Shocks on the Horizon

The many structural failings of America make for an uncertain future.

Shocks on the Horizon

by Tom Shackleford


As we watch the Republican legislative disaster unfold, bear in mind that whatever budget they end up passing won’t save the country in the long-term. The USA in its current form is already a failed entity; this just hasn’t been made clear to the clueless yet. Let’s take a quick inventory of why.

Deficits

America can no longer afford itself. Each year the Federal Government spends over $600 billion more than it receives in tax revenues. This is complemented by projected budget shortfalls in roughly half of all states in fiscal year 2018 alone. When Trump ushered GOP majorities into both Houses of Congress, many hoped they’d actually make some of the sharp spending cuts that they’d been preaching about. It’s now crystal clear that won’t happen.

Debts

This brings us to the soaring Federal debt of $20.4 trillion. It now exceeds our GDP, which last year stood at roughly $18.6 trillion. This rapidly widening disparity is crucial because, historically, national debts in excess of 90% of GDP are never repaid. It’s also important to note that once it reaches a critical mass, a debt starts taking on a more vertical trajectory. This is what we’re seeing now, even with minuscule interest rates. This is because as more money is borrowed, even more money must be borrowed on top of that in order to make interest payments. Therefore, the debt growth will remain in a state of perpetual acceleration until we tumble off an invisible cliff of confidence.

It’s important to note that most of our debt is not of the “self-liquidating” variety. This type of debt boosts productivity. For example, when a city borrows to build a convenient bridge. Over time, the economic productivity facilitated by the debt cancels it out. The opposite of self-liquidating debt would be this: Chicago borrowing $387 million in order to keep paying teacher pensions temporarily. The latter characterizes the nature of modern American debt much better than the former.

Demographics

What truly makes America’s situation untenable is the fact that its productive White population is contracting. This process is gaining speed as over 10,000 baby boomers leave the workforce each day. The sizes of the generations behind them are significantly smaller. This imbalance alone creates a set of massive problems. As boomers retire, they are forced to sharply curtail their consumption to adjust for lower income levels. Boomers hold the majority of assets. Tens of millions of will be dumping a portion of theirs onto the market each year in order to fund their retirements.

Who will buy them? Gen Xers and Millennials are saddled with enormous education and consumer debts. Many have less than one thousand dollars to their name. This is hardly the kind of capital that spurs one to start investing in equities. This will make it harder for Boomers to fund their retirements, because the value of their assets will be greatly diminished without a comparable pool of buyers. At least they can survive on Social Security and Medicare, right?

Add Liabilities, Start Sweating

Well,there isn’t nearly enough money to pay for those programs either. Once unfunded liabilities are added to the budget deficit, economist Laurence Kotlikoff estimates the fiscal gap to be around $200 trillion. Down at the state and municipal levels, the same thing is going on. Many have deliberately underfunded their pension plans in order to create a facade of fiscal rectitude. Unfortunately, they cannot digitally create dollars like the Feds. Consequently, we’re already seeing plans fail in seven different states with much more to come.

Vibrancy=Big Deficits

Compounding this problem is the fact that we’re frantically importing millions of new people to pay for. Vibrancy comes at a very steep price, since even if these individuals are working, they generally don’t generate enough revenue to cover their education and medical costs. Accordingly, a state like California is stuck forking over roughly 17% of its budget just to fund illegals.

Consequences of the Dollar

The dollar is a fiat currency, backed only by confidence in its value. It’s the primary medium of global economic exchange. This gives Americans the unhealthy ability to purchase imported products, upon which the economy has come to depend, artificially cheap. This includes oil, the lifeblood of the economy, exchanged according to the Petrodollar System. Because we’re taking on so much debt, the Federal Reserve has no choice but to create new dollars in order to buy a large portion of it.

At some point, the dilution of the dollar’s value through this process will severely erode confidence in its value, and thus the creditworthiness of the US government. Exporters are not willing to vendor finance us in perpetuity. Once the counter-party risk to the dollar becomes readily apparent, we’ll have big problems. The fact that the European Central Bank is even more reckless than the Fed seems to be buoying demand for the dollar. However, just because a terrible currency is preferred over another terrible currency doesn’t make it sound.

We’re Bereft of Suitable Precedents

There’s much to like about Trump, but don’t feel an irrational optimism about his ability to fix our economic and financial woes. The conundrum facing us is this: how do you facilitate the huge, continuous growth needed to save the country when its productive population is perpetually contracting?  We’re only in the initial stage, so haven’t yet seen what that scenario looks like in full swing on a 10-20 year scale.

The only paradigm that the modern West knows is constant population growth (it’s tripled since the end of WW2), and therefore concordant growth in asset prices and GDP. Sure, there are dips during recessions, but the long-term trend has never changed. Our emerging reality simply doesn’t have any useful precedents, but we can reasonably surmise that it will be unpleasant.

If this wasn’t bad enough, we must grapple with another profound dilemma: how does a First World country import a Third World majority while still providing First World services to the entire population?  This is exacerbated by the spread of crime, corruption, and incompetence that characterize nations filled with these people.

Does the Government Have a Plan?

NOPE. But they do take a set of measures to gaslight everyone. The first, as we already discussed, is to underfund future liabilities. The second is to underinvest in maintaining and upgrading infrastructure. This has led to a national backlog in the trillions.

The third is to digitally create dollars to purchase debt and suppress interest rates on it. This new money then migrates from the bond market into stuff like equities, which is why the stock market soars beyond reason. But, they can’t enhance productivity and manifest real stuff through keystrokes. This is why the underlying economy doesn’t display the exuberance of Wall Street.

Hence the need for gaslighting tactic #4: use dishonest stats to measure key indicators, the unemployment rate for example. If you haven’t found a job after a certain period of time, then you are not part of the statistic. If you lost a good full-time job with benefits and now work two shitty part-time jobs, then the amount of jobs has gone up. Awesome! Obamacare has really helped in that regard.

The same deception applies to our GDP statistic. It measures assets without subtracting liabilities, among other chicanery. It’s also the case with the Consumer Price Index, which measures inflation. Its tactics include underweighting major expenses, such as healthcare, or simply substituting a product in the “market basket” for another product if its price rises too much.

When and Where Does it Unravel?

Nobody can say for certain because our globalized world is extremely complex. This makes it orders of magnitude more risky and fragile than when the Great Depression struck roughly 90 years ago. A catalyst could be any number of things both foreseeable and unpredictable. For example, a reckless strike on Iran for the benefit of Israel or some startling natural disaster.

One thing that won’t happen is a giant stock market crash in a single day. The markets have multiple “circuit breakers”, triggered at certain drops from the prior day’s closing value. A presidential “Working Group on Financial Markets” can then endeavor to rally prices with undisclosed tactics. There’s much that can be done to manipulate these prices, but as we previously discussed, not to boost the nation’s terrible economic health.

What’s more likely is a general loss of confidence or panic in the market for public debt. That could come from a variety of potential triggers, mostly in the form of unrepayable debts. For example, obligations incurred by a tottering EU country such as Spain or a derelict state like Illinois. There are many uncreditworthy entities currently able to borrow at relatively low cost, which is the only reason why they keep functioning. Only one needs to technically or officially default for a general panic to ensue. Eventually, this could drag under the US dollar.

Will This Time Be Different?

There’s an excellent book you might wish to peruse: This Time Is Different: Eight Centuries of Financial Folly. It’s the result of exhaustive data collection and analysis by two academics. Essentially, it points out that sovereign debt defaults are regular occurrences. Yet, every time, people cling to the delusional notion that “this time is different”, often coddled by ignorance what happened in the past.

This time will be different in that the severity of the crisis will be multiplied by the complexity of the modern economy and worsened by population contraction. Although it seems we’re all likely to experience some form of hardship as a result, this is where our greatest opportunities to implement White Nationalism will arise.

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