The Debt Deal con: Is it fooling anyone?

by Brandon Smith of Alt Market
Posted August 4, 2011

ALTERNATIVE ECONOMIC ANALYSIS BRINGS WITH IT A CERTAIN NUMBER of advantages and insights, but also many uncomfortable burdens. Honest financial research is a discipline. It requires us to not only understand the fundamentals, but to question the fundamentals. It requires us to look beyond what we would LIKE to see in the economy, and accept the reality of what is actually there. With this methodology comes the difficulty of knowing the dangers ahead while the mainstream stumbles about well behind the curve. It means constantly having to qualify one’s conclusions, no matter how factual, because the skeptics and opposition base their views on an entirely different set of rules; farcical rules that no longer (or never did) apply to the true state of our country’s fiscal health.

After a while, you begin to expect that a majority of the public will buy into any number of government or Federal Reserve con games and swindles as the process of full spectrum collapse rolls onward. However, this expectation is not always accurate…

A majority of Americans were against the bailouts, TARP, quantitative easing, the “too big to fail” concept, etc. Sometimes a government action is so fraudulent that even those who aren’t educated on the specifics can smell the grift in play. The recent debt ceiling debate and resulting debt deal are fuming with the hot stench of predigested disinformation, so much so that no one seems to be happy with it, even people who a month ago were begging for it. When you have to parade around a hobbled shooting victim in order to get any applause for your legislation, then you may be in trouble…

Though their reasons and motivations vary, everyone, whether on the so called “Left”, or the so called “Right”, is asking “Was anything really accomplished here?” The question is a valid one. To discern the exact nature of the debt deal, we must first cut through the web of misconceptions that surround it. While no American is satisfied with the final plan, many are disenchanted for the wrong reasons. Let’s clear the fog (or light a match), as it were…

Where are the spending cuts?

Were any cuts actually made in this debt plan that has been painted by the MSM as a “historic landmark” in spending reform? If you think yes, then you have been hornswaggled. Only yesterday I came across perhaps the most profoundly inept New York Times Op-Ed piece I have ever seen (and that’s saying something):

http://www.nytimes.com/2011/08/02/opinion/the-tea-partys-war-on-america.html?_r=1

In it, Joe Nocera, a typically impotent mainstream financial hack, proceeds to outline the debt deal snafu in grade school fashion, claiming not only that cuts in spending attributed to the bill will destroy our fragile economy, but that all the blame for this destruction rests squarely on the shoulders of Tea Party Republicans, who are apparently no better than “terrorists”. Yes, that’s right, fiscal conservatives are now terrorists hell bent on our nation’s demise. Gee…we didn’t see that one coming. While I am not particularly happy with the direction the Tea Party has taken since 2010, especially the constant attempts by Neo Conservatives (fake conservatives) to co-opt the movement, the Tea Party is hardly to blame for any destabilization of the economy, if for no other reason than they accomplished nothing in the deal. Nocera’s idiocy is made embarrassingly apparent in his outcries against spending cuts, because NO cuts were actually made.

First, the $2 trillion plus compromise we hear about so often is slated to take place not over the next ten months, but the next ten years! Only $917 billion in cuts are officially mandated by the bill. The final $1.5 trillion will be voted upon at a later date. Only $21 billion in cuts will be applied to discretionary spending in 2012, $42 billion in 2013, and the remaining cuts after 2014. This strategy, by itself, is wholly inadequate in making even the slightest dent in our national debt, being that our government’s spending has grown exponentially with each passing year.

In June of 2009, our national debt stood at $11.5 Trillion. Today, it climbs past $14.5 trillion. That’s an increase of $3 trillion in the span of two years. Now, I don’t know where men like Boehner, Reid, or Obama, learned simple math, but I can tell you their numbers don’t add up. Even if current spending levels stay static (which they won’t), by 2013, we will have to increase the national debt to at least $17.5 trillion, while only cutting $63 billion from the budget. Wow….sounds like progress to me.

Even worse (yes, it gets worse), the spending cuts that were finalized are based not on current spending, but on PROJECTED spending, or what is often called “the baseline”. That means, essentially, that no existing programs or subsidies are specifically facing cuts, only programs and subsidies that have yet to be created! So, Obama could ostensibly forgo an extra $2 million taxpayer subsidized vacation to Hawaii or Manila, and then claim this as a “spending cut”. Imagine it! We could save so much money as a country by not buying all the things we could have bought beyond what we already buy! Huh?

So, no official spending cuts until after elections. No specific programs identified for cutting. No cuts to current deficit spending. Debt ceiling elevated yet again. All that debate and noise, and nothing has changed…

Death by Debt

by Chris Martenson
Originally posted June 8, 2011

ONE OF THE CONCLUSIONS THAT I TRY TO COAX, LEAD and/or nudge people towards is acceptance of the fact that the economy can’t be fixed. By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past. At least they are for the debt-encrusted developed nations over the short haul – and, over the long haul, across the entire soon-to-be energy-starved globe.

The sooner we can accept that idea and make other plans the better. To paraphrase a famous saying, Anything that can’t be fixed, won’t.

The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew.

All economic depressions share the same root cause. Too much credit that does not lead to enhanced future cash flows is extended. In other words, this means lending without regard for the ability of the loan to repay both the principal and interest from enhanced production; money is loaned for consumption, and poor investment decisions are made. Eventually gravity takes over, debts are defaulted upon, no more borrowers can be found, and the system is rather painfully scrubbed clean. It’s a very normal and usual process.

When we bring in natural limits, however, (such as is the case for petroleum right now), what emerges is a forcing function that pushes a debt-based, exponential money system over the brink all that much faster and harder.

But for the moment, let’s ignore the imminent energy crisis. On a pure debt, deficit, and liability basis, the US, much of Europe, and Japan are all well past the point of no return. No matter what policy tweaks, tax and benefit adjustments, or spending cuts are made – individually or in combination – nothing really pencils out to anything that remotely resembles a solution that would allow us to return to business as usual.

At the heart of it all, the developed nations blew themselves a gigantic credit bubble, which fed all kinds of grotesque distortions, of which housing is perhaps the most visible poster child. However outsized government budgets and promises might be, overconsumption of nearly everything imaginable, bloated college tuition costs, and rising prices in healthcare utterly disconnected from economics are other symptoms, too. This report will examine the deficits, debts, and liabilities in such a way as to make the case that there’s no possibility of a return of generally rising living standards for most of the developed world.  A new era is upon us. There’s always a slight chance , should some transformative technology come along, like another Internet, or perhaps the equivalent of another Industrial Revolution, but no such catalysts are on the horizon, let alone at the ready.

At the end, we will tie this understanding of the debt predicament to the energy situation raised in my prior report to fully develop the conclusion that we can –and really should – seriously entertain the premise that there’s just no way for all the debts to be paid back.  There are many implications to this line of thinking, not the least of which is the risk that the debt-based, fiat money system itself is in danger of failing.

Too Little Debt! (or, your one chart that explains everything)

If I were to be given just one chart, by which I had to explain everything about why Bernanke’s printed efforts have so far failed to actually cure anything and why I am pessimistic that further efforts will fall short, it is this one:

There’s a lot going on in this deceptively simple chart so let’s take it one step at a time.  First, “Total Credit Market Debt” is everything – financial sector debt, government debt (federal, state, and local), household debt, and corporate debt – and that is the bold red line (data from the Federal Reserve).

Next, if we start in January 1970 and ask the question, “How long before that debt doubled and then doubled again?” we find that debt has doubled five times in four decades (blue triangles).

Then if we perform an exponential curve fit (blue line) and round up, we find a nearly perfect fit with a R² of 0.99.  This means that debt has been growing in a nearly perfect exponential fashion through the 1970’s, the 1980’s, the 1990’s and the 2000’s.  In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again, from $52 trillion to $104 trillion.

Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008, and it has not yet even remotely begun to return to its former trajectory.

This explains everything.

It explains why Bernanke’s $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits), which were positioned to directly benefit from the money. It explains why things don’t feel right, or the same, and why most people are still feeling quite queasy about the state of the economy. It explains why the massive disconnects between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities.

Into the Economic Abyss

by Brandon Smith
Monday, 25 April 2011

http://www.alt-market.com/articles/103-into-the-economic-abyss

OVER THE PAST FEW YEARS, MAINSTREAM ANALYSTS HAVE SHOWN A TENACIOUS BLIND FAITH in the U.S. economy and the dollar that goes far beyond religion to the point of mindless cultism, so, when even they begin to question the future of American finance (as has been occurring more and more everyday), you know its time to worry.

For those that have been following my work since 2007, the events of the past few months have not been a surprise at all, however, for those just waking up to the ongoing implosion of our fiscal infrastructure, the bubbling inflationary meltdown just over the horizon and the nightmare unfolding around our national debt is rather shocking. Living through a full spectrum catastrophe is, to say the least, confusing, especially when you have no idea where the whole thing began.

Until now, the mainstream media has provided nothing but economic fantasy for the masses. They have satiated the public with what amounts to financial toddler talk for helpless preschool minds averse to any research beyond their daily 15 minute sippy cup of New York Times, CNN, MSNBC or FOX cable news sound bites. I mean, have you ever actually stopped and read a Paul Krugman article more than once? Or listened carefully to an MSNBC economic piece? It’s like being violently accosted by a band of slobbering mental deficients with securitized ARM mortgages stuffed in their pants. Of course, fewer and fewer people are now buying what these hucksters are selling.

With gasoline nearing $5 a gallon, grain prices doubling, and shelf prices beginning to skyrocket, it’s hard for even the most ignorant suburban schlep to remain oblivious to the problem anymore. We are no longer on the edge of the abyss; we have fallen into it head first…

I make this statement not for effect, not to startle people out of their apathy, not even to illustrate what “may” be coming around the bend in the near future. I make this statement as directly and sincerely as I know how; we have indeed crossed the line between economic weakness and economic catastrophe. For those of you who have been asking when the final stage of the economic collapse will begin, that time has arrived. Here is why…

Energy Inflation Overdrive

Here’s how to tell when inflation is about to run out of control in your country; wait for the politicians and bankers to begin making excuses for its consequences instead of pretending it doesn’t exist! Remember after the initial 2008 spike in oil prices when we talked about the prospect of “speculation” as the culprit? Remember also that I have pointed out for the past three years at Neithercorp Press that when the dollar eventually began to crumble, and the price of crude began to spike again, the government would try to blame speculators as the scapegoat hoping that Americans would assume the situation today was the same as it was in 2008?

Well, guess what? The Obama Administration has just initiated the first volley of “speculation” propaganda talking points by tapping the Department Of Justice among others to “investigate” possible trader fraud and speculation in the price destabilization of oil.

Ah! So it’s those devious “traders” and “speculators” out there in the ether that are driving up the price of oil, and don’t worry folks, ole’ Barry is on the case! Little mention of OPEC’s general distaste for current U.S. activities in the Middle East. And certainly, no mention of the dollar’s continuous sharp decline over the past two months from the White House as being even remotely responsible for you being robbed at the gas pump. The dollar, despite intervention by G7 countries, continues to depreciate against the Japanese Yen, and has also slid to a 15 month low against the Euro.

At the publishing of this article, the Nymex crude index is at around $113 a barrel, while the Brent crude index stands at $124 a barrel. Gasoline prices across the country are averaging $3.50 to $4.00 a gallon. Now, some crazy individuals out there may question any overt concerns towards $120 or even $150-a-barrel crude. We survived it back in 2008, right? Why not today? However, this fuzzy logic depends greatly on a very unfortunate premise; that the economic atmosphere of today is the same as it was in 2008. Not even close…

The crude explosion in 2008 lasted for around six months, peaked at around $4 a gallon, and then ended with a deflationary-like plunge precisely because that price spike WAS (for the most part) caused by speculation. This time, expect no peak. Only an endless steady climb as the summer months progress. We have been calling for an increase in oil costs far exceeding the $150 a barrel achieved in 2008 and we stand by that prediction.

Negative aspects of energy inflation will take hold much faster than in 2008, primarily because our economic foundations are even weaker than they were three years ago. Today, we not only have a massive and unsustainable national debt, and a credit crisis still unresolved, but also a privately controlled Federal Reserve with no oversight running amok, printing non-stop since the derivatives bubble first popped. Not even the dollar’s fake reputation as a safe haven investment can stall the collapse now.

High energy costs hit every conceivable sector of the economy, from freight, to food, to vacations, to housing. People drive less when it costs them twice as much to do so, which means less shopping, fewer trips to Disney World, and second thoughts about moving to a new home in a new state. The cost of producing goods hits wholesale prices, which eventually hit retail prices when corporate chains are no longer able to absorb the increases. Your electric and heating bills take a bite right out of your tender behind. All of these factors will snap the thin thread our system is clinging to. America, as we know it, WILL NOT survive $5-$10 gas. Period.

How Keynesian Archduke Krugman recommended a housing bubble as a solution to all of America’s post tech bubble problems

by Tyler Durden
Posted originally on Zero Hedge, August 9, 2010

THE YEAR IS 2002, AMERICA HAS JUST WOKEN UP WITH THE WORST POST-DOT.COM hangover ever. Paul Krugman then, just as now, writes worthless op-eds for the NYT. And then, just as now, the Keynesian acolyte recommended excess spending as the solution to all of America problems. Only this one time, at band camp, Krugman went too far. If there is one thing that everyone can agree on, is that the Housing Bubble, is arguably the worst thing to ever happen to America, bringing with it such pestilence and locusts as the credit bubble, the end of free market capitalism, and the inception of American-style crony capitalism. Those who ignored it, even though it was staring them in the face, such as Greenspan and Bernanke, now have their reputation teetering on the edge of oblivion.

So what can we say of those who openly endorsed it as a solution to America’s problems? Enter exhibit A: New York Times, August 2, 2002, “Dubya’s Double Dip?” Name the author: “The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

If you said Krugman, you win. Indeed, the idiocy of Keynesianism knew no bounds then, as it does now. The solution then, as now, to all problems was more bubbles, more spending, more deficits. So we have the implosion tech bubble: And what does Krugman want to create, to fix it? Why, create a housing bubble… Well, at least we know now how that advice played out.

And now what? He wants another trillion in fiscal stimulus… Quadrillion? Sextillion (arguably this cool sounding number is at least two to four years away before the Fed brings it into the daily vernacular)? And just like the housing bubble he suggested then brought America to the biggest depression it has ever seen, so his current suggestion will be the economic cataclysm that wipes out America from the face of the earth.

So we have two simple questions:
i) how does Krugman still have a forum in which to peddle his destructive ways, and
ii) why does ANYONE still listen to this Nobel prize winner, a.k.a. charlatan?

Being stupid is one thing. Being stupid and learning your lesson after seeing your idea crash and burn is another. Pushing for the same policy response time after time, layering misery upon misery, is an altogether third, and most Krugman, thing.

How many more lunatics in charge of the insane asylum do we need before we finally say “enough” to their deranged ramblings and their illusions of reality…