Demographic Bomb and US Debt Explosion

There are some interesting GAO slides available on the wiki page per the debt.

GAO slide on the growth of U.S. Enttitlement Spending vs Debt

GAO slide on the growth of U.S. Enttitlement Spending vs Debt

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The wiki is reasonably well written (at least at the moment). There are several very interesting GAO slides. I found this one particularly interesting. Partly for what is NOT said about it, but clear in the graph.

First off, there is a small blip in revenues to above 20% in 2000 during the peak of the last bubble. At most, you can get a temporary 2% above about the 18% of GDP as Federal Revenue, and even then only for a little while, and followed by a drop. Note, too, that the GAO realizes that Federal “tax take” is only going to be 18% of GDP going forward.

Next, notice the white boxes. That’s all the government expenditures outside of Medicare, Medicaid, Interest, and Social Security payments. Every last scrap of it. Military. Agencies. You name it. Notice that it WAS a large percentage (about 15% of GDP at the start) but ends up 8% going forward. Since the U.S. Government has never shrunk, for it to be a smaller percentage of GDP implies a large growth of GDP. Yet we’re not seeing that (and, IMHO, will not for quite a while. You do not get a lot of ‘growth’ out of a retiring welfare state…) So, IMHO, there are some “rosy” projections of GDP growth hiding under this graph somewhere. Assumptions that do not recognize the Demographic Bomb impact on productivity as we have ever fewer workers and ever more retired folks. Clearly it does recognize the growth of retired folks in the entitlement bars.

Now look at about 2020. Look how much above the revenue line is the top of the white box. That difference is the size of the deficit that must be borrowed from someone. Scan right and look how rapidly that top of the bar runs away from the revenue line. That is in %GDP, so in absolute dollars it will be much much worse, and if GDP doesn’t grow as expected, even more drastically away from dollar revenues. By 2060 the “deficit” is 25% (more or less) of GDP per year. Does anyone really think that we can borrow 25% of GDP every year, for decades?

OK, drop down and look at the Social Security bar on the bottom, the green one. Between 2010 and 2030 it creeps up a tiny bit. That entire move is the retirement of the Baby Boomers. That’s it. The whole “demographic bomb” is reduced to that couple of percent of GDP “bump”. That is a fairly large risk to Social Security and the entire “risk” to the Social Security System that folks are all worried about.

So what makes up the REST of the giant rise? What turns this “Social Security Crisis” into an unimaginable collapse issue?

Medical expenditures and interest on debt.

Medical care cost are highest in old age. Often the bulk of all lifetime consumption of medical care comes in the last half dozen years of life. That is why, as the “Boomers” age, the costs of Medicare climb. It is also part of why Medicaid climbs, but that also is climbing based on covering more people for more things. Taken together, they are the the costs of “socialized medicine” at the Federal Level. (Not yet in the graph are any costs from Obamacare and any other medical or drug plans added after the 2007 date of preparation of the graph. So things are really worse than the graph shows.) I make it about 15% of GDP just on Federal entitlement medical costs. At the far right, those medical costs and Social Security costs make up 18%+ of GDP. That’s just not going to happen. Those are acts of consumption, not production. You can not have nearly 1/5 of your economy as dead weight consumption, mandated, and have any kind of economic growth.

Now, look at the interest rate bars. Realize those are from BEFORE the rampant exponential growth of debt we’ve seen under Obama. Between the exponential rise, and the inevitable bump in interest rates to come, those bars are too small. Even with that, the graph points out that in about 2035 ALL of government revenues are consumed by Medical, Social Security, and interest payments. Entitlements and mandatory interest charges. About 22 years. IMHO, it’s going to be much sooner. As soon as interest rates start to rise, I think we’ve got about 5 years. Call it 2025 at best.

Realize, too, that there is nothing The Fed can do to “fix” this. If they buy all the bonds, keeping rates from exploding, the currency will enter a hyperinflation. If they do NOT buy the bonds, rates explode (due to the high level of debts being financed) and the deficit blows out very fast. As evidenced by Greece, the Rest Of World will not be stepping up to loan a lot of money to a Government Entitlement Economy, even with high interest rates.

The Democrats propose to raise tax RATES, to get the revenue line to rise above 18%. Yet we know that can not happen. We are already past the peak of the Laffer Curve, so any increase in rates will result in less revenue, not more.

The Republicans want to cut rates to “stimulate the economy”. Yet this graph already must have GDP growth built into it, as the size of the “rest of government” bar shrinks or stays constant, despite real budget growth in actual dollars as far as the eye can see. You can ‘stimulate’ and ‘grow’ all you want, the revenues will NOT rise to 50% of GDP, or even 25%.

The only possible way out of this is to shrink spending. That must happen either to ALL of the rest of the Federal Government (and drastically); though even then it is not enough in 2030… Or it must happen to Medicare and Medicaid fairly aggressively, AND the growth of the debt must be turned into a decline of debt. (By 2060, the debt service alone even with the estimates on this graph, pre-Obama $Trillions, consume all of the 18% of GDP that can actually be taken via tax receipts).

In essence, the only things that can possibly do anything to avoid this “SPLAT!”, is to eliminate the Federal Debt AND cut Federal Medical Entitlements. Anything else can, at most, delay the “SPLAT!” by a couple of years; and most likely can’t even do that, as it will be too small and the bond buyers will realize this state of affairs, causing yields to rise and debt service to rise, rather a lot, as soon as that is clear. Call it about the middle of the next Presidential term. Either we have Obama Part Deux and it’s clearly depression / hyperinflation land; or it’s Romney “trying but too little too late” and with congress not cutting a thing on spending.

Does anyone really think the Federal Reserve can eliminate $16 Trillion on debt in the next 20 years? Remember that many bonds issued today are 30 year bonds. That debt is hard fixed until 2042. There are a load of 10 year bonds, so 2022, that will expire, and refunding will likely be at much higher rates, so problematic. In any case, look at the point about 2025 on the graph. Right between the 2020 and 2030 bars. That level of debt, interest charges, and expenditures are essentially frozen already ( though, as noted, likely higher than this 2007 projection due to ObamaCare and the $5 Trillion more debt…)

So there you have it. On one simple graph. The Demographic Bomb meets the Welfare State and Socialized Medicine, and the whole thing blows up. No doubt about it. IMHO, first sparks and Aw Shits hitting about 2016 to 2025. No matter what The Fed or Congress do (given that Congress will not cut spending or repeal handouts).

We also have a large ‘retirement’ commitment to government employees (and worse at the State and Local levels) that can not be met, and we have all the “off budget” things that do not show up here, such as military adventures and wars all over the globe. Those will accelerate this problem, IMHO.

Another Interesting Graph

Who gets stuck with bonds that can not be repaid? Who is giving us money now (and expected to fund that future debt growth)?

Estimated Treasuries Ownership

Estimated Treasuries Ownership

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Particularly interesting here is that big bottom blue block. INTRA-government and Federal Reserve. Basically, we owe a lot of the debt from one part of the government to other parts, or to The Fed. As The Fed is a quasi government creation, we could always just “nationalize The Fed” and erase that part of the debt. Some chunk of that bar is also going to be various ‘retirement funds’ for Federal Employees. We can just repudiate those retirement payments, if needed. (That does NOT include the present ‘unfunded’ pension obligations racking up at large speed, so it will be even worse by the time the SHTF moment comes.) Other parts will be various “agencies” with spare cash to park (like Federal Highway Funds or construction projects).

One big thing to realize, though, is that that bar can not grow much more. As the “boomers” retire, there will be less money flowing into those Federal Retirement holdings, and more flowing out. It is not a source of new money. Same thing for the State and Local bar further up an even the private pensions. The Boomers are going to be taking out, not putting in, very soon.

The “best news” is just how small are the “other investors” and insurance companies and “Savings Bonds” slices. That “Foreign and International” slice is largely Japan and China, at over $1 Trillion or so each. They were growing their holdings through the 2008 date of this chart, but some recent evidence has China and Japan reducing exposure. OK, we can “screw them over” if needed, by either of direct default or more likely inflation. But it is also pretty clear that they can not be expected to double their holdings every year to fund the growth of our deficit spend and the withdrawals for retirements that happen “soon”.

At this point it’s pretty clear there is exactly ONE “buyer of last resort” for the massive debt growth happening now, and more to come from the projection above. The Fed.

And what did The Fed just announce? Nearly unlimited bond buying for the foreseeable future.

The Stock Market took this as “good news” and shot up 200+ points on the Dow.

While that’s the classical interpretation, I think we’ve got to look a step beyond.

The Fed can NOT sterilize all that bond buying. They do not have enough other currency assets to do it. $Trillion / year added is going to show up as inflation or stagflation. During times of inflation, the stock market does not rise fast enough. What wins are “stuff” investments. Metals (gold, silver, platinum), oil wells (modulo short term drops on business slow downs), real estate, collectables. My “story” would expect “stuff” to rise in price.

FWIW, I’m not seeing a whole lot of currencies in which to sink money (out of dollars). The Euro “has issues”, and THEIR Central Bank going on a Bond Buying Binge does not give me warm fuzzy feelings (for the same reason as The Fed doing it…) Japan? They expect to cash in and retire. As that’s not going to increase productivity, I’m not seeing the attraction. They are in even more debt than just about everyone else, too. 225% of GDP and #1 position per this link (h/t Adolfo):

Essentially, we’re left with the “3rd World” and Russia, plus Australia and New Zealand. While there are some interesting small plays in there, they are not enough to carry the world, and in a major economic “aw shit” those currencies usually do not do very well.

So we’re back at “stuff”.

An interesting map of the world showing debt by country is here:

It basically looks like the folks who could borrow, loaded up; and those who could not, were not historically good places to put your money. Not a lot of space between those two.

For folks interested in more detail on who holds what debt, this graph is nice:

National Debt Holders of the U.S.A.

National Debt Holders of the U.S.A.

Again, it is a 2008 graph, so things are a bit different now. Still, it is useful.

First off, notice that the public holdings are not a lot of long term bonds. Nearly $3 Trillion or notes. 10 years and under. So on average, about 5 years for 1/2 of them to “roll over”… be refunded or redeemed. Anyone else think there is no chance in hell that we will ‘buy back’ $1.5 Trillion in Notes in the next 5 years? Another roughly $2 Trillion are “bills”. Less than a year maturity. So we MUST roll over $2 Trillion every year AND borrow $1 Trillion more AND refund any longer notes and bonds that mature…

On the Government holdings side, we again see that most of it is various retirement and social security funds. (Old age and survivors). Given that we go from net excess in, to net outflows, in the next few years, those are not going to grow. However, it does point up how the “Social Benefits” and entitlements are the things that put the budget in peril, and the things that must be repudiated in a generalized “failure to deliver”.

That part of the graph, matched to the Boomers retiring, also points up the expectation that about $2 Trillion more will be needed to redeem those bonds over the next decade or so, to make the payments to those retired Boomers. So where on the right hand side will THAT $2 Trillion come from, eh? From Japan who will be cashing out to pay retirements too? From China? IMHO, nope.

It can only come from The Fed. As inflationary dollars. This has the dual effect of officially making the payments, but also causing inflation to erode away all the real debt on the books too.

In Conclusion

So is there NO hope?

Only a tiny bit. There are folks who will point out that at the end of W.W.II we had debt at 100% of GDP, nearly double now; and we got it back down. That is encouraging.

What it ignores, though, is that we essentially had the entire global stock of intact manufacturing plant, a LARGE young workforce returning from war (and a lot of women newly trained to work in industry too). A spectacular thriving economy, and a young and growing workforce. Oh, and we did NOT have a huge entitlement burden to pay out…

Other than that, no problem! ;-)

Frankly, IMHO, the only “hope” is not very much. IFF we got a Romney With Spine (as opposed to the Massachusetts Romney) along with a full sweep of congress as Libertarians and Republicans, along with a population aware of the issues and willing to bite the bullet and take the hits; we could dump a load of entitlements, get economic growth back on track with a rabid reduction of agencies, regulations, taxes, etc., and exit from a few “wars” around the globe (including the money wasting “war on drugs”). Repeal ObamaCare AND the Baby Bush drug plan (that we also can not fund), and a few dozen other such things. Oh, and do a complete pruning of the Government Pension System. “Hey Hey, Ho Ho, Unfunded Pensions Have To Go!”… we can’t pay them anyway, so they are, in essence, just a big fat lie anyway.

If we did all that, there is a small hope we can avoid a complete budget meltdown and destruction of the currency.

No, I don’t think there is any chance at all it will happen.

I suppose there’s a small chance that the above charts are wrong. That something dramatic will happen (like Russia nuking the Muslim World and China and EU being dragged into the local war, leaving us being the only major economy left standing). But in a more or less “business as usual” scenario, I just don’t see any way this can work. Even tossing in a War isn’t going to fix it. Making more bombs and guns and sending them off to the other side of the planet to be destroyed is NOT going to redeem the bonds, nor provide more doctors to retired folks on Medicare. It will not produce any net value to cover those debts, just destroy real value. We are already on a ‘war footing’ in terms of economic activity anyway. We make more armament than just about anyone else on the planet. The only way I can see that being a ‘feature’ is if we find a way to sell more of it to China, Russia, Muslims, etc. for them to use killing each other. At least then we can get them to send us some real money…

Frankly, I’d like to have a nice positive “spin” to end this note. Some ray of hope. Some creative “way out”. But sometimes “Reality just is. -E.M.Smith”. And have I mentioned lately that Economics is called “The Dismal Science” for a reason?

So I’m just going to leave it hanging here. If anyone can see a way out of this Demographic Bomb meets Debt Bomb problem, by all means, say so. Even a whacky idea is better than what we’ve got now…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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86 Responses to Demographic Bomb and US Debt Explosion

  1. R3 says:

    No, you nailed it. We’re screwed, D or R doesn’t matter, both parties will lead us down the same path, debt implosion.

  2. Chiefio, this topc is well beyond my pay grade so I am hoping you can help me out. There is an interesting website that tries to present the “Big Picture”

    It contains some debatable commentary such as:
    “Then came the Great Depression, and President Roosevelt decided to spend his way out of trouble, boosting federal debt to 40 percent of GDP.”

    My take on all this is that Bush II followed the FDR playbook by creating new “Entitlemetns” that hiked the federal debt to a new level (65% of GDP). Obama was not going to be outdone by a Republican president so he created even more entitlements, driving the federal debt to 100% of GNP.

    You can be sure that Obama if re-elected will continue to borrow until we run out of OPM (Other People’s Money). Convince me that Romney will do anything to restore fiscal sanity.

  3. boballab says:

    The other side of that coin from WWII was that while the men were off fighting and the women off building what the men were fighting with, the civilian populace went through 5 years of Austerity Measures.

    Sure there was great employment but they had nothing to spend their paychecks on since food, clothing and other materials such as gas and tires were rationed. So when the war was over we not only had the capacity to build all the goodies, we had a populace that was forced to “save” for 5 years prior and could now afford the stuff being made. This time there is no savings built up.

  4. John F. Hultquist says:

    I’ll have to return to this in the morning. Just want to say that the States are equally in trouble. The State of Washington is just entering a period of rapid expansion of those over 65. The State’s bean counters are aware but it has not, yet, bubbled to the surface of public awareness. WA is a very left leaning place (not everywhere) with a Dem. Gov. so not much has been said. If a Rep. gets the nod this fall one might expect the newly out of work bureaucrats to make the new gov’s job especially difficult.

  5. E.M.Smith says:

    With what part of it would you like “help”? Looks to me like you have it pretty well understood.

    We’re in the doo. It is deep and getting deeper. Nobody, not even Romney, is going to get us out of the doo.

    So I’d like to convince you that Romney will get us out of it; but I would need convincing first. All I can see is that he might be able to “pause” the rate of growth of debt for the last 2 years of a 4 year term. And that only if he tried really hard…


    Good point. Oh, and don’t forget all the War Surplus being sold. A lot of folks got started in flying, and you could buy kits to turn old jeeps into tractors for cheap. Dad learned to drive heavy construction equipment and did home building (for all the returning G.I.s) when he got out.

    Also industry was flush with a lot of paid off capital stock, so things like forges, dies, thread cutters, mills and casting plant were just waiting to be used to make goods for sale. Now all that tooling is off in China…

    @John F. Hultquist:

    Here in California, Governor Moonbeam has all his hopes hanging on a big tax increase on the November ballot. Not a thought to growing the business base in California…

  6. Mike Jonas says:

    While I don’t doubt that what you have presented is an expert and accurate analysis, I am well aware that the future is difficult to predict and that experts tend to do little better with prediction than anyone else. So, basically, I accept what you say about the past and present, but reserve judgement on the future – even though the picture painted appears to be irrefutable.

    There are some events which could make a difference. For example, a large increase in cheap energy would transform the economy, and then, with good leadership, ……. OK, the former is possible but is the latter??? [I would have to say though that Mitt Romney’s statement on climate and energy as reported on Judith Curry’s Climate Etc was extraordinarily sensible coming as it did from a POTUS candidate]

    Just the removal of Barack Obama could hasten the end of the dead weight of uneconomic renewables and bring coal back into play, which together with increasing supplies of gas could make a nice difference.

    Other possible events could have interesting effects, for example a direction change in China. Sure, China was good for the US economy for a while, but could it now be a large part of the problem?

    So, thanks for the analysis, but I’m prepared to sit back and watch future disasters unfold rather than think I know what sort of disasters they are going to be.

    PS. I hope you are right about “stuff” because my retirement savings are largely invested in it and have been doing terribly.

  7. Hi Chiefio,

    You’re spot on, and my suggestion for everyone is that if one has any kind of personal surplus to convert it into real assets; a house, or gold, or well-managed farmland. You can play the stock market, but prepare to lose it all. I think we’re in the endgame of a century of money printing, and that the ‘west’ will lose its economic dominance in the coming decade. If you have savings, convert them to something tangible, or you will financially ruined!
    Interesting links:

  8. nickleaton says:

    Well I’ve been shitting myself about the UK for some time. Reported debts – which is just borrowing comes to 1,050 bn (GBP). Tax revenues come to 570 bn. Government spending is 700 bn.

    What’s missing? There are three state pensions setups, all unfunded – no assets. 2,400 bn for the state pension. 5K a year paid to people with 30 years of contributions. Then if people don’t earn enough they top that up to 7K, plus free housing costs – another 4K a year. Oh, and free health care too.

    State second pension is another chunk.

    Civil servants (state employees) about 1,600 bn.

    Then there is PFI, Another set of debts fiddled off the books. 370 bn

    Then expected losses on government guarantees. A lot of cash there.

    The total is around the 7,000 bn mark. 12-13 times geared assuming no spending.

    So its completely unsubstainable, and its going to go bust.

    The sad part is that they are still taking money from people with the promise to pay, even though they know its going to go bust, and are planning on defaulting. It’s a pure fraud on the most massive scale.

    So what to do about it?

    Property is attractive, funded with debt. Since I’m pretty certain we get inflation, that gets rid of the debt and gives you the asset. However property is a non-tradeable good, unless you buy caravans (RVs). That means you are a sitting target for a wealth tax. If you are renting it out, its attractive for politicians to say we will implement rent controls. There are problems.

    Gold is attractive so long as people will exchange it for goods.

    Contra cyclicals such as gas and electricity companies. Subject to the political control issues.

    In the UK I think we will get economic refugees from Europe. However I do know there are plans to restrict this if it gets out of hand. As if it isn’t now.

    Lastly there will be war. Not between states. They can’t afford it. Civil war is inevitable. The state against the victims of their frauds.

  9. Mike Jonas says:

    nickleaton – whatever you put your money into, if you get it right you can still lose, because when the state needs money they get it from … the people who still have money (gallopingcamel’s OPM). Like you said, “a sitting target for a wealth tax”. The rule is always : penalise the prudent, reward the reckless.

  10. nickleaton says:

    They will go after the money no matter what the damage.

    So as I see it, borrowing at cheap rates is a reasonable bet. They are a bit screwed really. Increase rates by 1%, and lots of people are shafted – bankrupt. So in practice they can’t increase rates. Strikes me as a one way bet.

    Next, inflation. My view is they will try and let it rip on the belief that most of their debts are fixed rate. In the UK 80% of the ‘debt’ is fixed rate. Only if you say debt = borrowing, and exclude large chunks. So the plonkers will try it. That just keeps the other debts as they are. However, if you have fixed rate debts you win, because the debts shrink, but eventually the assets appreciate and their earnings.

    It’s the only win I see as a play.

    I’m not convinced yet on the Gold. If we have a major crash, then lots of people will have to sell Gold to meet margin calls. Once they are cleared out, it will bounce big time.

  11. philjourdan says:

    ONe other difference between post WWII debt and today. We had a HUGE war that created it, and when it was over, there was nothing pushing spending onwards and upwards.

    That is not the excuse of today. There was no huge war propelling the spending. What is propelling it still governs in DC.

  12. Pascvaks says:

    Thoughts –
    Nature hates a vacuum, and people aren’t to fond of them either. I guess what I’m thinking is that any BIG financial problem like this is going to effect everything and everyone and the ramifications are unknown, unpredictable, and are always going to be MUCH BIGGER than anyone ever thought they would or could have been. Historians often look for key dates to make things simple, Sep 11 2001, Dec 7 1941, Oct 29 1929, and they often say “after this day everything changed, and the world was turned upside down, gone with the wind, etc., etc.,..”
    My point: Big Change Big Impact World Go Boom!

    I guess I tend to look on the Dark Side a little more than most. When it comes to government’s ability to fix things I’m not an optimist. I do have faith in ‘most people’ to do what’s right for as long as they can, but I’ve seen too much to think the ‘bad guys’ aren’t going to loot and pillage and rape their way through any neighborhood if they’re given a chance. And when I say neighborhood I mean ‘anywhere’. Do I trust the Soros’ of the world to do right by anyone except themselves? No, nor do I trust the Obama’s or Romney’s or Dillenger’s or Capone’s or Chinese or Russians or someone down the street that’s half crazy with fear and hunger and hopeless. Chaos is not pretty; it knows no bounds . And, when a human gets ‘hungry’ enough he, she, or it will eat anything or anyone. Keep people calm, give them hope, they’ll do anything, even the impossible. Once they lose the ‘calm’, the situation is hopeless. You’ll just have to stay clear, wait out the bloodbath, and CYA as best you can.

    PS: People will stay in denial as long as they can. What happens when they wake up, look around, and see the mess they’re in for exactly what it is, is anyone’s guess.

    PPS: Hope is not a plan. (And everyone today thinks someone else –their great and glorious gruberment– has a plan for the unplannable.) It’s gonna’ be bad! Real bad! After its over, historians will come to a common agreement that “On (insert date) the world changed forever”, again.

  13. BobN says:

    The only way out of the debt is to inflate the dollar and that’s what the FED is doing. The problem is it will be uncontrollable and most likely will result in hyper inflation. All the debt will be paid off with worthless money. The government will be insolvent and will collapse. They will try to still hold power and will resort to confiscating Gold, confiscating land and nationalizing big business. This will not go down well and you will see a revolution to replace the existing government. This will be an epic battle, making the civil war look like a minor incident. Long term, how does it end – Not a clue!

  14. adolfogiurfa says:

    The “baby boomers” phenomenon of the 50´s in the USA , as the increase of population in those same years in the then shantytowns around the main cities in Peru, S.A., where a couple had more than 5 children each, with practically neither GOVERNMENT HELP nor ENTITLEMENTS WHATSOEVER, made them work and made them whatever businesses they could to survive, was the foundation of one of the fastest growing economies of the world, after the 90´s.
    Malthus was wrong kids!, Human beings when pressured by circumstances are capable of a big ingenuity which DECREASES the more entitlements there are.
    Freedom includes the freedom to be poor also, and that not bad. Just to know which are the consequences of conceit you just watch those cool and nice guys and girls around you, the unrecoverable (un-recyclable!) remains a society of excess.

  15. Pascvaks says:

    @BobN- Could be. Gotta be? No! That’s the horns of the dilemma, guessing ‘what’ will happen. Assuming the federal idiots we elect this November are just as stupid as they look and sound today is probably the best bet when we at the bottom of the manure pile are wondering what we should do? But we also have more power than we realize, and it’s power we haven’t ‘used’ before in our lifetimes in this country. All need not be chaos or wallowing in self pity or 4 more years of ineptitude in Washington. But ‘they’ are not the great unknown in the equation, ‘we’ are. What will we do if they are unable?

    I also have to pinch myself sometimes to remember that ‘we’ are not D.C. (they are us), ‘we’ are a collection of 50+ independent and sovereign states and territories, countless counties, cities, towns, villages, communities, neighborhoods, and families. D.C. can go back to swampland and mosquitoes and the US of A is still here (less Uncle Sugar‘s Candy Factory). A president? Sure why not. A Congress, OK fine. A Supreme Court, all right, as long as they understand the new rules. But the question is, “Then what?” People are funny. Most of the time they surprise you, get up off the ground, roll up their sleeves, and start working harder then they ever did before. Sometimes, sometimes they just stay on the ground, roll up in a ball like a baby, start crying, and wait for the rats to gobble them up. That’s the BIG question, what will the people do? I have a feeling New York and California are going to have HOT, short, bloody, civil wars, that a number of cities will burn here and there and that most of the other states will take a big step back in economic-time and will be fine.

    PS: About the New York, California, etc. Civil Wars and the Cities that burn — it’s their problem; the feds and DOD (DHS and a few others will go out of business) will be busy enough keeping the Nation from sinking. Oh, and money, that will be another state problem.

    @Adolfo – People are indeed amazing, so true.

  16. Jason Calley says:

    For a start, We The People could invoke the doctrine of Odious Debt and if challenged by bond holders, we could show them photos of nuclear weapons and say “We refute you thus!” (I am not sure if I am joking or not…)

    Or maybe we could build a high speed monorail to Mexico, and when geezers needed to see a Doctor, we could ship them to Juarez for treatment at one tenth the cost of local doctors. Or maybe we could just say “We have enough money to spend $3,000 a year (just a hypothetical number) on every geezer. Here’s your money. If you stay well you keep the money for candy or whiskey or whatever. If you get sick, you have the first $3,000 of your bills covered and the rest is up to you.”

    It is an axiom, a universal law, that there is no real cure for a hangover. The piper must be paid, and the head must throb. Some things may help, but there is no cure. We have partied most heartily — and the hangover is looming.

  17. E.M.Smith says:

    @Mike Jonas:

    Don’t know how “expert” it is, but it’s the best I can do. I don’t pussy foot around with “projection is not prediction”. It’s all an attempt to foretell the future.

    Where most future visioning (of any name) falls down is it tends to ‘linear projection’. It misses both the exponentials of life, and the inflection points. It takes a bit of “art” to get them right.

    So, for example, that first graph with Government Spending at 80% of GDP in 2080 will clearly never reach that point. Long before then, something will “inflect”. A Reagan will appoint a Volcker, or a Gorbachev will wind down the shop. The hard bit is seeing those moments in the projection.

    So I’m “rooting” for such an event in the next 4 years. IFF that happens, those curves will change rapidly and we’ll have a different future. If not, IMHO, we “hit a wall” in about 2020. ( 2 more Presidential terms). By then, we’ve either had Obama Part Deux and it’s clearly a FUBAR of Socialism Gone Wild; or it’s a “Romney tried in a wimpy way and it’s no better”. That will be an epiphany moment. Also, about then, we have Social Security turning from buyer of bonds to seller and both China and Japan cashing out. Debt Bomb starts to explode.

    So you can’t get the rest of the ‘debt ramp’ and the ‘interest exponential’ on that graph due to the clear changes to come.

    IMHO, the “question” just comes down to “where to put the inflection point” and the “nature of the inflection”. Will it be a Socialist “Nationalize The Fed and repudiate the debt” or will it be a Volcker Two? Mix in that Europe is ahead of us on this path, and it could even be “Europe blows up first and we have W.W.III as ‘the usual solution’ over there”…

    So when making “future seeings” (dodging the project / predict game) I look for inflection points probable and historic analogs. Then I also look for “immutable facts” and which of them can be muted just a bit in a catastrophe.

    In this case, the “immutable facts” are things like demographics. We as a population ARE going to get older and ARE going to start expecting those promises of retirement pay and care to be delivered. The mutable bits of that are “deliver on the promises” and “level of care”. So it’s not a big leap to say: Probably looking at ‘means testing’ on benefits, ‘cattle call’ style ‘medical care’ and panels that decide you ought to die as that is most cost effective. (As we have in all Socialized Medicine systems that I’ve looked at.) If you can’t pay for the service, you can still have “denial of service” via rationing (but it won’t be called rationing, it will be called “community health care” or “prioritizing” or some such.)

    Also expect a large flood of “young immigrants”. This is, IMHO, part of why both the Dims and Republicrims want a load of Mexicans to come in (legal or not). They change the age profile and keep the can kicked just a bit further down the road (until they decide not to support the system…) So expect porous borders and loads of “Y’all come”. (Though if they wait much longer not many will want to come…)

    My personal hope is that between the PIIGS and the EU in general, we can have enough “blow ups” prior to 2020 that the USA gets off that particular elevator to hell.

    There is also a (remote) possibility that the US Economy has a sudden ‘renaissance’ somehow. A massive robotic revolution in care and production coupled with radically cheap LENR energy, for example. At present, that is a ‘pipe dream’; but it could happen… Just don’t hang your economic plans on it until there’s a bit more evidence… (Japan is rabidly trying to make the Robot Caretaker thing work, and doing some great work at it; but…)

    So one key thing about “future seeing” is to pick the date where your projections are likely to run into inflections. To know when the prediction becomes a bogus projection into an unknowable and unlikely place. I think I’ve decorated the dates above with where I see potentials… Then you state the “conditionals” which are likely to deflect down different paths.

    In short: I think we have a shot at “fixing it” in November (as long as Congress comes along for the ride and Romney has spine once in.) IFF the election returns Obama to office, it becomes a near certainty that we take the “explode and nationalize” path with rampant currency inflation. IF Romney is the Milquetoast Romney of Massachusetts, or has to “work with the Democrats in Congress”, we slide that graph MAYBE one or two years to the right. We stay on track for a 2020 or so ‘hit the wall’ moment.

    Next major inflection then comes in about 2016. By then the “Aw Shit” will be highly visible to folks in government and politics. At that point you need to ‘gauge the attitude of the people’. Doing that for next month is hard, for 4 years on is impossible. IFF folks voting just want more “stuff for free and ignore the problem”, we take the Greek path. IFF folks want to “fix it”, we get self imposed “austerity” a bit too late…

    But what these graphs / projects clearly show is that we will not be following the path of “business as usual” that both the Dimocrats and Republicrims think we will be following. We simply can’t pay for the present set of ’empty promises of stuff for votes’, never mind adding more. So as soon as that is clear to the average voter, things blow up politically. If it is never clear to the average voter, then things blow up economically. That’s the difference between 2016 and 2020, IMHO.

    So while I’m quietly hopeful for a new American Economic Renaissance of rampant prosperity and economic growth; I’m not seeing the early signs that would indicate it is on the way. What is visible is more of the “same old same old”, and that follows the graphs above…

    One final point: Typically, that kind of impossible crisis leads to a major war. Typically these have happened in Europe (or their colonies) first. (From a western perspective – i.e. ignoring things like the petty wars in some parts of Asia and Africa). It is a simple and powerful distraction and it gives a fine excuse for denial of services. It’s easy to say “We can’t give you the drugs as we need them for the war.” I would not be surprised at all to see that “solution” trotted out.

    As the Muslim World is having a population explosion (as the Koran tells them to make lots of little Muslims…) they have their own Demographic Bomb problem. That’s part of why there have been so many Muslims showing up in Europe. This makes the “easy war” to have being one between Islam and The West. It works for the politicians of both sides to “clear out some problems”… not to mention excess citizens… while giving support for denial of government service obligations. Basically, you don’t have to pay a pension to the folks killed in the bombing and under the rubble, and you don’t have to provide jobs to young Jihadis who blow themselves up. While I’d hope we can avoid that path, it looks like the ‘easy war’ to have; and politicians on both sides are headed for major problems with their own people…

    But that starts to exceed the limits of ‘reasonable prediction’ and enter the realm of ‘speculative future fiction’…

  18. agimarc says:

    There is a 2-year old article from one of the Singularity guys who calls himself The Futurist that suggests that one of the reasons we are not seeing raging inflation is the action of Moore’s Law on the economy. Moore’s Law is by definition deflationary, and those of us in IT deal with it on a daily basis and have learned how to do so successfully.

    Yet few in the rest of the economy do. But IT, like Kudzu, continues to grow throughout the rest of the economy and its deflationary impact grows, perhaps significantly. He suggests that the Fed pumping $1 T in funny money only staves off deflation – making us even, which is why we have not been seeing inflation running rampant like it did in the late 1970s. Other than the inflation directly caused by energy prices due to idiotic Obama administration decisions, regulations and anti-production legislation, I would suggest we are not seeing much. Even food is tied directly to energy (ethanol mandates, for instance). Of course, this open for argument.

    If this guy is right and there is a growing deflationary move in the overall economy due to the growing pervasiveness of IT, pretty soon the problem solves itself, as costs will not rise, but fall over time. And should costs fall, it will not be possible to increase the outyear expenditures as graphed for they will flatten out quickly.

    Now I don’t know if I believe it or not. And I don’t particularly give the impact of Moore’s Law this much power, but do believe that there is something going on that we do not understand. This is not 1979. Things are responding differently now than they did then. I am not saying this well, I expect, but you asked for out of the box suggestions.

    Anyway, the article is worth the read. You can find at the link following. Cheers –

  19. E.M.Smith says:


    Yup. You got it.


    Didn’t know the UK as in that bad a situation. I knew they had “the same problem” of too many promises for the revenues, but didn’t know it was so bogus.

    Usually war likes to happen to an “other”, someone outside the same cultural group… It can happen inside a group (see the US Civil War) and it can happen as ‘people against the government’ (see the US Revolution), but I’m not seeing the ‘attitude’ for that among the people.

    FWIW, the Jews have historically been subject to the particular kinds of wealth confiscation you outline above. Their “classical solution” is diamonds and precious stones. Small and compact, high value density. Easily transported and hard to spot on x-Rays. So if you are really serious about ‘wealth preservation’ via hiding in an asset, think about getting a gaudy rhinestone vest and swapping some of the stone ;-)

    IMHO, it’s a two tier problem. For “normal inflation” things like precious metals, real estate, “stuff” tend to preserve value. As it gets worse, things like “collectables” and “art” kick in. In the limit case of a collapse and confiscate tax; things like stones and extremely small portable hidden valuables. So be prepared to ‘rotate the inventory’ ;-)


    While I can’t see much ‘wrong’ in what you said, I can only offer one little bit of hope:

    As the “Aw Shit” gets closer, more and more folks see it. Sometimes, we take action before the crash. Like Reagan and Volcker. So we still have some time for a Come To Jesus moment…

    It’s also true that some parts of the planet are much further ahead of others on this path to ruin. I’m still hopeful we’ll get a “good bad example” in time to scare us out of the present path.

    Finally, much of the Former Soviet Union has been rather prudent in all this. (Or, in the case of Russia as an example, has already blown off their pension obligations and folks already took that pain…) So there are some large chunks of the land surface that are NOT going to participate in this particular event.

    In particular, look at that map link I gave up above. Several countries in Latin America have single digit debt percentages. Basically, they blew up their credit rating back in the ’70s and ’80s and don’t have any debt. While they might lose customers for their exports (us), the domestic economy ought to do just fine. (So yes, if things stay on the present track, I’m going to be looking into ‘gigs’ in Chile in a couple of years … or similar).

    It is largely going to be a North America and Europe event.

    Unfortunately, we tend to fight world wars when we have a tantrum… So I hope we can avoid that this time…


    IFF we have the Obamanation for 4 more years, that’s a likely path. IFF we have a Romney with a spine, we can avoid the worst of that. Large inflation, but not hyper inflation, and avoidance of the nationalize / confiscate (those are Socialist methods – so on the Obama path). The Romney path is eventual “austerity” just after moderate inflation hurts… and a conversion of open ended pension payouts (defined benefit) to some kind of defined contribution instead (likely in dollars not adjusted for inflation during moderate inflation times, so over a decade or two it all washes out, but folks don’t see that up front.)


    I’m not worried at all about being poor. Frankly, some of the times I’ve enjoyed most were when the family was poor. (Fond memories of large pots of ‘ham and beans’ come to mind ;-) Dad would buy a 25 or 50 lb sack of beans every so often…) One of the things I most like doing as a ‘muse’ is to do ‘disaster preparation’ – things like take a car load of stuff and go “camping” to make sure I can ‘get by on nothing much’. I’ve ‘lived on the road’ in the car for weeks at a time, and LIKE the minimalist nature of it.

    So, quite frankly, I’m not really worried about a generalized economic collapse, nor even a repudiation of government promises of Social Security. I know enough about self medicating with natural (and cheap!) things that I’m often better at treating my ills than the Doctors (though for surgical things I’m limited to small surface cuts). I’d be quite happy to load the “disaster kit” into the station wagon and head out to the woods…

    It’s the high payed folks in suits in major cities who are afraid, and rightly so. If the Amex card doesn’t work at Chez Ritz they are hosed…

    So, as you pointed out, the regular folks do just fine at coping. It is the folks with power and wealth who have something to lose…

    I doubt that many (any?) of them know things like beech leaves make a nice salad and bean leaves a nice pot herb; nor that acorns can make acorn grits with a bit of a wash…

    While it’s “been a while” since I’ve done it, spending some time in the woods is rather pleasant. More so when, as you walk along, you see all the edible plants around you…


    They aren’t called “civil wars”. The common term is “riots”. California has had several over the years. So you can pretty much point at were the problems will be. Just where they have been. The L.A. urban jungle blows up, as do parts of San Francisco and Oakland. But NOT out in the rural Central Valley (nor in the “south bay” of Silicon Valley).

    As you pointed out, my old home town is 4000 people of ‘self contained’. If there were a complete collapse of the global economy, what it would mean is some of the locals teaching some others how to make candles and how to harness horses again. There is so much land / person that the locals would eat well, and with plenty of fire wood. Who loses? The folks who expected large shipments of rice and peaches… i.e. the folks in cities around the world.

    For a long time I kept the old homestead in the old home town as the ‘fall back plan’. Complete with a hand dug well in the back yard. Let it go a couple of decades back. It was build in 1889 or some such and expanded in 1910. The whole town is like that. Just barely into the 20th century… Even have some hitching rings molded into the curbs downtown to tie up your horse… Places like that will do fine.

    It’s “East L.A.” and New York City that will burn in a collapse… they depend on money flow to function. Much of it via the Government or dependent on money value.

    Where I am now will not support all of the folks in the house. In 2 years we’re down to just the spouse and me, and I can make it work at that level. (In terms of food from the garden). I’ve also got enough variety of seeds to handle most any weather patterns / shift. Only thing I’m dependent on is reliable water. Elevation is only about 50 feet, so water is not very far down. Maybe a bit high in nitrogen, but good for the garden ;-) And Dad made sure I knew how to dig a well…

    So even in a ‘complete collapse’ I’m fine, just so long as we don’t have wall to wall fire or urban warfare (and I don’t think that’s on the cards). Mostly I treat it as an entertaining game to play. Like being a ‘civil war reenactor’ only for a future event. But it does give a kind of comfort….

    At any rate, I’m still hopeful we can ‘turn things’ at just the moderate level of “Aw Shit” we’ve had many times before. Unpleasant, but not catastrophic.

    If not, well, “people adapt”, it’s governments that collapse…


    That odious debt thing will work for the external debt (China / Japan) but that’s only $2.5 Trillion or so out of $16 Trillion. Notice that a lot of the debt is debt to ourselves in the form of government pensions and Social Security.

    That’s one of the lessons of this exercise. Those who get repudiated must be the Government Pensioner, and old folks and invalids. (Along with all the folks just sucking down welfare as it’s easier than working).

    The “here’s you’re $3k” is what I expect. Companies shifted from defined benefit to defined contribution some years back. It is the government pensions that have not. In large part, this “debt bomb” is a case of “Us” against “U.S.” and it is going to be a conflict between those on various sorts of ‘entitlements’ (be it Social Security, Medicaid, or a Government Pension) and the tax payer. We’re already seeing the early stages as those than can, relocate their money and production out of country, and those that can’t are ‘Going Galt’ in increasing degree (from folks just signing up for ‘disability’ to companies not meeting the hurdle rate).

    The part I have not fully worked out is just where to stand to avoid the flying bits as it blows up ;-)

  20. Jason Calley says:

    @ E.M. “That odious debt thing will work for the external debt (China / Japan) but that’s only $2.5 Trillion or so out of $16 Trillion. Notice that a lot of the debt is debt to ourselves in the form of government pensions and Social Security. ”

    True, external debt is only a portion, but even that helps eliminate some of the annual interest. Still, we COULD renounce the internal debt as well, bonds and bills held by US citizens and investment firms. Yes, that hurts a lot of people also, but at least it clears the books and allows a fresher start. Politically it would be near impossible — but “near impossible” may be the only choice once we have to pick between “near impossible” and “absolutely impossible.” The harsh reality is that we have created far more debt and obligations than we can realistically hope to repay. We cannot raise taxes enough to pay it without destroying our ability to run lives and businesses at a profit. Not even a magician can pull a rabbit from a truly empty hat. At some point we must choose to either renounce our obligations or inflate our way out. Before that happens I expect to see 401K and other long term funds effectively seized as collateral for our national debts. Most likely they will be appropriated by passing legislation requiring that a certain proportion must be rolled into Treasure Bonds or you will lose all tax advantages. When THAT patch runs out, then we will see bigger troubles.

    The Bernank is not stupid. He and his buddies see this coming. I personally think that they are just trying to keep the system going long enough to finish paying for their various retirement islands and Swiss accounts.

  21. E.M.Smith says:


    Read the article. Not all that impressed.

    The base notion is “this time is different”. This time is NEVER different.

    The cost of nails decreased dramatically between when my Great Grandfather made them, one square nail at a time, by hand, on a forge, and today where they are made by the millions on machines.

    The cost of transportation decreased dramatically between when my Great Grandfather (Mom’s side) was a sailor on a heavily crewed sail ship and the container ships of today.

    Right down the line, we have hundreds of industries where ongoing cost reduction has been quite high, even though not semiconductors / computers and not technically Moore’s Law.

    So this time is not any different, really.

    The second major issue I have with the thesis is the assignment of lack of ‘inflation’ to Moore’s Law and computing. If that were so, the pattern of ‘lack of inflation’ would be different. Instead what we see in the data is that “Stuff” is inflating. Food. Gas. Manufactures. What is not inflating is your wages… or your house.

    While the net of that is ‘no inflation’ the story under the surface is quite different. It isn’t semiconductors that are keeping wages down or houses cheap…

    It is an economic stagnation. Most likely caused by a mix of economic uncertainty (from the Debt Bomb in the EU and USA, to the Policy Bomb of the Obamanation, to the Tax Bomb of the Fiscal Cliff, to…) and the aftereffects of the exposed bogus behaviour of the Government (via the CRA) to the Financial Sector (once released from Glass-Steagall and other limits).

    There are other, minor, complaints I have with the article / thesis but likely not worth spending a lot of time on them given the above. (Such as “we’ve had stagflations before” and this one is just like the other ones. Such as the rise of China putting a lid on some price inflation in goods. Such as energy being THE key cost driver and oil having been stuck in a range from $80 to $120 or so for many many years, so basic energy cost driver is stagnant, even if gasoline prices are inflating)

    Finally, every so often someone comes along thinking they have The Great Idea that requires re-writing all of classical economics. Typically they are very undereducated on both of Economic History (so don’t realize how often the ‘new’ thing has happened before) and on Economic Theory (so don’t know there is often a specialty in the field that already covers their ‘discovery’). This guy is no different.

    He has his Hobby Horse he loves, so he is By God Going To Ride IT!!! But that doesn’t mean much. We are having an ordinary garden variety stagflation that comes post bubble when trying to use “liquidity” increases to solve a “fiscal” problem. Were economic growth stagnates enough to prevent wage inflation while selected “stuff” does inflate. Reminds me a whole lot of the late ’60s early ’70s. That we’ve not hit the inflation take off point yet is just a reflection of how slow things move in global economic swings; not that ‘this time is different’…

    Oh, and thinking that 1.5% of the economy is going to control the rate of inflation in the rest is really kind of silly and a bit innumerate. Oil alone can swing the whole thing far more than that 1.5% that’s computers. Even a modest change in birth rate can swamp it. Or a couple of percent change in tax rates. Which, BTW, is what IMHO is the problem. That we have a policy and tax WHACK! in the works is what is freezing the ‘recovery’ and holding wages / jobs down; that makes the inflation number net low.

  22. Tim Clark says:

    Do you have to post these depressing manuscripts on Friday. I always end up beating the wife and kicking the dog. ;o)

    Recently I’ve been reading extensively on the Weimer Republic. I’m sure you’re aware inflation (at least in Germany) came when people lost faith in fiat money. IMHO, there are some major differences between the Weimer and the US. This time the inflation is global. We are not experiencing much external inflation yet because, with hegemony in the greenback, the rest of the world needs greenbacks and still consider it to be a “flee to safer currencies than the euro yen ruble etc” investment. Also, the rest of the world, save a few countries, are also in hock to their ears. So who do they owe money to? I’ve looked that up several times, and it’s an incestuous bed of lending to each other, with China holding a little of everything, but preferring to buy assets, as in Australia. The point is that almost all global currencies, save a few, are being inflated RIGHT NOW relative to the currency in those few countries not in debt you alluded to earlier. The only debate is how much inflation the US will incur relative to other countries.
    How will it all play out? IMHO, I think that those in real control, which I can’t describe coherently, but will just blithely call rich socialists/bilderbergers/elitists/blah/blah/blah/movers/shakers/etc will either change the global reserve currency to the yuan or the IMF. Countries will see their relative economic valuation stated in equivalence to 1 IMF, with the USA given a .1 IMF. Of course those are fictitious numbers but you get the point. In the Weimer R, inflation occurred within the country mostly. In this situation, hyper inflation where civilization breaks down into roving band of thugs will not occur, but with significant inflation of anything imported and requiring a high energy input. That’s how I see it because I have too. Any of the greater evils inspires suicidal thoughts. I should of spent my life eating, drinking, and blowing money, because it sucks to have saved.

  23. agimarc says:

    But it’s not just the hardware. It’s the software and the new things it allows. One of the things that got the blame (or credit) for the 1980s boom was widespread availability of spreadsheets to the general consumer via Visicalc. I would submit that the overall impact is far in excess of the 1.5% total economic impact.

    As to the notion that “this time it will be different”, it is not what I am saying. I would point to the late 19th Century here in the US, when there was an extended recession (the Long Depression 1873 – 1879), low growth of new jobs, and essentially a jobless recovery afterwards. Though that one followed the height of the economic boom following the end of Reconstruction. The economic engines at the time were the railroads, steam and steel, all of which were lowering overall prices and making more things available to consumers.

    History rhymes from time to time. I wonder if it is rhyming again.

    The obvious negative difference between then and now is the awful festering carbuncle of Washington DC we carry on our backs every single day. But the positive difference is that things seem to go quicker these days. It took the democrats nearly a decade to completely trash the economy in the 1970s. This time around it only took 2 years from when they regained power in 2007. I think recovery is going to go a lot faster assuming we can cut the red tape and repeal a lot of legislation.

    Like I said, I am still scratching my head about all of this. It doesn’t feel the same as the 1970s. Trying to figure out why.

    Ever run across the Fourth Turning guys? Might be worth looking into. Cheers –

  24. E.M.Smith says:

    @Jason Calley:

    “Judge them by their deeds.”

    The Bernank has just stated that we are going for the “Inflate money supply like crazy and deal with it later” method. We have The Fed committing to “open ended QE 3” via bond buying.

    That must eventually result in inflation. (Time lag about one year, IIRC).

    Now, to some extent, a recession (and the deflation pressure that comes with demand destruction) is partly offsetting of inflation. (That is why Keynesian economics works in the short run, you can trade some recession / deflation for monetary easing / inflation, for a while.) In the longer term, the excess liquidity shows up as inflation pressures. In classical Keynes, that is the moment when The Fed and the Government ought to shift to extracting liquidity and reducing expenditures below tax take. The purpose being to run the exchange the other way.

    It all hinges on the time lags. About one year (or up to 2 for some longer processes… I ought to look up the actual measured time lags as this is memory from ’70s era class… but the time lags do vary some from country to country and even to event…) As we’ve already been in an ‘easing’ mode for 4 years, more easing isn’t going to do much. It’s no longer a monetary issues. (Which is WHY The Bernank was telling congress he need them to do some Fiscal helping…)

    So what we have is a structural recession for non-monetary reasons (productive capacity moved to China and regulations and taxes smothering actual growth, debt overhang) with monetary policy trying to prevent the deflation that comes with it. So we have stagnation. Eventually the monetary effect will start to show up in inflation, so we will enter the stagflation stage. At that point we either get a great pruning of the things causing the stagnation (China trade rules, reduced regulation and taxation, balanced budget) or we get a hyperinflation (ala Germany post W.W.II).

    FWIW, I don’t know how long a stagflation can run before destabilizing into one of the two outcome modes. I doubt if anyone does. Japan has had the “lost decades”, so it can run fairly long. Then again, they are over 200% of GDP in debt, so it depends on a lot of borrowing. I suspect there is not enough money in the world to support 200% of GDP debt borrowed by the USA. That’s something like $30+ Trillion I think… or about 1/2 of total global GDP.

    That Bernanke just did the “reveal” on his strategy and it is “buy bonds and issue money without limit” pretty much says that the ‘end game’ is to inflate away the debt. The unknowns here are “how fast / time lags” and the question of “when inflation picks up, how long to take action to lower it, if at all?”.

  25. E.M.Smith says:

    Click to access inflation%20lags%20money%20supply.pdf

    Our evidence is based on UK and US data for the period 1953–2001 on money growth rates, inflation, and interest rates, as well as annual data on money growth and inflation. We reaffirm the result that it takes over a year before monetary policy actions have their peak effect on inflation. This result has persisted despite numerous changes in monetary arrangements in both countries.
    At the Dec. 27–29, 1971, American Economic Association meetings, Milton Friedman (1972) presented a revision of his prior work on the lag in effect of monetary policy (e.g. Friedman, 1961). His new conclusion was that “monetary changes take much longer to affect prices than to affect output;” estimates of the money growth/CPI inflation relationship gave “the highest correlation… [with] money leading twenty months for M1, and twenty-three months for M2” (p. 15). In the intervening 30 years, new evidence has emerged in support of Friedman’s estimate, so that it is now something of an international rule of thumb for countries that have experienced moderate inflation. Bernanke, Laubach, Mishkin, and Posen (1999, pp. 315–20) describe a two-year lag between policy actions and their main effect on inflation as “a common estimate.”

    So looks like my memory (and those older numbers) are not that far off! One year at the low end, 2 years at the longer end / common estimate.

    So the initial “juice” of easy money will have had a counter-deflation soak up; then the later bits will have a 2 year lag to inflation impact. We’re seeing early inflation effects in very selected things (like food, fuel, some goods and services) and we’ve got 2 more years ‘baked in the cake’, then THIS round of easing will hit the gas pedal hard just about Summer of 2014. Mark your calendars.

    At that time either the economy is going Great Guns and Fed contraction of the money supply will not be a problem, or we have the problem of inflationary recession.

  26. BobN says:

    I thought the FED charter was to promote a stable dollar and fight inflation. It now looks like they are doing the reverse. Where is the accountability.

  27. E.M.Smith says:


    Software doesn’t really allow many ‘new things’. Mostly it just makes the old things we do much more efficient. E-mail instead of physical mail. I can compose music and print sheet music, even though I can’t read it. (First thing I did on my first Mac decades back…) It’s still mail and still music.

    Most computing is used for doing accounting. Not exactly a big economic lift out of that. Another large chunk goes into automated Engineering computation. I’d be more enthusiastic about that, were it not that a lot of that ‘higher productivity’ is soaked up into less thinking up front. (Vis the Russian cold war ‘spartan’ designs that were about as effective as our ‘complex’ ones. They had to think more up front and found a better method with less ‘frills’ needed). So OK, we can do more aeronautic simulation and less wind tunnel testing. It’s still aerodynamics.

    I’ve been up to my eyeballs in the Computer Revolution from the ’70s onward. I’ve worked in dozens of companies (mostly on contract) implementing various systems. I lived through the dream of exceptional productivity gains expected from computing. It didn’t happen nearly as much as expected.

    Heck, most of Moore’s Law is sucked up into Microsoft Code Bloat. Not just theory on my part, observation. I have a laptop with more compute power than the Cray $40 Million supercomputer I used to run. It does spread sheets and email about the same as the Mac I had back then… Yeah, the web browser is better (early / first browsers were sucky), but it’s not doing much to make productivity better. I have an old 400 Mhz Linux box installed about 1/2 way between those two. I’m MORE productive on it, than on this laptop. This is a ‘quad core’ something damn fast.

    So while it’s a nice “story”, there’s always a story. (Maybe I ought to make that one of my quotes… “There’s ALWAYS a ‘story’. – E.M.Smith”… ;-) What’s missing is some measurable objective evidence for that story. Having lived through it as a practitioner in the field, by far most of what computing did was let Microsoft have code bloat, automate some engineering work, let researchers have Machine Fantasies (like that has worked out well… see AGW “theory”…) and let CFOs have a whole lot more complicated accounting systems than they really needed.

    Oh, and waste countless millions of staff hours on email, lawsuits based on mandated email archives, executives brought down by emails; and wasting more millions of staff hours on Web Browsing….

    Lately it has let folks order things via web based catalogs instead of paper ones and place orders via a keyboard rather than over the phone. Not a big change, IMHO.

    So maybe I’m just jaded from being ‘to close to it’ to see it. But I’ve seen an awful lot of money pissed down the rat hole of “computer efficiency’ that could have been far better used.

    Were I running a company again, I’d seriously consider having a “NO email mandate”… And no automated calendar either. 90% of the meetings scheduled that way would be better off not happening. Shit-can the meetings (mostly preening anyway, near as I can tell) and spend more time working, thinking, and ‘management by walking around’. It would eliminate a lot of legal costs of “discovery” as well… If I’m making, say, keyboards; why do I need a whole lot of email to wade through each day anyway? Leave the Engineers alone to design it. Have the buyer on the phone or visiting vendors to line up supplies. Build them in the factory. Have sales on the road selling. Use a VERY simple accounting system that runs on one small old PC.

    Sinking $100,000 into Cisco Routers and computers on every desk does not increase the efficiency of that process much. Putting a Linux or CAD workstation on the desk of the guy in Engineering might help… but if he had to do the design “long hand” I’d bet things would end up a lot easier to make and much better thought out…

    Designing an airplane or a nuclear reactor? OK, give the Engineering department a big computer budget..

    Put more simply: Computers do not make bar tending better, car sales more effective, lawn services faster, or paint my house more effectively. I’m pretty sure it doesn’t even help management and has more costs than benefits in everything but accounting and some engineering (but even there could be minimized.)

    Nice toys? Sure. Love ’em. Lots of fun whistles and bells? Oh yeah. Love my browser? You bet. Make me more productive? Nope. Sucks down about 4 to 6 hours a day and returns very little… When looking for employees, gave me thousands of resumes to wade through instead of a small focused set. When looking for a job, ratholes hours of time filling in on-line resume shredders. So lots of fun and all, but not so much adding to effectiveness.

    It does make finding citations and related papers fast (thanks to web searches) so has some use in research. Then again, IF I had to look things up at the library I’d be a lot more focused and I’d carry things through to completion more often. Less scattered and more productive. How do I know? That’s the way it was when I was in school… and for a while after graduation.

    Why doesn’t it feel like the ’70s? Because we have an older population, much smaller place in the global economy, larger chunk of money cycled through government, and bigger debt burden. Doesn’t change the basic economic processes any. Oh, and we’re only in the start of this process. Much of the memory of the ’70s ‘S&L Crisis and recession / inflation’ is of the later stages. We’ve got a couple of more years to hit that point.

    BTW, I was not saying that you asserted “this time is different” but said that the article hit me as being that way.

    In my spare time I’ll look up “Fourth Turning”, though a pointer might speed things up…

    @Tim Clark:

    OK, I’ll try to be more depressing on Mondays and Wednesday instead ;-)

    FWIW, I think it is because that is when the news cycle ends and when we’ve had the release of the “crap” they want lost in the Friday flood to get out of town. Muslim Prayer day too…

    Per the “saver as loser” idea: Well, I’m busy spending my savings right now. Decided to “take my retirement in the middle” (partly helped by a collapse of the local consulting economy) and partly due to seeing this coming and NOT wanting to be “means tested” out of my Social Security. Hate the free-fall feeling, but hey, “so far so good” ;-)

    On the issue of ‘relative inflation’. It’s one of the biggest problems in currencies. Trying to find a way to measure them. That’s why I call it the “rubber ruler”…

    I personally use a basket of things whose prices I remember. Gallon of gas, postage stamp, loaf of bread, suit of clothes. Was 24 cents, nickle, dime to 15 cents, $50-$100. Now it’s more like $4 a gallon, 50 cents (soon), $2-4, $500. I make that about 95% of the value inflated away. From roughly 1960 to date. Call it 50 years.

    I don’t expect a German style hyper inflation. Folks are on to that one. I expect a ‘warm simmer’ of about 7% real inflation being passed off as 3% near the ‘high end of acceptable’. At that rate it doesn’t take too many years to boil all value out of the currency. In 9 years you have about 1/2 the value gone. Very workable.

  28. G eades says:

    I think Canada is currently judged to be in pretty good shape review the nineties when they had to resolve the problem. Cut spending increase taxes nobody else can borrow and not pay it back. if all the money spent on increased gas prices had of been tax increase you,d be in surplus probably. I think you can do the details better than I but I don,t think all is lost

  29. boballab says:

    Well the start of the unraveling from QEIII has started:

    Ratings firm Egan-Jones cut its credit rating on the U.S. government to “AA-” from “AA,” citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country’s credit quality.

    In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.’s real gross domestic product, but reduces the value of the dollar.

    In turn, this increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power, the firm said.

    Going all the way back to the Debt Ceiling fight, or as I call it the increase the credit card limit fight, the credit agencies have said they will keep downgrading the US until the government starts getting the debt down. As we can see they are taking a dim view of the inflate our way out method.

  30. Jason Calley says:

    @ BobN “I thought the FED charter was to promote a stable dollar and fight inflation.”

    I have read that the original charter was promote a stable dollar and low unemployment. A bit ironic that… As near as I can tell, the US dollar actually appreciated in value something like 20% or 30% between 1800 and 1910 — and that was even with the monetary goosing of second-half 19th century greenbacks. So certainly, with the Fed in place we must have done even better during the last 100 years, right? :)

    By the way, maybe someone can inform me on something; I have read in a few places that in the original Fed charter there are two provisions — that the charter be for a period of 100 years (which would meant the dance ends in December of 2013) and also that Congress has a standing option to buy back the Fed and all of its assets for $100 million. Do any of you out there know whether these things are correct?

  31. agimarc says:

    I am also an IT guy, But came into it via aerospace, so I saw the applications end. Agreed that there is a boatload of wasted capability. It also made it possible for a government that used to turn out several hundreds of pages of new rules and regulations per year to bump that rate up to the several tens of thousands of new stuff per year. BuSab anyone?

    Fourth Turning stuff. Wiki is not real bad. Books are better.

    Cheers –

  32. Jason Calley says:

    @ E.M. “The Bernank has just stated that we are going for the “Inflate money supply like crazy and deal with it later” method. We have The Fed committing to “open ended QE 3″ via bond buying.”

    I can’t say that I am surprised; historically speaking that is almost always the choice. Still, I would rather have seen an orderly default and reorganization of debt. Oh well, as Greenspan says: We can always print more money!”

  33. E.M.Smith says:

    @Jason Calley:

    The bond market are not called “The Bond Bullies” for nothing. As soon as it’s clear that the value is at risk, rates go up. A lot. Vis Greece.


    Ah, that explains our different POV. I did a lot of accounting systems (that would get tossed out on the next merger…) and “install a bunch of pc’s and networks” just to do it all over again when the next CFO decided he wanted a different class of machine.

    Aerospace is one of the places that had large payback for computing.

    You’ll appreciate this. My Brother-in-law was a Ph.D. Aerospace working at NASA. He shared a graph with me in about 1988. It showed the increase in total productivity in Aerospace from hardware improvements (a nice line rising lower left to upper right – I think it was log graph) and another line, total increase in productivity from better algorithms and understanding. It too rose from lower left to upper right, but about twice as fast…

    Basically what it showed was that improvements in software and “think time” contributed more than Moore’s Law. (Time span was fairly long. Couple of decades? A few?)

    The necessary correlation of this is that crappy algorithms and poor thinking can consume ALL of Moore’s Law and then some. That’s Microsoft and code bloat…

    A striking contrast.

    I’ve seen both sides of it (as we ran a Cray site doing flow modeling and other things that benefited from both effects and as later I supported shops with PCs and saw the stagnant work product.)

    Part of why I’m peeved at M.Soft. They presume all advances in hardware are THEIRS to consume to make their costs lower, rather than mine to make my productivity higher. Part of why I’ve been very fond of Linux (until recent releases started to bloat) was that it let me have those computes…

    I’ll hit the links now… thanks.

  34. E.M.Smith says:

    For anyone wanting an in depth discussion of how inflation expectations and unemployment rates interact, and / or wants a more formal ‘handle’ on how The Fed is deciding how much inflation is a good thing, the Philips Curve (now in several variations) is the key thought tool:

    The wiki write up is pretty good. Key ‘take away’ is that folks don’t really know how inflation relates to unemployment, but that doesn’t stop them from making decisions based on their “story” of how they think it ought to work.

    A few Nobel Prizes have been handed out for various treatments of the Philips Curve, and it is key to how Central Banks decide to trade off monetary policy vs inflation vs unemployment.

    (The basic idea is that full employment comes with more inflation and lots of unemployment limits inflation. Most of the quibbling comes over short term behaviour vs long term behaviour. It is my opinion that the Philips Curve is correct, but interacting with several other things, so you don’t always get a nice direct movement along the Philips curve, but sometimes ‘other things’ drive changes of employment vs inflation – like fiscal policy and regulatory burden, or general political expectations of crap happening. “crap happening” being a formal term of art in Economics ;-)

  35. agimarc says:

    The problem is that aerospace has become so ossified in governmental rules, regulations, requirements and money that true leaps are no longer possible – which is probably why I bailed out a long time ago. This is why the NewSpace, commercial guys are so important. I know of a guy who has figured out how to use Near Earth Objects (NEOs) and a reactor to start the great migration off this planet via the use of steam rockets (boil the NEO water and run it thru a reactor core an nozzle). He did all his computations via spreadsheet and programmable calculator. Great story that the numbers and economics work. And he did it over a decade ago.

    The other place I saw it personally was in the Oil Patch. Spent 5 years on the AK North Slope as an employee of a small business. Our business was originally a niche one taking downhole temperature and pressure surveys over time. Over time, that morphed into other tools and services. Small business in the Oil Patch is in a pretty interesting position, as it is small and agile, theoretically able to run around and do things the elephants with their bureaucratic overhead are unable to do.

    In 1997 when I started, we were using MS DOS computers to download and process and deliver data. Moved into Windows via a Toshiba laptop a few years later (I know, way late). Delivering the data via a color graph out of a POS Lexmark printer along with the spreadsheet on a floppy made the company men so happy they couldn’t talk coherently. Of course one of the elephants (Haliburton) decided to start giving away what we charged money for doing, and that put the company out of business. The fact that the 3 partners in the company had known one another for 15 years and did much like one another any more didn’t help our response to the new landscape either.

    It was an amazing industry, all based on a single simple machine: the wedge. Everything in the Oil Patch is based on a screw.

    One of our smart guys got the idea to add an accelerometer to the downhole tool so as to measure accelerations over time so as to get a location of the drill bit in real time. It didn’t go much farther than that before I was outa there.

    The thing about IT are the new tools available to muck around with the data. And what you do with the data is the key to the entire house of cards. Figuring out how customers can make sense of the multi-firehose flow of data blasting away at them every second of the day ought to be the killer app for the not so distant future if not present. Figuring out how to drill down in a timely manner after the first pass is as important. Military has the same problem with figuring out what to do with the flow of info from multiple sensors.

    Thanks for the conversation. One personal and completely unrelated question: Did you do music in Jr High or High School? I find an incredible number of IT and engineering people have HS music in their backgrounds. I did. So did my boss.

    Best to you and yours. Cheers –

  36. E.M.Smith says:


    OK, read the wiki. It’s an interesting theory, but I think they have run too far with it. I’ve known one heck of a lot of folks from each “type” in every generation. There are some commonalities inside each generation, but not, IMHO, to dominance. (For example, I grew up in a generation where I don’t “fit” the model). I’m also not real keen on the 20 year span as a ‘generation’. Typically it has been defined as 30 years in other fields.

    Maybe it is just that I was more “awake” earlier and at less than 10 years old was ‘in tune’ with the ’20 somethings’ around me, yet also spent time talking with the W.W.II generation, and talking with the “old folks” (some up to 80 ish, so born about 1890s…) gaining their perspective. I realized when I was about 17 that my “awareness” was different as it spanned from 1890 to 1970 (by proxy). That I’d also watched untold hours of old movies and read an entire series of history books by then helped too… I basically absorbed several “generations” of experiences. So does that mean that “I’m different”? Or that lots of us are “different” and the generational theory is lacking in allowing for that?

    So while I think there is some “there there” and that there is some merit to the idea; the presentation is way too absolute for my tastes… So, for example, the “Gay 90s” and the “Roaring 20s” were a “radical generations”. 30 year spacing. In between was a World War. After the Roaring 20s was another World War. All told about 60 years, and two full cycles. So it looks to me like there ARE alternations of “happy free spirits” vs “somber doers”, but more driven by outside events than by some generational clock. The children of the Roaring 20s were the uptight parents of my generation, which cut loose again. But that’s a period from the 20s to the 70s. 50 years. So is it 30 or 50 per ‘cycle’? Then add in that even during the ’40s and ’50s there were some fair number of ‘free spirit’ types… ( I’ve met a few, and learned of more looking through history…)

    At any rate, it looks to me like there is some merit to parts of it, but some of it is more of a well painted hobby horse and “force fit” cycles…

    Per music: I took a music class in grammar school, but didn’t like the teacher. Damaged me for music (formal sorts) for years. Later came back to it and taught myself to play a ‘recorder’ (fipple flute) and like playing with some other minor instruments. Tried to learn guitar, but my ‘fat farmer fingers’ cover more than just one string… So more of a ‘music wannabe’ than actually good at it.

    My Son, however, has slightly more slim fingers (thanks to Mom) and loves playing guitar. Performs on stage weekly. Also decent at drums. ( I got a set of drums for Christmas at about 5 years old and loved them, but they ‘disappeared’ just a few weeks later ;-0

    Did do a fair amount of singing in church, and even did some choir time. I suppose that counts as “music” ;-)

    BTW, I thought I saw the idea of using ice from ‘stuff in space’ as reaction mass in SciFi books in the ’60s?… I think it’s an idea that’s been around for a while. Along with nuclear rockets (we built one ‘way back when’ out in the desert…)

    Still waiting for a chance to actually get off this rock. I suspect that there are a lot of “50 somethings” that would be quite happy to take the risks and radiation exposure of space in exchange for “moving the ball forward”. I’m past the point where a bit of radiation can do much that isn’t going to happen anyway, and what’s a bit of risk now when certainty is not too far away?… Geezers In Space! We need that program!!! ;-)

    Oh, and just as a reminder: Apollo had a slide rule on board for compute power, just in case the computer died. You can do a lot with a slide rule… (I have one of the exact model that was on the Apollo…) So I’d date the “compute revolution” to the invention of the slide rule. Computers only really caught up in the ’70s… A lot of advancement happened up to the ’70s…

    As per the flood of data: That “app” has been around since the ’80s. It got renamed to “data mining” at some point. I did exactly that kind of work at one point in my life. Using a “Fourth Generation Non-Procedural DBMS” to glue together batches of data and suck out specialized reports and insights. Very useful tools. Just not used enough.

  37. We are definitely in deep do-do today.

    I am convinced that the solution is a return to reality – the reality that was lost when world leaders started using public funds to pay economists and other scientists to convince the public that their false illusions of grandeur are proven scientific facts.

    E.g., their egos are even bigger than the Sun’s “sphere of influence.”

  38. Mike Jonas says:

    EMS – all good stuff. Thx.

    gallopingcamel – you say “You can be sure that Obama if re-elected will continue to borrow until we run out of OPM (Other People’s Money). Convince me that Romney will do anything to restore fiscal sanity.”. But the power of democracy is not in who you put in, but the ability to remove. So the first thing is to remove Obama. Then make it clear to Romney that if he doesn’t reduce debt you will throw him out next time. I don’t know how Romney will be on spending, but he certainly has a much more US-economy-friendly policy on energy. And energy is a major key to the economy.

  39. George says:

    We CAN potentially run a surplus again but it would require some changes. First we would have to eliminate Dodd-Frank and Sarbanes-Oxley and replace them with something sane. Those two sets of regulations are one big giant weight on our economy that act as a drag on business activity.

    We also have a second problem but first a little background. What Dodd-Frank did was set up a situation where it forced the little banks either out of business or forced them to merge with the big banks. No small town bank would be able to accumulate the capital reserve requirements this legislation mandated. Actually, the big banks couldn’t do it either so the Federal Reserve basically went to the banks that were “too big to fail”, had them issue stock, then the federal reserve bought the stock with printed money which the banks then put in their vaults to meet the Dodd-Frank requirement. If were not too big to fail (or were a McCain supporting bank) you were allowed to die or merge.

    If Dodd-Frank were repealed tomorrow, the banks wouldn’t have to hold as much in reserve and suddenly the dam would burst with all that money being lent out. In fact, it would get out so fast the Fed probably wouldn’t be able to get it back fast enough and all of that money pouring into the economy would be inflationary. It might be hyper-inflationary. And that causes a positive feedback that would make things even worse. If we got rapid inflation, all of those mortgages would suddenly come up above water even further reducing the reserve requirements those banks would be required to carry in their vaults and so even MORE money would pour into the economy. Once that starts, interest rates would go up and if that happens, nobody is going to want Treasury debt at 0% when they can get corporate debt at 10%. So if nobody is buying treasury debt, they would have to raise rates they pay on that debt and if they do that, we’re sunk because we have run up 40 years worth of debt in the last 4 (2009,2010,2011,2012 deficits have been about 10x the 2007 deficit). So the fed is caught in a double bind.

    What they COULD do is to pull that reserve capital out of the banks AS they reduce the capital requirement. It is still going to be somewhat inflationary because after they have pulled all the Fed money out, there was still some additional capital that the banks scraped together themselves

    Sarbanes-Oxley has saddled business with tons of useless overhead (no other country on the planet has crap like that) and as a result, IPOs by US companies went through the floor after those regulations were put into place. It is my opinion that until those regulations are pulled, we’re doomed. A little inflation would be a good thing. It reduces the relative burden of the debt, brings back the value of real property above water, and returns the capital destruction that happened due to the collapse of the housing industry. But we have to be careful not to hyperinflate.

  40. Pascvaks says:

    Phantasm – (phantasm n. Something apparently seen but having no physical reality; a
    phantom or an apparition. Also called phantasma.)

    A Few Good Men (written by Aaron Sorkin)
    Jessep: You want answers?
    Kaffee (Tom Cruise): I think I’m entitled to them.
    Jessep: You want answers?
    Kaffee: I want the truth!
    Jessep: You can’t handle the truth! Son, we live in a world that has walls. And those walls have to be guarded by men with guns. Who’s gonna do it? You? You, Lt. Weinberg? I have a greater responsibility than you can possibly fathom. You weep for Santiago and you curse the Marines. You have that luxury. You have the luxury of not knowing what I know: that Santiago’s death, while tragic, probably saved lives. And my existence, while grotesque and incomprehensible to you, saves lives…You don’t want the truth. Because deep down, in places you don’t talk about at parties, you want me on that wall. You need me on that wall.
    We use words like honor, code, loyalty…we use these words as the backbone to a life spent defending something. You use ’em as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom I provide, then questions the manner in which I provide it! I’d rather you just said thank you and went on your way. Otherwise, I suggest you pick up a weapon and stand a post. Either way, I don’t give a damn what you think you’re entitled to!
    Kaffee: Did you order the code red?
    Jessep: (quietly) I did the job you sent me to do.
    Kaffee: Did you order the code red?
    Jessep: You’re goddamn right I did!!

    Thought – The line “You can’t handle the truth!” comes to mind in this election cycle. It seems that the incumbent is out to Jimmah us into a total collapse by his stupidity (or vile, contemptible intent), and the challenger is out to save us from that fate worse than death. While we wonder if Romney can do it, and how he would do it, his silence is deafening on the particulars, and we wander as we wonder and we wait. “If” Romney wants the WH, AND he’s not gone totally psycho since he made all his money, he must know he’s entering at a Hoover Moment in History. Is he withholding the details because he doesn’t know what he’s up against or because we can’t handle the truth? I wonder as I wander and wait.

  41. Chiefio mentioned LENR in one of his comments above.

    This election stuff and economic doom is getting to me so could we have a little light relief? An update on the alternative universe of LENR should do the trick.

  42. E.M.Smith says:

    Federal Reserve Charter is here:

    didn’t see any section heading about expiration, but some parts did have expiration dates inside. Looks like a lot to dig through…


    Pretty good summary of the impact to the stupidest laws to come out of this “crisis”…


    I think Romney is a dog trying to sink his teeth into a passing car… No idea what he’s going to get if he succeeds…

    (Most presidents are like that, BTW, you can tell by how they suddenly change promises once in, and all turn gray fairly fast… Close Gitmo, anyone? And look at Baby Bush going in – looked like a kid out of place – v.s. coming out – haggard and greying… )


    Unfortunately “Reality just is. -E.M.Smith”… and there are two realities at play here:

    1) What is important NOW is not under my control.

    2) What causes my brain to light up and say “Dig HERE!” is dependent on #1.

    So while I can have a short therm and low depth ‘effort’ into an area not part of that set, it doesn’t last long, doesn’t go far, and takes a lot of effort…

    On the other side of things, I have a fair number of “topics” wallowing about in the skull at any one time, so some selection is possible… I’ll see what’s in the brain-locker ;-)

    Until then, you could always watch some of the videos of Burning Man ;-)

  43. adolfogiurfa says:

    @E.M.: You are absolutely right about those “good old days of poverty”, you just made me remember an experience I had during one of those days: Once I didn´t have a penny and suddenly felt that I was happy and rich, just looking around I could admire the fact that I was really rich seeing in color and not in black&white, all possibilities were out there for me, I was free for a few moments.
    Thus, the real CURE to your economic troubles is to balance your budget from one day to the other….as we say in spanish: “Nadie muere en la víspera” (No one dies the day before), so you must not complaint about your little ego to suffer….
    As an example: The formula Chile applied to solve the entitlements´ issue, as retirement funds or social security funds, was to privatize them; they changed from a common fund (where there is no particular owner everyone has the temptation of taking those funds for other purposes) to personal accounts. Of course those who were older had to be kept under the old system.
    If you were a young person, then in the moment he or she subscribed to any of the “AFP” (personal funds companies) they received a fund, a paper from the state, representing what you had contributed to the former state´s pension fund- really inexistent-to be rendered at the time of retirement.
    So, what you have to apply is the “Washington consensus” now to washington itself….
    Believe me, nobody will die. Any other “gradual” option does not work at all, unless you want to cheat yourselves.

  44. Tim Clark says:


    Love that line and following bashing. I’d like to say something similar to every liberal I’ve ever met.

  45. adolfogiurfa says:

    Anyone who knows what to do cannot say it in advance because there are many cool and nice people out there who would cry as madmen if there is the slightest possibility for their lives to be no so nice and cute in the future. (As many “stars” and academia “sages” of all sorts, daughters and sons of daddy and mommy)

  46. The basic problem is just this, and nothing less:

    World leaders and politicians have no detectors of ego-inflating BS that greedy pseudo-scientists generously produce as scientific facts in exchange for research funds.

    – Oliver K. Manuel
    Emeritus Professor of
    Nuclear/Space Science
    Former NASA Principal
    Investigator for Apollo

  47. adolfogiurfa says:

    Hey Oliver, cool down your EGO! :-)

  48. E.M.Smith says:

    On Stossel tonight, they had a representative / leader role from the U.S. Socialist party. (I just clicked over in time to hear the following, so didn’t get his whole title). He proceeds to announce some things about the USA that are Socialist. (Seems Stossel had pointed out no stable Socialism long term and this guy was holding up the USA as an example, there being no other…)

    So he proceeds to outline how The Federal Reserve is a Socialist creation / device.

    OK, I go off to look into this a bit. When one of the Socialist leadership in the USA says The Fed is a socialist enterprise; and I know it was created by the progressives during our thrust into Socialism Lite, well, there’s reason to look.

    So I find this:

    Line 5:

    The Ten Planks of the
    Communist Manifesto
    1848 by Karl Heinrich Marx
    5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.

    The Federal Reserve System, created by the Federal Reserve Act of Congress in 1913, is indeed such a “national bank” and it politically manipulates interest rates and holds a monopoly on legal counterfeiting in the United States. This is exactly what Marx had in mind and completely fulfills this plank, another major socialist objective. Yet, most Americans naively believe the U.S. of A. is far from a Marxist or socialist nation.

    That IS one of the planks of the Communist Manifesto. The Fed does act as a central regulator / control of credit. It IS presently sucking massive quantities of assets onto its balance sheet.

    I’m having a hard time seeing where this does NOT fit…

    At any rate, I’m needing to think about this a bit…

    It’s a bit disconcerting right now and does not sit well with my indoctrination education in economics…

  49. If one takes the ten planks of the Communist Manifesto (Marx & Engels, 1848) and rates the USA from zero to ten on each plank you can come up with a “Communism Rating”. Recently I rated the USA as 41% Communist whereas my homeland (the UK) rated 60% Communist.

    On plank #5 above I rated the USA quite high at 7 out of ten.

    Is my assessment too high or too low? Here is a link to the document in question:

  50. Since the death of Vaclav Havel on December 15, 2011, probably the most eloquent opponent of socialism and etatism is Vaclav Klaus. How wonderful it would be to have someone with his understanding of freedom running for president here in the USA. Sadly we have a couple of guys who will say whatever their handlers recommend in order to get elected. Anyone who talked about principles and ideals the way that Klaus does was eliminated from the presidential race long ago.

    How is it that guys with strange sounding east european names understand the meaning of freedom better that the leaders of the “Land of the Free”? I think Chiefio’s faithful know the answer, so let’s hear from you!

  51. adolfogiurfa, 15 September 2012 at 5:07 pm,

    Liked that!
    “Nadie muere en la víspera”
    “No one dies the day before”

    It brings to mind this:
    “No hay mal que dure cien años, ni persona que los aguante.”
    “There is no evil that can last hundred years, or person that will endure it.”

  52. E.M.Smith says:

    Caught it on the re-run. Socialist USA party candidate:,_2012#Socialist_Party_USA

    Steward Alexander.


    I think your estimates are about right…

    Why do those foreigners have a better understanding of freedom? Because they lived without it for so long and had to fight so hard to get it back… We have taken as free as the air, so not noticed it being taken away by others…

  53. @adolfogiurfa – We best see our own defects in others :-)

    ” Inflated self-opinions of scientists and egos of world leaders have expanded together since 1945. Their delusions of grandeur – and reckless disregard for our future – now exceed the Sun’s “sphere of influence” – Total insanity !

    @E.M.Smith – Thanks for bringing Gary Johnson to my attention. He appears to be the only viable presidential candidate with sanity !

    @Pascvaks, gallopingcamel, George, Mike Jonas, et al. We have been richly blessed with an ancient curse: May you live in interesting times !

    Today’s society lives in total insanity !

  54. Pascvaks says:

    @OliverKManuel – “We have been richly blessed with an ancient curse: ‘May you live in interesting times!’ Today’s society lives in total insanity !”

    Oliver, I’m sure you’ve heard this before: “Such has it always been, so will it always be.” Have you ever thought that life is hell and death is a fleeting moment when we truly realize the reason for our eternal damnation, a moment that lasts too short indeed before we are once again plunged once more into the womb to live yet again; that we are the fallen angels? I know, it’s crazy; the opposite of everything we’ve been led to believe. But… sometimes I wonder. People are incredible, they can imagine anything –well, anything they’re capable of imagining.

  55. nickleaton says:

    The only way out of the debt is to inflate the dollar and that’s what the FED is doing.


    Unless those debts are inflation linked, in which case its makes not one jot of a difference to your debt.

  56. nickleaton says:

    It is largely going to be a North America and Europe event.


    I think its a bit more widespread than that.

    Japan has a massive government debt problem. Huge debts, no assets.

    China? How do you think they have grown without debt?

    There is one subtle point about the debt. It’s not debt itself that is a problem. It’s debts with no assets to match that is the problem.

    If you have assets that generate cashflows greater than the cost of debt payments, bar issues of risk you don’t have a problem. You’re solvent.

    The problem is insolvency. Not having the matching assets. Then bankruptcy or default occurs when you can’t meet your cashflows.

    There are two tests for bankruptcy,

    1. Failure to meet cashflows in a timely manner
    2. Assets < liabilities and no possibility of a reversal.

    However, the one that is the final straw is the failure to meet cashflows.

  57. philjourdan says:

    “You’ll appreciate this. My Brother-in-law was a Ph.D. Aerospace working at NASA. He shared a graph with me in about 1988.”

    I wonder if he knew my cousin – Maxime Faget. 6 degrees of separation!

  58. Pascvaks says:

    (SarcOn) Interesting how China has choosen this moment to kick up a stink over a few islands claimed by them and Japan (and others claimed by them and others;-). The sabers are rattling! In China, when a group demonstrates around an Embassy, there is no doubt who is paying the demonstrators; in the Middle East it’s just a touch harder, though still obvious. Russia is using Iran to create a stink in the Middle East (sometimes the Big Boys use whole countries to kick up a ruckus –Iran & N.Korea the most obvious). You don’t suppose any of this has to do with the US and Europe being up to their tiny tuckus’ in internal matters? Does weakness breed contempt? No way! No way! — Oh Culligan Man! Oh Culligan Man! The pipes, the pipes are calling again!(SarcOff)

  59. nickleaton says:

    Notice that a lot of the debt is debt to ourselves in the form of government pensions and Social Security. ”


    Now, is this odious debt or not?

    In one way yes. If the public haven’t been told about the debt, and its been hidden off the books, then I would argue that it is.

    The flip side. If we take the UK again. A median wage earner in the UK is on 26K. If their National Issuance contributions had been invested in the stock market, they would have a pension of 19K a year, inflation linked, joint life from 65. Instead they get a bit over 5K, not fully inflation linked (different index that is lower), from 67, and not fully joint life. Do the sums and its the same as taxing them at 80% on their retirement income. [The big loss occurs from no compound interest, and the money going to other people]

    So if you’ve effectively been taxed at 80%, how can 20% of the value be odious? What again to consider when even that is going to be defaulted on.

    I’m pretty certain the same applies to other ‘western’ democracies.

    Namely, hide the debts off the books. Then will come the default. Then comes civil unrest.

  60. Thanks, nickleaton. Your comments are on target. Our government uses fear-mongering to keep us distracted from real problems.

    If the fear mongering doesn’t stop, some of us are prepared “to alter or abolish” the government that cannot govern because it is addicted to fear mongering like a carpenter who sees every problem as another nail.

    Data from the US General Accounting Office shows real problems:

  61. nickleaton says:

    The fear mongering is there.

    Take a typical politicians tirade against bankers.

    Swap the word banker for Jew or Black, and you get the real sentiment. You’ll also get the agenda. It’s an attempt to blame others for their mistakes.

  62. Nickleaton, E.M. Smith, Pascvaks, George, adolfogiurfa, Jason Calley, et. al.

    You and several others here are very astute. I would like your opinion of the possibility that:

    Living inside the “sphere of influence” (r = 18 x 19^9 km) of the Sun’s pulsar core, we will:

    a.) Live humbly (sanely) in contact with FRTG (the Force, Reality, Truth, God), or
    b.) Arrogantly (selfishly) believing the false illusion that we are in control !

    Bruce Lipton and Tom Campbell seem to be very close to this same conclusion:

  63. R. de Haan says:

    Romney Calls 47% of Voters Dependent in Leaked Video

    Yeah, sometimes the truth is a bitch.

  64. Pascvaks says:

    @OKM – “I would like your opinion of the possibility that:
    Living inside the “sphere of influence” (r = 18 x 19^9 km) of the Sun’s pulsar core, we will:
    a.) Live humbly (sanely) in contact with FRTG (the Force, Reality, Truth, God), or
    b.) Arrogantly (selfishly) believing the false illusion that we are in control !”

    Oliver, can’t see the pic, so on the possibility: Yes! Either way. Both at the same time. One more so than the other on one day (so to speak) and then a shift to the other on another day (so to speak). We are free to succeed –if the Force is with us– and free to fail –if the Force ain’t with us; or irregardless of the Force being with us or not I think the same is also true. By our nature we are dreamers, optomists; we ignore all signs that don’t reinforce what we want to believe, usually. We also see signs that don’t exist and believe that we are capable of anything we wish to do, if only everyone else will chip in their life savings, believe as we do, and work like a slave under our whip. “We” (however one defines that word) are the ‘problem’ AND the ‘solution’ at the same time. “We” also define what the ‘problems’ are and what the ‘solutions’ will be. Without us there are no problems or solutions. Look close and see the tree, step back and see the forest. But.. if there is no one to see the tree, or hear it fall, or smell it burn, is there a tree? Is there a forest? Is there an earth? Is there a sun? Is there anything at all? Some might say we are God, without us there is nothing; well, nothing that really matters;-)

  65. adolfogiurfa says:

    @Oliver:….And if you consider the cell membrane as the EU guys do, as a “double layer”, and also remember those “anode tufts” on the surface of the Sun, you have, again, what is said in “As above so below”, and that´s why, in the interconnection of everything through plasma/electricity/charge/love, astrology is important, as it is the relation with the environment.
    But it is going to be confusing as long as we ignore the basic laws: The Law of Three and the Law of the Octave; the first one originating in the square triangle of forces generated by the always at 90º angle electricity and magnetism, while its movement and interaction with the environment, through the intake and output of energy, is the octave´s development.

  66. Pascvaks says:

    @R.deHaan – “Yeah, sometimes the truth is a bitch.”

    That’s what I always say too, “Life’s a beach!”;-)

  67. adolfogiurfa says:

    These guys almost got it!. Well, let´s say all this is happening just because we are receiving information from outside in a clearer and more distinct way, and it happens once every “Platonic Month” (about 2,000 + years, according to the precession of the equinox) and it is called “Apocalypse”:
    An apocalypse (Ancient Greek: ἀποκάλυψις apocálypsis, from ἀπό and καλύπτω meaning ‘un-covering’), translated literally from Greek refers to a revelation of something hidden
    Well, let´s see reality now: Remember the Klein´s bottle?, well, now think a little: The “trick” Nature uses to overcome entropy is called “Life”. Good, good!, but when does it such a life begins?, when such a “Bang” happens?, well it happens after a reunion of two opposite charges: An spermatozoid and an egg, during the act of coitus.
    Now, how could we SEE a Universe from the Outside?. Knowing that everything is vibration or waves, we should get a certain kind of apparatus which could reflect most of those waves, if possible the nearest to 180º around. A MIRROR!……
    Now, go to the nearest mirror you have, and look at a Universe, from the OUTSIDE!

  68. adolfogiurfa says:

    What takes us to the next step: What freedom is?, well, the only freedom we have is the physicist in the video said: to choose between an entropic behavior or a positive evolutionary behavior, a negentropic behavior, that´s what “sins” are all about: The choice of foolishly spending all our LIFE out or preserve a little for ME, for evolutionary purposes, for the creation within our bodies of higher energetic bodies which could survive death: Either we follow a descending octave development or an ascending one, either we choose the higher pitches and higher frequencies or we choose just the mechanical production of an IRR package, which, after the dissolution of the coarse body can go only one way down: To be attracted by the hungry of energy Moon, where “There will be weeping and teeth screeching”
    Then, what is such a life energy?, well C.G.Jung found that the “Libido” is such an energy to be transmuted and preserved, which can “create” and develop an octave to the outside: a baby, another universe or an octave to the inside: a higher energetic package, a new born baby INSIDE, a higher frequency Quanta, capable of existence beyond death. This is the truth we do not like because it involves RULES, it is Conservative, it is Negentropic, basically opposed to those Liberal currents which propose anarchy and chaotic “freedom”.

  69. adolfogiurfa says:

    Nevertheless we must be very careful about which “order”to buy, as there are some people who want us to buy the “Bee-hive” or the “Anthill” order, a “Brave New World” order. Any IMPOSED order is to be rejected.

  70. R. de Haan says:

    Yep, Romeny was spot on with his 47% Obama voters as latest poll shows:

  71. Pascvaks says:

    @RdeHaan – “Yep, Romeny was spot on…”

    So true! Some spell it “Romani”. They have a gift for fortune telling;-)

  72. Pascvaks, 18 September 2012 at 1:35 pm

    I have a problem with your pessimism. While I concede that you may be proved right by events I can’t help working for something better.

    The Book of Genesis (9,7, KJV) says:
    “And you, be ye fruitful, and multiply; bring forth abundantly in the earth, and multiply therein.”

    My understanding is that this scipture is accepted by Jews, Christians and Muslims representing a significant proportion of the humans currently alive. I would contend that this idea drives the urge to grow the economy of most countries in the world even though the “Greenies” would like us to be “less fruitful and multiply less”.

    The Greenies are going to be very disappointed.

  73. Pascvaks says:

    @GallopingCamel – ;-)
    The way ‘people’ play the game, the ‘Greenies’ might be worse than ‘disappointed’ – the Fruitful Multiplication Game gives preference to some fruit over others, Greens play by civilized “Shaker Rules” ie: Less is More and More is Less, the rest of the world still says by cave rules: More is More. I’m sure you’ve seen the latest FMG Race update on TV- China and India are so far out ahead of the pack it’s now a race for third (and there is no 4th place;-).

  74. @ Pascvaks, adolfogiurfa

    Thank you for the feedback. I deeply appreciate those and agree.

    On seeing the energy released from cores of uranium and plutonium on 6 Aug 1945 and 9 Aug 1945, guilt-ridden scientists [1] advised world leaders to establish the United Nations and proceed down path (b.) that finally surfaced as Climategate sixty-four years (2009 – 1945 = 64 yrs) later:

    Inside the “sphere of influence” (r = 18 x 19^9 km) of the Sun’s pulsar core, we will:
    a.) Live humbly (sanely) in contact with FRTG (the Force, Reality, Truth, God), or
    b.) Arrogantly (selfishly) believing the false illusion that we are in control !”

    [1] Robert Jungk, Brighter than a Thousand Suns: A Personal History of the Atomic Scientists Translated by James Cleugh (A Harvest Book, Harcourt Inc., 21 Oct 1970) 369 pages [Originally published as Heller als Tausend Sonnen by Alfred Scherz Verlag, Bern]

    _ Guilt: “What should we do?” asked C. F. von Weisacker in the fall of 1945. “We have played with fire like children and it flared up before we expected it.” – page 335

    PS – Here’s an excellent video on the current status of the rapidly unfolding drama of Climategate, as we head toward the next election or revolution:

  75. In an attempt to distract attention away from real problems, someone may now be trying to incite Mideast violence for their own purposes.

  76. Pingback: WSW, Thursday, 20 Sept 2012 | Musings from the Chiefio

  77. BobN says:

    R. de Haan – I wince every time someone refers to Krugman as an expert. I think your article has him pegged properly.

  78. gallopingcamel says:

    Pascvaks, 19 September 2012 at 11:16 am

    We may be more in “Synch” than I imagined!

  79. gallopingcamel says:

    Those of you who have not tweaked your portfolios to hedge against the coming inflation need to do so NOW!

    While Chiefio can explain this much better than I, this is the time to invest in things that have intrinsic value such as food and beverages. Don’t forget precious metals or investments in countries with low debt/GNP ratios.

  80. Larry Geiger says:

    “This is not 1979. Things are responding differently now than they did then.” What’s different? The US government.

    At one time the government was against us somewhat passively by removing some of our resources (taxes) and reducing our ability to function freely. Also, there have always been some regulations intended for the common good.

    But now, the government is actually working against you. If you are in business, the government is aggressively antagonistic to your pursuits. The EPA, in particular, is trying it’s best to shut down business where ever it finds it. The pipeline issue. No more logging. No more mining. There are now a large number of people in academia and government who actually would like to see many of you just go away. If they can’t make you go away, they are actively seeking to drive you into deep poverty. That is fundamentally their goal. You are a blight on the face of gaia.

    Unfortunately, I know some of these people. They are serious. Of course, in many cases, they believe that they are purer and better than you.

    In the 70’s there were still civil servants in this country. A few anyway. Now there are none. They tend to be anti-business across the board. Now the federal government is no longer passively against productivity by removing some of your resources (taxes) but they are now actively working to thwart any and all productivity.

  81. BobN says:

    @ Larry Geiger – To me it seems like the government has gone crazy with all their regulations. Here is a link for one I just read this morning.
    This is just one more crazy rule. I question their sanity.

  82. nickleaton says:

    Don’t forget precious metals or investments in countries with low debt/GNP ratios.


    There is the old joke, you can’t be a little bit pregnant.

    If you’re bankrupt, you’re bankrupt. It doesn’t really matter to you if that’s 101% or 1200%. You’re still bust.

    Now debt. What is debt? Governments will tell you its borrowing, and omit pensions and other items. They omit the big ticket items.

    Now why GDP? Well, GDP is everything you and others earn. By using that in the ratio they make it look smaller, and so more easy to deal with. They are also assuming they own you, and everything you produce is theirs.

    The true ratio is total debt / tax revenues. That produces the better answer. I would even go farther and say total debt / (taxes – core spending). It gives a more realistic measure of whether or not governments are bust.

    The tax figure is black and white. It can’t be fiddled. Far better than GDP because its government debt.

    Total debt. What goes into it?

    1. Borrowing – clearly.
    2. All borrowing. For the UK there is borrowing that isn’t borrowing. Called PFI
    3. Pensions due in the future that have been paid for in the past. Based off current legal requirements. Government like to say, its not a debt because we can change the law, and oh, that’s not a default. [It’s all down to you living longer etc]
    4. Pensions due as part of past employment. Delayed salary.
    5. Expected losses on any guarantees.

    For the UK, debt / taxes is 1200%

    Now, remember what’s omitted. No future health care, no future police, defense, courts, roads, politicians and perhaps the biggest, welfare. No schools, universities, …

  83. Stephen Wilde says:

    I decided several years ago that our electorates will only learn some basic domestic economics when the crash actually happens.

    In the meantime we have to wait whilst our leaders buy time by continuing to buy votes with fake money printed as needed.

    As with any debt problem the longer one delays the inevitable the worse the outcome.

    So the whole western world of both so called left and right has, since WW2, been building up a debt problem that is yet to be dealt with and the longer it goes on the worse the adjustment will need to be.

    The tragedy is that in our fiscal irresponsibility we will drag down the developing world too having given them unrealistic expectations via our irresponsible spending.

    The weird thing is that the left of the political spectrum is rabidly antl-colonialist but the financial storm they are brewing up will cause far more damage to the developing world ( as well as us) than real colonialism ever did.

    There is a good argument that real colonialism, at least under the British, was relatively benign and constructive in terms of the net reduction of human suffering at the hands of brutal nature and tribal human rivalry but the fiscal incontinence of the western left / liberals since WW2 will be globally and uniformly destructive.

    Beware the Law of Unintended Consequences.

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