Quote of the Day:
"The devil is in the fact that there is not enough economic output in the US to support all of this. We have floated on a real estate bubble for 35 years while we have deindustrialized. The private economy is not big enough at this point to support all of this spending. Tax revenue plus government borrowing won't cover it anymore." AEC commentator "Coal Guy" (emphasis added).
I was going to write a quick post about that last line from Coal Guy, but since he stole my thunder... What "Coal Guy" is referring to is a fairly simple and obvious metric: A government can only spend what it receives in taxes, borrows, AND/OR PRINTS. We have come up against the upper limit of taxing and borrowing. If the Government tries to increase taxes as a method of increasing revenues in a recession the unintended consequences can be rather dire - and not just economic. Make things bad enough and an economic crisis can morph into a political crisis. It is the folks that deny this possibility that are willing to push the envelope... perhaps just a bit too far.
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We are being told that the reason is the recession has caused Oil demand to fall. Fair enough.
But 15% in 2 years!? Still, could be...
So I was bouncing this off the Mad Scientist, who had been doing some research into the world auto market. His research appeared to show that car sales were actually UP in many parts of the world, year over year. Not enough to sop up all of the unsold car inventory piling up around the world, but that ain't the point. The point is that as the international auto fleet expands RELATIVE to the U.S. auto fleet, the competition for petroleum products will increase for the U.S., which can cause the rate of decline of U.S. petroleum imports to really accelerate.
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Pickens' Plan to save the U.S. from having to adjust to a non car-centric society is no more. Simple physics says that without increasing electricity generation the U.S. is not going to move significant amounts of payload in electric vehicles (cars). Either we burn more Coal, Nat Gas, or increase Hydro, or Wind/Solar/Tidal... or the required increase does not happen.
Well, Wind just had its bottom reddened in front of the class... Rig counts for Nat Gas have fallen below 700, far below the absolute minimum needed to maintain production over the medium term... U.S. Oil imports are down 15% in less than 550 days... That leaves Coal.
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I have been following the 'Food Stamp Metric" for several years, as my long term readers know.
I regret to inform you that 11.5% of the U.S. population is now receiving assistance for food. Some might argue that food prices have come down - clearly not enough to make food affordable for the wages these folks earn. When I began blogging in 2005, the number was just under 8%. I had previously posted that a sustained "food assistance" rate of 15% would be untenable politically, and 20% would lead to an outright constitutional crisis. I picked those numbers out of thin air - and unfortunately I think we will see how close my "guesstimates" where.
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California! Agh! The word alone makes me happy.
I am looking for a guest post from an Obamaphile, clueing me in on how your gang is going to save California from the fiscal incinerator. I await your tretise with great anticipation. Please email me at:
Mentatt (at) yahoo (d0t) com
21 comments:
I am at home, recovering from a mutant nazi death flu from hell but your post made me smile anyway. I am a Massachusetts liberal democrat (well I used to be a liberal democrat) with a tatooed, lesbian minister and a multi racial family. You can't get more Obama Land than my neck of the woods and I am not buying any the nonsense that out esteemed leader is selling. Can I at least be forgiven for appreciating that simple fact that he is easy to listen to? I am getting sleepy...sleepy.
Hi Kathy:
Yes, Obama is easy to listen to, and his wife and children are beautiful to behold. I think it would be fun to have him on a pickup basketball team.
I was just teasing believer's in the Left's economic policies and history. The RIght did as much damage at the Federal level - they were WORSE than the Left because they LIED about their commitment to fiscal sanity.
But the Left had no assistance in blowing up California. And it wasn't easy. Blessed with Oil, Military installations, perfect natural harbors, thousands of miles of coastline, beautiful weather, with most trade with Asia coming thru Cal... you just couldn't find a place with greater natural advantages. Despite all of that, the Berkley set and the San Fran former city haller's have brought the place to ruin.
Yet it seems an unforgivable transgression to state that the Emperor has no clothes.
But after GWB's painful syntax ANYTHING would be an improvement.
If California's state budget is similar to Illinois', and I bet it is, the majority of their spending is on human services (welfare-style spending) and education. The residents of California aren't going to starve because of "state budget problems." As soon as the legislature decides that they aren't going to cut anything :), they will start cutting back those two things. Then the media will get ahold of images of severly disabled people being dumped on public hospitals. Then either the taxes will be increased or Obama will bail them out. It's simple. State spending is all soft spending -- easily shuffled around.
Bureaucrat:
No question that Obama will have to bail out California... more on that later.
Is that the Left's answer to the California problem? I was hoping for something more specific and detailed.
An interesting side effect of the Fed monetizing the Federal deficit is that that money goes immediately into circulation. It displaces savings elsewhere. One of the things it will also tend to displace is foreign purchase of US government debt. More of our trade deficit will be left kicking around the globe. This should weaken the dollar and raise food and oil prices here. Inflation begins.
Regards,
Coal Guy
We've been a country for 250 years, and everytime the world seems to be ending, either the problem dissipates or money is found somewhere/borrowed/etc/etc. California's welfare state (and every other state also) will continue to be alive and well, in some form. That's my side of the trade. :)
That is a fine socialist viewpoint. Print the money and the goods will magically appear. It just ain't so. Eventually, every sector will be affected by this.
The Federal government needs to borrow at least $2 Trillion this year, and that's not counting healthcare and Son of Stimulus. Both are on the horizon.
The welfare state and your compensation will eventually have to take a hit to keep them in proportion to the part of the economy that ACTUALLY MAKES STUFF.
Sorry to rain on your day.
Best Regards,
Coal Guy
From a historical perspective, 250 years is an eye blink. You can no more predict our economic future based on that time span than you can predict tomorrow's weather based on the rain one minute the day before. Things were different. You need continued growth to fund our social welfare system and with the finite resourses available, it is no longer possible. It's a bit like prayer. Sometimes. the answer is no.
I think you will agree with me that the myopic legislatures of the U.S. may have no concern about the long run, but they are damn-hell-bent concerned about getting thru tomorrow, and that is why 99.9% of the bad things that oughta happen aren't going to happen. Same reason the mullahs in Iran won over the protestors. The mullahs were fighing for thier very existences, just like our "valiant" congresspeople are. The mullahs won. And the representatives and senators want to win tomorrow too. And so, the world will not fall off a cliff, nor the tomorrow after that ...
But they are still subject to the laws of physics. Expotential growth is a mathmatical impossibilty. As resources decline, less is produced. More demand, less available, lower living standard. The biggest fish will still do well but I am concerned about how to manage my own future.
I am going to email out the challenge to a number of Left Leaning economists, media types, Wall Street organizations, and political operatives:
Provide a brief outline on how to finance California's spending habits, and bring the state into a sustainable tax receipts and services paradigm. Be clear on the numbers, as the budget is public info.
I will post it without comment or criticism.
I have no fear of this actually happening... the solutions run counter to everything that the Left holds true.
BTW, I am not suggesting that the RIGHT should govern Cal... the population is clearly Left of Center, and the people rule in our country. The pesky problem is the people also have to pay for what they want - there really is no free lunch.
Two quick comments:
If the US consumption of oil has dropped and the price has held up, presumably that means the RotW is taking up the slack. Which means that IF the US economy were to recover, it would need to find ADDITIONAL oil, which would rocket the oil price and stop the economic recovery. In other words, it is now impossible for the US economy to recover.
Second point; therefore there is no economic model (as far as I can see) which will ever allow the US to pay off its debts.
Donal:
I believe that both of your points are likely to prove correct, depending on certain definitions of measurements in time.
I am less than sanguine with my ability to see ANYTHING at the moment. The data, to my eyes, appears awful, yet I am informed by some rather smart folks that I think highly of that things appear better to their eyes...
Well, I guess for every "trade" you have a buyer and a seller... only one can be correct.
I always taught my children to listen to advice, but also to judge the motivation of the person giving it.
Lots of 'commentators' currently offer positive outlooks. In many cases I suspect that they also see how dire the situation is, but realise that the best hope of salvation is to talk up the populace in the hope of maintaining confidence in the banking/government/money shell game.
To an extent it IS working; shares have stabilised, in the UK house prices have stopped falling so fast, and confidence is up. Hard to see any fundamental reason for any of it, but 'confidence' is a tricky thing.
And sometimes being proved right (with accurate doom forecasts) is the worst thing that can happen!
Remember that all social and political arrangements seems incredibly solid and "real" to the denizens living in them. Bureacrat's view is the most common one in history, and the most accurate UNTIL the revolutionary change occurs.
The French aristocrats could have escaped France in the early stages of the Revolution, but they could not conceive of their fates...
Same with the Jews in pre-Nazi Germany, the aristocrats and bourgeois of Tsarist Russian before the Revolution, etc.
Americans cannot conceive of a revolutionary change in their lives and social/political/economic lives. But it is coming - that is assured by the fact that the only constant is change. Peak Oil will be a major cause of change. Thus, the change will be for the worse, at least by traditional economic metrics.
The coming changes seem unbelievable to most right now. Ex post facto, they will seem inevitable.
One solution for California is to legalize cannabis. The best stuff comes from there anyhow. Cannabis is a cash crop and as Mr. Ruppert says and I oft repeat, till you change the way money works, you change nothing.
When I think about Peak Oil, I always come back to this same meme, THE EARTH IS STILL A GARDEN, TAKE CARE OF HER AND GO PLANT SOME WEED (plus some fruits & vegetables of course).
Now that's a political platform I could get behind. I wouldn't hold my breath for that to come from democrats though...
We hear all the time about the lack of bi-partisanship in Congress. The issues where there IS bi-partisan agreement can cause even worse problems. This is because there is no real public discourse around them, or the unintended consequences of the policies derived. The elites on both sides of the aisle run amok and the news media never notice. Let's look at US policy toward China, for instance. Many of our economic problems stem from our policy toward China.
Every so often someone or other here rants about EVIL BUSINESS shipping jobs to China. Please understand that business exists in the economic and regulatory climate that is created by government. When the government changes policy, business has to adjust or die.
This is the case with US policy toward China. Because of our trade policies, every business that would have benefited by outsourcing to China but didn't, is out of business, or soon will be.
Since Nixon, every administration has supported "freer" trade with China. There has been a 40 year long series of deliberate foreign policy decisions. These policies gave American business ABSOLUTELY NO CHOICE about shipping jobs off shore.
This has been done in an effort to establish economic co-dependence between China and the West and to develop China economically to the point that its people were adequately fed and housed. China was viewed as an extremely dangerous an radical power, with expansionist goals and a people with nothing to lose. Economic development in China, and connection to the West's economy are supposed to reduce the danger. This may or may not have happened. Our policy toward China is a logical extension of the Marshall Plan. It is a noble cause! Beats the hell out of war.
It was hoped, also, that China would adopt a representative government. This has not happened. It doesn't seem too likely. The same brutal thugs are still in power.
You may have noticed that none of this has ever been an issue in any presidential election, unless there has been a third party candidate. Otherwise, there is no one to raise the issue. Remember H Ross Perot and his giant sucking sound? Well things suck now! Otherwise, dead silence.
So, here we are, after 40 years of this, much de-industrialized and near economic ruin. We are dependent on foreign industries to supply goods absolutely essential to our national security. To boot, we are in debt up to our eyeballs. All of this due to a policy that no one even notices.
Our bi-partisan policy on foreign oil, which is to do nothing, has contributed as just as much. I have little to add about the consequences of that in this forum!
The point I'm trying to make here, is that it is not likely that government is going to pull a rabbit out of its hat, since the problem is the making of both parties in total agreement. I wish that Bureaucrat were right, but I'm not too optimistic.
Regards,
Coal Guy
Coal Guy:
I am always impressed with your commentary.
I have no idea what your background is, but clearly you are a keen observer of the human condition.
My second highest compliment.
Kudos to Kathy, Publius and the Coal Guy. Insightful stuff. Keep it up!
The issues are of course whether this system that we have is resilient enough to adjust to reduced per-capita energy availability. My guess is that up to a point we are adjusting and doing a very good job. A reduction of oil imports of 15% in two years and the country is still stable and there are no food riots. My guess is that we don't know when the system will not be able to adjust until the moment that it no longer works. It is as when the oil prices were were going up and all the economic commentators were saying "Wow, look at the prices, higher then ever. But the economy is not affected! So the high oil prices don't matter!" Up until a certain point and then it did matter after all. Same with social order and stability. It is stable now and that is great. When will it become unstable? We don't know until it happens. Will it become unstable? Very likely (at least on the margins of society).
We all know that energy IS the economy (and not some part of it). Also availability is more important than price. So if availability declines and price goes up the economy must stop growing. No growth, the money system breaks down and we enter a self reinforcing death spiral in which we are now. This piece of obvious stuff is just to agree with Donal. US will never enter a sustained growth cycle again. As soon as demand picks up even a little, the energy prices spike and kill off the recovery. It would be best visualized as a bird who is not able to see the glass window. That first bash was the biggest because the bird was totally unaware of the glass the first time. Unfortunately once it recovers from its painful crash and try's to fly again it will find that the glass has actually moved forward while it sat there dazed. But even if it doesn't fly again it will eventually be squashed flat by the glass border of energy availability it just may take a bit longer. Well I belabored that point a bit didn't I.
Best, Chuck H.
thanks for sharing.......
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Sharon
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