The Biggest Bubble of Them All 30 comments
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It’s election day, and I may as well try to fuse economics and politics for a moment. Personally on an economic basis, I don’t think this election means that much. Consider my post at RealMoney from earlier this year:
Cultures are Bigger than Economies, Which are Bigger than Governments 1/7/2008 1:19 PM EST
To start this off, I don’t fit neatly on the political spectrum. I am an economic libertarian, socially a conservative, but utterly against the recent wars that we have pursued. I also think that we need to find a way to dismantle the two party system, but that will never happen. So now you have enough to disregard me if you like.
I don’t think the primaries make any difference at all. The three leading Democrats are all very alike. It doesn’t matter which one wins the primary. The Democrats would have their best chance with Obama, because general elections tend to be won on (sadly) which candidate is more likeable.
As for the Republicans, there are differences, but not to any great degree on likely economic policy. I say “likely economic policy” because none of their differential policies are likely to survive if one of them wins the general election. Any Republican win is unlikely to have that much of a mandate.
There are differences between the Republicans and Democrats on economic policy, but this is where my headline comes into play: “Cultures are Bigger than Economies, Which are Bigger than Governments.” Given the mismanagement of our government, particularly with respect to entitlement programs, though also costly wars, future governments will have less wiggle room. Raise spending, cut taxes? Go ahead and try. No surprise that the US Dollar continues to fall. Outsiders will eventually tire of funding US deficits in US currency.
The Republicans will leave the micro-economy more free than the Democrats, but aside from that, I don’t think the election matters much, at least as far as economics goes. There may be other reasons to vote for one side or the other, but pocketbook issues rank low for me, and in this election, the payoff from the differences will not be big.
Now, cultural change, in the unlikely event that it would occur, is another matter. But American history has been replete with big shifts before, and the economy and politics get dragged along. Perhaps the question to ask is what will be the next big shift in American culture? I don’t have any read on that now, but then, when it happens, it is often fast.
Position: none
Our biggest bubble, which is still inflating, are the debts of the US Government, both explicit and those not accrued for. We are going to have a difficult time borrowing in the present for all of these new bailout/stimulus/pork programs. Our debts are getting deeper, not shallower.
Consider this graph from this article at Clusterstock:
We may have a slight breather from the increase in total debt recently (2006-7), but it is going up in the near term. My view is that we need delevering, and that will be a big theme in coming years once the government tires of the new policy of shifting private debts onto the public balance sheet.
Now, I’m still dubious that the bailout policy will work. Reasons:
- We’re still unclear on what bailout money is for. Consider the banks. Is it so they can lend, buy marginal banks, or so they don’t go insolvent? (No, Barney, there is no direct way to force them to lend…)
- With some banks, it may be the latter, as commercial real estate goes into its slump.
- It encourages banks to take more uncalculable risks.
- We’re just creating a new set of problems, which may give us a different type of depression.
- Where the government is intervening in the markets, it seems to be replacing the markets, and not encouraging risk-taking on the part of private investors.
- Areas where the government isn’t intervening are still under stress. When Verizon (VZ) has to offer nearly 5% over Treasuries to get $3.25 billion of financing, that is stress.
- CDS is now pricing in significant US Treasury default risk.
When a foreign holder of Treasuries is willing to give up 40 basis points of yield on a 10-year T-note yielding 3.80%, so that they can get paid off in Euros if there is a repudiation of US Treasury obligations, there is significant uncertainty over the creditworthiness of the US Government. (That’s just an example, there are other reasons to enter into such a CDS.)
Now, the debt-to-GDP graph above doesn’t take into account pension and entitlement underfunding/non-funding. From another of my comments at RealMoney:
Digging a Hole to China (So We Can Borrow Some More)
10/28/03 08:26 AM ETWith a gracious assist from one of our readers at Economy.com, here is the link I promised yesterday. The report does not break out one final number — one has to look at the “balance sheet” on page 58, and the “Statements of Social Insurance” on page 65, which they count as an off balance sheet liability, and add them up. It looks like this (in USD):
- Net Liability: $6.8 trillion
- Soc Sec, Pen & Dis: $4.6 trillion
- Medicare, part A: $5.1 trillion
- Medicare, part B: $8.1 trillion
- Total: $24.6 trillion
This doesn’t take into account the value of land and certain less tangible assets that the U.S. Government has. It also does not take into account the considerable operating and capital lease liabilities, deferred maintenance, or liabilities for the GSEs, and other lending guarantee programs of the federal government.
That $24.6 trillion figure was from September 2002. As of September 2007, it would now be around $50 trillion. ( Here’s the link to the 2007 figures. New figures out in two months.) By the way, thanks Mr. Bush, for being such a reformer of Social Security and Medicare. You added on another $10 trillion of unfunded liabilities that future generations will have to fight over bear in your prescription drug program. You have been the most damaging president on economics since Nixon. (Sorry, I lost my cool. )
That $50 trillion does not count in state and corporate underfunding of pensions and benefits. Oh, and with the fall in the markets, they want a bailout also.
Who doesn’t want a bailout? The US Government can just borrow some more to aid us on our way to prosperity. Those debts and unfunded promises will have to be paid someday, either through taxes, inflation, or repudiation (total or external). The economic mess at that point will be far worse than it is today for all those who rely on the US Dollar.
Our problems in the US are larger than our politics. It goes down to our very culture, borrowing from the future to take care of the present. It is true for our Government, and many corporations and individuals. The pain will come, the only question now is what form it will take.
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This article has 30 comments:
This is one of the best articles I've read in a while describing the cultural origins of the crisis. The fact of the matter is our culture of consumption is to blame not derivatives, Wall St. or any other crazy scapegoat.
Why the same form it always takes. Hyperinflation.
The FED only has two weapons: Inflation and Blarney.
Blarney has failed to work, so inflation is the only weapon left.
Not true, and not as damaging as Obama will be, for a very simple reason. Bush cut taxes. You may buy into the conventional media wisdom that higher taxes are sometimes necessary, or even positive for society. The fact is that higher taxes engender higher spending, higher entitlements, higher corruption. If higher taxes could be coupled with lower entitlement spending it might work for the best, but that will not happen. The next best solution is to just break the system early, hopefully while there's still a chance to salvage something from the ruins.
To the extent that Bush's tax cuts moved the day of reckoning forward, he has managed to limit the damage that will be done when this all comes crashing down. It's like a compulsive shopper on a binge with a credit card. The higher their credit limit, the more damage that person can accomplish, both to themselves and society. Higher taxes are just a way of raising the credit limit.
One more note: quite often the biggest danger in economy is the one almost nobody is talking about. Nobody was afraid of inflation in 1960s and even in the beginning of 1970s. Almost nobody is afraid of deflation now. Everybody is talking about virtue of savings and folly of living on credit. Just imagine: most of US population listened and became thrifty overnight. What would happen to economy? Something worse than Great Depression and there will be no winners. I don't want to see reduced spending (as a result of increased savings) this Christmas season, sorry.
- they ask for housing for every American, so be it even if GWB was concerned of excessive dept;
- they asked for blood after 9/11. GWB being a cowboy more than happy to comply. His lifelong dream come true;
- they ask for cut taxes after Clintons increases. So what? Just do it;
- they ask for more deregulation. Just do it, nobody is the wiser to know the consequences anyway;
- they asked for more medicare and other health programs. Good as long as it can last;
- they asked for "not in my backyards". Let them go to China and India.
That is what a President with no back-bone is for. We call it lame duck.
Now, everybody is not happy because they did not ask for restraint and control until too late already.
Economic libertarian? What the hell does that mean? If it means liberty to retain your own money and use it as *you* wish, rather than as the government deems best, then I'd call that economic conservatism to the n-th degree!!
As for the wars...I don't know that we've ever had a more "gray area" set of decisions to make. I can't really blame anyone for having either opinion. What is clear is that Islam is *not* a peaceful religion -- it has consistently, since its inception 1400 years ago, sought to impose itself on the entire world. Many have forgotten that the U.S. has been down the road of war with Islam before, with the Barbary pirates (largely Muslim coalitions of pirates from Algiers, Libya, and Morocco) between 1785 and 1815! Then, as now, we were forced to take the fight TO THEM, in order to resolve it...hence the wording in the marine hymn "...to the shores of Tripoli...."
It is pretty clear that Muslim nations are not aligned with the interests of the U.S. -- which are principally, to be and remain, a nation of liberty for all its people. Saddam Hussein was known to have met with Bin Laden, so although Hussein may not have had direct involvement in the 9/11 attacks, the association was there, and we do know that he was working on WMDs...whether we found ready-to-deploy weapons or not is irrelevant: we did find weapons-grade uranium, and he had every intention of developing capabilities to harm the U.S. Couple that with the mass-murders of his own people...and there were plenty of good reasons to take action in Iraq.
Was it the right action? Was it too much and too prolonged? Those are different questions. My point is simply that we cannot minimize the threat of radical Islam, and those who denigrate Bush for taking the action he believed best to protect this nation are sadly mistaken!!
Now...about the bubbles facing the U.S. -- we have a bubble of moral bankruptness that is causing MANY of our troubles:
1) People complain about the HUGE cost of healthcare? The spread of STDs, early and unwed pregnancies, drug and alcohol addictions, obesity, and more...are ALL due at least in part to moral character issues.
2) Worried about government debt? Maybe we should reconsider entitlement government -- again, a moral and character issue! Those who are mentally and physically able should earn their own way. Period. The government as an entitlement machine fosters this moral delinquency that is our entitlement nation! We won't shrink the national debt by remaining on this socialist path. And incidentally, has any people ever retained their freedom by continually expanding their dependence on government? By very definition, it is impossible to do so!!
The bottom line is that our REAL bubble is one of moral decrepitude -- the solution to MANY of our problems is a return to moral truth, virtues, and character. Economically, this means self-reliance and the economic system that rewards work and ingenuity as directly as possible: capitalism, not socialism!!
what you guys need a IMF structural
adjustment loan with condicionality!
Despite what you may have gleaned from listening exclusively to Fox News, Rush and Laura Ingraham, we never found any weapons-grade uranium or other WMDs in post-war Iraq. Pre-war Iraq was also one of the least radicalized and most secular Arab-dominated countries... until we invaded it. The supposed "link" to OBL has also been conclusively discredited. The two men clearly detested one another. But then, reality has a known liberal bias, so facts don't count to the "Base".
Yes, Saddam was an evil murderous dictator... in a world full of evil murderous dictators. Where to draw the line? Are we to be the world's policeman for all foreign governments?
"Now...about the bubbles facing the U.S. -- we have a bubble of moral bankruptness that is causing MANY of our troubles:
1) People complain about the HUGE cost of healthcare? The spread of STDs, early and unwed pregnancies, drug and alcohol addictions, obesity, and more...are ALL due at least in part to moral character issues."
Uh-huh... so STDs, unplanned pregnancies, drug & alcohol addiction was completely unkown to pre-New Deal America, then? People in previous centuries must have been angels, I suppose. And the fact that 2/3rds of healthcare costs go to bureacracy, lobbying, advertising, malpractice insurance and end-of-life care is totally irrelevant too.
You do have a point on obesity; however, I suspect that the Green Revolution and the resulting abundance of cheap, high-sugar foods has a little more to do with that.
"2) Worried about government debt? Maybe we should reconsider entitlement government -- again, a moral and character issue! Those who are mentally and physically able should earn their own way. Period. The government as an entitlement machine fosters this moral delinquency that is our entitlement nation! We won't shrink the national debt by remaining on this socialist path. And incidentally, has any people ever retained their freedom by continually expanding their dependence on government? By very definition, it is impossible to do so!!"
Wow, finally a statement I can (mostly) agree with. However, I suspect that "SCC" --like many neocons-- does *not* include Wall Street bailouts, discretionary military expansionist spending, or corrupt no-bid government contracts as a form of "entitlement".
U.S. Socialism is only for the rich & powerful, dont'cha know.
On Nov 04 05:23 PM Socialism cannot compete! wrote:
> "I am an economic libertarian, socially a conservative, but utterly
> against the recent wars that we have pursued."
>
> Economic libertarian? What the hell does that mean? If it means liberty
> to retain your own money and use it as *you* wish, rather than as
> the government deems best, then I'd call that economic conservatism
> to the n-th degree!!
>
> As for the wars...I don't know that we've ever had a more "gray area"
> set of decisions to make. I can't really blame anyone for having
> either opinion. What is clear is that Islam is *not* a peaceful religion
> -- it has consistently, since its inception 1400 years ago, sought
> to impose itself on the entire world. Many have forgotten that the
> U.S. has been down the road of war with Islam before, with the Barbary
> pirates (largely Muslim coalitions of pirates from Algiers, Libya,
> and Morocco) between 1785 and 1815! Then, as now, we were forced
> to take the fight TO THEM, in order to resolve it...hence the wording
> in the marine hymn "...to the shores of Tripoli...."
>
> It is pretty clear that Muslim nations are not aligned with the interests
> of the U.S. -- which are principally, to be and remain, a nation
> of liberty for all its people. Saddam Hussein was known to have met
> with Bin Laden, so although Hussein may not have had direct involvement
> in the 9/11 attacks, the association was there, and we do know that
> he was working on WMDs...whether we found ready-to-deploy weapons
> or not is irrelevant: we did find weapons-grade uranium, and he had
> every intention of developing capabilities to harm the U.S. Couple
> that with the mass-murders of his own people...and there were plenty
> of good reasons to take action in Iraq.
>
> Was it the right action? Was it too much and too prolonged? Those
> are different questions. My point is simply that we cannot minimize
> the threat of radical Islam, and those who denigrate Bush for taking
> the action he believed best to protect this nation are sadly mistaken!!
>
>
> Now...about the bubbles facing the U.S. -- we have a bubble of moral
> bankruptness that is causing MANY of our troubles:
>
> 1) People complain about the HUGE cost of healthcare? The spread
> of STDs, early and unwed pregnancies, drug and alcohol addictions,
> obesity, and more...are ALL due at least in part to moral character
> issues.
>
> 2) Worried about government debt? Maybe we should reconsider entitlement
> government -- again, a moral and character issue! Those who are mentally
> and physically able should earn their own way. Period. The government
> as an entitlement machine fosters this moral delinquency that is
> our entitlement nation! We won't shrink the national debt by remaining
> on this socialist path. And incidentally, has any people ever retained
> their freedom by continually expanding their dependence on government?
> By very definition, it is impossible to do so!!
>
> The bottom line is that our REAL bubble is one of moral decrepitude
> -- the solution to MANY of our problems is a return to moral truth,
> virtues, and character. Economically, this means self-reliance and
> the economic system that rewards work and ingenuity as directly as
> possible: capitalism, not socialism!!
"...but utterly against the recent wars that we have pursued." Again, ignoring the Constitution got us into these conflicts (not wars). If people would first re-learn the Constitution, then only support and promote candidates that did the same, this country would be much better off.
Re: Socialism cannot compete!
" Many have forgotten that the U.S. has been down the road of war with Islam before, with the Barbary pirates (largely Muslim coalitions of pirates from Algiers, Libya, and Morocco) between 1785 and 1815!" President Jefferson wrote Letters of Marque and Reprisal (the only other Constitutional way to use military force) against the Barbary Pirates, but did not wage a war.
Re: HARM
"Despite what you may have gleaned from listening exclusively to Fox News, Rush and Laura Ingraham, we never found any weapons-grade uranium or other WMDs in post-war Iraq."
I suggest you learn your facts before you comment. From CNN.com (hardly a Bush fan): www.cnn.com/2008/US/07.../ - Yellowcake found in Iraq.
I read the article, and stand by my original assertion: no WEAPONS-GRADE uranium found in Iraq to date.
"WASHINGTON (CNN) -- The United States secretly shipped out of Iraq more than 500 tons of LOW-GRADE uranium dating back to the Saddam Hussein era, the Pentagon said Monday.
...He said yellowcake uranium is a commonly traded commodity used for nuclear power generation. It is NOT ENRICHED and cannot be used without first going through a complicated enrichment process, he said, but because of the unstable nature of Iraq, the United States and the Iraqi government decided it should be moved out of that country. Iraq has no nuclear power generating plants."
As far as socialism not being able to compete, phagh. There are some socialistic economies out there that have measurably better quality of life for their citizens than the US. The US has the best per capita income, but the distribution of that money is so weighted to the top end that the US middle class is doing much worse than in many countries.
Cutting taxes was a cheap political ploy to get elected. The tax cuts mostly expire in 2010. Gets bush in the door--but its poor policy, and cynical politics. Taxes HAVE TO be higher in the future. There is no other way--and Bushes spending gurantees this.
Its not like a credit card limit being raised at all--credit card holders don't have the ability to raise taxes, and credit card companies don't engage in cynical ploys to get elected.
Regarding the violence of Islam: Which Islam? There are many.
Compared to what? Christianity? Christians have been murderous hordes for millenia and it doesn't seem to bother us.
Iraq was the worst mistake a president could have made (except for getting caught with an intern--which is worse) and has brought us 3 trillion dollars closer to bankruptcy. For that 3 trillion he could have bought actual energy security, which would be actual national security--but instead it was sent up in flames.
Since when is lowering taxes the gold standard of effective economic policy. PEOPLE FORGET INFLATION. With the inflation that the Bush years unleash--we will all be wishing we had higher taxes, and lower inflation.
Inflation is a dishonest mans taxes.
What a ridiculous statement. Name one.
Chubbs: Just one? No problem, Denmark!
Rather, the change in American "culture" will come through the tremendous suffering Americans are about to realize. Justifiably to the many who have suffered so much because of America.
Will America remain the petulant bully it has been through much of its history and lash out at those who's enmity it has earned? Or, will a newer better America that values people over profit emerge?
Correct me if I'm wrong, but this appears to be a concise summary of what passes for political debate these days.
What ever happened to Life, Liberty, and the Pursuit of Happiness?
Life: Yeah, as long as we can kill all them "evil" sand-jockeys.
Liberty: Yeah, as long as we do what the gub'mint says, don't say the wrong thing on the phone, or try to take a bottle of water on an airplane.
Pursuit of Happiness: Yeah, as long somebody else pays for stuff I want via gub'mint redistribution (Repubs distribute to the rich, Dems distribute to the poor, both take from the productive).
Why does it take our gub'mint countless pages to write our laws when God only needed 10 Commandments?
How many of those 10 do our country's elected leaders break on a regular basis with our tacit approval?
No wonder things are going downhill.
I liked your preface/your opening self describing paragraph.
Question: Does one man, the president, Mr./President Bush get all the credit for the multi-trillion government deficit? I don't think so. He gets to share that honor with many others.
However, we do agree, i.e. your part about culture being the paramount issue. I do agree that culture is at the base of our problems and particularly lack of understanding and respect for debt, that's exemplified by the whole government solution of solving our debt problem by providing/creating more debt. Great. It's amazing they can't see that. Perfect example of the blind leading the blind.
Note: A lot of good thinking comments.
famos, for last words.
Regarding Iraqi uranium:
archive.newsmax.com/ar...
Re. bailouts -- I was and am absolutely against them! That is not free-market economics, and we should *not* have capitalism when profitable and socialism when unprofitable -- for-profit companies need to stand on their own feet!!
@otbricki: show us the data, re. those socialist countries where the overall picture is supposedly better! Most European countries have 10 to 12% unemployment! Regularly, not this year!
My friend, you need to check your history!! The Crusades were the *reaction* to Islamic conquests!! Ever since Mohammed "founded" the religion, Muslims conducted raids and wars -- just google for history of Islam and look at the timeline. Eventually, Europe decided that not only was the Holy Land being overrun, but now that the Muslims were taking Spain, they had to do something.
Islam has *never* been a peaceful religion. Among its core tenets is the belief that Muslims must either convert or kill every infidel, leading to the eventual Islamification of the entire world. Nothing less is acceptable.
This is not new with the Gulf war or with Bin Laden...nor even our troubles with Iran during the Carter admin -- America has had trouble with Islamic militants from the days of our founding: our merchant ships fought the Barbary pirates (Muslim coalitions from Algiers, Libya, and Morocco) in the Mediterranean for almost 30 years, before we sent a Navy fleet to take care of business!
Seriously...you'd better go check your history!!
www.americanthinker.co...
Quite well-balanced, as it does not excuse the excesses and behaviors of Christian Crusaders, such as "forced conversions", etc., but rather seeks to show that the Christian Crusades were, in their motivation, a response, not a first action. The author acknowledges that the Christians often strayed from their purpose during the course of warfare, and from Christian principles.
Garbage, lies. Saddam and Bin Laden were enemies, completely at odds. Your statement is the most ridiculous justification of this unjustifiable war I have seen in years. He had no WMDs, having terminated those programs after the first Gulf war. Just make up your "facts" as you go.
As for WMDs, you're ignoring what his former lead physicist said -- just read the article I linked to. I swear...some people see what they wanna see and ignore the rest deliberately!!