Tuesday, November 18, 2008


The end of economic growth is upon us.  So is SPAM, and not the stuff in your inbox.

Think about that.  

Static production.  Increasing population.  Monstrous public debt.  Unreasonable expectations of government by the masses. Declining Oil supplies.  Crashing equity markets.  A financial system held together with duck tape.   Welcome to the United States of America.

The budget crisis in California and New York states are only the very beginning of a political crisis that would have staggered the imaginations of the American people - only it won't be their imagination.

The state and local tax burden is FAR above what the economic output of the taxpayers can bear.  The media concentrates on the Federal Budget Deficit and the Trade Deficit, but for better or worse, the Federal Government can print its own money as well as run a continuous deficit.  Not so the states, cities, counties, towns, and villages across America.  They are DROWNING IN RED INK while their tax payers are not far from revolt.

Sales taxes are down BIG.  Property taxes are a tremendous burden.  Income taxes from capital gains will be non existent for YEARS.  So where will the money come from?  Local Governments cannot make people spend money - it won't be coming from sales taxes.  Unless the local governments hire the people directly - it won't be coming from income taxes.

That leave property taxes.  

Oh, yea local governments?  People are walking away from their homes in DROVES.  The tax rates were based on property values in many municipalities... how are those values looking lately?  Still, the homeowner is THE CAPTIVE TAX TARGET.  This is where the extortion will be attempted.  AND IT WILL FAIL.

As the recession digs deeper and deeper into people's 401k, savings, investment portfolio, and small business they simply won't have the money to pay for the liabilities that the local governments have foistered upon their residents.  The revolt is coming, and it won't be pretty.  Municipal workers are going to be laid off, and their retirees are going to get stiffed.  

Speaking of getting stiffed... The U.S. pension system is technically defunct.  Under no circumstances can the pension system meet its obligations.  The first round of this battle was televised tonight with the testimony of G.M., Ford, & Chrysler before a joint committee of Congress.  The big pension funds used a 9% average return on their investment portfolio to meet their obligations.  How many of these funds have returned 9% each and every year for the past umpteen years?  Exactly ZERO.  Hence, they are F*&^%ed.

The local governments provide "essential services".  Of course, we are going to have a new definition of "essential services", but they won't look anything like they do now.  The money won't be there, but the people that got used to receiving these "essential services" are not going to be happy about getting shut off.

These are just a few of the special interest groups that will be part of the greatest political crisis since the Civil War.

The Federal Government did the right thing in shoring up the banks.  No banks, no system.  No system = anarchy.  But the Federal Government will NOT be doing the right thing by bailing out the Auto makers, the Airlines, the Truckers, the Butchers, Bakers, and those silly Candlestick makers.  There is no cure for bubbles.  The only thing to do is not blow them in the first place.  Americans will of necessity be required to save, produce, and economize in all things.  The sun will still shine, the waves will still role in... but denying the certainty of this correction through government bailouts will only lead us to complete ruin.

That won't stop the government.

The government will continue to pump, and spend, and borrow... anything! Except accept the inevitable.  And even if they did, I think we have gone too far - there is no turning back.

The next decade will make the 60's look uneventful.  The stock market (with the exception of energy and perhaps gold miners) has doomed in REAL terms.  Same with the debt market.  Think about it... I just laid out the municipal disaster coming to a city near you.  Would you own their debt obligations (muni bonds) in the environment I foresee?  Not unless you have rocks in your head.

Deflation will eventually yield to hyper inflation, and that will meet at the corner of the Energy Crisis, the stock market crash, the pension collapse, foreclosures, municipal defaults, and... get this... food supply issues.  Just take a hard look at what is going on over in Russia RIGHT NOW - their markets have crashed over 80% and their currency is going over the precipice.  Then remember that Russia has plenty of Oil and Natural Gas, a population with very low expectations, and little debt.  The American collapse is going to make that look like a prom date.  

Cash may be king for the moment.  But the king is lying beneath the Sword of Damolces, and the string just broke.  Everything seems fine - until the sword arrives.  

The world is divided into 2 kinds of people:  Those that divide the world into 2 kinds of people, and those that don't.  

Just kidding.

The world WILL be divided into 2 types of people.  What side do you wanna be on?

Good Luck!

Mentatt (at) yahoo (d0t)com


bureaucrat said...

As I've suggested before, it depends on how you identify the purchases and services of the human body politic. The massive number of stormtrooper cops surrounding the Federal building in Chicago cause of Obama is NOT necessary. Nor are social security benefits for rich people. Nor is an aircraft carrier needed in today's "small footprint" military world. We waste sooooo much -- government included. And all our spending really doesn't make us happier. It just makes us think we're entitled. I don't doubt your dark predictions (matter of fact, I'm counting on them), but we will persevere with less. For now, let's make some money!!!!

Greg T. Jeffers said...

That was my point.

The system is going to try and catch you in its web. Don't go there. Look out for your own best interests, and think HARD about what they might be in the environment I foresee.

Those stormtroopers, the guys/gals that built and maintain the aircraft carrier... will all need to find something else to do for a living. There are consequences and implications for every action.

bureaucrat said...

The security guards were the urban poor on the south side of Chicago, as far as I can tell. They will go right back there. 40-50 years ago, they were steelworkers, making real things. Today, they waste time and money "wanding" down perfectly safe people. What a waste -- money we don't have.

Anonymous said...

Great post today Greg.