Consumers of Doom,
I haven’t written much for a couple of weeks, and my last significant post was about Stephen Fowler’s appearance on Wife Swap. The thing that I learned from that post is that people pay far more attention to reality TV than they do to anything that I consider to be important. I think that the response was appropriate to Fowler’s appearance, but I honestly don’t care much about him or the online backlash. It was nice to see a bump in my traffic, but I didn’t notice a lot of extended interest in the rest of what I am writing about on this website.
Since my last post I have had some family maintenance to tend to, and I also spent this past Saturday standing outside of a couple of tax loan stores trying to raise awareness about how fucked up Refund Anticipation Loans are for the working poor. The result of my little protest, with my friend Drew Duzinskas, was insignificant but it clearly got under the skin of the Franchisees of the two Liberty Tax offices we picketed. I don’t think this picket was overly important, I mostly did it for fun but I did have an incredibly frustrating conversation with a representative from the Liberty Tax management team. He declined to give me his name, and refused to allow us to record the conversation but he said some things that were interesting. First, he told me that RALs are not an income source for Liberty Tax at all, although I find that a little hard to believe. He also told me that only 1/3 of his clients qualify for a RAL, which is good. Unfortunately, he was unwilling to do anything serious to change the way he was doing business, which of course is no surprise to me.
Like I said, the picket was not that important to me. In the big picture, I don’t think that even getting the poor people that are targeted for RALs to realize they are getting fucked over would make any difference. In other words, the people that are dumb enough to get a RAL probably won’t change their lifestyle in a way that fits in with the way I see the future until someone (the government) or something (reality) forces them to do so. Until then they will continue their relentless pursuit of stuff, at least the vast majority of them will.
So, from these two reflections, I wonder what the point of community outreach would be? And even more so, what is the point of “being awake” when everybody around you is still asleep? Regarding our picket, you can’t educate someone who doesn’t care to learn, or buys into the establishment mystification of (fill in the blank with nearly any subject) and refuses to try to figure shit out on their own. In my eyes they probably are not worth my time, although it is fun to get out and cause some ruckus every now and again. And fun does count for something, if for nothing more than an enjoyable way to pass the time. Regarding the Stephen Fowler thing, I don’t know how to get my point across any more clearly than what I did in my previous letter – that Fowler is the problem because he is an elitist asshole and he and his ilk are positioned to take a prominent role in the mitigation of peak oil. That scares the shit out of me, but I can’t do much about it and even if I do something it might not be the right something anyway.
The point of this letter is that I don’t know. I don’t know what the future will bring, I only have a little better idea than most. I don’t know what to do to address the problems about which I am concerned beyond making myself more self-reliant and less economically, socially and psychologically dependent on the systems which I think are bound to fail. I like the idea of being a part of a community, but I am coming to realize that may not mean community in any sense greater than me and a few people that “get it” and are thinking about what to do now that they do get it.
In the background of my own little insecurities, the great big world seems to be inching closer to the tipping point at which the real economy finally starts to look like the techno-financial fantasy economy that has propped up the collectively conjured affluence of America. I have said to friends recently that unfortunately this is just another recession, but it seems as though reality wants to make it a pretty special one. In the short-term, it can go either way. In the long term, it has no direction to go but back toward reality. For most of America, that means living standards that are much more like the majority of the world and much less like the future the vast majority is still planning for.
I read and listen to a lot of people that I think are smart talk about this to look for some trend or some consensus. But it doesn’t seem to be showing up in any meaningful way. Kunstler likes to call suburbia the greatest misallocation of resources in the history of civilization. I think that the next few years might make it pale by comparison. When the people that know what the problems are – a housing bubble, a credit bubble, outdated/unnecessary infrastructure – devise a solution that involves giving people money to buy housing and cars while trying to revive the credit market, I get nervous. I also see it as validation that there are no decent long-term mitigation options available at a high-level. After all, representative government isn’t set up to be visionary. The nature of the system is to be reactive. Once a problem presents itself in a way that is pervasive and obvious to a majority, then and only then will a plan be put into place to address the problem.
I hope that things are getting scary and exciting, but you know the saying about getting your hopes up…
doomfully yours,
mike
Sunday, October 3, 2010
doom letter #5
When I think about my future, the biggest component of it is community. I want to be around people that are basically decent, rational people that know how to work and are not interested in telling other people how to live their lives. Sounds simple enough right? Well, you would be surprised how hard it is to find people that are interested in the issues about which I am concerned that are not total assholes.
Doesn’t he look like a nice gentleman?
A perfect example of the problem with “enlightened” people is a man named Stephen Fowler, who was on the most recent episode of Wife Swap on ABC. Stephen is an Oxford-educated “ecological entrepreneur” that lives an out-of-touch-with-society, yuppie existence in San Fransisco. Throughout the episode he wore black t-shirts with “sustainability” and “tree hugger” on them while verbally abusing his swapped wife – I am so happy that he didn’t wear a peak oil t-shirt. Of course, the editors of the show picked through two weeks of footage to get material for their show, and surely he didn’t spend the whole time being a complete asshole. But it was characteristic of how he interacted with his temporary wife, and I think it is indicative of how establishment liberals see people like the Long family from Missouri who they swapped with for two weeks. The most despicable aspect of the whole show was a quote from the end of the show from Fowler’s daughter saying she was glad that Mrs. Long was gone because she wasn’t very smart.
Now, due to the democratic nature of the internet, Fowler is taking his licks from the ground up which includes a Facebook group dedicated to how much of an elitist prick he is and a fair amount of harassment from regular people that were appropriately outraged by his behavior. Personally, I hope that the fallout will leave a permanent black eye on this asshole’s resume.
As far as the overall prospects of sustainability and tree-huggerdom which Stephen seems to be so concerned about, the Long’s rural life in Missouri is probably much more adaptable to sustainable living than the way the Fowlers are living in San Fransisco – not to mention the fact that the Longs are intimately familiar with their natural surroundings and don’t live in a techno-societal bubble like San Fransisco. Buy all the carbon credits you want, and talk up your academic bullshit until you are blue in the face but when the shit hits the fan, I would much rather be living alongside the Long’s in Missouri than stuck in Yuppie Hell San Fransisco with a fuck face like Stephen Fowler and his life coach/hypnotist wife.
If Fowler wasn’t such an elitist dickwad, he could have utilized the two weeks he had with Mrs. Long to tell her about the idea of sustainability and environmental concern. Instead, he let his inner-asshole loose and spent the two weeks berating her for being “fat and stupid.”
Solutions to our problems are going to come from the ground up (from people like the Longs). The dictatorial, anti-democratic “solutions” espoused by establishment environmentalists like Fowler will only be a hindrance.
Stephen Fowler, you are a despicable human being for the way you behaved and the way you are programming your kids. I hope you truly reap what you have sown and suffer greatly as a result.
Doomed by fascist environmentalists like Fowler,
mike
Doesn’t he look like a nice gentleman?
A perfect example of the problem with “enlightened” people is a man named Stephen Fowler, who was on the most recent episode of Wife Swap on ABC. Stephen is an Oxford-educated “ecological entrepreneur” that lives an out-of-touch-with-society, yuppie existence in San Fransisco. Throughout the episode he wore black t-shirts with “sustainability” and “tree hugger” on them while verbally abusing his swapped wife – I am so happy that he didn’t wear a peak oil t-shirt. Of course, the editors of the show picked through two weeks of footage to get material for their show, and surely he didn’t spend the whole time being a complete asshole. But it was characteristic of how he interacted with his temporary wife, and I think it is indicative of how establishment liberals see people like the Long family from Missouri who they swapped with for two weeks. The most despicable aspect of the whole show was a quote from the end of the show from Fowler’s daughter saying she was glad that Mrs. Long was gone because she wasn’t very smart.
Now, due to the democratic nature of the internet, Fowler is taking his licks from the ground up which includes a Facebook group dedicated to how much of an elitist prick he is and a fair amount of harassment from regular people that were appropriately outraged by his behavior. Personally, I hope that the fallout will leave a permanent black eye on this asshole’s resume.
As far as the overall prospects of sustainability and tree-huggerdom which Stephen seems to be so concerned about, the Long’s rural life in Missouri is probably much more adaptable to sustainable living than the way the Fowlers are living in San Fransisco – not to mention the fact that the Longs are intimately familiar with their natural surroundings and don’t live in a techno-societal bubble like San Fransisco. Buy all the carbon credits you want, and talk up your academic bullshit until you are blue in the face but when the shit hits the fan, I would much rather be living alongside the Long’s in Missouri than stuck in Yuppie Hell San Fransisco with a fuck face like Stephen Fowler and his life coach/hypnotist wife.
If Fowler wasn’t such an elitist dickwad, he could have utilized the two weeks he had with Mrs. Long to tell her about the idea of sustainability and environmental concern. Instead, he let his inner-asshole loose and spent the two weeks berating her for being “fat and stupid.”
Solutions to our problems are going to come from the ground up (from people like the Longs). The dictatorial, anti-democratic “solutions” espoused by establishment environmentalists like Fowler will only be a hindrance.
Stephen Fowler, you are a despicable human being for the way you behaved and the way you are programming your kids. I hope you truly reap what you have sown and suffer greatly as a result.
Doomed by fascist environmentalists like Fowler,
mike
doom letter #4
This is inspired by two things really, the first being this post on Ashes Ashes, and also the whole content of the blog Peak Oil Debunked. The biggest hurdle that I think we face in this country is not geological or economic. It is psychological. There is a prevailing mentality in this country that questions the validity of any phenomenon that challenges our perception of the future. In the past I have, perhaps, been overly hyperbolic when talking about this issue. But I thought now would be as good a time as ever to take a look at how an idea like peak oil is perceived by the masses.
Peak Oil Debunked
Since my Momma always told me that if I couldn’t say something nice, I shouldn’t say anything at all let me start with a compliment. JD and Ari, the two primary writers on PO Debunked, are witty and smart individuals. I like reading their website because they present their ideas in a way that is funny and thereby enjoyable to read. I also think that they are both excellent examples of people I have in the past called “techno-fuckers.”
A techno-fucker is a person that believes that history provides overwhelming evidence that when people are put in a tough situation they figure out a solution to the problem. Regarding peak oil specifically, a techno-fucker will find hope in technology and will assume some scenario under which these technologies will be able to come to fruition. Techno-fuckers (I sure do like cussin’ today) love ideas like a hydrogen economy, cellulosic ethanol, algaeic bio-fuels and the more traditional renewables as well. It is their position that some combination of the aforementioned technologies will be the basis for our future energy consumption.
Over at PO Debunked, JD and Ari are definitely in that camp. Although the name of the website would indicate their primary interest is in showing peak oil is not a threat to the status quo, they spend a lot of time and posting space either ridiculing efforts by people to localize their economies or talking up the prospects for alternatives to oil. My question is why play up alternatives if there is not an issue with supply of oil in the future?
You can also see in their writing and how they form their arguments that they are looking for something that will validate their generally positive ideas about what the future will be like. Now, I think it is valuable for someone like me to consume stuff like this, so that is why I like the site. I do not like only going to “doomer” websites for the same reason that I don’t like going to church. I don’t need affirmation. My mind doesn’t get off on that. I need an opposing point of view that will challenge the way that I see the world.
I will admit that I could be totally wrong about peak oil. It may not be an immediate threat. That does not mean that I won’t try to prepare myself for the possibility of a drastically different world because of peak oil in the future. At some point in my life the following saying was ingrained into my head:
Expect the worst, hope for the best.
That is why I pay attention to peak oil. It has potentially immediate issues that can have a serious impact on the way I live my life. If peak oil is a contemporary reality, I expect the worst possible scenario and I am preparing myself for a drastically different life during and after the shock has run its course. The motto at PO Debunked is something more like:
Expect the best, hope for even better.
To me, this is no way to look at the future. No matter how smart guys like JD and Ari are, they fail to account for the vast swaths of the population that are not that smart and are becoming more and more dependent on oil-produced life. JD and Ari don’t scare me, but people that read what they write and then use it to dismiss such a potentially life-changing issue do scare me.
Ashes Ashes
In his post Dan W, who is an awesome writer, mentions a recent conversation with a co-worker:
…after a couple of minutes of witty repartee and prattle, I make the off-handed remark that the Dartmouth Library is going to experience, at a minimum, a 30% reduction in force over the next 24-36 months. Whoa, that was a conversation stopper. In response to my prognostication, the guy says the following: “…Well I guess I’ll just have to go get my umbrella and run outside to see if the sky is falling…” That was an unexpected response. And so I coughed up one of those uncomfortable chuckles, the kind you cough up when you’re not really sure if someone is trying to be funny or insulting, but you’re willing to give him the benefit of the doubt because he’s a really good guy. And then I say I’m not kidding, and that I’d be happy to share some of my thoughts regarding the numbers with him. And then he says, “…I’ll just wait for the Trustee’s report, because that’s where the real numbers are…”. Now I’m starting to get a little annoyed. Real numbers? Are you insinuating that my numbers are fake numbers? And so I chime in that maybe, just maybe, the trustees’ analyses will not be entirely trustworthy in that they have somewhat of a vested interest in putting a best foot forward to the public and to potential students and donors, and that I frankly have no vested interest in massaging the numbers because I know I’m going to get laid off. And so I say, “…the trustee’s numbers don’t really matter. It’s the real numbers that matter…” And then this really nice guy says, “…you know Dan, I never trust folks who say the sky is falling but say that the numbers don’t matter…”. Hmmm.
Dan’s conversation is another excellent example of how people are going to instinctively assume that any critique of the status quo that they find threatening is incredulous. I could have the same or similar conversations with any number of people in my life. I don’t really talk about peak oil with my girlfriend anymore, but when I did her response was always similar and she is but one example.
Confirmation Bias and Conclusion
When people surf around online and they come across a site about peak oil or anything else with which they are not totally familiar, they look for information either historical or other competing temporary theories to reassure them that their vested interest in the status quo is not under threat. People that are smarter than me came up with terminology to explain this sort of behavior, confirmation bias. It is something I am aware of, and it is why I try to diligently research issues about which I am concerned. Like I said earlier, I could be wrong, there are plenty of people that have a lot of power that have a clear interest in maintaining life as we know it. I don’t think they should be underestimated. I also don’t think that the problems we face should be underestimated and written off out of hand based on some general good feeling you may have about the future or evidence from the past. If I am right and peak oil is a big deal, the past is not going to be a good indicator of the future. If people like JD and Ari are right, I will still be fine and I will have knowledge that will help me out whatever tomorrow brings.
I still think we’re screwed,
mike
Peak Oil Debunked
Since my Momma always told me that if I couldn’t say something nice, I shouldn’t say anything at all let me start with a compliment. JD and Ari, the two primary writers on PO Debunked, are witty and smart individuals. I like reading their website because they present their ideas in a way that is funny and thereby enjoyable to read. I also think that they are both excellent examples of people I have in the past called “techno-fuckers.”
A techno-fucker is a person that believes that history provides overwhelming evidence that when people are put in a tough situation they figure out a solution to the problem. Regarding peak oil specifically, a techno-fucker will find hope in technology and will assume some scenario under which these technologies will be able to come to fruition. Techno-fuckers (I sure do like cussin’ today) love ideas like a hydrogen economy, cellulosic ethanol, algaeic bio-fuels and the more traditional renewables as well. It is their position that some combination of the aforementioned technologies will be the basis for our future energy consumption.
Over at PO Debunked, JD and Ari are definitely in that camp. Although the name of the website would indicate their primary interest is in showing peak oil is not a threat to the status quo, they spend a lot of time and posting space either ridiculing efforts by people to localize their economies or talking up the prospects for alternatives to oil. My question is why play up alternatives if there is not an issue with supply of oil in the future?
You can also see in their writing and how they form their arguments that they are looking for something that will validate their generally positive ideas about what the future will be like. Now, I think it is valuable for someone like me to consume stuff like this, so that is why I like the site. I do not like only going to “doomer” websites for the same reason that I don’t like going to church. I don’t need affirmation. My mind doesn’t get off on that. I need an opposing point of view that will challenge the way that I see the world.
I will admit that I could be totally wrong about peak oil. It may not be an immediate threat. That does not mean that I won’t try to prepare myself for the possibility of a drastically different world because of peak oil in the future. At some point in my life the following saying was ingrained into my head:
Expect the worst, hope for the best.
That is why I pay attention to peak oil. It has potentially immediate issues that can have a serious impact on the way I live my life. If peak oil is a contemporary reality, I expect the worst possible scenario and I am preparing myself for a drastically different life during and after the shock has run its course. The motto at PO Debunked is something more like:
Expect the best, hope for even better.
To me, this is no way to look at the future. No matter how smart guys like JD and Ari are, they fail to account for the vast swaths of the population that are not that smart and are becoming more and more dependent on oil-produced life. JD and Ari don’t scare me, but people that read what they write and then use it to dismiss such a potentially life-changing issue do scare me.
Ashes Ashes
In his post Dan W, who is an awesome writer, mentions a recent conversation with a co-worker:
…after a couple of minutes of witty repartee and prattle, I make the off-handed remark that the Dartmouth Library is going to experience, at a minimum, a 30% reduction in force over the next 24-36 months. Whoa, that was a conversation stopper. In response to my prognostication, the guy says the following: “…Well I guess I’ll just have to go get my umbrella and run outside to see if the sky is falling…” That was an unexpected response. And so I coughed up one of those uncomfortable chuckles, the kind you cough up when you’re not really sure if someone is trying to be funny or insulting, but you’re willing to give him the benefit of the doubt because he’s a really good guy. And then I say I’m not kidding, and that I’d be happy to share some of my thoughts regarding the numbers with him. And then he says, “…I’ll just wait for the Trustee’s report, because that’s where the real numbers are…”. Now I’m starting to get a little annoyed. Real numbers? Are you insinuating that my numbers are fake numbers? And so I chime in that maybe, just maybe, the trustees’ analyses will not be entirely trustworthy in that they have somewhat of a vested interest in putting a best foot forward to the public and to potential students and donors, and that I frankly have no vested interest in massaging the numbers because I know I’m going to get laid off. And so I say, “…the trustee’s numbers don’t really matter. It’s the real numbers that matter…” And then this really nice guy says, “…you know Dan, I never trust folks who say the sky is falling but say that the numbers don’t matter…”. Hmmm.
Dan’s conversation is another excellent example of how people are going to instinctively assume that any critique of the status quo that they find threatening is incredulous. I could have the same or similar conversations with any number of people in my life. I don’t really talk about peak oil with my girlfriend anymore, but when I did her response was always similar and she is but one example.
Confirmation Bias and Conclusion
When people surf around online and they come across a site about peak oil or anything else with which they are not totally familiar, they look for information either historical or other competing temporary theories to reassure them that their vested interest in the status quo is not under threat. People that are smarter than me came up with terminology to explain this sort of behavior, confirmation bias. It is something I am aware of, and it is why I try to diligently research issues about which I am concerned. Like I said earlier, I could be wrong, there are plenty of people that have a lot of power that have a clear interest in maintaining life as we know it. I don’t think they should be underestimated. I also don’t think that the problems we face should be underestimated and written off out of hand based on some general good feeling you may have about the future or evidence from the past. If I am right and peak oil is a big deal, the past is not going to be a good indicator of the future. If people like JD and Ari are right, I will still be fine and I will have knowledge that will help me out whatever tomorrow brings.
I still think we’re screwed,
mike
doom letter #3
Tomorrow, Tuesday January 20th, 2009, Barack Obama and a rabid gang of hangers on will have their first big moment. I have already went over and over the down side of Obama’s presidency, so today I am going to tell you what my inauguration day would be like if I were Barack.
First of all, I would not put any spending limits on things. If some of the guests want beluga and Kristal, get it by the case. They are his believers, they should be treated well. After all, the next day they will all have to go back to what is left of their lives and begin the reconciliation between their dreams and their realities. I am a strong believer in temporary delusion to celebrate a special occasion. My take on it is why not? The ‘money’ that will pay for all of it is quickly becoming a sick joke for all that see what is happening with the economy. So by all means, spend it now. There is no time like the present, seize the day, or whatever cliche you deem appropriate.
The day should not be all play though. This is an opportunity to tell the crowd gathered and the millions of others that will be taking it in through media that this will be the last party for a little while. Starting Wednesday the elite will have to start trying to work their magic to keep the illusion of a middle-income investor class afloat. They will have to come up with a solution to all of the zombie corporations that are stalking congress, the Fed, the treasury and anyone else with printing press access to pump more money into the black hole of a broken dream. Also starting Wednesday, the vast majority of us will have to wake up to a relative stranger that has all of the power of George Bush without the bad reputation. At least a portion of the speech should be dedicated to outlining how he will end the unconstitutional practices of the previous administration. The rest of us will also have to start down the uncertain road to the future. With the backdrop of impending resource depletion and a near-universally unprepared populace another chunk of the speech should tell the masses that the American dream as it has been sold is likely over.
The big chunk of us who have no skills in the production or maintenance of anything tangible are going to be in the worst trouble. If you are reading this, then you are likely in a little better shape because at least your mind is open to what the future may bring. Reality isn’t a popular subject in modern culture, “reality” has taken its place. If things get bad we can just go on TV and sing, answer trivia questions, dodge a wall, make out with a washed up celebrity or swap wives for a couple weeks to get us out of our troubles. And if things really get bad, those nice people from TV will either come and build us a new vinyl/particle board house or throw a yard sale for us and do some decorating to spruce things up.
I feel bad for Obama because I really do think he is a decent dude that probably wants to do something right. On the flip side of that, he is an over-achieving product of the ivy league establishment that is probably at least a little mentally ill to put himself out there the way he has in order to get elected. His soul was sold 100 times over in the process, surely, in order to raise the amount of money he did and overcome the former favorite of the liberal establishments, the Clintons.
Due to the soul-selling that he has done, he won’t be able to say the big things. But he can take the opportunity to tell the people that there may be a new sacrifice required for the American people. It will definitely mean less credit, lower asset values and higher prices on the goods required for basic survival. I think it would be a good idea to use policy to encourage garden planting as well as fruit and nut trees across the country. If techno-capitalists do manage to save the day, at worst we will have to pay someone to cut the trees down and re-plant grass over the gardens.
I don’t know what tomorrow will bring, but it will likely be a speech based in a vague cornucopian hope for the next for years. But if he has the fortitude he will dig deep and tell the people what they need to hear, not what they want to hear.
Otherwise, I want to say lucky you President O. You get the job you have probably always wanted at possibly the most dire economic moment in American history. Take time to enjoy the party with your donors, followers and fans. Wednesday is going to be the beginning of the end of life in America as we know it.
So doomed,
mike
First of all, I would not put any spending limits on things. If some of the guests want beluga and Kristal, get it by the case. They are his believers, they should be treated well. After all, the next day they will all have to go back to what is left of their lives and begin the reconciliation between their dreams and their realities. I am a strong believer in temporary delusion to celebrate a special occasion. My take on it is why not? The ‘money’ that will pay for all of it is quickly becoming a sick joke for all that see what is happening with the economy. So by all means, spend it now. There is no time like the present, seize the day, or whatever cliche you deem appropriate.
The day should not be all play though. This is an opportunity to tell the crowd gathered and the millions of others that will be taking it in through media that this will be the last party for a little while. Starting Wednesday the elite will have to start trying to work their magic to keep the illusion of a middle-income investor class afloat. They will have to come up with a solution to all of the zombie corporations that are stalking congress, the Fed, the treasury and anyone else with printing press access to pump more money into the black hole of a broken dream. Also starting Wednesday, the vast majority of us will have to wake up to a relative stranger that has all of the power of George Bush without the bad reputation. At least a portion of the speech should be dedicated to outlining how he will end the unconstitutional practices of the previous administration. The rest of us will also have to start down the uncertain road to the future. With the backdrop of impending resource depletion and a near-universally unprepared populace another chunk of the speech should tell the masses that the American dream as it has been sold is likely over.
The big chunk of us who have no skills in the production or maintenance of anything tangible are going to be in the worst trouble. If you are reading this, then you are likely in a little better shape because at least your mind is open to what the future may bring. Reality isn’t a popular subject in modern culture, “reality” has taken its place. If things get bad we can just go on TV and sing, answer trivia questions, dodge a wall, make out with a washed up celebrity or swap wives for a couple weeks to get us out of our troubles. And if things really get bad, those nice people from TV will either come and build us a new vinyl/particle board house or throw a yard sale for us and do some decorating to spruce things up.
I feel bad for Obama because I really do think he is a decent dude that probably wants to do something right. On the flip side of that, he is an over-achieving product of the ivy league establishment that is probably at least a little mentally ill to put himself out there the way he has in order to get elected. His soul was sold 100 times over in the process, surely, in order to raise the amount of money he did and overcome the former favorite of the liberal establishments, the Clintons.
Due to the soul-selling that he has done, he won’t be able to say the big things. But he can take the opportunity to tell the people that there may be a new sacrifice required for the American people. It will definitely mean less credit, lower asset values and higher prices on the goods required for basic survival. I think it would be a good idea to use policy to encourage garden planting as well as fruit and nut trees across the country. If techno-capitalists do manage to save the day, at worst we will have to pay someone to cut the trees down and re-plant grass over the gardens.
I don’t know what tomorrow will bring, but it will likely be a speech based in a vague cornucopian hope for the next for years. But if he has the fortitude he will dig deep and tell the people what they need to hear, not what they want to hear.
Otherwise, I want to say lucky you President O. You get the job you have probably always wanted at possibly the most dire economic moment in American history. Take time to enjoy the party with your donors, followers and fans. Wednesday is going to be the beginning of the end of life in America as we know it.
So doomed,
mike
doom letter #2
consumers of doom,
The thing I have noticed most so far in 2009 is the creepy Barack Obama cult of personality being created in America. Go to any mall, and you will see stylized pictures of him on posters and t-shirts. Talk to almost any supporter, and you will hear an utter lack of intellectual curiosity. Consume mainstream news, and you will find little challenge to whether or not he can right the ship. I think this year will be the uphill battle to get people to realize that the federal government is not the solution and won’t be the solution.
It doesn’t matter how pretty the guy in charge talks. It doesn’t matter how much stimulus is pumped out. Things will not turn around in the way they have in the past. The best we can hope for is a more realistic assumption about our new economic limitations. Since politicians aren’t so good at telling the truth, especially if the truth hurts, I think the uphill battle won’t start from the top. People will have to start picking up on some ideas. They will need to take note of the news that matters.
Our federal debt has to be financed by someone, somewhere. If investors can suddenly look to equity markets on the upswing in the first half of this year, a lot of the money that was part of late-2008’s flight to safety – a time in which US treasury securities became in such high demand that investors were willing to take a small guaranteed loss to hold them – will dry up and interest rates will have to correct (upward) on new debt issuance. This means that 2009 could be the first year that interest payments on the federal debt could exceed defense spending. The less likely but more doom-laden possibility would be that our debt sale would fail. What I mean is that rich people could refuse to buy treasury bills when the government tries to sell them. If this happens – and I don’t think it will but there are others out there mentioning the possibility – the federal government would either have to just print money without the debt to back it up or they would have to balance the budget. One contribution to this problem could be a tax holiday on payroll taxes (medicare and social security) which would cut down on the amount of surplus money being diverted to the regular budget.
I don’t expect the battle to be won this year. In fact, I think people will want to hold things together for as long as possible and a short term rebound could possibly be “in the works.” One thing I have learned is that you can never underestimate a capitalist’s desire to continue making money. In the very short term, anything can happen. They are unleashing the next round of TARP funds as soon as possible – that is assuming congress continues to avoid taking any responsibility for the actions of government.
I am sure democrats want to get this through so that when TARP fails they can call it a Bush program through and through. I am also sure that they will pin all of this economic mess on Bush. I completely disagree with that analysis. Bush has done a lot to maintain the illusion of the American way of life by running huge deficits, rubber stamping the Greenspan Fed Theory with the appointment of Bernake and generally encouraging the American people to consume and keep buying homes at over-inflated prices. The economy was as good as it could possibly be and the only thing Obama will be able to do is keep the same thing going with the same old bubbles or a new one.
I now believe that America is a mature economy that is essentially incapable of continued growth (see Japan). On top of this there are additional concerns that reverberate which I have mentioned here and elsewhere – namely peak oil, the national debt and collective indifference in our collective consciousness. The uphill battle will be to chip away at some of this nonsense. I doubt it will lead to everyone agreeing with me, but hopefully it will slowly change the way we are addressing things.
Grow food and shoot straight,
mike
The thing I have noticed most so far in 2009 is the creepy Barack Obama cult of personality being created in America. Go to any mall, and you will see stylized pictures of him on posters and t-shirts. Talk to almost any supporter, and you will hear an utter lack of intellectual curiosity. Consume mainstream news, and you will find little challenge to whether or not he can right the ship. I think this year will be the uphill battle to get people to realize that the federal government is not the solution and won’t be the solution.
It doesn’t matter how pretty the guy in charge talks. It doesn’t matter how much stimulus is pumped out. Things will not turn around in the way they have in the past. The best we can hope for is a more realistic assumption about our new economic limitations. Since politicians aren’t so good at telling the truth, especially if the truth hurts, I think the uphill battle won’t start from the top. People will have to start picking up on some ideas. They will need to take note of the news that matters.
Our federal debt has to be financed by someone, somewhere. If investors can suddenly look to equity markets on the upswing in the first half of this year, a lot of the money that was part of late-2008’s flight to safety – a time in which US treasury securities became in such high demand that investors were willing to take a small guaranteed loss to hold them – will dry up and interest rates will have to correct (upward) on new debt issuance. This means that 2009 could be the first year that interest payments on the federal debt could exceed defense spending. The less likely but more doom-laden possibility would be that our debt sale would fail. What I mean is that rich people could refuse to buy treasury bills when the government tries to sell them. If this happens – and I don’t think it will but there are others out there mentioning the possibility – the federal government would either have to just print money without the debt to back it up or they would have to balance the budget. One contribution to this problem could be a tax holiday on payroll taxes (medicare and social security) which would cut down on the amount of surplus money being diverted to the regular budget.
I don’t expect the battle to be won this year. In fact, I think people will want to hold things together for as long as possible and a short term rebound could possibly be “in the works.” One thing I have learned is that you can never underestimate a capitalist’s desire to continue making money. In the very short term, anything can happen. They are unleashing the next round of TARP funds as soon as possible – that is assuming congress continues to avoid taking any responsibility for the actions of government.
I am sure democrats want to get this through so that when TARP fails they can call it a Bush program through and through. I am also sure that they will pin all of this economic mess on Bush. I completely disagree with that analysis. Bush has done a lot to maintain the illusion of the American way of life by running huge deficits, rubber stamping the Greenspan Fed Theory with the appointment of Bernake and generally encouraging the American people to consume and keep buying homes at over-inflated prices. The economy was as good as it could possibly be and the only thing Obama will be able to do is keep the same thing going with the same old bubbles or a new one.
I now believe that America is a mature economy that is essentially incapable of continued growth (see Japan). On top of this there are additional concerns that reverberate which I have mentioned here and elsewhere – namely peak oil, the national debt and collective indifference in our collective consciousness. The uphill battle will be to chip away at some of this nonsense. I doubt it will lead to everyone agreeing with me, but hopefully it will slowly change the way we are addressing things.
Grow food and shoot straight,
mike
doom letter #1
Wise Readers of Doom,
For someone interested in doom, 2008 was a year full of potential. Soaring energy and commodity prices in the first half of the year lead to a price collapse for oil and several other commodities. The real estate and equity markets took big hits as well, but we may never know the real damage all of this caused. This is because the government (the Treasury Department) and the banks (the Federal Reserve) have borrowed, reallocated and printed money while making up rules as they go along to limit the hit taken by 401K investors.
I didn’t want them to do this, but I understand that they had to do it because we have made it the federal government’s job is to guarantee stability at all costs. That is precisely what they are trying to do. Furthermore, they are doing it because they know the small investor that makes up the back bone of the financial market can only take so much at once. At some point, even the most steadfast “buy and hold” investor will liquidate their holdings – to the extent they can – if the markets continued to deteriorate. That is what happened in September in the financial bailout bill in Congress – then again in December for the Big 3. That is what the Fed has been doing for a few years to no avail. They are changing the rules of the game (most notably, banks no longer have to declare a fair-market value for an asset) and creating ever more complicated monetary instruments in order to paper over the damage. If it will keep investors in the market they know it will keep equity prices artificially inflated.
In the short term, it seems to me that what they have done actually worked. The equity markets have just about leveled off, and volatility has slowed. Confidence has wavered, but it stabilized and I would not be surprised if the indexes go up 20-30% in the first six months of the year. I say this because the market is made by true believers, they want the market to go up. These major market makers will look at history and see a reason for a rebound. Nothing has ever stayed bad for this long. If things recover, the banks and other institutions will be able to wiggle their way out of their junk investment and insurance positions. If somehow they can keep “money cheap” in the form of unrealistically low mortgage rates, the markets might start to rebound.
After all, the American people all need this to happen because they have bet their savings that the economy will grow in the future via speculative equity investments marketed to them as stable sources of wealth generation. They don’t want to hear about doom, and that is totally understandable. Why listen to someone tell you that your dreams for the future are unattainable? Why lend credence to the people that say there is no reason to believe things can continue on as they have for the past 60 years?
There is no good reason for them to do so. They get it, but they won’t admit it. They know intuitively that the whole financial economy is built on the assumption that whoever comes along after you will pay more than you did for investment x, and that will continue on forever. In the end, that is what it all boils down to. The only reason to believe in it is because if it doesn’t work, you are fucked.
Peak Oil
I will be the first to admit that although I should have known better, I was guilty of believing that oil price would be the way that everyone finally “got it” when it comes to peak oil. As oil prices were on the way up in the first half of the year, it was not difficult to find stories in the mainstream media that acknowledged peak oil was a reality. Investment web sites talked about how the market was pricing in a “peak oil premium” and a de facto floor was being created somewhere between $70 and $100/barrel.
I learned my lesson. Oil prices have absolutely collapsed, and may continue to fall. The only floor for the price of a product is $0. That is all there is to it. As far as peak oil and the price of oil goes, it seems that the two are not particularly interested in hanging out together. Like equities and other commodities, oil is priced by traders that look at short term changes to make their money – stuff like oil storage stocks, turmoil in a producing region, etc. They are not looking into the future beyond a couple of quarters at the most. And besides, the same theory about doom in the equity markets applies here. Why would a commodity trader want to include consideration in the price for a set of circumstances that have world changing consequences? There is no incentive to do so. I am sure there will be some whiz investors that make all of the right bets, but the peak oil theory clearly has little to nothing to do with price at the moment.
That said, my understanding of the geological side of it all along with the limits of technology at particular price points, still leads me to believe that peak oil is a real and contemporary problem. The collapse of oil price has nothing to do with supply, and not a whole lot to do with demand either. It is widely claimed that the fall in oil prices has a direct relationship to “unwinding positions” in the futures markets. Earlier in the year, hedge funds and other speculative institutional investors were rolling over their futures contracts to the next front month. Now they are selling them off to cover their margins and payouts to investors. That is the theory from the peak oil camp. I don’t think that adequately explains it, but it may be part of it. Keep in mind that these same people that are calling it “unwinding positions” were the ones earlier in the year saying that speculation in the market did not have a significant impact on price. I don’t think you can have it both ways, either the July price peak was market fundamentals, or it wasn’t.
I am sticking to the contention that it was market fundamentals, given the sets of information that traders were using to determine price. Storage stocks were down, demand forecasts (which were wrong) showed increasing global demand and anticipated production levels of existing projects and new projects showed tightness for at least a few years. Demand has dropped, but not at a rate that would seem to be comparable with the drop in price. Storage stocks are up, and many that are looking for proof that peak oil was a red herring are pointing to this information. Future production seems to be more in doubt at $30/barrel than it would have been at $70 or $80/barrel. Some of the more technology-intensive projects don’t turn a profit at this price and won’t come online or be developed. Cheaper existing production seems as though it is going to continue to decline overall as many fields are “mature” and capital is not available to introduce new technology at lower prices. I don’t know if this summer’s new high water mark for oil production will be the true peak, but it seems all but irrelevant to me. If I were to look for a metric to disprove peak oil, I would say it would be something like 90 million barrels/day sustained for 12 consecutive months. At that point, I would be willing to call it quits in the doom business – I also don’t think that any combination of geology or technology would be able to make this happen at this point, regardless of economics.
2009 could be fairly uneventful in the doom sector, but it could also be a lot of fun. Here are the variables I am interested in watching for next year.
1. Pakistan – Shaky economy, shakier government and nukes can make for interesting viewing. It could even be better than wife swap.
2. Hamas – Does a paragovernmental organization have the ability to make the entire middle east more tumultuous? No way to know for sure, but it looks like it will be interesting. Hamas is only on the list because for some reason oil traders seem to equate stability in Israel with the availability of oil.
3. National Debt and treasury bills – It took W 8 years to almost double the national debt. My guess is O will be able to do it in 4. Treasuries have become quite popular lately, but at some point investors will start looking at the long term solvency of the government and take it into account when deciding whether or not the secondary market will be able to continue to finance treasuries. As an aside, it will also be interesting to watch what will happen to interest rates – which are at record lows – as the stock market starts to rally. The reason I am interested is because a big portion of federal debt is securitized in short term bonds and as interest rates climb, these could get very expensive. Fiscal year 2008 the government gave $450 billion to bond holders in interest payments, and that was with fairly low interest rates.
4. The real economy – At some point, Americans are going to wake up and realize that there will be no further credit extended to them to keep up unrealistic levels of personal consumption. Credit cards are already cutting back up to 40% of their credit lines, car and home loans are in limbo waiting for another shoe to drop. I am interested to see what happens with student loans as I think the higher education racket might be the next bubble to give way. If the economy gets worse and more student loans go into default, something will have to give eventually. I think that will be the point when Americans pick up on the fact that we are overeducated in all the wrong stuff (fewer engineers and agricultural experts, more financiers and specialists in pointless unsustainable fields).
5. Federal stimulus – Although O picked at least two peak oil aware people (Salazar and Chu), I doubt much of the stimulus will be directed toward developing a sustainability sector of the economy. Most of the talk is about helping states with more money for road building and other late 20th century type infrastructure development.
6. Equity markets after July – I believe the hype for the first half of 2009 as a pick me up period for stocks. If everyone is saying it, it seems unlikely that it won’t happen. But I don’t think it is supported by anything but wishful thinking and when real economic indicators continue a trend down it will be interesting to see what happens.
7. National oil companies – With such low prices, and a populace that has grown to expect the fruits of higher prices, what will happen?
8. Big Brother – How will O take to the expanded executive powers he will inherit? There is plenty of buzz from NWO quarters about Biden’s remark about the event that will test O shortly after his inauguration.
9. Angry progressives – As O doesn’t pull out of Iraq, do anything to support gay rights or anything else significant in the progressive agenda, will his loyal supporters turn on him or look past his faults the same way conservatives did with W.
10. Food security – As America continues its slow slide into joining the global south, will we continue to be able to maintain and afford our complex food supply lines?
Welcome to doom,
mike
For someone interested in doom, 2008 was a year full of potential. Soaring energy and commodity prices in the first half of the year lead to a price collapse for oil and several other commodities. The real estate and equity markets took big hits as well, but we may never know the real damage all of this caused. This is because the government (the Treasury Department) and the banks (the Federal Reserve) have borrowed, reallocated and printed money while making up rules as they go along to limit the hit taken by 401K investors.
I didn’t want them to do this, but I understand that they had to do it because we have made it the federal government’s job is to guarantee stability at all costs. That is precisely what they are trying to do. Furthermore, they are doing it because they know the small investor that makes up the back bone of the financial market can only take so much at once. At some point, even the most steadfast “buy and hold” investor will liquidate their holdings – to the extent they can – if the markets continued to deteriorate. That is what happened in September in the financial bailout bill in Congress – then again in December for the Big 3. That is what the Fed has been doing for a few years to no avail. They are changing the rules of the game (most notably, banks no longer have to declare a fair-market value for an asset) and creating ever more complicated monetary instruments in order to paper over the damage. If it will keep investors in the market they know it will keep equity prices artificially inflated.
In the short term, it seems to me that what they have done actually worked. The equity markets have just about leveled off, and volatility has slowed. Confidence has wavered, but it stabilized and I would not be surprised if the indexes go up 20-30% in the first six months of the year. I say this because the market is made by true believers, they want the market to go up. These major market makers will look at history and see a reason for a rebound. Nothing has ever stayed bad for this long. If things recover, the banks and other institutions will be able to wiggle their way out of their junk investment and insurance positions. If somehow they can keep “money cheap” in the form of unrealistically low mortgage rates, the markets might start to rebound.
After all, the American people all need this to happen because they have bet their savings that the economy will grow in the future via speculative equity investments marketed to them as stable sources of wealth generation. They don’t want to hear about doom, and that is totally understandable. Why listen to someone tell you that your dreams for the future are unattainable? Why lend credence to the people that say there is no reason to believe things can continue on as they have for the past 60 years?
There is no good reason for them to do so. They get it, but they won’t admit it. They know intuitively that the whole financial economy is built on the assumption that whoever comes along after you will pay more than you did for investment x, and that will continue on forever. In the end, that is what it all boils down to. The only reason to believe in it is because if it doesn’t work, you are fucked.
Peak Oil
I will be the first to admit that although I should have known better, I was guilty of believing that oil price would be the way that everyone finally “got it” when it comes to peak oil. As oil prices were on the way up in the first half of the year, it was not difficult to find stories in the mainstream media that acknowledged peak oil was a reality. Investment web sites talked about how the market was pricing in a “peak oil premium” and a de facto floor was being created somewhere between $70 and $100/barrel.
I learned my lesson. Oil prices have absolutely collapsed, and may continue to fall. The only floor for the price of a product is $0. That is all there is to it. As far as peak oil and the price of oil goes, it seems that the two are not particularly interested in hanging out together. Like equities and other commodities, oil is priced by traders that look at short term changes to make their money – stuff like oil storage stocks, turmoil in a producing region, etc. They are not looking into the future beyond a couple of quarters at the most. And besides, the same theory about doom in the equity markets applies here. Why would a commodity trader want to include consideration in the price for a set of circumstances that have world changing consequences? There is no incentive to do so. I am sure there will be some whiz investors that make all of the right bets, but the peak oil theory clearly has little to nothing to do with price at the moment.
That said, my understanding of the geological side of it all along with the limits of technology at particular price points, still leads me to believe that peak oil is a real and contemporary problem. The collapse of oil price has nothing to do with supply, and not a whole lot to do with demand either. It is widely claimed that the fall in oil prices has a direct relationship to “unwinding positions” in the futures markets. Earlier in the year, hedge funds and other speculative institutional investors were rolling over their futures contracts to the next front month. Now they are selling them off to cover their margins and payouts to investors. That is the theory from the peak oil camp. I don’t think that adequately explains it, but it may be part of it. Keep in mind that these same people that are calling it “unwinding positions” were the ones earlier in the year saying that speculation in the market did not have a significant impact on price. I don’t think you can have it both ways, either the July price peak was market fundamentals, or it wasn’t.
I am sticking to the contention that it was market fundamentals, given the sets of information that traders were using to determine price. Storage stocks were down, demand forecasts (which were wrong) showed increasing global demand and anticipated production levels of existing projects and new projects showed tightness for at least a few years. Demand has dropped, but not at a rate that would seem to be comparable with the drop in price. Storage stocks are up, and many that are looking for proof that peak oil was a red herring are pointing to this information. Future production seems to be more in doubt at $30/barrel than it would have been at $70 or $80/barrel. Some of the more technology-intensive projects don’t turn a profit at this price and won’t come online or be developed. Cheaper existing production seems as though it is going to continue to decline overall as many fields are “mature” and capital is not available to introduce new technology at lower prices. I don’t know if this summer’s new high water mark for oil production will be the true peak, but it seems all but irrelevant to me. If I were to look for a metric to disprove peak oil, I would say it would be something like 90 million barrels/day sustained for 12 consecutive months. At that point, I would be willing to call it quits in the doom business – I also don’t think that any combination of geology or technology would be able to make this happen at this point, regardless of economics.
2009 could be fairly uneventful in the doom sector, but it could also be a lot of fun. Here are the variables I am interested in watching for next year.
1. Pakistan – Shaky economy, shakier government and nukes can make for interesting viewing. It could even be better than wife swap.
2. Hamas – Does a paragovernmental organization have the ability to make the entire middle east more tumultuous? No way to know for sure, but it looks like it will be interesting. Hamas is only on the list because for some reason oil traders seem to equate stability in Israel with the availability of oil.
3. National Debt and treasury bills – It took W 8 years to almost double the national debt. My guess is O will be able to do it in 4. Treasuries have become quite popular lately, but at some point investors will start looking at the long term solvency of the government and take it into account when deciding whether or not the secondary market will be able to continue to finance treasuries. As an aside, it will also be interesting to watch what will happen to interest rates – which are at record lows – as the stock market starts to rally. The reason I am interested is because a big portion of federal debt is securitized in short term bonds and as interest rates climb, these could get very expensive. Fiscal year 2008 the government gave $450 billion to bond holders in interest payments, and that was with fairly low interest rates.
4. The real economy – At some point, Americans are going to wake up and realize that there will be no further credit extended to them to keep up unrealistic levels of personal consumption. Credit cards are already cutting back up to 40% of their credit lines, car and home loans are in limbo waiting for another shoe to drop. I am interested to see what happens with student loans as I think the higher education racket might be the next bubble to give way. If the economy gets worse and more student loans go into default, something will have to give eventually. I think that will be the point when Americans pick up on the fact that we are overeducated in all the wrong stuff (fewer engineers and agricultural experts, more financiers and specialists in pointless unsustainable fields).
5. Federal stimulus – Although O picked at least two peak oil aware people (Salazar and Chu), I doubt much of the stimulus will be directed toward developing a sustainability sector of the economy. Most of the talk is about helping states with more money for road building and other late 20th century type infrastructure development.
6. Equity markets after July – I believe the hype for the first half of 2009 as a pick me up period for stocks. If everyone is saying it, it seems unlikely that it won’t happen. But I don’t think it is supported by anything but wishful thinking and when real economic indicators continue a trend down it will be interesting to see what happens.
7. National oil companies – With such low prices, and a populace that has grown to expect the fruits of higher prices, what will happen?
8. Big Brother – How will O take to the expanded executive powers he will inherit? There is plenty of buzz from NWO quarters about Biden’s remark about the event that will test O shortly after his inauguration.
9. Angry progressives – As O doesn’t pull out of Iraq, do anything to support gay rights or anything else significant in the progressive agenda, will his loyal supporters turn on him or look past his faults the same way conservatives did with W.
10. Food security – As America continues its slow slide into joining the global south, will we continue to be able to maintain and afford our complex food supply lines?
Welcome to doom,
mike
Friday, January 23, 2009
National Debt Maintenance
I am in the process of re-working this post with some graphs and editing to make it more readable. If you see any improvements, let me know. Original post is here:
Oh my god, are you excited or what? I am gonna write about interest payments on the national debt now. I can just feel the excitement from all three of you. Anyway, I never find anything online to explain how this works in a clear way. Every year, the US government gives rich people 100’s of billions of dollars in interest payments on the national debt. This article will discuss the make up of the national debt, where the interest payments actually go and the future implications of carrying such a severe debt burden.
Look at this kitten, doesn’t it make you want to read more?
When I say, “national debt maintenance,” I mean the interest that the US government pays to holders of the national debt.
GAS Type Securities
A large portion of the national debt is held within the government by the welfare trust funds. This debt maintenance falls under the Government Account Series or GAS portion of the national debt. Currently, the trust funds hold about $4.2 Trillion in treasury securities which the taxpayers paid $212 billion dollars during fiscal year 2008 for interest payments. What this means is right now, Medicare and Social Security payroll taxes are bringing in more money than the programs cost. The government decided that instead of this left over “money” just sitting around, it should be earning interest by “buying” treasury securities - or financing the rest of the government. The actual status of this money is up in the air, however. There are essentially two kinds of thinking about the GAS trust funds.
1. The trust fund is a debt the federal government owes to the future beneficiaries of Social Security. This means that when Social Security is no longer “pay as you go” - meaning tax receipts no longer cover the benefits that are due - the trust fund will be drawn upon to make those payments.
2. The trust fund is an accounting gimmick. The federal government collected payroll taxes (in the form of social security and medicare) and instead of rebating the overpayments annually back to taxpayers for money that was not used to cover benefits, the government kept the extra money and spent it on other programs. The GAS’s are worthless pieces of paper that are collecting “interest” in the form of more GAS’s. There is no real value in the trust funds at all. Once payroll tax income no longer covers receipts the government will have to either; create debt to cover this debt (an accounting change), slash benefits to a level in-line with current revenues or raise some other sort of tax to pay back the debts to the trust funds.
Either of the above scenarios essentially mean that the government created a loophole with which they could raise revenue under the guise of social welfare programs to finance the rest of the budget. In other words, the GAS-type security is a figment of our collective imagination. There is no money there, the $212 billion “spent” this past fiscal year on maintenance of this debt is fake too. Even though the government “paid” it out, no money ever changed hands so the transaction didn’t actually mean anything.
Publicly Held Debt
There are several different classes of debt instruments that the Treasury sells to the public, you can read about them here if you want. For my purposes, the only really important information is the lifespan of each instrument and how much of the public debt is held under each lifespan. About $5.8 trillion of the national debt is publicly held. The interest paid on this money in fiscal year 2008 was $238 billion. This means that in the past 12 months, the taxpayers have paid $238 billion in interest payments to investors that are holding and trading treasuries. A lot of talk goes into geographically where the money goes. This is not particularly important to me because rich people are rich people, no matter their nationality. However, roughly $2.4 trillion of the publicly held debt is financed by international investors. Which means that in the last year we have sent about $98 billion out of the country in interest payments.
The securities that are publicly held are broken down into the following different classes of debt instruments:
$1.1 trillion in Bills with 1 year or less life
$2.5 trillion in Notes with 2 to 10 year life
$1.6 trillion in other securities with variable life
$571 billion in Bonds with 10 to 30 year life
The first 3 classes of securities are the ones that matter are the first 3. These three are impacted more severely by the fluctuation of short-term interest rates than the bonds are because of the long lifetime of bonds. In times like the past few years, with low interest rates, the maintenance of these short-term instruments have been relatively inexpensive (if you can consider roughly $180 billion/year inexpensive). If we enter into a period of higher interest rates due to stronger than usual inflation (or in the worst case scenario, hyper-inflation) the cost will be quite a bit more expensive.
Future Problems
Looking to the future, there are three major problems that face the government regarding debt maintenance. In no particular order they are, the impact of inflation and possible hyper-inflation on interest rates (higher), the good rating that Treasuries currently hold could falter (higher), geopolitical ramifications of being a debtor nation.
First, as I mentioned earlier, if inflation is high, interest rates will be high and more interest will have to be paid to treasury holders. Even a one point change in the interest rates (which are currently low, varying between 1% and 8% depending on the type of treasury) will have a drastic impact on total amount paid out every year. The nightmare scenario that will “never happen again” would be the ridiculous rates of the late 70’s (nearly 20%) if this is the worst case scenario.
Second, if the rating of the US Government is downgraded to junk bond status (which is a possibility if confidence falters in the dollar as the world’s reserve currency), interest rates, regardless of inflationary pressures, must go up in order to entice investors. The greatest likely contribution to this decision would be talk of defaulting on the investments held by the government to save money. This is a possibility, the other possibility would be a liquidation of the government held securities (the accounting change I talked about) switching this debt over to private hands. This would lead to a flooded market of government securities with a lack of buyers to pick them up at any reasonable price to the government.
Thirdly, the country also faces a sort of sovereignty crisis due to our foreign debt.
In the short term (2-5 years), I don’t think there will be any major alarm bells. However, beyond that short term window (and particularly as welfare programs are no longer generating surpluses) the outlook for the stability of the US Government is bleak. The government must address the issue of the trust funds as well as continual budget deficits. In the short term, deficit spending beyond even what we experienced this year will be necessary. But if there is any economic recovery, taxes must be increased and spending must be cut drastically in order to relieve the long term problems of the debt.
Broke and screwed,
mike
Subscribe to:
Posts (Atom)