The world's banking system is insolvent.
Is that the "good news" or the bad "news"? You might ask...
Neither.
But it is what it is.
The good news is that it happened now, and not in the middle of a serious energy shortage.
Here comes the bad news.
The reason the system is insolvent is not GWB's, nor Alan Greenspan, or whoever your personal boogey man is, fault.
It is the collective default on loans WE applied for, and the lack of production relative to consumption of each and every one of us. And it gets worse.
We did it to ourselves. We:
- Watched too many T.V. shows in our formative years like "Dallas" & "Dynasty". We wanted the lifestyle without the effort or luck that it takes to have it. Speaking of which, Hollywood has turned out to be a disaster for our society on every level.
- Wanted the government to care for our elderly, providing healthcare and a stipend to support them, without actually having to PAY for it.
- Studied things like the Law (do we really need 10X the number of lawyers per capita as Japan?), Marketing (another fucking laugh), Economics (HAHAHALOLOLOL!) Finance (my own racket, and another great big zero in the contribution to human history), rather than understanding the laws of mathematics, particularly the EXPONENTIAL FUNCTION. Had we, as a people, and Congress, as governing body, understood this simple mathematical edict we would have known with certainty that exponential growth in a finite world is a mutually exclusive event/environment.
- Spent more than we had.
- Created other social programs with terrible moral hazards (Fannie Mae, Freddy Mac, etc...)
And we continue to deny our circumstances.
I watched a program today with the former Secretary of HUD, Henry Cisneros. I watched in awe as Cisneros held to the absolutely delusional belief that the U.S. will have added 75 million residents by 2030 (25%) and THEREFORE the U.S. needs to do, XYZ, and this that and the other thing (Secretary Cisneros should take a hard look at projected population growth in Florida and the ACTUAL decline in population over the past 2 years). Not picking on Cisneros here. I think he is alright. I AM pointing out that fallacious forecasts and projections of "growth" are not going to bail any company, firm, individual, municipality, etc... out of their problems.
And the fact that the collective "we" are even discussing this as some kind of freaking positive is mind boggling. Roughly half of REAL economic growth in the U.S. in the post WWII era has come from increased population, and like it or not, the resources are simply not there for the U.S. to expand its population without significant decreases in the average American's standard of living - so significant that the political ramifications would be unacceptable.
Think about it: The average American's standard of living is unacceptable - or we would not be stimulating, bailing out banks, cutting interest rates to zero... all of this is done to INCREASE the average American's standard of living and the aggregate to increase the size of GDP (growth).
Now, the certain folks in government forecasting tell us the population will increase by 25% by 2030. Simple arithmetic says that either we increase the supply of Oil, fresh water, food, fertilizer, steel, etc... by 25%, OR the average American per capita lifestyle will need to decrease by the amount of the decrease in available resources multiplied by 1.X (X represents the increase in population as of 2030 - in this case 1.25 - 1 is the current population and .25 is the 25% increase). Since I think that increasing the resource base is impossible, and given the fact that 60% of Americans describe their present economic condition as "struggling", my view that the release valve will be some type of political upheaval is not really a reach.
I gotta give Henry Cisneros a call (and I will, this week. He is a reasonable guy). We need to work another angle, because this just ain't the way out for the U.S.
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I have been writing about the coming financial crisis at the state and local level for some time - and how our local politicians will CONTINUE to try to take the easy way out and raise taxes to punitive levels in an effort to put off the inevitable.
Try to keep your tax profile low, or lower it by avoiding states and municipalities that have promised the world - and will now have to extract it from you by force.
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In addition to an immediate Oil shortage in the U.S., any such collapse in Mexico would doom the economies of the border states, and since California is already in bed with the Measles, Tuberculoses, and Pneumonia... well, the last thing this sick state needs is Bird Flu. Keeping in mind that California is home to 1 in 8 Americans...
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With all of that, I think that I will be making some investments in energy, both equities and the commodity, in the next sell off - if one materializes from here. See, if the Dow fell to 7500 my bet is 70/30 (70% probability 20% up, 30% probability 20% down) that the next 20% move would be up (I reserve the right to change my mind on a moments notice). For me, this is as high a probability as I assign to market moves - I am NEVER 100% sure of anything. And if I am wrong, I am gone.
Good Luck!
Mentatt (at) yahoo (d0t) com
9 comments:
Hi Greg
About the population growth; there's a big difference between population growth for a half-empty country with lots of oil and natural resources, and population growth for an urbanised 'mature' economy importing oil and running out of resources.
You're right about the non-productive jobs. I used to drive around Europe and, in any village or town, I'd try to see where the money was coming from, who employed people, how the local economy worked. In many cases it was tourism in the summer, unemployment benefit in the winter, and high property prices because of retirees buying the pretty old cottages. Nobody actually 'produced' anything.
At some point there has to be a 'real' economy. Sadly, few people in power (and NO economists!) seem to understand this.
Hey Donal, nice to hear from you.
Since time immemorial, people have migrated following the resources that they need to survive. Today, people migrate to America following the Oil resources that the U.S. imports every day. Those imports have declined nearly 8% last year. If, as I believe, those imports decline 4% to 10% per year from this point forward, the migration will cease.
Add to this demographic the probability of a birth rate decline as the economy contracts (in the 1930's births per woman declined to 2 from 3 in the prior decade) and you get my zero population growth scenario and its impacts on American tax policies addiction to growth.
Of course the government COULD do something about the immigration issue, but I doubt it in the current political environment.
Hope all is well!
You're right; add in an aging population and who's going to pay the taxes to pay for OUR long and happy (?) retirement? Or shall we 'follow the oil' and emigrate to .......... Hmmm, where to go??
Never mind, Obama will rescue us!
I'm fine thanks Greg. Happy New Year!
Hmmmm ...
1) I think the immigration environment is heathier than it has been in years. The Republicans are out of the way, Hillary (pro-latino) has real power, and the Congress wants to accomplish things that don't cost much. Making illegal immigrants, like my one friend, a citizen, which he should be anyway (he was brought here at age 1 -- he is 21 now) is easy and cheap and right.
2) Being an "educated democrat" means that you realize people (lots of people) need help in their daily lives. They are not dumb, but they aren't up on all things they need to be up on. Yes, ultimately, the people who borrowed all that money that they couldn't pay back are responsible for it. But it is in all our best interest for people like me (that "educated democrat") to make sure people don't get into these situations. People like Greenspan and the Federal regulators should have known better than to supply the debt dynamite that ruined peoples' lives. This is not a 100% capitalist society. We're supposed to stop people before they hurt themselves.
Bureacrat:
Hindsight is ALWAYS 20/20. Greenspan was nothing more than a market trader, and trader's don't always make the right call, or time it right even when they are correct (trust me on this. I eat great deal of crow in this job).
Some of us (like me) do not want a benevolent dictator/regulator telling me what to do, what is and is not good for me (war on drugs, anyone?), steering me in a direction that benefits them in the end...
Mr. Jeffers,
Anyone who is even a little experienced in the financial game and knows a little history knows you don't put interest rates at 1% for a year (like we are doing right now). With that, you encourage everyone and their dog to borrow as much money as they possibly can, and who cares if you can pay it back. Greenspan knew exactly what he was doing, and so did Bernanke, who went along with it as a Fed governor. But these two dweebs were so enchanted by all their banker buddies thinking Greenspan was the "Maestro" for 16 years that Greenspan just couldn't stop himself, blowing one bubble after another (first tech, then housing). Too much cheap credit for too long is bad, bad, bad. Throughout history, it has always been bad, bad, bad. He didn't do it all by himself, but he was the prime mover. And when everyone starts calling this a near-depression, with 12-15% unemployment, remember, there is someone to blame. And that includes some damn Democrats too. This didn't have to happen.
Bureacrat:
My name is Greg; my father is Mr. Jeffers...
I cannot remember the name of the paradox, but it goes something like this:
We don't know what things would have been like in the absence of the action that was taken. For all we know, the circumstance absent the action, now derided, may have been much, much worse.
The Tech bubble arrived without 1% interest rates - as a matter of fact, if memory serves, the Fed Funds rate was 6% in 1999, yet the Nasdaq went up 85% and causing the biggest blow up (to date, that it) in the US equit market, ever.
Whose fault was that?
Greenspan lowered the rate to 1% AFTER 9/11 to counteract the Nasdaq blowup and the Trade Center blow up. It is far too simplistic, but certainly politically expediant in out sound bite culture, to sum it up with "Greenspan caused all of this by lowering interest rates too far for too long.
As I said, he didn't do it alone. But from the time of his appointment in 1989 (Fed funds at 10%) to him leaving in early 2006 (Fed funds at 2%), he moved only one way overall for interest rates -- down, down, down. The Fed Funds rate was 3% in 1993 (lots of cheap money for NASDAQ) and it wasn't 6% thru-out the 1990s (closer to 5% and a little less for a little while). He was the spiked punchbowl. They didn't call him the Maestro for nothing, GREG! :)
thanks for sharing.......
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Sharon
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