archives/001541.html


And worse still:


Derivatives Market Grows 20% to $170 Tln, BIS Says

http://quote.bloomberg.com/apps/news?pid=10000103&sid=aR4pMAz.ogAA&refer=us

The global investment derivatives market is hedged to the tune of $170 TRILLION - with a 't', not a 'b'. In other words, the world's financiers have short-sold - i.e, mortgaged - the entire world economy five times over, just to keep it going and to give the planetary economic system the appearance of looking a lot better than it really is.

This collection of derivatives hedges is so gigantic that it can never be unwound. So the world is essentially bankrupt. It just hasn't been notified yet.

It's estimated that it will take two to three years to go into an actual depression, but the result is not in any doubt. What is questionable is whether the economy will ever come OUT of the coming depression.

Keep in mind that the neocons cannot afford to ever lose power, because that would allow for them to be prosecuted as criminals.

It should be obvious, from the rapacity of their policies, that the neoconservatives have no use for the US as a free country, but only as a vehicle for global military imperialism and as a corpse to bleed dry of its wealth.

It should be obvious that the purpose of the neoconservatives in pursuing such destructive policies is to prevent the American people from mounting any effective opposition to a neoconservative dictatorship.

Bush did say he preferred a dictatorship, didn't he? You probably thought he was kidding. Or that it is not possible.

Save yourselves. It's obvious the neoconservatives have no intention of saving you except as powerless subjects.

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So, how does this end? What happens when the country starts to go downhill fast and people really being to feel the pain? We know how it ended in Germany.

We do have an abundance of jews in positions of power in private and public financial institutions and corporate America. We have a fanatical and ingnorant main stream America ready to kill anyone when slightly provoked.

Seem like a potent mix for another holoucast.

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