Monday, March 1, 2010

Its a Cold Cruel World Part 2

Before I begin...

I have never before edited or censured comments on this Blog. That policy is no longer. All intelligent, thoughtful, helpful, reasonable comments are welcome no matter how much they might disagree... Mean spirited, demeaning, asinine, pointless, thoughtless, and just plain sh*tty comments by morons, nit wits, and the immature will be deleted forthwith.


It is a cold, cruel world. And as it turns out, "Peak Credit" (the term coined by Mike Shedlock) is likely as big a problem in the West as "Peak Oil", and likely will be for another few years... we shall see just how correct folks like Me, Jeffrey Brown, Saif Lalani, Ken Deffeys et al have been with our export/import models soon enough - by the end of 2011, I should think.

Right now, while the "financial system" has been stabilized, it certainly has not been fixed. I am going to speak of the U.S. economy, for the most part, and its effects on the American people and the ROW. This is going to be a brutal, politically incorrect assessment of where the U.S. finds itself, and what the U.S. is going to be like post purge - because that's what's up, the U.S. is about to purge, major gastro-intestinal distress with a release coming from both ends.

How did we get here? Glad you asked. Sooooo.... here comes MY definition:

We got here because "WE" wanted to reconcile an unfair and unjust world with the fair and just G-d that our people were purported to believe in, but Who just seemed to be falling down on the job (otherwise why play G-D?). After all, as George Carlin famously quipped:

G-d is all knowing, all powerful, all seeing, and all wise... he just can't handle money. He always needs money!
Just kidding.

Anyway, since life was not fair, and we all agree that it is not, and we wanted to show what kind of society we were... the nice folks in the FDR administration came up with what we now know as Social Security et al (by et al I mean all of the myriad state and federal transfer payment programs). From the Wikipedia Social Security site:

U.S. Social Security is a social insurance program funded through dedicated payroll taxes called Federal Insurance Contributions Act (FICA). Tax deposits are formally entrusted to[3] the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund. The main part of the program is sometimes abbreviated OASDI (Old Age, Survivors, and Disability Insurance) or RSDI (Retirement, Survivors, and Disability Insurance). When initially signed into law by President Franklin D. Roosevelt in 1935 as part of his New Deal, the term Social Security covered unemployment insurance as well. The term, in everyday speech, is used to refer only to the benefits for retirement, disability, survivorship, and death, which are the four main benefits provided by traditional private-sector pension plans. In 2004 the U.S. Social Security system paid out almost $500 billion in benefits.[4] By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for social security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid.[5] Social Security is currently the largest social insurance program in the U.S., constituting 37% of government expenditure and 7% of the gross domestic product[6] and is currently estimated to keep roughly 40% of all Americans age 65 or older out of poverty.
You can read the above link yourself, you don't need me. You can see the years where the coverage was expanded, and the steady increase in the tax rate, and the expansion into healthcare in 1965, and the many adjustments to the system thereafter...

Now, superimpose the timeline in the above link over the Oil production and export/import timeline for the U.S. In 1935, the year Social Security was enacted, the U.S. was the world's largest exporter of Petroleum. In 30 years, 1965, when Medicare was enacted, the U.S. was only 5 YEARS from the peak of its production, and within an additional 35 years, imports of Oil into the U.S. were DOUBLE domestic production. In other words, in a time span LESS THAN A HUMAN LIFE Social Security went from enactment to insolvency and the U.S. went from the world's largest Oil exporter to largest Oil importer. When Social Security was enacted in 1935, the presumption was that the U.S. would be able to expand its Oil production forever - and that presumption has turned out to be quite wrong. There was also the presumption that Social Security benefits, and later Healthcare (Medicare) could continue growing at 2X or 3X the rate inflation or GDP - and that presumption has turned out quite wrong.

So here we are, its 2010 and Medicare and Social Security, 2 programs growing exponentially and that have entered their terminal apogee at the extreme NE quadrant of a quadratic table:

This is the graphical representation of "e". Conceptually, anything growing exponentially will grow to infinity, or have the slope of the line go vertical. Since Medicare and Social Security cannot GO vertical... well, we all know what has to happen.


Addicts have no idea about graphs, and slopes, and exponential functions... they only know that they need their fix - the government check in the mail, cheap oil to drive 40 miles each way to work, credit cards to assuage depression brought on by long commutes, expanding waste lines and boring love lives... by consuming sh*t we don't need and forcing us to work at jobs we hate to continue to do so, not to mention to pay off those student loans... and, boy! was the Government ever successful at addicting millions of people to years and years of idle time funded by the demographic tail end of that graph...

So, here we are... with demographic time bombs going off all around us... otherwise known as California, Illinois, New York, the Federal Budget.... and crazy people educated well enough to know better insisting that the above sloped line is NOT true - pay no attention to that man behind the curtain - none of us has any responsibility at all because all we have to do is tax the "rich"! AND mock people living in fly-over-land because they had the inability to see the simple logic that the elites know better...

Now the time has come... soon the check WON'T be in the mail... because the international bond market won't let Uncle Sam get to the post office (they're broke, too)... Soon... lunch won't be free, love won't be free (whoever said "free love" clearly had never been married and divorced), healthcare certainly won't be free...

Americans will be forced to save money and live within their means! Can you believe THAT? We will actually question taking on 200k in debt for Liberal Arts educations, pack lunches, cook in, buy things second-hand, wear hand-me-downs, work until we die, and pay for our own mistakes with our own money. The first generation going through this won't like it one little bit, but those that come after won't know any other way. Some people will still get rich, and others will not. Some people will be good looking, while most will be as plain as Abe Lincoln. Some will live long, while others die young. We WILL get over the idea of trying to legislate LUCK away. Luck will always happen to a few, and not to the rest and we will give up trying to make life fair by hiring government thugs. People who call themselves "Liberals" or "Humanitarians" won't be much of either unless they can do it with their own money, but they won't have much so that won't be an issue.

Old people that have no family and that have been relying on the government are in for an incredible experience - and not a positive one. Most recent college grads will be fortunate to find menial work having nothing to do with their training for pay that will leave them living on top of each other Manhattan style - but with none of the benefits of living in Manhattan. Each and everyone of us will be forced to actually produce something or go hungry. On a happy note, divorce lawyers will starve to death... not that I'm not bitter...

The Great Recession and the Great Deflation are going to be bigger than Peak Oil for the near future, and they are going to humble Great and Small alike.

To Be Continued...


Donal Lang said...

A combination of Peak Credit and an economy which is 70% consumer spending....!

I wonder what a future USA economy just trading on the other 30% will look like?

oOOo said...

CNN: Over a Million Americans Lose Unemployment Benefits Today

Greg T. Jeffers said...


That has to happen! These people will find productive work though probably for less pay than they were receiving in benefits... and that will be enormously curative for the system.

More to come.

Greg T. Jeffers said...



Stay tuned.

Anonymous said...

I know many people in my area that even before this recession/depression lost higher paid employment and choose to stay local for the sake of family and take jobs that pay far far less. To some degree this has been survivable by many due to--two incomes, with many women maintaining a job, while men seem to be losing them disproportionately.

It bodes poorly for a country to have lots of unemployed, underemployed, and lowly paid men, with men tending to tie their ego's to their jobs/income more so than most women.

Look around at countries with high unemployment--of younger men and you will see crime/violence and many social problems, since men still tend to to the more extreme acts of violence in higher frequency than women in most cultures/countries.

I do disagree that many will find "productive work", I think many will find partial-employment with no benefits after they wait out unemployment bene's--which seems to be the trend, very few people I have known seem to "find" jobs until they are at the end of the benefits.

So more low paid, underemployed part-time workers will just add to the stress of medicaid, emergency rooms and the like, and of course the anger will continue to boil as time goes on. For now its mostly a few crazies, but at some point a tipping point will take place--the tea party and other groups are just touching the vein of anger and discontent that is building as people continue to try and displace their anger as the reality of energy decline-at least per capita and debt based living starts to be shown for the shell game it really was.

Greg T. Jeffers said...

"I do disagree that many will find "productive work", I think many will find partial-employment with no benefits after they wait out unemployment bene's--which seems to be the trend, very few people I have known seem to "find" jobs until they are at the end of the benefits."

You mean you agreed with me, cause that was my point... when the checks stop coming people will get off their ass and find a way to keep food on the table.

Further, my view is that the more we FORCE people to be accountable the better ALL of us will be. The unintended consequences of 2 things:

1. Trying to make the world fair by force

2. Hollywood's depiction of a life that cannot be had playing over and over again in people's living rooms has led to a social and mental health disaster.

"Don't read beauty magazines, they will only make you feel UGLY".

Stephen B. said...

Donal, so true.

But of course, even that last 30% of the economy that *isn't* consumer spending will shrink mightily too.

Greg T. Jeffers said...

Our social policy has been the extreme example of the cure being FAR worse than the disease.

bureaucrat said...

This is the eeeennnnnnndddddddd ... NOT! :) ...

Stabilization via issuance of more debt and printing (via adding credit) stabilizes for a day but is no solution. It's called "kicking the can down the road." When Obama signed the law giving us Federals pension credit for our unused sick leave last year, that was a future obligation that someone else (the kids) have to pay. Kicking the can down the road --- not a solution.

Everyone see Senator Jim Bunning on the news yesterday, stopping the Congress from extending unemployment compensation? Harry Reid was up there saying what they needed was less talk and more "helping" instead. This is what we are up against -- a political system in denial, borrowing for every little thing, and "kicking the can down the road." Disgusting.

Another wild card in this whole mess is what the older people (born 1910-1945) are willing to do. If they agree to have their SS and Medicare cut back some, we may have a solution (I already know my Federal pension is gonna get cut back someday :( ). The overwhelming number of them are not well informed. They are reasonable people. God knows what the Greatest Generation could do if they were educated -- nicely. :)

Oil allowed us to create government programs like SS and Medicare. The taxes from it covered a lot of spending holes. Notice how every time they needed more cash to plow the streets, or cover some other government expense, they always found the money? 150 years of cheap energy enabled that. It made up for all our various deficits. It was the cushion.

The 1990s were a wonderful time in America, but we've had relatively good times in the past too. Remember the Gilded Age (1865-1901)? They may not have had many cars and trucks running then, but those with some assets lived ok. We don't need oil necessarily to have reasonable lives. And for now, as I've said, we are swimming in oil and natural gas. :)

Greg T. Jeffers said...


Nice commentary... but is the 'this is the end.... not' sh*t really necessary?

Anonymous said...

Yes, I tend to agree with most of your blog entries, I only mentioned "productive" work--my assumption perhaps wrongly that they may mean full-time employment, even if at a much lower wage. I certainly whole-heartedly agreed that its dissonnance of the more extreme variety that eventually motivates people to do something different--or in some people's cases--just DO something.

Idealism and irrationality has gotten us to where we are, and our culture is steeped in this fantasy island crap. To the point that i'm considered a pessimist or doomer, merely because I promote tightening of the belt and frugality, rather than buying 61" tv's on one's credit card when people don't have the money in the bank to cover such a purchase.

Ultimately, the world is far more along the lines of social darwinism, sadly, but that's reality and that's the reality most in 3rd world places have to deal with daily.

Your title of this article says it all, really. My concern is that we actually have freedom, but of course pared with responsibility--and this country continues its strange mix of socialism/fascism/corporatism. Oligarchies and the like are allowed to florish, and this nation is influenced by many who aren't americans nor really care for this country or what is supposedly represents. I truly hope that reality tv and Iphones aren't the "innovation" that people think life can be based on, or an economy can be based on.

Anonymous said...

"we don't need oil to have reasonable lives."

I take issue with this statement, comparing late 1800's America to present is not logical--unless the Nation transforms to the relocalized food production and economic activity that was more representative of that time period. Additionally, the population of the US at this time was roughly--what 50million? And now its 300+ Million.

I suppose we are 'swimming' in oil, as long as people sell it to us, but Mexico's severe depletion and the pace of its decline is scary. Only time will tell if US dollars can be traded for real resources as the years progress, for now it seems pretty certain, but perhaps someday paper money might look like a bad trade for hard commodities.

Greg T. Jeffers said...

Today must be bingo night...

"Idealism and irrationality has gotten us to where we are, and our culture is steeped in this fantasy island crap."


The damage done to policy by the Oil doomers predictions of an exact date for Peak Oil and its consequences is immeasurable... The 17% not working know it first hand but don't recognize it for what it is - the leading edge of the problem... The 83%, still working at high paying jobs have no reason to believe or understand - unless they actually have a lifetime's worth of savings and investments that they had plans for...

Like I said: "To be continued."

Greg T. Jeffers said...

BTW... the last thing our government wants is for folks to figure this out without the government's ability to tax them.

Communities like the Amish or the Orthodox Jews or Fundamentalist LDS with their closed communities and economies leave little on the table for the government to confiscate.

Take an Amish family that grows 65% of its own food, pays no sales taxes on a car or gasoline, no mortgage interest to the Federal Reserve system, no social security taxes (they were excluded as a matter of law), no phone or electricity taxes or fees... the last thing our governments want is people to behave like this... this simple act of civil disobedience - refusing government intervention - is very frightening to TPTB.

Anonymous said...

Hmmm...lotsa pissed off unemployed men with cheap guns trying to figure out how to put food on their families.
Hmmm. competing with Chinese workers willing to work for, what, $10./day?
Hmmm...gonna go work as a sharecropper(serf) on the local organic farm for food and shelter...
Boss says, sure, bring your guns along.
Excellent social policy!
We just starting to get crazy and stupid.

Anonymous said...

Anon 7:38AM,

The US has always had a well armed populace. I don't expect an insurrection. I'd expect people to find work. Riots don't put food on the table. However, a well armed populace makes the government think twice about enacting repressive laws. Government is always more responsible when the citizens can shoot back. The government and the people have done OK with this situation up 'til now. I'd expect this to continue. In fact, this whole mess is going to require more responsible conduct everywhere.


Coal Guy.

Anonymous said...

I get so sick of the entitlement mentality in this country. My family owns a construction company and all of the family employees are 1099. We pay for unemployment for the employees(well we use to have non-family employees)we do not receive unemployment from the state. In Michigan it is like 790 max every two weeks. My Cousin comes over the other day and starts bitching that them hillbilly repubs stopped unemployment. Basically told him to get out of my house. He has worked in the carpenters union for 27 yrs and collected unemployment for almost 2 yrs now. He will not take another job, he wants to get his 30 in and retire(they told him he would get 4700 a month Hahaha)so I have never collected unemployment only 29 but that does not change the fact that social programs postpone the natural outcome. He should not have bought as big of a house on a lake and he would not worry about his income. Any business owner knows you have to frugal and deliberate when planning for slow times. In construction in the dead state of Michigan that can be a long time.

Greg T. Jeffers said...

Coal Guy:

"Riots don't put food on the table" and "I expect people to find work".

That is exactly how I see it. They may not like it, but they WILL get over it and most folks will do the right thing.

Anonymous said...

Guns in America!
Coal Guy, I'm not talking about armed insurrection against the government. The police and military are quite sufficiently armed to stop anything that comes their way. Only a fool would go up against that and the AFT boyz would just love it.
I'm talking about one home invasion or one mugging at a time.
I hope your gated community has a good contract with Xe for 24/7/365 security.