Politicians are in office for only a short time, but long enough to create or
exacerbate big problems they can pass on to their successors. But then perhaps
that's a blessing. If they were in office much longer, think of the enormity
of the problems they could create!
Ed
----- Original Message -----
From: Keith Hudson
To: RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION ; Ed Weick
Sent: Wednesday, October 19, 2011 9:30 AM
Subject: Re: [Futurework] From today's Daily Reckoning
Ed,
If you look at the first graph you'll notice a slight kink halfway up the
slope (at x-axis $5,500b and y-axis at about 2001). This kink could have been
the start of a plateau and then a descent of the debt. This was when the
productivity effect of computers in industry and commerce over the previous 20
years was just beginning to kick in powerfully and when, for the first time
since the end of WWII, there were three years of budget surpluses! Greenspan
persuaded Congress and Clinton -- and they agreed -- that part of this surplus
(and it was a growing one at the time) should be set against the national debt.
He reckoned that the national debt could have been painlessly reduced to zero
well within 10-15 years. But Bush and Cheney would have none of it -- debt
didn't matter, as Galland relates below -- and so, what with the Iraq invasion,
a vast extension of bureaucracy and massive handouts to politicians'
constituencies at that time, the national debt resumed its previous rate of
rise.
The Occupy Wall Street people ought also to be sending a few hundred to
Bush's ranch in Texas and Cheney's pad (wherever it is) to demonstrate the
blame for the present mess in a more balanced way.
Keith
At 13:10 19/10/2011, you wrote:
Monetary Madness - Is the US Monetary System on the Verge of Collapse?
David Galland
The US monetary system - and by extension, that of much of the developed
world - may very well be on the verge of collapse. Falling back on metaphor,
while the world's many financial experts and economists sit around arguing
about the direction of the ship of state, most are missing the point that the
ship has already hit an iceberg and is taking on water fast.
Yet if you were to raise your hand to ask 99% of the financial
intelligentsia whether we might be on the verge of a failure of the
dollar-based world monetary system, the response would be thinly veiled
derision. Because, as we all know, such a thing is unimaginable!
Think again.
Honestly describing the current monetary system of the United States in
just a few words, you could do far worse than stating that it is "money from
nothing, cash ex nihilo."
That's because for the last 40 years - since Nixon canceled the dollar's
gold convertibility in 1971 - the global monetary system has been based on
nothing more tangible than politicians' promises not to print too much.
Unconstrained, the politicians used the gift of being able to create money
out of nothing to launch a parade of politically popular programs, each
employing fresh brigades of bureaucrats, with no regard to affordability.
Former VP Cheney, who fashions himself a fiscal conservative, let the mask
drop when, in 2002, he stated that "Reagan proved deficits don't matter."
Those words were echoed just a few weeks ago, when both former Fed Chairman
Alan Greenspan and Obama economic advisor Larry Summers, in separate
interviews, said almost the same, paraphrased as, "There is no chance of the US
defaulting on its bonds, not when our government can borrow dollars and print
new dollars to meet any future obligations."
Of course, Greenspan and Summers were referring to an overt default - of
just not paying - and not to a covert default engineered by inflation.
Unfortunately, like virtually all of the power elite, both miss the point that
the mountain of debt that has been heaped up since 1971 is fast reaching the
point of collapsing like a too- big tailings pile and taking the monetary
system down with it.
Importantly, the debt shown in this chart whistles past the government's
unfunded liabilities, in particular for the Social Security and Medicare
systems. Adding those would quintuple the US government's acknowledged
obligations - to over $60 trillion.
Given the role the US dollar plays as the world's de facto reserve currency
- with all major commodities priced in dollars, and dollars forming the bulk of
reserves held by foreign central banks - the dismal shape of the US monetary
system spells trouble for the global monetary system.
Making matters worse, following the lead of the United States, governments
around the world long ago adopted similar fiat monetary systems. You can see
the deficit contagion in this next chart. It is worth noting that the dire
condition of the United States now leaves it in the same muddy wallow as
Europe's desperate PIIGS.
In a recent article in The Telegraph, Ambrose Evans-Pritchard referenced a
paper out of the BIS that paints the picture using appropriately stark terms.
Stephen Cecchetti and his team at the Bank for International Settlements
have written the definitive paper rebutting the pied pipers of ever-escalating
credit.
"The debt problems facing advanced economies are even worse than we
thought."
The basic facts are that combined debt in the rich club has risen from
165pc of GDP thirty years ago to 310pc today, led by Japan at 456pc and
Portugal at 363pc.
"Debt is rising to points that are above anything we have seen, except
during major wars. Public debt ratios are currently on an explosive path in a
number of countries. These countries will need to implement drastic policy
changes. Stabilization might not be enough."
Viewing the situation from another perspective, we turn to the work of
Carmen Reinhart and Ken Rogoff, who studied the factors contributing to 29 past
sovereign defaults. They found that default or debt restructuring occurred, on
average, when external debt reached 73% of gross national product (GNP) and
239% of exports. Using the Reinhart/Rogoff findings, Casey Research Chief
Economist Bud Conrad prepared the following chart showing that the US
government is already far along on the path to bankruptcy.
It's hard to argue against the contention that the situation is, to be
polite, precarious. Given that the obligations of the US government, as well as
most of the world's other large economies, are now impossible to repay and that
their reserves are just IOUs backed by nothing, the stage is set for a highly
disruptive but entirely necessary do-over of the fiat monetary system.
"Preposterous!" say the lords of finance and masters of all.
Is it?
Of course, these very same mavens completely missed the looming housing
crash and the depth and duration of the subsequent crisis - a crisis that is
still far from over. In other words, listen to them at your peril, because in
our view it's essential in calibrating your financial affairs to understand
that, if history is any guide, we are now well down the road to a collapse in
the monetary system.
Regards,
David Galland,
for The Daily Reckoning
P.S. Fortunately for those now paying attention, the collapse of a monetary
system doesn't happen in a flash. It is a progression, like the spiral of water
down a drain. Thus, while no one can predict exactly when the downward spiral
will accelerate out of control, there is still time to prepare.
Dark though the lens may be, this is the lens through which we here at
Casey Research view all our investments. Simply, being right or wrong about
your investment decisions in the years just ahead will be insignificant if the
currencies underpinning those investments shrivel to just a fraction of their
current values.
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Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/10/
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