I was recently chastised, and rightly so, by regular reader Donal Lang for my not very civil response to a reader's commentary.
I wrote to Donal:
"Donal,
After further reflection and a good night's sleep, I have decided to delete my offending commentary (while NOT deleting the comment that ignited my ire).
Nothing worse than hypocrisy... and while I complain about the lack of civility in political discourse nearly every post, you rightly pointed out my own lack of civility.
You point out that I am out of bounds in finding fault with this vegan for, well, being vegan... Not the case at all. Vegans that extend the view of the sanctity of life to animals in addition to mankind deserve our respect. Somehow, and I want to say this kindly and with great civility, I do not feel that way about vegans that wish to extend that view to animals but not to unborn children.
Of course, that does not mean I get a pass on the hypocrisy thing... and I hope I have done a better job in keeping with my own principals."
Let us all continue to strive to be more civil in our tone in discussions on this Blog - especially me!
---------------------------------------------
Moving right along...
My bet is, Hoenig will be silenced (not like the James Bond way, but silenced none the less). If not, it is very likely that another well credentialed member of the financial establishment joins him, and then another and another... it would not take much to inspire a significant loss of confidence.
The Mad Scientist and I were speaking this morning (you can read his blog, the link is on the right), and he pointed out that the only support the US$ and the Treasury market were getting was coming from the PIGS - Portugal, Italy, Ireland, Greece, and Spain - if they go first, that likely buys the U.S. 9 to 18 months... or until California gets its bailout.
Because folks, the California bailout is coming. And that, to my mind is the beginning of the "middle of the end" (the beginning of the end came and went, depending on how you measure it, with the tech market blowup in 2000 or housing market blow up in 2006.
How this plays out is anybody's guess... but I gotta think that the world wide reaction to the last super power and world reserve currency going Ka BOOM is going to be tough to respond to.
Think about it. The U.S. spends $383 BILLION per year on interest on the debt. The debt is growing, and interest rates, at least on the short end of the curve, have no where to go but up. Too, the Treasury has front loaded the auctions on the short end, and will HAVE to move up the curve (issuing paper of greater duration) - where the borrowing costs are at least 100 to 200 basis points (1% to 2%) higher. Still with me? Good. That means with a U.S. estimated national debt of 14.5 TRILLION in 2010 that the interest costs on the national debt will likely rise to $525 billion next year - or nearly 4% of GDP (this is the only ratio that matters, the absolute number is irrelevant) - and rising exponentially (and we all know what that means).
Sooooo.....
Don't worry, be happy. There is nothing to be done on a macro basis about this given the political realities in the U.S. Get your own house in order, cause we are getting close to crunch time.
Libertariananimal (at) gmail
30 comments:
Well, none of Bur's programs is going to get cut. Nothing short of a 15% VAT will make a significant dent in the deficit, now that cap and tax is dead. Just think how that would affect already depressed consumption. All that is left is option three, PRINT, PRINT, PRINT! I'm not sure how to prep for that.
Regards,
Coal Guy
Coal Guy:
Print, Print, Print is only the middle game...
What's the end game? If the U.S. P,P,P's, then what?
What happens to international trade? If we destroy our currency, what happens to our ability to borrow and fund our military/social programs? Then what? How do people react? Other countries? What will they be willing to trade with us for, now that they won't be taking US$?
The domestic and international political repercussions of the blowoff are stark (if I am correct about the blow-off).
For instance: Does Saudi Arabia's regime fall as a result? Very possibly. Can you imagine the economic fallout of a real energy crisis coming at the same time as the events I portray?
"Brutal, Juice, Brutal".
If we destroy our currency, how do we pay for the daily 10 million barrels of oil imports? Not much manufacturing to trade for oil. Not much in the way of natural resources to trade other than fossil fuel powered agricultural production.
Remember that the Chinese have been quite busy in building strong relationships with the ME oil producers. Meaning that the oil is going to go EAST- not west after the US military pulls out of the ME due to lack of funding.
Coal guy- see Goldmoney.com. Specify storage in Zurich.
My programs are your programs :) Social Security and Medicare are senior programs (which will never be cut). Medicaid is paying for disabled people so they don't show up on peoples' front lawns (also will never be cut), 36% of Federal debt is due in less than one year -- and if there are boobs out there willing to buy it cause they are afraid for Greece, etc., let them (interest cannot be cut), and Defense, which will not be cut because a lot of people get rich off the Defense Dept.
So far, U.S. interest rates are at zero now. Japan has gotten by with zero interest rates for 20 years and they are still sending skaters to the Olympics (did you see that little Japanese guy zooming all over the ice last night? :)). The oil states need American boys to protect their national interests, so they'll do whatever we say and keep taking dollars. With a deflation ongoing (which Jeffers admits), and probably ongoing for years (destroying a lot of demand), there is no inflation in sight. So, I don't see a problem yet. Print, baby, print.
Low interest rates, no inflation, people are buying U.S. bonds (even if it is the Fed doing it), and the supermarkets and gas stations are all full. Please tell me specifically what is it that you are all complaining about? :)
By the way, if you girls are so sensitive that spirited discussion threatens you, maybe blogs are not the place for you. Perhaps you should try crotcheting. :)
Hey, it's your blog you can be as uncivil as you wish, if your readers don't carre for it they won't come back!
I am quite liberal at heart, but I know the economic situation doesn't support that anymore, and I'm very pro-choice and I keep coming here to see what you say!
Also, I'm not interested in debating those issues either, I just come to see what you have to say because you're a reasonable man with your point of view.
We should be reading more than just what our own personal opinions agree with sometimes if we're out here reading on the net.
Anyway, I was going to ask, you say we're getting near to crunch time--it seems like we've been there all the time the last 2 years--would you be willing to venture a guess as to when crunch time might be???
I know you don't have a crystal ball, I'm just interested if you have a general time fram in mind.
thanks for the blog.
Peaced to all,
Shamba
Bur, what did the 5 fingers say to the face?! http://www.youtube.com/watch?v=goNqg8LO42c
Kidding, kidding.
Shamba:
LOL! Perhaps that is true, but it is also true that hypocrisy knows no bounds... getting a hold on one's mouth is helps the dialogue move along.
Shamba:
I must demure on the timing. Even if I were to get it right, it would only have been a random shot in the dark. Not latter than the end of the decade, not sooner than the PIGS... IMHO.
Also by the way, Mad Scientist suggested I buy EVEP last year at $18 a share, so I did. Later, he suggested I sell my EVEP, which I did, at $21 a share. Today, EVEP is at $30 a share. Scientist may help you make money, Jeffers, but I'm not seeing the talent over here. :)
Bur:
Stock picking is enormously difficult. We are more macro players.
David Chappelle was another guy who had the money in his hand and lost it, like so many other "men of potential" who had riches in sight, and choked and ran away from a big career.
Since we now have sensitive people on this blog, I will give my favorite Chappelle bit with a bad word censored ...
A spelling bee of some kind ..
"The word is "N****r" Can you use it in a sentence?"
Chappelle: "Sure!!! GET OFF MY PORCH, YYYOOOOOOOOOOUUU N*****R!!!"
:)))))))))))))))))))
If you wish to know when crunch time is, this is the equation Professor Bartlett used,
Al's "best kept secret formula"
he does break it down somewhat in the video which Greg posted:
If you have a resource that gets consumed exponentially
(like oil) and you have total resource R and some rate of consumption r, then
the "linear time" to depletion is T(end,linear) = R/r. (E.g. total barrels / (bbl/year))
If you have exponential growth, with annual growth rate "c", then
T(end, exponential) = (100/c) * ln[1 + (c/100) * T(end,linear)]
Somehow you should take Black swans into account too (as an outlier event)I guess but if this equation could be answered with any absolute degree of accuracy, you would know when the tipping point is. I wonder if the IEA, or EIA use this equation.
More info on the equation:
http://www.aps.org/units/fps/newsletters/200807/gupta.cfm
Greg,
Exactly my problem, How do we plan for chaos. Otherwise I'd just pick what I thought was the end of deflation and buy things backed by hard assets. That still maybe the best answer. I think the rally in equities has just about run out of legs. Going to cash very soon. Deflation has at least another year in it, I'd bet. Also, short term, the dollar seems better than the Yen or Yuan, and the Eurozone my come apart. This will happen sooner than a $ collapse for political reasons. The Eurozone countries are not as tightly bound as the 50 states. So, as you said, the Pigs will pop first. As bad as things are, the dollar may be viewed as safer than many other currencies for longer that we might think.
There is no farm in my future. A small business is a better choice in my situation. I read Kathy's list of things to have in an emergency, and already have about 85% of it, without trying. I'll be filling out the rest in the near future.
I am for a mixture of printing and fiscal responsibility. As the credit bubble unwinds and de-leveraging occurs, liquidity must be provided or all the cash will disappear. That won't be the case. PRINT, PRINT, PRINT will occur to fund profligate government spending. That dooms the $.
Regards,
Coal Guy
Coal guy:
A "Farm" is certainly not for everyone... a small business/merchant is a very smart play in all of this, as is avoiding things like litigation and any other collisions with the legal or justice system.
BTW, my "Farm" is does not produce much more than we consume. Big difference between farming for a living and supplementing the table... and at 49 years old, I do not see decades of back breaking work ahead as any kind of answer... but a lower, smaller, thinner footprint in all things will do wonders for one's sanity.
Bur said: "Low interest rates, no inflation, people are buying U.S. bonds (even if it is the Fed doing it), and the supermarkets and gas stations are all full. Please tell me specifically what is it that you are all complaining about? :)"
Bur, full gas station gas tanks and full grocery store shelves aren't any good if a good chunk of people don't have the $$$ to buy the stuff. In all but the fastest crashes, I'd expect such products to continue to be available for some time, again, assuming one has enough $$$ to fork over.
Keep in mind that even in some of the poorest parts of the world, there are still gas stations and food markets with all kinds of goodies.....for the few very rich that can manage the purchases.
I agree on the "farm" thing too. We grow a good part of our veggies and firewood, but in no way do I make $$$ doing it, other than the fairly substantial $$$ I save in avoided food and fuel purchases. I do all that and still hold down a full-time job no problem. If nothing else, homestead activities are cheap recreation, allowing one to do away with fancy vacations and health club memberships.
The ME needs our wheat and will be willing, if not happy, to trade for it.
Stephen:
Ben Franklin may have said “a penny saved is a penny earned” but he didn’t have to deal with progressive taxation, today a penny saved is more than a penny earned.
Greg; an elegant apology and retreat - nicely done!
On the problem of the debts, I give a lecture about the differences between Facts, Theories and Beliefs. Facts are Theories plus proofs (sufficient to convince you). When we get to beliefs, most people assume I mean religion, but I use money as the example.
If we stop believing in money (or bonds, or shares) then they revert to what they are; paper and promises.
If you remember in 'Casablanca' a scene where a once-wealthy refugee is trying to sell diamonds for a ticket out, but the dealer shrugs and says,'Diamonds? Everyone is trying to sell diamonds!'
The idea of self-sufficiency is enticing, and one that many of us are following. I agree (as you know) with your strategy of buying land. Bottom line is you can rent it out, sharecrop it, even sell it. Land has been the basis of wealth for at least the last 2,000 years - its only fossil fuels that changed that (temporarily, it seems!).
If the shit does hit the fan, then everyday life will eventually decouple from The System of government, taxes, etc. For me, the problem is that interim stage when government is trying to hold control, putting up taxes to pay for increasing costs (and interest payments), maybe seizing assets and gold, and trying to keep control. That's the expensive, and very dangerous time.
"What will they be willing to trade with us for, now that they won't be taking US$?" G Jeffers
In response to this, food. The US remains the number one food producer in the world, and although subsidized financially, most countries of the world have serious issues with desertification, lack of water and the like. Although, water issues in the US are certainly a concern and the "breadbasket" of the US mostly uses destroyed soil propped up by massive inputs of fertilizers/petro.
At least for awhile, It would seem like oil for food exports might be a possibility?
Donal:
I see Hoenig's comments are very destructive to the "belief" in the US$, rightly or wrongly.
I do not believe that one can be "self sufficient" - and I have been trying it. One CAN subsidize their sufficiency, as it were. But I was thinking about Land the way you do - as a store of value. As a rentable and/or productive asset.
The problem with Gold is the government can enact confiscatory taxes on the "gain".
Anon regarding trading food:
The U.S. exports squat in dollar terms regarding food. For this to work, the price of food would have to sky rocket. This would be a case where the cure is far worse than the disease.
Too, as resource depletion takes hold over the years the U.S. dependence on fertilizer will become more apparent, IMHO.
No inflation in sight??? While that may be true for the well-off buying new houses and new cars, it most definitely is not true for the rest of us. For example yesterday I read in the newspaper that my health insurance premium (which is more than 30% of my after tax, after savings expenditures) is going up 18%. The latest monthly rate of pre-Clinton CPI at http://www.shadowstats.com/ is 6%.
Dan:
I agree. I was going to mention something about the $$$ saved by participating a few homestead activities otherwise replacing after-tax expenditures for food, energy, and whatnot, but in the end didn't. Good point though, as it's very true - a dollar of stuff made at home replaces much more than a dollar of pre-tax income earnings. It also can save some car miles and other expenses tied to an outside job, perhaps especially the significant other's second job if a family wishes.
Bur,
With your comments in mind...what about David Walker's very plain, non-partisan comments on the debt? That in a short time SS, Medicare, and interest will eat up 80% of what we are spending?
You can't print your way out of that forever.
To Stephen: we have lots of money floating around In the U.S. Why is it that the biggest buyer of lottery tickets are the dirt poor? Why is it that people using "Link" cards (welfare in Illinois) at the supermarket are also talking in line on cell phones? There is LOTS of money out there, despite all the crying about people being broke. People can find money if they want to.
To anonymous: David Walker is irrelevant because he talks about the problem and offers no solutions. Know why? Cause the people who come to listen to him cannot and will not accept ANY cuts to SS, Medicare or Medicaid (50% of the Federal budget); nor does he mention who will have to pay future higher taxes. Once the public hears that stuff, they will tune him out.
Bur,
One of my biggest pet peeves is an arrogant woman on welfare, completely sound in mind and body, having her groceries bagged by a mentally retarded bagger. Makes steam come out my ears.
Greg,
In the depression millions of farms were lost to back taxes. The government will have its pound of flesh, regardless. Assets that the tax-man can't grab are essential. That's what makes this so difficult. Will we go by debt collapse or hyperinflation, or one followed by the other? Will there be enough cash left in any case to pay taxes on my hard assets and protect them from attachment?
Regards,
Coal Guy
Everyone has a story, Carbon. :) What we see may not be the entire story.
Back again in reference to food comment by Mr. Jeffers.
I most certainly agree in dollar terms exports are minimal, the US continues to give away massive amounts of food around the world via the UN or directly as food aid.
Food prices most certainly will go up, how could they not with food production tied to oil for production and distribution.
But given that 4 major food companies control massive amounts of the food system in the US, high prices and demand abroad could easily lead to food becoming a high priced export--given that food is a necessity. This doesn't bode well for the US consumer, and most who believe gardening is easy, or self-sufficient living is easy will be sorely disappointed.
Our families goal is two try and eat for two months from our garden, with some smaller supplements from what we have already bought. Doing this in August/Sept makes the most sense, but this is difficult to do. I challenge people to try and live off what they produce for a couple months--that's a real wake up call.
Hopefully gardening and the like will just be a healthier way to produce food and a slight hedge against food price spikes in the future. But I don't expect the food system in the US to turn down Euro's and yen and the like if they can start selling food abroad for a mint in the future.
Coal guy:
One of the outcomes of the fact that so many farms were lost to back taxes is that Ag property taxes are EXTREMELY LOW in most states.
Whether this holds in the future is anybody's guess. My bet is that rentals will reflect property taxes and be passed on to consumers... if the various government entities allow the market to work...
Stil, nothing is perfect or for sure... the problem with many "other" assets is that the tax aw can be changed to confiscate the gains made in these.
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