MORE ON THE DEBT AND DEFICITS:
There are no more good choices or outcomes left.
Once confidence in the currency collapses, the problems become greater and the solutions (if any) will be out of our control.
WE ARE NEARING THE POINT WHERE WE WILL NO LONGER HAVE CONTROL OF OUR OWN DESTINY. OUR DESTINY WILL BE DECIDED FOR US AND BY FOLKS WHO DO NOT HAVE OUR BEST INTERESTS AT HEART OR ARE WAITING FOR "PAYBACK TIME". AND YOU NOT WHAT THEY SAY ABOUT PAYBACKS?
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from Marketwatch.com:
http://www.marketwatch.com/story/super-committee-democrat-jobs-key-to-debt-cuts-2011-08-17
WASHINGTON (MarketWatch) — Rep. Chris Van Hollen, one of 12 members of the new congressional “super committee” charged with cutting the budget deficit by $1.5 trillion, believes the panel must do two things at once: stem the government’s red ink and help the economy get back into “high gear.”
Fat chance, tell me how that's going to work. We need to figure out a way to jump-start the economy while simultaneously taking taking away the one tool the have to stimulate the economy, deficit spending. It's like trying to drive the car with the gas pedal and the brake pressed simultaneously. I don't know about your care, but in mine, that doesn't get you very far. And it pisses off the vehicle.
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We're heading towards our economic "FRAM Oil Filter" moment, where we'll have to decide if we want to pay now (pain of severe recession / depression) or pay later (inflation leading to hyperinflation, loss of status as reserve currency for the dollar, lower standard of living, lower standing in world economy, default on entitlement programs / "promises" to our own citizens).
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http://en.wikipedia.org/wiki/Fram_(oil_filter)
The brand is noted for its trademarked bright orange color, and for its famous marketing slogan, "You can pay me now, or pay me later", which is usually presented as being uttered in its advertising by an auto mechanic, who is explaining to his customer that he can either pay a small sum now for the replacement of oil and filter or a far larger sum later for the replacement of the vehicle's engine.
1981 Fram Oil Filter Commercial
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There's going to be a break in the dam somewhere at some time.
Watch out when that happens.
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When the levee breaks/led zeppelin
"When The Levee Breaks"
If it keeps on rainin', levee's goin' to break, [X2]
When The Levee Breaks I'll have no place to stay.
Mean old levee taught me to weep and moan, [X2]
Got what it takes to make a mountain man leave his home,
Oh, well, oh, well, oh, well.
Don't it make you feel bad
When you're tryin' to find your way home,
You don't know which way to go?
If you're goin' down South
They go no work to do,
If you don't know about Chicago.
Cryin' won't help you, prayin' won't do you no good,
Now, cryin' won't help you, prayin' won't do you no good,
When the levee breaks, mama, you got to move.
All last night sat on the levee and moaned, [X2]
Thinkin' about me baby and my happy home.
Going, going to Chicago... Going to Chicago... Sorry but I can't take you...
Going down... going down now... going down....
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The S&P downgrade will be child's play compared to a failed bond auction or above-normal (2%) inflation spirals into hyper-inflation.
When that happens we may have some new jobs created.
Maybe we'll never have the "bond vigilantes" weigh in as long as Uncle Ben keeps showing up with the taxpayers credit card. Piled higher and deeper, I guess. Bernanke IS the Ph.D. though and I'm not, so WDIK?
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This explains our current predicament as well as any I've seen out there.
from FOFOA blog:
http://fofoa.blogspot.com/2010/05/hair-of-dog.html
And here is another way I illustrated this effect in pictures...----
This first diagram shows how private debt service, private reinvestment and productive enterprise normally act as a counter-cycle to credit-based inflation. But the only way it works under the global dollar reserve system is for the debt hole to grow infinitely deeper while the accumulation of paper bonds and bills is piled infinitely higher. There is no balance or reset mechanism in place. Only catastrophic collapse:
This next diagram shows in a simple picture what happens when the private debtor fails to keep up with infinite expansion. This is Greece as well as your neighbor that lost his house. Once you remove the private counterbalance the Fed must pick up the slack. Notice that there is no longer a counter-rotational flow:
This next diagram shows about where we are today. We are monetizing the failing debt. We are replacing credit money with base money, and the US federal deficit is the enabler of this process. As FOA said:
My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationist get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"
At some point soon, in between the above diagram and the next one, the markets are going to repudiate any more dollar debt in recognition of what is unfolding. This event will propel us into this last diagram as the Fed will be forced to print every last dollar spent by the US federal government, and that's a lot of dollars. This diagram represents Weimar Germany in the 1920's, Zimbabwe in the 2000's and the USA in the 2010's:
The landscape as viewed by Doug Casey, from Casey Research:
L: Okay, but if they go into debt to buy houses and cars, they'll create jobs and there will be more appearance of recovery, won't there?
Doug: That'd just be digging the hole deeper at this point. What needs to be done is to let the market raise interest rates, to encourage savings - the accumulation of the capital needed to start moving forward on a solid basis. Instead of encouraging people to work, spend less than they make, and save the difference, these low interest rates encourage profligacy. They encourage people to liquidate savings and live above their means. As usual, the government isn't just doing the wrong thing, it's doing the exact opposite of the right thing.
L: Because...
Doug: Because of the false belief that printing money stimulates the economy. The artificially depressed interest rates of today will result in very high inflation and very high interest rates in the near future. A healthy economy gets naturally low interest rates as a result of a lot of savings, a lot of capital creation. A healthy economy has stable interest rates that relate to the amount of new wealth being created, typically just above the natural rate of inflation that results from real money - gold - being mined out of the ground. Artificially low interest rates stimulate malinvestment.
The Fed is also keeping rates low because of the government's massive debt problem. The U.S. is already running trillion-dollar deficits - if interest rates go up, say, to 12% like back in the '70s, that would add another trillion to the deficit right there. Financing a $16 trillion debt at 12%, rather than 2%, equals another $1.6 trillion of spending - just for interest.
This really means they have no choice. The situation is completely out of control - the U.S. financial house of cards is irredeemable at this point, even with interest rates at close to zero. The whole financial structure is close to collapse, and that's why I think we're exiting the eye of the storm.
The Titanic has been struck, but Captain Obama just doesn't yet realize how badly?
Doug: Exactly. And - adding insult to injury - not only are they doing the opposite of the right thing, they are actively punishing people who did the right things, who worked hard and saved. Pensioners living on fixed incomes are being forced to reach for higher and higher yields, which means they are being forced to put their nest eggs into riskier and riskier investments. This guarantees that the pensioners and the savers will be wiped out.
The current course guarantees the total destruction of the U.S. dollar. Again, I cannot emphasize enough how serious this is. People all around the world save in dollars. If the dollar is destroyed, it won't just be Americans who're hurt, it will be all the hard-working people around the world who've struggled to scrimp and save and put money away for future needs. All these people who were wise and frugal, they are going to be wiped out. They are going to be left with absolutely nothing. This is criminal - it's the stuff revolutions are made of. And that's exactly what I expect we'll see plenty of, all around the globe.
L: Seems so clear - what could they possibly be thinking?
Doug: Perhaps Bernanke's making the same mistake people with maxed-out credit cards make, when they think hyperinflation will wipe out their debts. They forget how nasty, brutish, and short life can be in a society in a hyperinflationary collapse. And think about it: What happens if you wipe out these debts? Who are the debtors? They are the most profligate people in society. So these artificially low interest rates reward the most irresponsible and punish the most responsible people in society.
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From Market-Ticker.com
Limbaugh Finally Gets It
http://market-ticker.org/akcs-www?singlepost=2648115
It means we're going to have to face the music. That those of us who thought we could "slide another one by" are going to get a rude awakening. All of the things I've talked about for four years - they're becoming emergent right here, right now.
Oh you can bet the government will try to kick the can once again. They always do. Washington DC is full of liars, and nowhere are there more of them than under the Capital dome and in the wings to each side. Never mind the White House and the Treasury building next door.
It doesn't matter. Mathematics have caught up with us.
As I explained to a legislative aide today by email, I understand the political issues with passing a balanced budget amendment. That doing so is politically "un-possible" today, and will be tomorrow.
But mathematics doesn't care about politics. It's like the laws of physics - you can legislate that light travels at 100,000 miles per second, but that doesn't make it so. You can legislate that we can replace all of our gasoline with corn ethanol, but you can't change the factual yield-per-acre of corn, nor can you change how many gallons of ethanol come out of a bushel. The numbers simply don't add, despite the fantasies of the eco-greenies and their sympathizers on Capitol Hill.
Thus it is with the debt situation in our nation today. The important ratio isn't debt to GDP, it's debt coverage - that is, debt as a percentage of federal income - otherwise known as taxes. That, and the interest rate, are all that matters. But coverage is going down, as employment has gone in the tank. And having blown its wad on useless "stimulus" programs that didn't stimulate, government no longer has the ability to toss a trillion dollars around here and there to try to create "jobs." The leash has been yanked back and we're now forced to "heel."
While The Fed and others believe they can control interest rates the fact remains that if the amount of debt grows faster than economic output (real output, not paper-pushing) does, then the strategy is doomed to fail. If fails not because someone didn't come up with a better scheme, but because it mathematically must fail. No amount of "MMT", Keynesian nonsense or other sorts of machinations can change the outcome. Oh sure, they can hide it for a while, but the outcome is mathematically certain.
We argue only over when, not what.
My argument this afternoon was that we'd have been far wiser to take our medicine in 2007 or 2008, and we should have taken it now by refusing to raise the debt ceiling. Balance the budget today, contract government by 40%. That sounds horrific, and it is. But it was 15% or so in 2007. Who's fault is it that we're at 40%? It's the House's fault. The House must initiate all revenue bills. It's their responsibility, like it or not.
So why take the medicine now, even if it will contract economic output ferociously and require cutting the government nearly in half?
Simple: The longer we wait the worse it gets. Isn't going from 15% to 40% in three years proof enough of that? If we lose control of this mess revenue could be cut in half and then the government has to shrink by some 70%, leaving little money to do anything other than pay interest. Even if we default (and in that case we would - with certainty) you couldn't even cover Medicare and Social Security. Social Security alone along with interest would exceed revenue!
That, my friends, is what we are staring down the barrel of if we don't cut this crap out - right now.
Sounds like a consensus building that we need to learn the First Rule of Holes: When you're in a hole, stop digging.
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" ... the whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary."
-- H.L. Mencken, journalist, "In Defense of Women," 1918
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