Re: OT: Tip of the Ice Berg

On Sat, 16 May 2009 02:14:47 -0500, "TXBill"
<el2468alumbrado@xxxxxxxxx> wrote:

When I last stopped by RORT late last year, we were discussing oil
prices, equities, and the unfolding financial crisis. As an "investment
banker" with significant international interests, I have perhaps a
somewhat better than average perspective on the macro-scale financial
gears that keep the world moving and believe that I have earned the
luxury of holding a meaningful opinion in this one narrow area of
expertise.

As I recall, I was ridiculed by some herein when I predicted that US
equities would crash and the DOW would drop below 8,000. I was further
chastised when I predicted retail gasoline prices would bottom around
$1.00/gallon, and then remain relatively stable between $2.00 and $2.50
(the rough "break-even" price of many alternative energy technologies).
A few of our local uber-patriots claimed that I was being alarmist when
I predicted a rapid economic decline followed by a long period of
financial stagnation before things really fell off the cliff. I said
then, and I'll say it again now: We ain't seen nothing yet. Hang on to
your hats, folks, we're in for a rough ride. For those with the
forethought to buckle their seatbelts, however, it shouldn't necessarily
lead to a catastrophe.

The gap between what the US owes, and what it can reasonably expect to
receive in revenue is becoming untenably large. The damage that Mr. Bush
did to the economy was bad enough, but what Mr. Obama is doing now will
have far-reaching negative implications for decades to come. Even before
the current "crisis", the US owed almost 5 times GDP, roughly half of
that to foreign powers who may or may not be patient with us when the
time comes to repay. That's the equivalent of you owing several times
your annual salary to a neighbor who doesn't particularly like you. Mr.
Obama's profligate spending spree is hugely increasing our debt at a
time when our revenue is shrinking. We borrowed our way into this
crisis, and as much as we'd like to think the old ways are the best
ways, we're not going to be able to borrow our way out.

Here's a sobering thought: The US currently collects a little less than
$2T (that's "T" as in "Trillion") in taxes each year. Our current debt,
however, is pushing $12T. That means that even before Mr. Obama's
policies take hold, we owe 6 times as much as we expect to take in this
year. The Congressional Budget Office estimates that Mr. Obama's "borrow
and spend" policies will add an additional $10T or so to our national
debt over the next few years. This means that before too long debt
service will consume more than 80% of the US economy. Picture spending
80% of your monthly paycheck just to pay the interest on your mortgage;
there wouldn't be a whole lot left over for other things like paying the
electric bill, buying food, or fixing the car. That's the state that the
entire country will find itself in before the end of the next decade.
Clearly, the only possible outcome of such an enormous debt load will be
deprivation, a dramatic decrease in our standard of living, and, with
but the tiniest of shoves by some of our less friendly neighbors,
bankruptcy and total economic collapse.

Countries, like corporations, can and do go bankrupt. The only thing
keeping the US afloat now is the willingness of some foreign countries,
most notably China, to continue lending us money. How long this will
last is anybody's guess, but it's probably not wrong to think that we
will eventually over-draw our credit line. Sooner or later, other
countries are going to conclude that the US is no longer a good credit
risk and will begin to sell off their US securities at discounted prices
(some of this is already beginning to happen). When that happens "en
masse", we'll be facing a day of reckoning that I think most of us can't
imagine. The value of the dollar will plummet, and the interest that
we'll have to pay to borrow money will skyrocket. Picture the worst of
the "banana republics" with hyper inflation, a worthless currency,
stratospheric interest rates, social unrest, government oppression, and
a bloody revolution every few years. This may well describe the future
of the United States.

Mr. Obama's policies will help in the short term, leading to a brief
period of slow decline that will feel almost like prosperity. But even
this fever-dream of times gone by won't last long. The long-term
prognosis of all this spending is bleak. The bottom will really drop out
when the bulk of the 75-million-or-so "baby boomers" retire over the
next decade or so, not only dramatically reducing the tax roles but
increasing entitlement spending to impossible numbers. We're looking at
a financial tsunami that will break over the economy and leave us
flopping around on the beach gasping for breath and wondering what just
happened.

There are a few things we can do to avert disaster if we have the stones
to make tough decisions and take drastic action. First, we need to dump
our current tax code and implement a universal national sales tax, with
no loopholes or exceptions, of something on the order of 33% just to
meet the debt service. Then we need to reduce expenses by cutting
entitlements like Social Security and Medicare by two thirds. Yes, I
know we worked all our lives to earn that money but we have to face the
facts: it's gone, stolen by unscrupulous politicians who hoped you
wouldn't notice; we can track them down and hang them later but first we
need to stop the bleeding. We need to rethink the way we use credit, and
pass laws that force us to live within our means (how about legislating
maximum non-mortgage credit lines equal to some small percentage of
expected household income? eliminating second mortgages? limiting
maximum mortgage debt to perhaps twice annual income? limiting maximum
auto loans to perhaps one-half of annual income?). We also need to
recognize that we can no longer afford to be the world's police force,
and must concentrate what resources we retain on solving problems here
at home.

We need to re-industrialize America so that we are producing capital
once again and not just selling hamburgers and life insurance to each
other. We need to re-build a culture that encourages and rewards
excellence instead of promoting conformity, mindless entertainment, and
unthinking consumption. We need to think about how we take care of our
less-able citizens without crippling those who produce and pay taxes. We
need to beef up our educational system so that we produce citizens with
the skills to compete in a very competitive world market (and, contrary
to Mr. Bush's well-meaning sentiments, this means that some children who
can't keep up will in fact be left behind).

What can you do to prepare yourself for this looming disaster? Well,
that depends on your circumstances. I'd start by living within my means,
buying hard assets, and learning new marketable skills. You may also
consider exploring off-shore investment opportunities and markets. I
certainly wouldn't count on Uncle Sam to help me out in my old age, as
he's going to have his hands full just keeping himself alive. The basic
American principles of ingenuity, creativity, industry, and
self-reliance drove this country to greatness. In recent years, we seem
to have forgotten these old friends. Maybe this is a good time for us to
dust them off and place them back up on the mantle piece where they
belong.

Don't agree with my assessment? The Federal Reserve does. So does the
CIA. And the General Accounting Office. And a whole host of prominent
economists and business leaders. Not to mention the governments of many
of our friends and enemies around the world. When it comes to money, I
have no interest in political spins or interpretations of the facts, so
let's not get into a howling contest over how bad Bush was or how Obama
is a socialist. None of that matters anyway, the data stands on its own.
Also, don't bother to challenge me for references, it's not my
responsibility to lead you by the nose. Do a little digging. Do a little
reading. Do a little thinking. Then come to your own conclusions and act
as you see fit. That is, after all, the American Way.

There are none so blind as those who will not see.

- TXBill
"Opinions expressed may not necessarily be those of The Management"
------------------------------------
Bill, thanks for posting this. I think you have hit the nail on the
head. What I am having concern over is what to put my *savings*
currently mutual funds & stocks into that might appreciate rather than
depreciate.

I know that terrible inflation is coming, it has to. One used to be
able to invest in real estate and take advantage of inflation. Now I
am not sure what to invest in since real estate tanked.

Any suggestions?

mike
--

.

Relevant Pages

  • Re: OT: Tip of the Ice Berg
    ... As an "investment banker" with significant international interests, I have perhaps a somewhat better than average perspective on the macro-scale financial gears that keep the world moving and believe that I have earned the luxury of holding a meaningful opinion in this one narrow area of expertise. ... I was further chastised when I predicted retail gasoline prices would bottom around $1.00/gallon, and then remain relatively stable between $2.00 and $2.50. ... The damage that Mr. Bush did to the economy was bad enough, but what Mr. Obama is doing now will have far-reaching negative implications for decades to come. ... The Congressional Budget Office estimates that Mr. Obama's "borrow and spend" policies will add an additional $10T or so to our national debt over the next few years. ...
    (rec.outdoors.rv-travel)
  • OT: Tip of the Ice Berg
    ... I was further chastised when I predicted retail gasoline prices would bottom around $1.00/gallon, and then remain relatively stable between $2.00 and $2.50. ... The damage that Mr. Bush did to the economy was bad enough, but what Mr. Obama is doing now will have far-reaching negative implications for decades to come. ... The Congressional Budget Office estimates that Mr. Obama's "borrow and spend" policies will add an additional $10T or so to our national debt over the next few years. ... The only thing keeping the US afloat now is the willingness of some foreign countries, most notably China, to continue lending us money. ...
    (rec.outdoors.rv-travel)
  • Re: OT: Tip of the Ice Berg
    ... My predictions of life under Obama are all being borne out too......but you will never get the liberals on RORT to admit it. ... I was further chastised when I predicted retail gasoline prices would bottom around $1.00/gallon, and then remain relatively stable between $2.00 and $2.50. ... The damage that Mr. Bush did to the economy was bad enough, but what Mr. Obama is doing now will have far-reaching negative implications for decades to come. ... The Congressional Budget Office estimates that Mr. Obama's "borrow and spend" policies will add an additional $10T or so to our national debt over the next few years. ...
    (rec.outdoors.rv-travel)
  • Re: OT: Tip of the Ice Berg
    ... I was further chastised when I predicted retail gasoline prices would bottom around $1.00/gallon, and then remain relatively stable between $2.00 and $2.50. ... The damage that Mr. Bush did to the economy was bad enough, but what Mr. Obama is doing now will have far-reaching negative implications for decades to come. ... The Congressional Budget Office estimates that Mr. Obama's "borrow and spend" policies will add an additional $10T or so to our national debt over the next few years. ... The only thing keeping the US afloat now is the willingness of some foreign countries, most notably China, to continue lending us money. ...
    (rec.outdoors.rv-travel)
  • Refuting supply-side economics
    ... entrepreneur, is sheer nonsense. ... The economy with high public debt becomes sluggish, ... It is leeched of investment capital and makes businesses a lot harder ...
    (sci.econ)