Saturday, November 18, 2006

The Third Deficit

In my previous posts I laid out the risks to the U.S. Dollar from the Federal Budget Deficit and the Trade Deficit. - “Twin Deficits”. We might have to change the name to “The Triplets”. You see, there is another government debt lurking out there – and it is growing every day. As of today, it is estimated at $2 trillion dollars, and by some estimates, it is growing at about 7% per year. That means it will be up to $4 trillion in the middle of the next decade.

“States and municipalities are looking at a gap that has been estimated at something like $2 trillion, with pension shortfalls of $700 billion and health-care costs -- also known as ``other post-employment benefits,'' or OPEB, as the analysts so felicitously put it -- of $1.4 trillion.” Bloomberg News, November 16, 2006

The implications of this trend on the municipal bond market are ominous. The City of San Diego settled FRAUD charges with the United States Securities and Exchange Commission just this week for issuing bonds to investors without disclosing their problematic pension and healthcare liabilities. Sounds a lot like the Social Security (pensions) and Medicare (healthcare) issues at the Federal level. It is too bad that the SEC can’t do something with the U.S. Congress and the U.S. Treasury Department.


The Great American Ponzi Scheme

In order to avoid China’s 4-2-1 problem – 4 grandparents and 2 parents supported by 1 worker – the U.S. immigration policy, the “Great American Ponzi Scheme”, has imported enough young people to continue to fund the Social Security and Medicare trust funds. For a number of reasons, that is coming to a close in the near future.

Had we not had the benefit of these immigrants over the past 20 years (legal or otherwise) the Social Security and Medicare trust funds would now be in default. Still, we grow our entitlement programs at an exponential rate – but future immigration will not be there to hold up its end of the Ponzi Scheme.

A “pay as you go” system means that today’s young workers pay for today’s retirees. What happens when you have too many retirees and not enough young workers? Nothing good.


What Housing Bubble?

How many reports have you read from the National Association of Realtors over the past year telling you first that housing is solid, then that housing was a little soft, then that there was a “correction” going on… If the Real Estate industry keeps it up, they might overtake Religion in the exagerated claims and false promises competition.

Housing starts in the U.S. fell October to the lowest level in more than six years. Building starts were 1.486 million, down 14.6 % from September, according to the Commerce Department. Building permits experienced their 9th straight monthly decline, to 1.535 million, the lowest since December, 1997.

``This is a shocking number.” said Phillip Neuhart, an economist at Wachovia Corp. Oh, yea? Shocking to who. In the Winter and Spring of 2005 we published extensively on the coming problems for housing (and we are Real Estate Brokers, among other things).

The beauty of numbers – housing starts, oil production, auto sales – is that they are empirical. Forget “bubbles, “corrections”, “weakness”… these cannot be measured. The old carpenter’s ditty, “measure twice, cut once”, says it all.

Energy companies paid millions to certain groups to sow disbelief on the data about global warming, and now deny that there is any energy supply problem developing.

Housing is just as energy intensive as autos. Should be interesting to see how the industry makes it in an environment of decling supply.

Why would anybody believe the press from any vested interest? Sometimes we don’t know the press came from/was manipulated by a vested interest. Still, as my late father used to say: “Believe nothing what you hear and only half of what you see – and you won’t get yourself into too much trouble”. When I read these manipulations parading as news I remember some of Dad’s more amusing wisdom: “I don’t know, it may be so, but it sounds like s--t to me.”

Mentatt (at) yahoo (dot) com

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