Apocalypse soon

It doesn't take much perception to realize that something is gravely amiss in the United States of America. The numbers tell the story. Last year the federal deficit was $1.4 trillion. This year the deficit is projected to be $1.5 trillion - a figure that keeps being revised upward. Yesterday a health insurance reform bill was passed in the House, with passage in the Senate expected tomorrow. Despite dubious official estimates that the new law will reduce the deficit, it will almost certainly have the opposite effect; it's pretty hard to insure an extra 30 million people without incurring additional costs.

How large will the deficit grow? If we start from a baseline of about $1.5 trillion a year, which seems to be the "new normal," and add the probable costs of the health care plan, we may be looking at annual deficits of $2 trillion.

Our total national debt is currently about $12.6 trillion. At a rate of $2 trillion a year, we will double that debt in six years. This adds up to a startling $25 trillion in debt, as compared with our current Gross Domestic Product of $14 trillion per year. Even if we assume that GDP grows at a rate of 5% a year - a doubtful assumption given the ongoing recession and stridently anti-growth government policies - our GDP in six years will be no more than $18.7 trillion, well shy of the debt load. In fact, $25 trillion is 133% of $18.7 trillion - which makes our situation in six years comparable to present circumstances in Greece, where the national debt is 123% of GDP, a debt ratio that has thrust that country into financial chaos.

Suppose I'm wrong, and by some miracle the deficit can be held down to "only" $1 trillion a year. (Bear in mind that this figure would have seemed unthinkably large just two years ago, and now it is the very best we can hope for.) In that case, it will take 12 years to get to $25 trillion in debt. And with 5% growth in GDP each and every year, our GDP will grow to $25 trillion a year. In other words, in a best-case scenario, assuming an unrealistically high 5% annual growth rate for twelve uninterrupted years and an unrealistically "low" annual deficit of $1 trillion a year, we still end up with a debt load equaling 100% of our annual output.

Which puts us pretty close to where Great Britain is now.

Is the United States fated to become the next Britain or Greece? If so, we won't be alone. Countries across the Western hemisphere are struggling with out-of-control government budgets and declining revenues. If worries about a China bubble are to be taken seriously, we may be looking at a worldwide collapse.

Meanwhile the governments of the West continue blithely funding pyramid schemes that are already bankrupt. And, in the case of the USA, our enlightened leadership is set to add a huge new pyramid scheme to the mix, at the worst possible time.

It is probably just as well that I think there is an afterlife, because this life looks like it's about to get extremely unpleasant. God help us all.

Comments

[Roger Knights]

Here are a couple of relevant recent articles:

The Sickness of the West by Paul Johnson

Brown's Britain 2015 and even the Queen has fled

A 1943 book (used paperback for $8):

A.J. Nock's Memoirs of a Superfluous Man

[Roger Knights]

Economic pundit Marc Faber, aka "Dr. Doom," an entertaining old-world cynic, calls stimulus injections "The crack of boom." They can rescue stocks and the financial system in the short-term, but that in the long run, five to seven years, "It will end badly," with the collapse of democracy and free-market economics, and a [big] war. Here is a quote from the Wikipedia entry on him:

Faber has been long term bearish about the American economy for a number of years and continues to be so. He concluded his June 2008 newsletter with the following:

The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part.

Here are some other of his quotes:

We are in an extreme casino society and it can become bigger. But one thing is sure: one day it will end badly when this whole financial bubble and asset bubble is deflated very badly.
..........

I don’t think they [governments] will wind it back [their stimulus] voluntarily. I think one stimulus will lead to the next one and to money printing, and so in five to ten years’ time the real crisis will break out when the whole system collapses. That will be The End [emphasized].
---------

Here's a video interview with him

[Zerdini]

The video has been removed.

[Zerdini]

.....due to terms of use violation.

[Larry Boy]

Michael Prescott wrote:

"Even if we assume that GDP grows at a rate of 5% a year - a doubtful assumption given the ongoing recession and stridently anti-growth government policies..."

I'm skeptical that the solution to this crisis would be just letting the market grow freely, if that's your idea here. Some kind of restraints and intervention seem necessary to balance the economy.

[Jeff R]

The Roman Empire eventually collapsed using the method of panem et circenses -- now many modern politicians want to give away more than just bread.

But hey, Big Brother will look out for you now, right...?

[Roger Knights]

Oops --- sorry. You can google for Marc Faber youtube and get lots of hits. Here are links to other interviews he's given, although they aren't as light-hearted and cynical as the one that is now offline. That one made me think up a neat soubriquet for him: The Imp of Zurich.

Long Interview with Mish Shedlock

Medium length, Investment advice only, no apocalyptic talk

Short interview: Once one country defaults, the rest will too

http://myprops.org/content/Marc-Faber-Dollar-will-go-to-value-Zero-in-a-maximum-of-ten-years/

[Sojourner]

I like the title of the thread.

When governments start spending like there's no tomorrow, it makes you wonder sometimes if perhaps they know something we don't.

[Zerdini]

Thanks Roger - very interesting indeed.

[michael duggan]

Human's are the most inventful and resilient species on the planet. I'm not too worried by the economic forecasts you paint MP. In September / October 2008 we nearly witnessed the collpase of Western capitalism, but shrewd manouvres and measures by Obama (and our good leader Gordan Brown) prevented this. I see no reason for panic at this stage, even given your calculations.

[Goonch]

I'm still trying to figure out their agenda here.

Polls show that most Americans oppose this bill. Polls show that more Americans strongly oppose Obama's presidential actions so far than favor them and he continues to steadily decline. Polls show that congress is hated by the vast majority of the US.

So do they believe in what they've passed enough to risk losing a significant amount of seats in November? Or do they think people will suddenly see the light in the next few months before crunch time?

Apparently climate change is the next big thing they're going to 'tackle'. That ought to be a doozy.

Perhaps immigration reform will secure them another 11 million more votes.

I voted for Obama and while I am having serious remorse about doing so, my other real option was still only John McCain. I hate the feeling of picking not who I think will be our next great leader, but who I think will screw up this country the least.

[Paul]

If you think your options are limited Goonch you should take a look at the assortment of overripe fruit on offer to the UK public at the next election.

[dmduncan]

In addition to healthcare, I think every person has a right to a house, 2 pairs of clean clothes for each day of the week, and three nutritious meals a day served in a healthy non smoking environment.

I also think we should replace the concrete in our sidewalks with that spongy foam rubber stuff on playgrounds, in case anyone falls down they will be less likely to get scratched or cut.

[Paul]

You forgot access to broadband.

[Jeff R]

Goonch said:

"Polls show that most Americans oppose this bill. Polls show that more Americans strongly oppose Obama's presidential actions so far than favor them and he continues to steadily decline. Polls show that congress is hated by the vast majority of the US.

So do they believe in what they've passed enough to risk losing a significant amount of seats in November? Or do they think people will suddenly see the light in the next few months before crunch time?"

Goonch also said:

"I hate the feeling of picking not who I think will be our next great leader, but who I think will screw up this country the least."

I think the keyword here is "leader." One reason politicians get away with stuff like this is because they are looked upon as 'leaders' now. We're supposed to have representatives, not leaders. When you have a leader, the leader usually does what he/she wants and the others follow, but when you have a representative, the representative is supposed to do the will people. At some point in time, our elected representatives started to become elected 'leaders', and ever since then, the people haven't really been represented properly.

[Goonch]

I think you and I have separate definitions for what a 'leader' means and entails.

A leader, to me, is simply a person put at the forefront of a group willingly by that group for efficient guidance.

The definition of 'does what he/she wants and the others follow' sounds more like a dictator in a position of leadership.

[Matthew C.]

Great post, I'm in full agreement.

[michael duggan]

Republicans would make their point more clearly against health reform if they didn't resort and endorse such vitriolic and bigoted outbursts.

If health care reform becomes accepted as real progress by mainstream America before Novemeber, this could signal the beginning of the end of the GOP as a mainstream political force, given their total opposition to date.

[michael duggan]

and this link makes difficult reading:

http://www.nytimes.com/2010/03/23/opinion/23herbert.html

[william]

“When governments start spending like there's no tomorrow, it makes you wonder sometimes if perhaps they know something we don't.”

We live in a country that can spend a trillion dollars on its wars for profits and to bail out Wall Street. Notice very few in America liberals and conservatives alike challenge these budgets for our 720 military bases around the world or our wars for profits or our massive industrial military complex that Ike warned us about in 1961. This is imperialism and dear old England found out the cost of their imperialism, as did Rome.

Capitalism like communism must self-destruct. In fact it self destructed in 1929 but regulations and a world war brought it back to life. As those regulations were removed one by one it hastened its self-destruction.

Be grateful that communism, socialism and capitalism must self-destruct as they fail the test of spiritual laws or principles. In my youth it was sold as fear that it was a choice between communism or capitalism now it is capitalism or socialism. This is dualistic thinking and a lack of understanding that we live in a relative phenomenal world not a dualistic world, which is a common phenomenon among the masses.

No economic system will be perfect as we humans are not perfect and these systems will reflect our level of consciousness. Capitalism has its home in survival of the fittest and materialism not in spiritual principles of love and divine intelligence. Capitalism left unchecked will create a society where one per cent of the people will have 99% of the wealth given time. I.e. No middle class, which is the backbone and stabilization of any society.

We are the only industrialized nation without some form of universal health insurance for all of its citizens. This is a national tragedy for a nation. Health insurance companies making mega profits off the sick and needy and refusing coverage is immoral and lacks even the slightest understanding of these spiritual values and laws.

Only a very egotistical and self-centered society would allow health insurance companies to put profits and mega bonuses for its management over the health needs of its citizens. This is how a system can influence the mentality and moral values of a nation and its people. Refusing health insurance to those with pre existing conditions is unknown in other industrialized countries and every one of those industrialized nations ranked higher than America for overall care of its citizens.

Spiritual or cosmic values based on spiritual principles govern the universe not mankind’s idea of wealth generation or materialism. Until we begin to recognize those spiritual and cosmic principles and values we will stumble from one failed economic ideological system to another.

Saying all of that we live in a republic and our elected representatives are only a reflection of the voters. Scary thought but valid from my point of view. We are witness to the decline of a nation and this decline has much to teach any spiritual seeker as all experiences have much to teach any seeker into these mysteries of life.

[sonic]

This post gets me asking odd questions--

I wonder what it would take to turn the situation around?

If the situation continues to worsen--

What happens if the government asks forgiveness on its loans?
Would this signal the end of civilization, or would it herald a new beginning? -- (or is that a false dilemma?)

If the civilization that we have now demands that all the governments of the world bankrupt themselves (and it's kinda like that) then what kind of civilization might exist without that requirement?

Will I be able to handle the experiences the future holds?

[Matthew C.]

William,

You are quite correct, having 720 military bases around the world is absurd and we have no business still occupying Afghanistan or (ever) occupying Iraq.

As for "capitalism", if what is meant is the current system where government regulations and bailouts favor the already wealthy and politically well-connected, you are right it is an abomination. A moral economic system is based on voluntary exchange and charity, not the corporate fascism we see with TARP, the Detroit bailouts, no-bid military contracts, and the hideous health care debacle forcing every citizen to spend $15,000 a year on a bloated prepaid medical scam for services many of them neither want or need.

Real medical "insurance" is now illegal, actual insurance being a plan that pays for extraordinary costs beyond what one can afford. Can you imagine "auto insurance" that paid for gas fill-ups, oil changes, car washes and detail jobs, and the like? That is now the only kind of "health insurance" on the market. Think that will control costs?!

[Robbie]

Im from Britain and things don't really seem much different now then they did before the glocal economic 'crisis', so don't worry!

[GregL]

"We are the only industrialized nation without some form of universal health insurance for all of its citizens. This is a national tragedy for a nation."

I agree. The bill may be unwieldy and wasteful, but the Republicans had the chance for some valid input. They wasted their opportunity on the chance that they could destroy Obama. Maybe it is not too late for some benefial input from the conservative party.

As a person with a "pre-existing condition"
myself, I applaud this effort to stop heaving sick Americans inro the abyss.

[dmduncan]

"Will I be able to handle the experiences the future holds?"

A question everyone should be asking before it's too late to prepare.

There's a feeling in the bone that things are different and that they're going to get bad like we've never seen.

Worried? I am not so worried for me, but I am for others who think from here to the horizon will be nothing but business as usual and who are planning to live their lives that way.

[william]

“I wonder what it would take to turn the situation around?”

That is an interesting and valid question. Now hope is important and may get you elected but from my point of view it takes a change in a national mentality. How do you represent a nation with 300 million people that has so many special interests no matter what you try at least half of them will fight you tooth and nail.

I am not sure our priority needs to be to save a nation maybe we need to be more concerned about the development of our souls. Jesus and Buddha did not seem to be that caught up in patriotism and nationalism or economic ideologies.

From my point of view if you try to create a nation that takes care of all of the people needs you create a society that many people will believe they are entitled to being taken care of and that society will self destruct all on its own no wars are needed.

Private ownership is needed at this stage of human development but also safety nets are needed and maybe a nation needs to find that balance. I had my own consulting business and it was a huge motivator for me and a sense of satisfaction was great. This idea that private ownership cannot exist in a social democracy is never discussed due to our conditioning in dualistic thinking. I.e. capitalism or communism, or capitalism or socialism, capitalism or dictatorship, etc.

If you create a society of Darwinian survival of the fittest as a materialistic ideology this will create a society of haves and have nots. Those haves being individuals or global corps will control congress, white house, supreme court, reelection process, war machine, etc. that society will self destruct all on its own no terrorism is needed or wars. It will get so far fetched in materialism the supreme court will call these global corps persons.

Ideologies based on materialism and greater and greater wealth generation will self-destruct we are living proof of that but we see not.

Maybe a middle path is needed or to awaken to these spiritual values and principles that exist in the universe. The earth appears to be one giant school designed as perfectly imperfect to teach us lessons to move in the direction of Christ consciousness or whatever.

[Leo MacDonald]

Take about coincidence today at my work program i heard in my head. Loretta one of my co-workers that i was going to make a certificate for her and guess what? when i picked out the name because that was the exercise we had to do was pick out a name as long as it's different than our name and then create a certificate for that person. Anyways, i picked out the name and it was Loretta's name on the piece of paper.

[william]

“Take about coincidence today at my work program i heard in my head.”

Coincidence don’t be so sure of that.

[dmduncan]

"This idea that private ownership cannot exist in a social democracy is never discussed due to our conditioning in dualistic thinking. I.e. capitalism or communism, or capitalism or socialism, capitalism or dictatorship, etc."

No, it's not that they can't co-exist. It's more like that once the government has established the principle of taking your stuff or the product of your labor for the "good" of others, then it's sort of like living with a cannibal who is a perfectly nice and reasonable man — so long as times are good and there is beef in the fridge.

With this particular healthcare reform we got, a line has been crossed that is similar to drafting people against their will to serve in war. The compulsory nature of healthcare reform and the taste for compulsion this administration seems to have, and the politicians' blatant disregard for the views of the people who elected them, takes us one step closer to authoritarian government.

If Faber is right (I think he is) and there is some global economic collapse heading our way, then that could also cause the complete shift to authoritarianism in government to control the catastrophe afterwards.

Our freedoms may only creep gradually away until then, or not much at all, but like the military draft, this establishes a precedent that acclimatizes us to the principle which can then be used to do other things when the time comes.

When the beef runs out, you've then no excuse to complain about living with a cannibal.

[william]

“No, it's not that they can't co-exist. It's more like that once the government has established the principle of taking your stuff or the product of your labor for the "good" of others”

Your stuff is not your stuff contrary to what the world teaches you. If you want to live alone on planet and not in a society maybe then you could say it is all your stuff. The health care of the citizens is as important as fire protection and police protection. The millions without decent health care is of no concern to many Americans. This is a prime example of how a Darwinian survival of the fittest economic ideology can affect the mentality of a nation.

As far as that good of others I take it you are not concerned with the good of others. Now many think that charity will take up that slack but of course it does not. A few bake sales may raise a few hundred dollars but that won’t begin to pay for hospital bills for a major illness.

The idea that gov plays no role in providing safety nets and protection whether it be health care or police protection is almost unheard of around the world. In a republic it is the job of gov to provide those basic necessities and regulations to benefit not only the few all of its citizens.

We are all joined in consciousness to deny health care, fire protection, police protection, environmental regulations, national security, etc for its citizens fails to understand the role of gov. Capitalism without any regulations will self destruct as we are witness to that self destruction now as fewer and fewer are being represented by our government.

I guarantee you that you would be hard pressed to find any of those protesting against universal health care that has lost their homes to medical costs or have been denied health insurance for pre existing conditions. It has to hit us in the pocket book before we see the need for such universal coverage.

Be thankful it is self-destructing for otherwise this universe would not be based on spiritual laws but be void of any laws or principles. Sages and mystics have been telling us of our oneness for thousands of years but we pay them little attention so the suffering continues.

Any nation that spends a trillion dollars to bail out its banks and Wall Street and sees no need for health insurance for 37 million of its citizens is in a steep moral state of decline. Anyone that understands systems and spiritual laws is able to see the self-destructive aspects of capitalism, communism and socialism, but as witnessed on nightly news few understand these spiritual principles.

Like wise any nation that thinks health care is a privilege and not in alignment with these spiritual values is doomed to self-destruction. Karma exists for nations as well as individuals.

[Sandy]

Canada has had government funded health care for a long time now. We're OK. Really. Our society didn't fall into collapse when we legalized gay marriage either. Go figure.

[richard]

Nothing matters.
Nothing EVER matters.
And so what if it did?
Every silver lining has a cloud.
Every good deed is punished.
Everything returns to zero.
God is unable to help you.
Entropy rules.

[Mark Alexander (the other Mark)]

On the other hand, we're all immortal and everybody eventually makes it.

Just to keep things in perspective. :-)

[Michael Prescott]

"Canada has had government funded health care for a long time now. We're OK."

Canada is in good fiscal shape, with a relatively low ($56 billion) annual deficit.

Source: tiny.cc/16mzd

Unfortunately, the USA is in very different circumstances, running serial $1.5 trillion deficits, and passing a health care reform bill that is nothing like Canada's and will do little to contain costs.

"Our society didn't fall into collapse when we legalized gay marriage either."

Gay marriage has nothing to do with the national debt. The issue is simply one of numbers. We are borrowing at an unsustainable pace, and the political class shows no inclination to pull in the reins.

It is easy to promise everything to everybody, but eventually the bill must be paid.

[RabbitDawg]

These people (in Congress, The President) are not stupid. Really. I try to believe that they see something I can't see, but deep down inside I fear that Rush is right. The entire idea is to demolish society as we know it, and start all over again.
A new Congress and President may not help, because of the backlash from the left, after the backlash from the right is accomplished this November and in 2012.

Divide and conquer. I hope not, but I'm afraid that it might just work.

[Richard Norris]

The idea that the President, a man who until recently was accused of doing nothing in office, a man who supposedly had no accomplishments, suddenly destroyed the country in one fell swoop makes me laugh no end. We have been eaten alive by big business and international forces for years now. The Democrats in office that began writing the healthcare bill started in a position of weakness by not pushing for the single-payer option first, and weakened it further by keeping the public option from serious discussion. When you see a bill being written behind closed doors by a Democrat whose campaign chest was filled by the insurance companies, who has lobbyists guiding his hands behind those doors as he writes said legislation, chances are good that the legislation will be less than progressive, which is what a majority of Democratic constituents wanted. The forced buy-in was NOT some idea from socialism or communism, it was thought up by lobbyists and a firmly paid-for legislator.
When the real-estate bubble pops, or this China bubble, or the re-inflating housing bubble, it is going to be a huge blow. Greece might look like a bed-time story to us, with Iceland a pleasant alternative. But it won't be our government alone that got us to that point, it will be those rapacious beasts in boardrooms as well.

[Tribal Anarchsit]

In the context of a complex interdependent society I agree with providing a safety net and social services, but only up to a certain point.

A lazy irresponsible person does not have an "inherent right" to the labor of a working class family barely managing to get by.

(Admittingly though, it's usually overpaid CEOs and government workers who are the biggest parasites)

[-Marty]

Everybody needs to read "Ishmael" by Daniel Quinn

http://tinyurl.com/kyf9e

I believe this is what is exactly going on... we are on a broken airplane falling off of a cliff yet we think we are flying...and the ground is coming up fast.

IMHO

[william]

“Everybody needs to read "Ishmael" by Daniel Quinn”

It is a nice story but it fails to take into account the evolution of consciousness process. We are not static Beings but dynamic Beings and as souls a work in process. We do not appear to be advancing that quickly but new souls are coming on to the earth scene on a continual basis. This evolution of consciousness process is easier to see if one can gain some knowledge of these different astral dimensions that as souls we aspire to attain to in our quest for love and divine intelligence.

The law of limited competition presented in this book sounds a lot like a middle path. As an organizational consultant I have seen the profound “negative” consequences of internal competition within an organization. Also as a consultant I have seen the unawareness and sub optimization of a motivational strategy called pay for performance, which is used in our corporations, gov institutions and educational systems.

One would think that with all three listed above failing miserably we as a nation would challenge this failing strategy but pay for performance is something we can buy ($$$$) and does not require influential leadership. Money can influence human motivation but to what end result. Leadership by influencing is exponentially easier than influential leadership. Look at he synonyms for influencing and that may help one understand why it is so often used in most societies.

Pay for performance incentives fail to understand systemic variation as it applies to its influence on human behavior and performance and it creates an internal competition. But we are learning but often the hard way with lots of hard knocks and suffering. As a favorite author of mine stated there are two ways to learn: suffering and the wisdom of others and most of us choose the suffering path.

As a side note the white house years ago presented to this person that gave to the world pay for performance motivational strategies a special award for this contribution to American innovation. Ignorance is found in many places especially in government. It reminds me of the special freedom award given to a person that helped us get involved in the Iraq war. Or the president receiving a Nobel peace prize the same week he was funding the two unwinable and costly wars. Ignorance knows no boundaries.

[Kris]

William

How are we losing Iraq? Troop deaths are down to only accident by now. They just held elections. The country is rebuilding? What more do you want man? The only costs for us with Iraq is now the salary of the soldiers and the training they require.

[Eteponge]

Michael, I updated my Blogspot with a blog post consisting of a list of known Cases where Psychic Information has directly led to the discovery of a body or an arrest of a suspect.

In it, I thank you for bringing the Jackie Poole case to my attention (in an email you wrote to me several years ago, after I asked you if you knew of any such cases).

http://eteponge.blogspot.com/2010/03/cases-where-psychics-information-finds.html

[Michael Prescott]

A new CBO report projects an unprecedented level of deficit spending over the next ten years.

http://www.digitaljournal.com/article/289628

The CBO assumes a lower level of current debt than the sources I relied on, but still puts the debt at 90% of GDP by 2020.

If the current debt is indeed higher than the CBO admits, then the debt will surpass 100% of GDP before long.

Either way, we are building an elevator to nowhere.

[dmduncan]

"Either way, we are building an elevator to nowhere."

Oh it's going somewhere alright. Into the stratosphere, where we all then get ejected without parachutes.

[william]

“How are we losing Iraq?”

Take your next vacation there and find out for yourself. You are drinking the gov, military, and mass media kool aid. This same bias media kept telling us the same things about nam. I find it most interesting that most Americans till believe what their gov tells them about our wars and our state of the nation.

An independent reporter was on NPR radio the other day and told a very different story. 5 million displaced Iraqis 2 million outside the country, many if not most without electricity or only a few hours a day and now a shortage of clean water. All the gov leaders locked up in the green zone if they let them out they are killed by their own people.

Then we have afghan the second most corrupt nation on earth and a tribal mentality to boot. Someone once said that America has wars to learn geography. To think we can create a democracy in that country is insanity at best.

Go do your own research and find out how many Iraqis would like to go back to a dictator gov before our illegal invasion. The rate of serious diseases in that country is at an all time high with all the munitions that have been exploded leaving dangerous residue. Babies’ are being born with serious many terminal illnesses is through the roof in numbers These things the mass media or our gov is not going to tell us ever.

Many of those that ran against the current prime minister were arrested and now the official religion is Islam. It was a war for oil for corp America.

“They just held elections.”

The idea that you can force militarily a country with a tribal mentality into a democracy is a joke at best. Follow the money and find out why violence is down. It was illegal pure and simple but in a country that thinks it has a right to invade other countries at will it is accepted as just part of the culture.

Spending over a trillion dollars that we don’t have and borrowed from communists that we claim communism is inferior to our capitalism is another joke at best. Do you not see the irony in that? Politics and religion two interesting aspects of the human mind.

“Troop deaths are down to only accident by now”

Again drinking the repub and demo kool aid. How much longer are you going to believe what the politicians tell you? I noticed you did not mention the number of injuries many severe. Please take some time and look up what some of those injuries look like with their faces blown or burnt away. Then we will have the posttraumatic stress that will show up for years even decades at a cost we cannot even estimate to the American taxpayers.

As I have stated many times there is much to learn spiritually during the decline of a nation. Our decline is no accident it has karma written all over it. Wealth is as harsh of teacher as poverty, i.e. spiritually 101.

[william]

"Either way, we are building an elevator to nowhere."

Oh that elevator is going somewhere it is called third world status. Anyone with any knowledge of capitalism as an economic system would know that the purer the form of capitalism the quicker the road to third world status. This same third world results applies to pure forms of communism and socialism. All three are destined to fail.

Russia tried a pure form of capitalism in the 90’s and created a few billionaires but little if any middle class now they have tried a new economic approach. Time will tell how it works out. They appear to be unable to find the middle path if it exists.

“A new CBO report projects an unprecedented level of deficit spending over the next ten years.”

I predict at some point we will reach 1000% inflation per year like some South American countries achieved in the 80’s and 90’s. The dollar being the world currency is saving us and our large consumer base is keeping us afloat for now. Americans know how to shop till they drop even if on a credit card.

Anyone that believes we are just in a recession and not a decline of wealth of a nation loves the gov kool aid. Few know that massive borrowing began during the Reagan years after massive tax cuts.

[Michael Prescott]

"Take your next vacation there and find out for yourself.... Go do your own research... Please take some time and look up what some of those injuries look like..."

William, you do realize that Kris is in the military and saw active duty in Iraq, right?

My guess is he doesn't have to look up stuff on the Internet to know what's going on there.

[william]

"William, you do realize that Kris is in the military and saw active duty in Iraq, right?"

There are many military bases in Iraq so his personal experiences may be different than someone that moves around the country seeking out stories to report.

I am basing my words on the website winter soldiers and this independent reporter that presented on NPR and some people that served in Iraq that I know personally one being a sniper that now has severe mental problems with what he did in Iraq.

Some one in the military may have a mind set different than a reporter.

There were many career soldiers that supported the war in Vietnam compared to soldiers drafted that did not support that war. History gives us many examples of soldiers supporting a war in spite of the evidence.

It would be like asking a devoted catholic to comment on the existing problems that the Catholic Church is having now. I.e. expect bias.

Bias can run in many directions including my own. Let me put it this way I doubt that Kris will be taking his vacation in Iraq any time soon to walk down the streets of Iraq.

[william]

· "Article: "Mediums' Experiences with the Afterlife" by Windbridge Director of Research Julie Beischel, PhD, and the Windbridge Certified Research Mediums
· Excerpt: "...discarnates often show things they are doing, such as playing golf, that are usually what they enjoyed while alive..."

For those that love the game of golf it appears we get to keep right on playing on the other side. Maybe those birdies will be easier to obtain over there or not.

[dmduncan]

"Few know that massive borrowing began during the Reagan years after massive tax cuts."

Please, William. Reagan has been dead a while now. He doesn't sign any more executive orders. And he isn't pushing stimulus packages or new government programs, and he isn't borrowing a penny from China right now.

This kind of noticing the other guys mote and not your own plank is exactly the kind of BS passed off as truth that gets and keeps us in trouble.

There are real world consequences to practicing bad ideas, but politician's and yes, WE the people who tolerate it, are so used to thinking the BS that things will happen the way we want them to regardless of what we do, that we don't know up from down anymore. It's all fantasy. It seems politics is merely the art of pretend right now; everything's going to be okay if you just convince enough Americans that everything will be fine.

BS.

[-Marty]

"Wealth is as harsh of teacher as poverty"

Now that's a keeper!
Thanks William for that. I had the Poverty teacher most of my life

"you do realize that Kris is in the military and saw active duty in Iraq, right?""

I have friends and family in Iraq and while I may not be nearly as eloquent a speaker or a master-debater (Ha ha) I can assure you that William is correct...
Iraq was/is no picnic and we have won nothing..... there never was going to be flowers or candy.

we threw so damn much money and so many lives away (ours & theirs) for what?

At the end of the day what did we fucking get? remember when their gas was going to pay for the cost of the war?
Heck we didn't even get their gas..
I am sick and tired of seeing 18-20 yr old amputees and 18-20 yr old wheel chair bound for the rest of their lives, at the local Target or Safeway... the sorrowful eyes telling anyone and everyone who even looks their way to fuck off and die...

Yes there are fewer deaths for our solders
this is because no matter how mutilated or tore up our boys get

we have the technology to keep them alive...

Sorry but politically I tend to be on Williams side usually

I read this blog daily several times a day
but like I said I am not the greatest debater in the world, I would rather watch
Keith and Julio or ZC or William go at it

Michael, IMHO
This is the best blog to follow discussions/debate regarding Consciousness out there

I mean no offense over any political disagreements I simply am tired of seeing young kids crippled for life....sigh.

[william]

"Few know that massive borrowing began during the Reagan years after massive tax cuts."

“Please, William. Reagan has been dead a while now. He doesn't sign any more executive orders. And he isn't pushing stimulus packages or new government programs, and he isn't borrowing a penny from China right now”

You missed my point or I failed to explain my point or both. Reagan economics is a mentality of free trade, tax reductions, and what is good for global corporations is good for all Americans and this mentality has continued on since Reagan was president even in the Clinton years. This mentality of borrowing huge sums of money to offset our decline of wealth is coming home to roost in our society.

Societies like individuals often live in denial and we as a nation are in the depths of that denial. History can give us some classic examples of nations in denial but we seldom learn from history. Personal experiences as an individual or as a nation can be a much better teacher than history lessons.

My main point has been that as a nation many Americans don’t seem to mind spending trillions for our industrial military complex and bailing out wall street; these same Americans get upset if we want to provide tax funds so all Americans can have affordable access to health care insurance. This in my view is that we as a nation have succumbed to materialism. This mode of being in the world will have consequences for us as a nation.

What I find interesting is that many Americans want more of the same that helped to create this need for massive borrowing to maintain our standard of living. This is a classic example of the paradigm effect we want more of the same in spite of the evidence. Any nation that one per cent of the population has more wealth than the bottom 95% and this gap in wealth is increasing every day is in deep trouble of losing its middle class the very foundation of any stable society.

An example of this is CEO pay and bonuses have increased from the 50’s to thirty times a workers pay to now about 300 times a workers pay. This is classic capitalism in action doing its thing very well.

Look at Germany it had to fight in two world wars and be bombed out and suffer greatly before it gave up its war mongering. It had to experience the karma of those wars to understand they needed to change their mode of being in the world. The Germans used to stand in the streets and cheer Hitler on he was their hero.

Actually the universe of oneness has a better plan as the world is becoming more of a oneness in trade, wealth, technology, communication, etc. Another story.

[william]

For all the lovers of dogs and God an interesting very short video.

http://www.youtube.com/watch?v=H17edn_RZoY

“I have friends and family in Iraq and while I may not be nearly as eloquent a speaker or a master-debater (Ha ha) I can assure you that William is correct...”

I know of someone that was a sniper in Iraq and now has severe regrets and profound mental problems as to what he did in Iraq to even civilians from a great distance with his high-powered rifle that blew their heads apart like a watermelon. These are the terrible aspects of war. He may never recover fully and we must think about those families in Iraq that lost loved ones due to his and he claims others sniper activities.

My brother fought in the jungles of Vietnam and my cousin who was an only child died in that war so I have heard enough war stories to last a lifetime. My aunt grieved the rest of her life from her son’s loss. The other day I met a senior like myself and we were discussing the state of our republic and he stated the reason we are in financial trouble now was due to “those kind of people” that protested the Vietnam War. That caught my attention, as I was a Vietnam War protester after only doing two hours of research in the college library on the history of Vietnam.

I asked this elderly gentleman if he knew who the Viet Cong were because I had discovered that 90% of Americans did not know who the Viet Cong were even during the years of that war that cost the Vietnamese over one million lives and we lost over 58,000 lives. He did not know so he was one of those 90%. As I walked away I told him count yourself as one of those 90% and his wife smiled ear to ear. Interesting.

What I find interesting is that anyone that knows about systems and their influence on human behavior and these spiritual or if you prefer cosmic laws and principles must know that communism, socialism, and capitalism must self destruct. The purer the form of each the faster the self destruction.

[-Marty]

"cosmic laws and principles must know that communism, socialism, and capitalism must self destruct. The purer the form of each the faster the self destruction."

Yes or so it would seem, I have read somewhere a quote about Revolution leading to Democracy leading to Complacency leading to a Dictatorship leading back to Revolution
or something to that effect

My Dad was in 'Nam in 68 and 69
he will not talk about it and as far as I know he has never talked about it...
believe me I have tried to get him to talk about it
My cousins Husband is in the Army and currently over in Iraq he is not liking it at all

I have a friend who got called up and he hated it over there as well

a couple of years ago when My Mom died she got to be buried at Fort Richardson (My folks live in Anchorage) because my Dad is a Vietnam Vet. I remember how solemn it was on the base as we followed the Hurst to the cemetery all the base personal would stop whatever they were doing and salute as we drove by (they obviously do this anytime they see a Hurst caravan moving to the base cemetery)
I remember walking around the graves (on subsequent visits) and seeing so many young names...20....22..29..28 it is a terrible price to ask of someone, I remember seeing a young women leaving flowers at a young mans grave. I really do hope we all get to move on in the afterlife and leave this madness behind...

[william]

“I really do hope we all get to move on in the afterlife and leave this madness behind...”

As a former almost atheist and materialist that had experienced a profound physical phenomena that defies all known physics that occurred when I was 18 this gave me a hint there might be more to this world than meets the eye. Religious beliefs did not do it for me even as a child. Much of it made no sense even illogical.

Everyday of my life I see some form of underlying meaning or reality of these phenomena we call reality. How I missed that aspect of life for 49 years until materialism ran its course in my life I know not. Now 20 years later I marvel how others appear to miss these clues of a reality that is always there but oh so hidden.

“Yes or so it would seem, I have read somewhere a quote about Revolution leading to Democracy leading to Complacency leading to a Dictatorship leading back to Revolution
or something to that effect”

“The first stage moves from bondage to spiritual faith. The second from spiritual faith to great courage. The third stage moves from great courage to liberty. The fourth stage moves from liberty to abundance. The fifth stage moves from abundance to selfishness. The sixth stage moves from selfishness to complacency. The seventh stage moves from complacency to apathy. The eighth stage moves from apathy to moral decay. The ninth stage moves from moral decay to dependence. And the tenth and last stage moves from dependence to bondage.” The Decline of a Nation, Kerby Anderson

I suspect that everyone that reads this quote above will have a different opinion as to what stage America is in 2010. Because there is variation in phenomena I see this nation in stages five through nine. If I were forced to pick a stage I would select stage eight knocking at the door very hard of stage nine.

[Marty]

"As a former almost atheist and materialist that had experienced a profound physical phenomena that defies all known physics"

Wow...me to.
two years ago, I then knew (though I suspected) that there underlies something, perhaps everything,beyond the laws of physics....speaking of which, wouldnt this
http://tinyurl.com/yg4v55d
go against the 2nd law of thermodynamics?

Anyway, I am 42 it took me 40 yrs to get over the whole "Love me or I'll burn you" aspect of what I thought spirituality was all about.
if there is no begining, then there must be no end... just endless big bangs inbetween:)

(to steal another quote)
Spiritual people inspire me
Religious people frighten me

are you sure we're not at the 9th stage allready?

[Roger Knights]

Mañana republic

Sappily ever after

Hype springs eternal

Rebunked

Uncle Sham

[Michael Prescott]

Victor Davis Hanson offers another angle on the coming debt crisis - the threat of rising interest rates, which could immediately make the debt load unserviceable:

"We are floating huge amounts of debt at historically cheap interest. One can borrow $11 trillion at the price of what would be borrowing $20 trillion in the old days of interest, as rates hover around 2-4% rather than the old 6-10%. But this is a fool’s delusion; any spike in inflation will almost immediately turn this mortgaging into an unsustainable disaster, sort of like those old 1980s adjustable mortgages at 3% that drew buyers in to purchase enormous homes only to climb within a few years to 15% and insolvency, or like those introductory credit card offers that offer 6 months at 3% only to climb to 19% when you are maxed out."

Source: tiny.cc/7y1v4

[Sam]

speaking of which, wouldnt this
http://tinyurl.com/yg4v55d
go against the 2nd law of thermodynamics?

Not as long as they're receiving energy from an outside source such the sun or other organisms.

[-Marty]

-Thank you Sam
I am curious how long it will take before science figures out how to use this to try and stop the aging process

Not that anyone would want to live on this planet forever...

[Kris]

William

I have been to Iraq. I am going again. You have not.

End of discussion on that subject.

I am sure you will find a new "spiritual" explanation that only you can understand on why we should throw in the towel when we have pretty much won the battle. Or do you think we should quit now when the insurgency is all but gone?

I sometimes wonder what would happen if ole so spiritual people such as yourself actually had to live the consequences of your ideas.

[william]

“are you sure we're not at the 9th stage already?”

No I am not sure of much in this life but it appears from my personal experiences and research data that we are eternal souls and this life is just one small blip in our soul’s journey. My point there is much to learn in when a nation declines in material wealth and moral values often due to selfishness from that wealth.

Now I state appears because once we become certain that we know something from our experiences which are in the realm of appearances and appearances can be so deceiving this can often lead to invalid conditioned cherished beliefs. Only a revelation that has led to a realization can give us certainty of a truth. These cherished beliefs that we are certain are valid beliefs can pretty much shut our minds down to incoming information coming into our consciousness on an on-going basis.

This “certainty” can be an obstacle to our further development to our souls and our nation. This so-called Christian cult that was becoming a terrorist organization busted recently was certain that they were right and needed to do god’s work for god. God or karma or whatever was not working fast enough for them so they decided to tamper. It appears they missed their prince of peace teachings.

“1980s adjustable mortgages at 3% that drew buyers in to purchase enormous homes”

This is the role of regulations. For several years it was possible to get a loan if you were just a warm body and stated an income that no one checked on. I know several people that made six-figure income from approving those loans. It was so easy to purchase a larger home then one can afford during those times. The temptation is great so it takes great restraint to buy a home within one’s income.

Now someone may state it is his or her loss; that is capitalism. But their loss became our loss as we left Wall Street unregulated, insurance companies unregulated, health insurance unregulated; the list is long. We opened up a Pandora’s box with our free trade and deregulations agenda where gov was the problem. My point a pure capitalistic system will not sustain itself. Human greed based in ignorance will overwhelm our level of spiritual values. It is similar to this; if we decided we don’t need to regulate speed limits and traffic lights chaos reigns.

There is a place of private ownership and there is a place for gov regulations and there is a place for gov run institutions and there is a place for not for profits institutions. Finding that balance is no easy task if even possible at this stage of human development. Health care is a basic necessity of life like fire and police protection and needs to be a not for profit approach to offering health care to all of its citizens or else we will have pre existing conditions and then even refusal of health insurance to max profits.

These CEO’s of these health insurance companies are paid huge salaries and bonuses to figure out ways to max profits such as when a person starts a new job if they have pre existing conditions that companies new insurance will not pay for those pre existing conditions. This used to be unheard of but profits over people’s needs are their agenda.

[Michael Prescott]

Robert J. Samuelson weighs in:

"Let's be clear. A 'budget crisis' is not some minor accounting exercise. It's a wrenching political, social and economic upheaval. Large deficits and rising debt -- the accumulation of past deficits -- spook investors, leading to higher interest rates on government loans. The higher rates expand the budget deficit and further unnerve investors. To reverse this calamitous cycle, the government has to cut spending deeply or raise taxes sharply. Lower spending and higher taxes in turn depress the economy and lead to higher unemployment. Not pretty.

"Greece is experiencing such a crisis. Until recently, conventional wisdom held that only developing countries -- managed ineptly -- were candidates for true budget crises. No more. Most wealthy societies with aging populations, including the United States, face big gaps between their spending promises and their tax bases. No one in Congress could be unaware of this."

tiny.cc/hggrc

[william]

United States congress reminds of a teenager that has been given a new credit card and the parents don’t put any regulations on how much the teen can spend and charge on the card.

We are a Republic and congress is a reflection of its voters. If that does not concern Americans nothing will. Check history both parties love to spend others money just like most teens that have never had to experience the labor of working for it.

Oriental philosophy believes that Out of crisis come great opportunities to learn.

As far as our future my view is we are heading straight for second world status. I.e. see link below.

“Many Americans are still burying their heads in the sand, pretending it's the country it always was, but that's not true”. Cassandra James.

http://www.associatedcontent.com/article/1884636/why_the_united_states_will_fall_to.html

Recent report below by information and innovation foundation says it all about our future.

“A report by the Information Technology and Innovation Foundation looked at the progress made over the last decade in the area of innovation. Out of the 40 countries and regions it examined, the U.S. ranked dead last.”

http://www.itif.org/files/2010-restoring-innovation-leadership-testimony.pdf

Our decline of wealth continues being sold as just a recession by our politicans. They know they cannot tell us what is happening in america or they would be voted out of office come next election. Kill the messenger phenomenon. Voters like positive thinkers even in spite of the evidence.

But hey there is always hope. Hope wins elections not the facts. Reagan and Obama were the best communicators about giving Americans hope.

No nation can stay on top of the wealth mountain forever as the top is covered with people that have subccumed to arrogance, over confidence, pride, denial, decline of resources, apathy, etc. History tells us this has often happened maybe even we can state has always has occurred.

Karma would be nonexistent if America was not in a decline. It is a blessing from the universe that nations do decline due to a whole host of factors.

[jimbo]

Micheal,

We went through this once before. Suffice it to say, while I am as pessimistic about the future as anyone (social collapse, peak oil, etc. etc.), the national debt is simply a non-issue for a sovereign currency issuer in a floating exchange rate world.

Here's a link to an Australian economist who can explain it better than I can:

http://bilbo.economicoutlook.net/blog/?p=332

[Michael Prescott]

You're right, Jimbo, and for a while I was intrigued by the theory you cite. But now I just don't buy it. I'm not an economist, and maybe I'll all wet, but it seems to me that as the debt rises to 100% of GDP, interest rates must inevitably rise, which, as Samuelson says, will only make it harder to service the debt, inaugurating a vicious cycle. Even if the debt itself is not enough to trigger a rise in rates, the downgrading of the USA's credit rating would drive rates higher.

I agree that the national debt is not a problem if the economy is growing fast enough to outpace the growth of the debt. But given the rate at which our debt is growing, and given the economic slowdown which shows no sign of ending soon, I am not optimistic that we can grow ourselves out of the debt.

Besides, even if the "debt doesn't matter" economic theory is correct, it's irrelevant politically, since the public will not tolerate the debt going to higher and higher levels. There will be calls to "do something," and with the present mindset in Washington, "something" could end up being a VAT tax, which would depress economic growth still further.

I'm not worried about peak oil, but I do think the debt is a ticking bomb.

[jimbo]

I don't think you ever were intrigued by the "theory" (which is not really a "theory" anyway, just a simple explanation of how the monetary system works), since you never really grasped it in the first place.

I agree that "debt is not a problem if the economy is growing faster" for someplace like a U.S. state, or a country under the Euro. In both cases, they are currency users, who must first obtain money, by taxing or borrowing, before it can spend it. In this they are no different from any corporation, or you or I for that matter. In fact, up until August 15th, 1971 (when Nixon closed the gold window), that was how the U.S. government operated (although the rules were self-imposed limitations that were suspended in wartime).

What I was trying (and failing) to get across before was that the rules are completely different for a currency issuer. So different, in fact, that an attempt by one to operate according to the principles of "sound finance" are almost certainly doomed to failure.

As a matter of operational reality, the U.S. government (and any government operating a fiat currency) must spend money into existance first first BEFORE it "borrows" or taxes it. The mechanics involved are precisely analogous to those of subway tokens, which must first be sold to the public before they can be collected at the turnstiles. Imagine, if you will, if the NY subway grew concerned by it's ominous "token deficit" and resolved to henceforth "balance it's budget" by only issuing new tokens as it collected old ones. The system would soon break down, since anyone who wanted to keep a few extra in his pocket would find it impossible to find them.

The reason I put "borrow" in quotation marks above is that a currency issuer never actually needs to "borrow" it's own currency of issue (why would it?). What looks like a "borrowing" operation is, in fact, an interest rate maintainence operation. If the Treasury didn't sell bonds, interest rates would drop to 0, since the only way to rid the banking system of excess reserves (which pay no interest, at least until last year) is to exchange them for interest bearing securities. All you have to do is observe Japan in the 90s-00s and us now to see this in operation. Due to the Fed's "Quantitative Easing" (in which it buys securities on the market and exchanges them for reserves) there are a vast amount of "excess reserves" in the system, which caused the interest rate to drop to zero, since no bank would bid for reserves when it already had as man y as it needed. Japan did the same thing the in 90s, when rates stayed at 0 despite years of deficits as big or bigger in terms of GDP as we are running now.

And as for the "U.S. Credit rating", that's another absurdity. A credit rating, if it to have any meaning whatsoever, must be a rating of a person's or corporate entity's ability to pay. But a currency issuer makes payments by changing numbers in bank accounts. It doesn't "get money" from anywhere, just as the NY subway doesn't "get" the credits it puts on your metro card from anywhere. Government checks don't bounce. So the whole idea of rating a sovereign's debt in it's own currency (again, we're not talking Argentina, which owed dollars, or Greece, which owes Euros) is ridiculous. Again, Japan is an example: Japan's debt was rated lower than Botswana's - and Japan went right on issuing Trillions of Yen debt at essentially 0%.

[-Marty]

Jimbo

I am impressed, I certainly hope you're right!
I have wondered why no one ever seems to "Call us" on our "Debt"...

The Repubs give the impression, that we are knocking daily on the door of foreign banks, hat in hand, asking for loans...

maybe this is the impression that needs to be out there lest the value of our "Tokens" drop to next to nothing.

[Michael Prescott]

"Government checks don't bounce."

Only because the government can inflate the currency to near-worthless levels. Creditors get paid all right, but they get paid in debased dollars.

"But a currency issuer makes payments by changing numbers in bank accounts."

But if those numbers don't reflect real value, then those payments are meaningless. The government could pay off the national debt tomorrow, but only by rendering the greenback essentially worthless.

"as for the 'U.S. Credit rating', that's another absurdity."

Most economists seem to disagree, since there is a lot of concern about a possible downgrade of the USA's credit rating.

Here's a typical report:

tiny.cc/yka1k

Moody's, which presumably knows something about credit ratings, has issued the same warning:

tiny.cc/7u1ce

If the people who keep track of these things for a living are worried, I'm worried too.

[william]

congress should love jimbo and his theory.

Marty: I got this bridge to sell you real cheap and as long as you pay me in euros you can have a 10% discount.

dont be too impressed marty if we print enough money it wont be worth the paper it is printed on.

voodo economics has been around forever maybe even for the hunters and gathers.

I believe an economist and their theories about as much as I believe a fundamentalist relgious person or a politican.

we in america are going through a massive decline of wealth of a nation; the evidence is all around us. bet rome hid its head in the sand and called their decline a recession like we are doing.

now dear old england still thinks they have a high standard of living even though only greece is lower in their standard of living.

that is the power of nationalism. another one of those ism's in action.

[jimbo]

Hmmm, would that be the same Moody's that rated baskets of half-million dollar mortgages to people making $15,000 a year at Starbucks as "AAA"?

Oh, yeah, they know ratings.

Did you read what I wrote? They downgraded Japan. All the same predictions of apocalypse were made. And Japan made all payments, and just kept on issuing debt at 0% like nothing had happened - because nothing had.

Oh, and in all those years that Japan was spending like a drunken sailor, racking up similar size deficits to us now - they were suffering from continuous deflation.

But of course, Japan has nothing to do with us, because, well - because!

Those who don't understand the monetary system (and I'm afraid that includes 99% of the economic profession) are doomed to talk nonsense.

I'll link to the following sites that you can use to educate yourself. I realize you won't read them, but some of your readers might find them helpful:

http://moslereconomics.com/
http://bilbo.economicoutlook.net/blog/
http://neweconomicperspectives.blogspot.com/

There are open comment threads on all of them, and most of the authors will eagerly answer any questions you might have.

[-Marty]

""I believe an economist and their theories about as much as I believe a fundamentalist relgious person or a politican.""

Ha! good point

""I'm afraid that includes 99% of the economic profession are doomed to talk nonsense""

William and Jimbo agree
at least regarding most Economists and their theorys

""if we print enough money it wont be worth the paper it is printed on.""

You may be right William,
I remember reading about Germanys wheel barrows and loaves of bread..
I have always wondered how we were able to print our own money and then "Borrow it"??

I simply am hoping for the best
yet I expect the worst

My wife is Native American and a practicing Shamen (Lakota tradition)
she believes that if you think about something enough you can "manifest it" so

in other words thinking negatively or positivly can and will have an effect on things

I am trying to stay *cough*positive about this *Cough* even though its waaaay out of my sphere of control...:)

[Michael Prescott]

"Those who don't understand the monetary system (and I'm afraid that includes 99% of the economic profession) are doomed to talk nonsense."

I'm afraid I'm going to have to align myself with 99% of the economics profession. Sorry.

Yes, I trust Moody's and other professional rating services to have some idea what they're talking about. They're not infallible, but when they warn us of a coming catastrophe, we should listen.

Wasn't Weimar Germany a sovereign currency issuer? They ended up with hyperinflation.

Incidentally, I don't think Japan offers very good support for your thesis, because Japan's economy has been in very bad shape for two decades now. They may not have suffered a budget crisis, but they have seen their growth rate drop so low that they now talk of "the lost decades."

I don't pretend to understand the more technical aspects of the issue in question, but I do understand that when you characterize government spending as mere numbers on a computer spreadsheet which can be manipulated at will without consequences, you're missing the all-important point that those numbers must be backed by real-world value.

Or so it seems to me - and to 99% of economists, apparently. I hope I'm wrong and you're right, because we are clearly not going to reduce the deficit anytime soon.

[Michael Prescott]

I looked at the three links jimbo provided in his last comment. In the third link, there's an article about Social Security, which includes these words:

"Social Security is a federal government program. Government pays Social Security benefits by crediting bank accounts. It can continue to do this even if payroll taxes fall to zero. The payment is an entry on the balance sheet of the Social Security recipient's bank."

Did you get that? Social Security will not be insolvent even if payroll taxes fall to zero. No taxes are needed! The government can just "credit bank accounts."

One reader responds intelligently to this claim:

"So let's repeal every bit of all FICA taxes since they seem totally unnecessary to paying out benefits.

"Even if Wall St. takes it over and loses every dime, the government can still credit the bank accounts.

"And while we are at it, why bother with the income tax? I assume all government employees' payroll can just be 'credited'.

"And interest on those treasury bonds can just be 'credited' to whatever bank account.

"Better yet, just credit everyone a $500k stimulus check to pay off their mortgage or buy a new house...

"Sorry to be so impish, but you really deserve it for failing to properly address the issue - there is no free lunch, and the 'trust fund' is going negative, and the revenues have to come from somewhere, and I don't think Zimbabwe is a good alternative."

The blogger responds by saying that he does indeed think we should abolish payroll taxes and probably the income tax too, but that a tax on living space (in square footage) should be substituted. Why do we need taxes at all, when the government can just "credit accounts"? The blogger says we need taxes to "drive money." I don't know what that means, but I always thought we needed taxes to, um, pay for government services.

Silly me.

This rather odd approach to finance goes by the name of Modern Monetary Theory. (So I was right in calling it a theory, wasn't I?) It is also known as chartalism. Google either of these terms, and you can find a variety of articles supporting and criticizing the theory.

[william]

“Did you get that? Social Security will not be insolvent even if payroll taxes fall to zero. No taxes are needed! The government can just "credit bank accounts."
“One reader responds intelligently to this claim:”
"So let's repeal every bit of all FICA taxes since they seem totally unnecessary to paying out benefits.
"Even if Wall St. takes it over and loses every dime, the government can still credit the bank accounts.
"And while we are at it, why bother with the income tax? I assume all government employees' payroll can just be 'credited'.
"And interest on those treasury bonds can just be 'credited' to whatever bank account.
"Better yet, just credit everyone a $500k stimulus check to pay off their mortgage or buy a new house...
I look forward to the response from jimbo on these comments. If I have learned nothing else in life it is to try to keep an open mind no matter how foolish the information coming to us appears to be. History gives us many examples of the rejection of new innovative ideas that later proved to be very beneficial to the world.

I put economists, ultra skeptics, religious fundamentalists, atheists, Wall Street, congress, white house, supreme court, lawyers, banks, and politicians in the same suspect basket. In fact I put everyone in the same suspect basket as to his or her believability except you and I and I am not so sure about you. Sorry Bill Crosby tape done years ago to prove a point.

I await my stimulus check in the mail from congress and while at it congress just increase the size of my social security check by two fold and credit it any bank account.

[jimbo]

Taxes "drive money" in the same way that turnstiles "drive subway tokens". People buy tokens not because they want them, but because they want to ride the subway and if they don't deposit one at the turnstile the transit cops will arrest them. But the Transit Authority doesn't collect them because it needs them, either - it collects them so that people will have an incentive to buy them, and provide the transit authority with the resources it needs to maintain the subway.

Yes, taxes are necessary - but not because the Federal government needs "revenue". It needs to tax in order to give value to it's currency, so that people will accept it return for the real resources the government wants to buy. After all, anyone can issue currency - the trick is getting people to accept it. Declaring that people will have to pay, on penalty of prison, a certain amount of the currency you issue is a very good trick.

So the point is: it's not revenue that constrains governments. There does not need to be a one-to-one relationship between how much is spent and how much is taken in, any more than there has to be one token collected at the turnstile for every one sold. What counts, as you have noted, is inflation.

A currency issuer uses taxes to manage the value of the currency. If it doesn't collect (or finds itself unable, due to a breakdown of government authority to collect) enough, the value will go down. But what happens when demand for the currency goes up? What if, as has happened in the last few years, people would rather hold on to currency (or money in bank accounts) than spend it?

The only source for U.S. dollars is U.S. government spending. If there is a net desire on the part of the non-government sector to hold some, the only way it can happen is for the U.S. government to tax less than it spends. If there is a demand for savings, there is no danger of inflation since the demand still exceeds the supply.

Are you with me so far?

Ultimately, the "price" of the currency is determined by what

[jimbo]

Oops. Ignore that last fragment - it was a left over edit. I've got to start using the "preview" feature...

[jimbo]

"Incidentally, I don't think Japan offers very good support for your thesis, because Japan's economy has been in very bad shape for two decades now."

Yes, it's economy has been in bad shape. But My thesis is not that they managed their economy well (they didn't) but that the deficit spending that they did (and continue to do) showed in rather dramatic fashion that there is no solvency risk for a sovereign currency issuer, nor do such deficits have any effect on the interest rates such governments pay.

The story of Japan in the 90's is the same story that played out here in the 30's and is depressingly set to replay over the next few years. The Japanese government would offer limited "stimulus packages" or infrastructure spending. When they started to work, fears about the non-existant effects of deficits would resurface and attempts would be made to return to "fiscal responsibility". This would cause the economy to tank again. Lather, rinse, repeat. They only really started to recover when their exports really picked up again in the mid-2000s and they were able to "export" their savings to other countries.

In the U.S. in the 30s, FDR came into office promising to balance the budget. Fortunately, he had no principles and he was abel to be convinced to run modest deficits, which were enough to create a large recovery (he also went off the domestic gold standard, which made that possible.) However, once he was safely reelected, he decided to balance the budget again in 1937 (the fact that the SS tax started that year, several years before any benefits would be paid out, didn't help.) The result? Another recession, almost as bad as the first, that almost wiped out all the gains that had been made. The economy didn't really recover until the war made massive deficits politically feasible.

And about those WWII deficits: the U.S. government run deficits of over 25% of GDP for 4 years running. What happened to interest rates at that time, you ask? They stayed at 1.25%, where the Fed set them in December 1941. Inflation was a problem, since the economy was running up against capacity restraints. It was solved by a combination of methods: taxes were raised (although not nearly enough to "pay for the war"), there were wage and price controls imposed, and "War bond" drives gave workers something to do with the money they were making that they couldn't spend on consumer goods. Neither the bonds sales nor the taxes "financed" the war, at least not directly. Both simply reduced consumer spending, "making room" for the massive purchases by the government.

[Michael Prescott]

"Yes, taxes are necessary - but not because the Federal government needs 'revenue'. It needs to tax in order to give value to its currency, so that people will accept it return for the real resources the government wants to buy. After all, anyone can issue currency - the trick is getting people to accept it. Declaring that people will have to pay, on penalty of prison, a certain amount of the currency you issue is a very good trick."

I'm afraid I just don't see it. If this theory were true, we could reduce taxes to a token amount (no pun intended!), just enough to "drive money." Maybe a 1% flat tax on income. This wouldn't generate much revenue, but supposedly taxes aren't needed for revenue.

As I see it, two things give currency value: 1) the perception that there is real value backing the currency (formerly gold, now the total assets of the government and, by extension, of the nation), and 2) a general agreement to accept the currency as legal tender.

It's true that anyone can issue currency. A store can issue coupons that serve as a kind of currency; collect enough coupons and you can redeem them for merchandise. In that case, the coupons are backed by the value of the merchandise offered by the store, and are accepted as "currency" by mutual agreement of the store owner and the customers. They are not accepted in other venues, so they have a limited role as currency. The only distinction of legal tender is that it's accepted pretty much everywhere -- it's rare to find a store saying, "We don't take cash," though some company stores in the old days used to maintain this policy; they only took company scrip.

Now suppose that the store offering the coupons decides it's such a good promotional gimmick, they're going to distribute millions of coupons. After all, if hundreds of coupons help boost sales, millions will work wonders! So they flood the market with coupons. Result: every Tom, Dick, and Harry flocks to the store demanding free merchandise. Suddenly the strategy doesn't look so good. The store is giving away all its inventory, and getting nothing but coupons in return. Eventually the shelves are bare. The coupons are now worthless (backed by no value) and the store is out of business.

Now, you will probably say the analogy fails because the store doesn't buy its inventory with coupons, and if the store did pay for its inventory with coupons, then there would be no problem. But is that really true? Even if the store could replenish its inventory by paying its suppliers in coupons, the suppliers would quickly realize that the store is printing massively more coupons than it used to, so each individual coupon is worth much less than it was before. The suppliers will demand many more coupons for the same goods. The store will have to print and distribute more coupons to pay for merchandise. Eventually the coupons will be so debased that they are worthless in almost any quantity.

The trouble with the subway token analogy is that there is a potentially unlimited number of subway rides. A better analogy, I think, would involve tokens that can be exchanged for goods that exist in limited supply, as in the coupon example.

Another problem with the subway token analogy is that passengers pay for the tokens with legal tender. The subway is not just collecting tokens; it's collecting the cash that riders put into the machines to buy the tokens. And the cash is what funds the system. If the subway were giving away tokens for free, there would be no revenue and the system wouldn't work. It works because the tokens are really just placeholders for cash, and the cash is backed by real-world values.

I think if you separate currency from the real-world value that backs it, you're asking for trouble. It's not just numbers in a spreadsheet that can be credited or debited to accounts. The numbers must have some relationship to actual, tangible wealth.

[william]

“After all, anyone can issue currency - the trick is getting people to accept it.”

That is a trick indeed especially if one prints money that will purchase less and less with that printed money. Being the largest consumer nation in the world with a free trade policy and the dollar as the world currency we Americans have been buffeted from massive inflation at least for a time.

We cannot compare the massive spending and the after effects of that spending of World War II with today’s reality as after the war we were the only industrialized nation not bombed to bits. We were so to speak the only ball game in town and people came to us for their needs. We must look deeply into what creates the wealth of a nation and it is not to my knowledge printed and borrowed money; it is quality and economical goods and services.

Japan made a lot of foolish mistakes when they were buying up the world’s corporations paying huge prices and they paid the price. Wealth breeds arrogance and arrogance breeds’ self-destruction.

But if I have learned nothing else in this life be very careful of what one rejects so I will read your words and try my best to see your point. Apparently it goes against everything this materialistic world has taught me but that does not make it wrong. It looks like and feels like a free lunch and they are very hard if not impossible to find.

[jimbo]

The Subway is exchanging tokens for a commodity. Instead of exchanging them for stuff like steel, locomotives, etc. it exchanges them for a generally accepted commodity - cash.

The U.S. government, on the other hand, has the advantage of being able to directly create cash. So it exchanges it directly for commodities like labor, tanks, aircraft carriers, etc. Nice work if you can get it - but to get it, you need an IRS at the ready to give value to this intrinsically worthless stuff, with some men with guns to back them up.

Here's a true story: the British Empire, when it conquered some African countries, wanted to use the native populations to do mining, etc. (After all, empires are expensive.) Being "civilized", they didn't want simply enslave them; they wanted to "employ" them.

There was a problem, though: when the British offered to pay the natives, the natives weren't interested in taking their money. They lived in self-sufficient villages - what did they need with British money?

So what did the Brits do? Simple - they required each native household to pay a tax. This tax, of course, was only payable in British money. The natives had to pay the tax or faces the wrath of the Brits, and the only way they could get it was by working "voluntarily" on British projects.

Of course, once the money is in circulation, it acquires other uses - it can be used for transactions between individuals. And the more it's used in that way, the better off the government issuing it is - since it creates more demand for it.

I think part of your problem (and the problem of a lot of people I talk to about this) is that you have a psychological block - your mind rebels against the thought that money (the stuff that, if you're like most of us, you spend most of your waking life trying to get, or spend, or save, or what have you) is just "numbers on a spreadsheet" It's got to be more than that, it just has to! Which is why we still pretend we're on the gold standard, even though we haven't been for almost my entire life. So can understand the logic of subway tokens, but somehow there has to be something "real" behind it all.

[jimbo]

Another thing: your coupon analogy breaks down because you posit a store that just issues "millions" of coupons, willy nilly.

But I'm not saying the government can just cut taxes to nothing and spend like there's no tommorrow. There are limits. But we are nowhere near those limits.

If there is a (net) demand by the non-government sector for savings, the only way it can be filled is for the government to run a deficit. Note that I said "net" - since all financial assets sum to 0 (your asset is someone else's debt), if more people want to hold money than people willing to are willing to go into debt, there is a generally shortage of savings.

Since savings can't be manufactured, the only way to make the ends meet is for the government to step in and provide the savings. By definition, this is money that is NOT being used to purchase anything in the economy. It is not adding purchasing power, and so it is not bidding up prices.

If the government printed up $100 Billion, cash, and gave it to you and you trucked it out to a warehouse and stored it there, would it have any effect on the economy (except maybe giving some warehouse guards a job?) No - no one would notice it.

The situation is exactly the same if it gives you check for $100 Billion. If you deposited it in your bank account, your bank would in turn deposit it in their account at the Fed, and the Fed would adjust the numbers upward. Until you actually spent it, nothing else would happen.

[jimbo]

OK, one more, then I'm done for the day.

It looks like and feels like a free lunch and they are very hard if not impossible to find.

It's not a free lunch. The real wealth of the economy is the real stuff that it can produce. You need to separate in your mind the real wealth from the merely financial.

If a country has 15-20% of it's workers sitting around doing nothing, and many of it's factories sitting idle, it is not producing as much as it can. If the government creates money out of thin air to put them to work doing something useful, it is only adding to the real wealth of the nation, not subtracting from it.

You still need taxes, and you still need to spend government money wisely (spending on pointless wars, even if does put people to work, wastes real resources). A currency issuer still faces constraints. But they are not financial constraints. They are not the same constraints that you or I face, who need to get money from someone else before we can spend it. They are the constraints of the real economy that is willing to exchange it's good and services for the money the sovereign creates.

[william]

“It's not a free lunch. The real wealth of the economy is the real stuff that it can produce. You need to separate in your mind the real wealth from the merely financial.”

Communication using symbols such as words is so interesting. This is exactly what I thought I stated about producing quality goods and services that the world desires.

“We must look deeply into what creates the wealth of a nation and it is not to my knowledge printed and borrowed money; it is quality and economical goods and services.”

What part of creates the wealth of a nation by its quality and economical goods and services was missing? I left out the word producing maybe that was the miscommunication. I assumed people world know I meant produce quality and economical goods and services. The old assume thing again. I taught “own error training” and 80% of errors that lead to defects and miscommunication are assumption errors. Ouch on my part.

The appearance of a free lunch is merely financial, which Wall Street does and does not produce a thing except service and one begins to see that service has become a very destructive service to the nation overcome by greed which is the hallmark in history of a wealthy nation. Now they have a lot of help from those willing to invest in these hedge funds etc.

Very little comes into our experiences uninvited even Wall Street greed, congress, and the Supreme Court whether it is at an individual, national or world level. Materialism has so become part of the American psychic that global corporations are not considered persons and money is the same as free speech. And we consider ourselves a Christian nation what happened there????????

[dmduncan]

I'm with you MP. Jimbo's "don't worry be happy" approach reminds me of that guy who, before he was sent to prison, wrote a book and gave seminars on how to legally NOT pay your taxes.

[donalns]

this is a test

[jimbo]

I don't know why I keep returning to this, except for the frustration: once you understand this stuff it's all so bleeding obvious, but explaining it is difficult because people's preconceptions get in the way - and I'm not good enough at explaining, at least in the written medium, to counteract them. I don't usually have as many problems face-to-face, because I can immediately respond to people's objections and walk them through ideas step by step, but in blog-type discussions you are at the mercy of other people's willingness to read what you wrote. (Interestingly, I find the same problems in discussing the paranormal.)

It's not a "don't worry, be happy" approach; there's plenty to worry about, but most of those things would be the result of deficit phobia that will prevent us from doing the things that need doing and create needless misery because of phantom fears.

So, I will leave you all with some predictions: the economy will eventually start to recover. Employment will inch up, not very strongly but enough to get things moving again. As it does, the defict will go down, and it will eventually fade from public consciousness (as it did in the 80's, in the 90's, and in the 00's...). The scary predictions about national bankruptcy and hyperinflation will remain, pushed out a few more years (as they always are). Unemployment and underemployment will remain high, since we have convinced ourselves that we "can't afford" to have people do productive things and instead they must remain idle. Doom will always be around the corner, but will never seem to quite arrive.

[Michael Prescott]

Another article warning of a coming debt catastrophe:

tiny.cc/h7neh

[jimbo]

More gibberish. They conflate the U.S., which exists in a floating exchange rate regime, with countries that were either trying to maintain a peg (Sweden) or don't have their own currencies (Ireland) The explanation for Japan - that it's debt is owed internally - doesn't really wash either: if you own a debt, why should you car who you owe it to? What does it matter, functionally? The reason Japan has been able to get away with what all the conventional economic wisdom insists it shouldn't be able to get away with is simply because it issues it's own currency and does not maintain convertibility to any other currency. As such, there is no functional difference between it's currency and it's debt (they are both unbacked liabilities of the state).

Put it this way: in my subway example, the subway can issue all the tokens it wants, and even do things like give free rides to schoolchildren, because tokens are a one-way transaction: you pay (say) 2 dollars at the window for the token, but the subway is under no obligation to buy it back for any amount. It promises to take it at the turnstile, but that's it. It can't face "token insolvancy", because it can always stamp out more if people want to buy them or if it needs to fulfill any obligation to give them away (of course, if it issues too many free tokens, it might have trouble selling them for $2, but that's an inflation problem, not a solvency issue)

But if the subway suddenly announced that it would buy back it's tokens for the same $2 you paid for them, it would have to maintain enough reserves of cash to meet redemptions. It would face a "run on the token" if there was a sense that its reserves were inadequate. In those circumstances, it might have trouble keeping it's promises to the schoolkids, since it would have to raise money to cover the tokens it issued. It would face a solvency issue.

The point is not that a country can run any deficit it wants, under any circumstances, with no ill effects. Under circumstances of an overheated economy, with full resource utilization causing inflationary pressures, a surplus to withdraw purchasing power from the economy is in order. But in no case can a currency issuer in a floating rate regime face insolvency (i.e., the inability to pay it's debts) in it's own currency. It is simply nonsensical once you understand the mechanics involved.

(And I said I was going away. You made a liar of me...)

[Michael Prescott]

"But in no case can a currency issuer in a floating rate regime face insolvency (i.e., the inability to pay it's debts) in it's own currency."

I understand that, but I think when people talk about insolvency, what they mean is that the government will not be able to cover the interest payments on the debt without recklessly debasing the currency.

So yes, the government will always be able to print more money to get itself out of debt, but in the process the money itself will become increasingly worthless.

And as the money is debased, interest rates will rise - leading to even more monetization of the debt - which means interest rates will rise still higher - leading to still more monetization ... in a vicious spiral.

Isn't this basically what happened in Weimar Germany? Why can't it happen here?

[william]

“Doom will always be around the corner, but will never seem to quite arrive.”

This is denial in action. History tells us that every country that was going through a decline of wealth stayed in denial and many of those countries reached third world status. The indicators are all around us but we refuse to see them for a variety of reasons. When one per cent of our nation’s population is showing signs of obtaining 99% of the wealth of that nation this is the very essence of third world status.

Come and visit Scottsdale az to see the future of America with its gated communities with cheap labors doing the yard work and housework during the day. Better yet visit some countries in South America to see the future of this nation.

As far as the wealth of this nation what did it get us? Our prisons are overflowing, our elementary and secondary educational systems are in shambles and the past presidents including this one are using a pay for performance approach based in ignorance not in an understanding of variation as it applies to the relative phenomenal world. I.e. systemic causes of variation.

We spend trillions on our wars for profits for the few, we have a meltdown of deregulated wall street and banks to big to fail, the infrastructure of America is crumbling, we have political polarization in wash, we have congress, white house, media, and now the supreme court in the pockets of corp America, open borders not out of compassion but for cheap labor, etc.

Now the good news we have the opportunity to learn as a nation these spiritual lessons in life that all is oneness and the universe is a cosmic mirror, as wealth can be as harsh of teacher as poverty.

With wealth often comes arrogance and with arrogance it inhibits our ability to respond in a valid way. Our self-importance creates a denial of reality. We see not or hear not.

[jimbo]

Words like "insolvency" and "default" and "bankruptcy" have specific meanings, and under the normal meaning of the words none are possible for a currency issuer.

"Isn't this basically what happened in Weimar Germany? Why can't it happen here? "

No, it isn't what happened to Weimar. Bill Michell has a good explanation of the Weimar inflation, as well as the more recent Zimbabwe episode, here:

http://bilbo.economicoutlook.net/blog/?p=3773

A quote:

"If we think about the Weimar Republic for a moment, the problems for them began long before the hyperinflation, which really went off in 1923. Following World War I the reparations payments required under the Versailles Treaty squeezed the German government so badly that they eventually defaulted. The Treaty was just a bloody-minded pay-back by the victors of the war and brought so much subsequent grief to the World in the 1939-1945 War that you wonder what was going on in their heads.

Anyway, for historians, you will recall that the French and Belgian armies then retaliated after the German default and took over the industrial area of the Ruhr – Germany’s mining and manufacturing heartland. The Germans, in turn, stopped work and production ground to a halt. The Germans kept paying the workers in local currency despite limited production being possible and you can imagine that nominal demand quickly started to rise relative to real output which was grinding to a halt. The crunch came when the export trade stalled and the only way the German Government could keep paying their treaty obligations etc was to keep spending. The inflation followed."

In other words, it was a massive supply shock. Real output went down, but demand stayed the same. Today, we are suffering from the opposite: a demand shock, in which people's ability and willingness to buy the output of our economy is severely compromised. Under those conditions, a government deficit is the only way to prevent massive economic contraction.