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Posts Tagged ‘US debt

Ideas out of the Past

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Over on Britain the Tory Prime Minister, Boris Johnson, has had yet another brilliant idea for dealing with the fundamental problem of real estate prices getting away from working people, preventing them from buying housing.

Putting on my Class Warfare hat I have to say that this idea is entirely appropriate for a Tory:

Wait a moment, I think I’ve heard of this idea before. From history…

Debt bondage, also known as debt slaverybonded labour, or peonage, is the pledge of a person’s services as security for the repayment for a debt or other obligation.

I can see Boris as a feudal lord: he’s picture perfect to play the Sheriff of Nottingham in some new version of Robin Hood.

Of course it’s not just Britain. Here’s a story from 2014 in the USA:

A few weeks ago, with no notice, the U.S. government intercepted Mary Grice’s tax refunds from both the IRS and the state of Maryland. Grice had no idea that Uncle Sam had seized her money until some days later, when she got a letter saying that her refund had gone to satisfy an old debt to the government—a very old debt.

When Grice was 4, back in 1960, her father died, leaving her mother with five children to raise. Until the kids turned 18, Sadie Grice got survivor benefits from Social Security to help feed and clothe them.

Now, Social Security claims it overpaid someone in the Grice family—it’s not sure who—in 1977. After 37 years of silence, four years after Sadie Grice died, the government is coming after her daughter.

But there are many forms of intergenerational debt and the major one leaves Boris’s idea (and feudal practices) far behind. The following educational video was made a decade ago in the wake of the GFC, back when US Federal debt was a mere $14 trillion toddler, compared to the moody $30 trillion teenager it is now.

Written by Tom Hunter

July 6, 2022 at 11:04 am

The Pentagram Loop of Economic Doom

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What’s in everybody’s face, especially in America, is inflation, but there’s far more than that going on in their economy, and basically the global economy.

And none of it’s good.

But let’s look at inflation first, in particular the stuff that chews into your wallet every day rather than the somewhat tame measure of CPI.

Gasoline for cars is, for Americans, the most in-your-face aspect of this; for historical and psychological reasons it seems to grind them more than food prices. Of course the joke is that in 2008 Democrat suckhole media like the LA Times was boasting about “The joy of $8 gas.

You’d think the Democrats would therefore be happier right now.

Companies are trying to trick people as they did back in the 1970’s by shrinking the size of the products they sell “for the same price”. I don’t think it works.

The official CPI for May surged to 8.6%, but if it was being calculated as it was in 1980 it would be 17% (see the graph above). Moreover the month-on-month inflation is not stopping but itself increasing; in other words inflation is not going away any time soon. Good to see that one of Biden’s numerous idiot hires, Treasury Secretary Yanet Yellen, is now publicly regretting saying that inflation in 2021 was “transitory”. Of course she’s not alone as the US MSM have desperately tried to prop up Biden and the Democrats on this issue for a year now.

On top of all this is the fact that wage growth is rapidly slowing, which means that wages are actually going backwards, the highest negative since 2006 actually.

Add in the problems of the stock market – which is also shrinking American’s wealth, starting with pension funds, plus a possible crash in the housing market – and you’re looking at big economic problems across the board. This has business people starting to also get on edge:

Why is there so much doom and gloom though? Recessions happen regularly and we’ve seen inflation and even stagflation before and survived them. There are two answers to this question.

First, what’s different this time is the number of major factors coming together, each of which has caused recessions in the past on their own:

  1. The business cycle.
  2. High energy prices.
  3. Inflationary pressures other than energy (supply chain problems plus $6 trillion of unneeded US government spending in the last two years)
  4. Excessive debt-funded speculation.
  5. Secular shifts in the economy.

That last one needs explanation:

Examples include: new global competition (1970s); currency devaluations; costs of cleaning up decades of pollution (1970s); financialization (1980s to the present), geopolitical shifts in alliances, social disorder, demographics (aging of the workforce, mass retirement) and sea changes in the distribution of income and power to labor and capital.

It’s a perfect storm and it’s built on the back of two decades of poor economic policies.

Second, the normal paths of getting out of factors 1 and 3 – high interest rates to crush inflation and massive Keynesian-style state spending – are now hemmed in by the massive amounts of debt the US has created in the last twenty years, both public and private. In fact it’s increasingly hard to tell the difference between the two, so dependent upon cheap created credit from the Federal Reserve have the markets – especially Wall Street and the housing market – become.

The higher interest rates will slow the economy and cause unemployment. It will also swallow up tax revenue as the government has to pay interest on its massive debt. But more critically, it will increase the rate of default on home mortgages. Those defaults will make mortgage-backed securities less valuable and more unpredictable. That’s how the 2008 housing market seized up. 

In 2008 the US housing crisis was solved by having the Federal Government and the Federal Reserve buy trillions of dollars of mortgages and Mortgage Backed Securities that had become nearly worthless. But having re-created that situation what are they going to do now (factor 4)?

The energy crisis is also not going away because high fossil fuel prices are seen as the way to “transition” the economy to the world of renewable energy. If that’s your goal then it’s a logical play – but it will kill consumers (in some cases literally), kill the politicians intent on crashing through the wall of such massive energy change – and that’s assuming it’s even possible, which it isn’t (42 Inconvenient Truths on the “New Energy Economy”) and possibly kill the economy.

Two years ago I playfully predicted The Great Crash of 2034, but allowed that it might come later – or sooner.

Brace for impact.

Written by Tom Hunter

June 13, 2022 at 7:41 pm

The dollar in your pocket!

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James Lileks is a former American journalist who has had his own blog, The Bleat, for some years now. The topics he covers range from serious and national or global to local and quirky. As such I enjoyed this recent piece on pocket change in a bank:

She accepted the rolls without running them through a machine. I’ve noticed this from a previous trip. If I’m a dime short or a quarter over, who cares. It’s junk to them. What was once true riches when you were a kid – a coffee can full of coins, with lots of quarters – was now just scrap. No one uses them anymore. It’s the card, the beep, the tap on the wrist, the silent migration of something from your cash app to someone else’s account. The comforting feel of a pocket with quarters is no longer a common experience. It’s strange to think that you were there when something that went back millennia just . . . ended.

Oh, I know, it hasn’t ended. You still have coins you still insist on cash I get it, I get it. But it’s rare. I remember when a pocket full of quarters meant cigarettes, parking meter, laundry, pinball. A pocket full of utility. Now I pay for parking with my phone – and this is better. I don’t buy cigarettes, I don’t feed commercial washers – and this is better. I don’t play much pinball, and this is worse.

He speculates on what the payment method might be in thirty years: retinal scanning?

Whatever it is there may be problems with the actual US currency being used. I’ve written before about the incredible amount of debt that the USA has been piling up. Given that there’s a crisis about once a decade now, requiring vast amounts of new government spending, it seems there’s no time to pay any of this debt down. The last article I wrote a few months ago was when US debt was at $28 trillion. Now it’s $30 trillion. Combine this with recent events in Russia and the Ukraine plus Biden’s handling of relationships with Saudi Arabia (“a pariah“) and…:

The Wall Street Journal is exclusively reporting that Saudi Arabia is in talks to deal with China in the yuan instead of the U.S. dollar. The reaction has been a worldwide collective gasp.

Joe Biden’s recent dumping of Afghanistan is just one of the reasons behind the Kingdom’s stepped-up talks with the communist regime.

The overwhelming number of oil deals in the world are done using the U.S. petrodollar. Moving to the yuan, at least in deals with China, which buys 25% of all Saudi oil, will have a huge impact on world markets. It also calls into question the U.S. dollar’s prominence as the world’s reserve currency.

There has been talk about this for thirty years. The Left especially banged this drum as the reason for the Gulf War, claiming that Saddam was trying to set up an alternative oil-backed currency to the $US. Fringe elements of the Right have joined in and repeated the claim for the Iraq Invasion, Libya, etc.

But when it’s the WSJ reporting on stuff that the Saudi’s and Chinese are openly broadcasting you know it’s got some serious traction. As this economics blogger points out the consequences would be bad for the USA:

… our quality of life in the United States and our nation’s entire economy is an elephant balancing, on one leg, on the toothpick of the U.S. dollar’s reserve status.

Our quality of life relies solely in our unique ability to import the goods and services that we use and need on a daily basis, while exporting US dollars. We’ve been able to print trillions of U.S. dollars into existence over the last couple of years – monetary policy that is anything but sound, regardless of whether or not your currency has global reserve status – because of the luxuries afforded to us by the dollar’s global reserve status.

But this reserve status, and the $30 trillion in debt we have accrued and convinced ourselves we will never have to pay, quickly go from being long-term liabilities that we can theoretically ignore to current liabilities that we must address if the dollar is ever legitimately challenged.

As I’ve often pointed out to the Lefties and Righties, there’s a lot more to being a reserve currency than simply debt/GDP calculations. It’s not so much that the $US is backed by oil (or was backed by gold); it’s that it’s backed by a huge and still-powerful economy combined with a reasonably stable political and legal system. By contrast the CCP, like all communists, glory in changing laws at a whim, often leaving businesses hanging (possibly literally).

Still, when you read a comment like this…

“It’s possible to have more than one reserve currency.”

and find out that it’s from Jerome Powell, the Chairman of the US Federal Reserve, the one guy most responsible for the stability of the $US, then I’d say the US has got big problems:

It would behoove Americans to remember what “not worth a continental” meant to the Founders, especially as in just the last two years alone, the United States has quadrupled the supply of dollars, which you can see in the chart below.

The United States had plenty of warnings over the years. Powell’s statement is mild in comparison to others. On the heels of the 2008 financial meltdown, Erskine Bowles, who led President Obama’s debt commission, said the obvious loud and clear:
“I think today we face the most predictable economic crisis in history… I think it’s clear, if you do simple arithmetic, that the fiscal path that the nation is on is simply not sustainable… Deficits are like a cancer, and over time they are going to destroy our country from within.”

It’s notable that even on this little blog, these posts collect fewer views than many others I write, which is just another indicator that the likes of Bowles and many other people who have been making these warnings, are simply ignored. Admittedly we are all watching a slow-motion train wreck from a position of powerlessness: after all, what can we do? Still, I find it amazing that it has not translated into votes to do something about it.

It seems that we have to crash the system.

Written by Tom Hunter

March 19, 2022 at 11:59 am

Posted in Economics & Economy, History, Humour, USA

Tagged with

The Dying Dollar

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That’s a hell of a title for an article but it’s hard to argue with the points made in it, especially when you consider the games played with the Consumer Price Index (CPI) over the years:

The methodology of the Consumer Price Index used to be a fixed basket of goods, now the basket is dynamic, allowing them to take out goods that increased significantly in price and replace them with substitutes that have more modest price increases or even price declines. According to economist Peter Schiff, the original CPI methodology would today show an inflation rate of around 15 percent. 

That last figure seems correct when you look at the price increases of ordinary things in the USA that people buy every day, as opposed to iPads. And it’s ordinary people who get screwed the most and the fastest by inflation, which is a tax you can’t avoid:

The wealthy hold assets and debt so they’re relatively protected, but the middle and working classes face penury. Remember the World Economic Fund slogan “You Will Own Nothing and Be Happy”? That dystopian vision is what runaway inflation is accelerating us towards. Wage workers won’t be able to afford down payments on property, credit will be tightened and rates will be raised to combat inflation. 

I think we’re seeing that here in NZ also. One of the many reasons the young friends of my kids gave for voting Labour in 2017 was that they saw little hope of being able to afford a house much before they hit their forties. Now they don’t even want to talk about it, so bleak have the prospects become, although their parents assure them they’ll help out.

Back in the USA there are some geo-political realities that must be accounted for because of the US dollar’s status as the ultimate reserve currency:

It backs all but a handful of other currencies around the globe and as such, its depreciation can lead to depreciation of other countries’ currencies, compounded by those countries’ own central bank inflation. The reserve currency status of the dollar is chiefly responsible for America’s standard of living being as high as it is. The entire American economic model is built on the dominance of its currency. We are able to sustain a perpetual trade deficit with the world because of it. We export dollars and we get cars and electronics and food in return. On the fiscal side, inflation is a tax paid not just by Americans who hold dollars, but by dollar-holding foreign countries, companies, and citizens as well. 

Countries tolerate this trade-off because of the anti-inflation credibility built over the past 40 years by hawks at the Fed like Paul Volcker.

Ah yes. The Federal Reserve of the USA. With them lies the solution. There’s just two huge problems with them providing a solution.

First is that they’ve enabled this bullshit to happen in the first place. Sure, the Federal government, especially in the hands of the Democrats, have reached unseen levels of insanity with spending. But it would not be possible for them to do this were it not for the Fed. When it comes to inflation, it’s the Fed, stupid:

Figure 2 (below) shows Real M2, adjusted for inflation (with 1982-84 dollars serving as the base), from 1959 to the present day. Here too, we see the line take a vertical turn in 2020. If those graphs do not alarm you, they should.

There are other equally scary graphs in that link, of things like the Fed Balance Sheet and Funds Rate, covering the infamous Quantitative Easing and Zero Interest Rate Policy (ZIRP) of the last decade since the GFC. The QE back then did not cause inflation, despite fears that it would. Why the difference now?

That [2008-2014] money never entered the real economy and did not even count as part of M2.

By the end of Bernanke’s term in January 2014, M2 was $11 trillion. In over five years’ time, the money supply increased 42%.

Powell’s Fed, since March 2020, has superintended a 37% increase in M2 – in only a third of the time that it took Bernanke’s Fed to witness similar growth.

Second, all this is piled on top of an already terrifying debt level of $28 trillion, more than 100% of GDP, which means that it’s going to be almost impossible to repeat what Volcker did starting in 1979:

Despite historically low interest rates, the federal government is projected to have spent $300 billion this year on interest payments on the national debt. Even a mild increase in interest rates would increase government expenditures on interest payments by hundreds of billions of dollars. 

The Federal Reserve’s hands are tied, as evidenced by their decision to keep interest rates between 0.00 percent and 0.25 percent, even while removing “transitory” from their vocabulary. Increase interest rates quickly and significantly enough to curb inflation and the entire market melts down along with the federal government’s fiscal budget.

What then will Fed Chairman Powell do? My bet is nothing for at least another year:

[He} faces a Sophie’s Choice scenario: continue to allow inflation to spiral out of control by keeping interest rates low—which would result in all manner of civil unrest and possibly even a real insurrection—or raise interest rates, which would crash the stock market and force Congress to cut spending, ensuring the complete and total destruction of Congressional Democratic majorities, the likes of which the country has never seen.

So wait until the GOP takes control of Congress in 2022, possibly with large majorities, and let them take the hits along with Biden. But the Democrats might not care; Biden – and their own policies – are millstones around their necks that are drowning them right now. Perhaps losing in 2022 will be the best thing that can happen to the Democrat Party? Promise an end to the pain in 2024 with lots of soothing government programs and win it all back?

The first article ends on an even more cynical note than I’m capable of:

The more 3D printed suicide pods I see the less I believe in mere coincidence. What I do know is that the ultra-wealthy and the banks have the most to gain from this and they are the ones who have most encouraged the policies that have brought us to this. It seems that they are well-positioned to buy up the remaining assets of middle and working class Americans at fire sale prices, after they have finished setting fire to the economy. But then again, it could just be incompetence. That is one commodity that there is no scarcity of among those who occupy the commanding heights of power in America. 

One thing I can say with confidence is that the government will not act. It will do too little, too late. There isn’t the courage left in our political class to make hard decisions. There are no more Jimmy Carters. We have to begin thinking about what comes next. 

Lastly this article has more up-to-date figures, and a better way of framing the impact on the US fiscal budget from increased interest rates:

The federal government will spend around $413 billion in 2021 on debt interest alone, according to the Congressional Budget Office. Debt service was a comparably reasonable $197 billion in 2010.

But remember that is at about one percent interest. Each one-percent interest-rate increase costs another $413 billion. More precisely, each one-percent interest-rate increase costs American taxpayers another $413 billion (and climbing.)

If the Fed was serious and raised rates to five percent—which still may not be enough—that would be close to $2 trillion in interest the federal government would need to pay annually. That’s half of the entire federal budget. Americans will be outraged to discover that Social Security, Medicare, defense spending, infrastructure, and everything else will need deep cuts in order to pay interest on money long spent by craven, irresponsible politicians. 

Meh. Let the GOP deal with that; they’re always boasting about being better with budgets and spending than the Democrats. Let them cut all those areas in 2023 when they’re in charge of Congress. By the same token the GOP will have to hope that Biden refuses to sign such cuts, going against his grain as it would be, as well as letting him be the fall guy for those millions of Americans who think the President is in charge of this stuff.

Written by Tom Hunter

December 30, 2021 at 1:03 pm

US Deficits and Debts

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Just a brief followup on this post, addressing a topic raised briefly at the end of it, which was a question as to why US debt grows faster than the annual deficits.

The table can be found here at US Debt vs Deficit table, 1929-2020, of which a partial section (2007-2020) is taken.

As you can see, the annual increase in debt is not linked directly to the annual deficit. Even in years like 2000 and 2001 when the US ran (technical) surpluses, the debt still increased.

There are a number of reasons for this, but this is a big one.

The deficit has been less than the increase in the debt because Congress began borrowing from the Social Security Trust Fund surplus in 1987. The surplus was created by the baby boomer generation. They contributed more because there were more working people than retirees during their peak working years.7

Their payroll tax contributions were greater than Social Security spending. That allowed the fund to invest the extra revenue in special Treasury bonds. Congress spent some of the surplus so that it wouldn’t have to issue as many new Treasury notes. 

Both Social Security and Medicare/Medicaid are going to go into the red in the next few years so that source of “borrowing” will vanish.

But what it really comes down to is that the US has simply deliberately decided to not pay down the debt, instead rolling much of it over as interest rates dropped to zero or near-zero. That will not be the case forever, which means this chart cannot go as it has.

Ha! In searching through my bookmarked articles I came across this gem from 2011.

Written by Tom Hunter

October 8, 2021 at 9:54 am

Posted in Economics & Economy, USA

Tagged with

The Biden Death Spiral comes early?

with 9 comments

All US Presidents have ups and downs in their popularity. Most manage to recover: they’re called two-term Presidents.

But some never do. The one-term folk like Jimmy Carter and Donald Trump are classic examples, although Bush 41 was done in more by Perot bleeding votes from him. Then there’s Harry Truman.

Because he served almost all of two terms following FDR’s death in April 1945, it’s often forgotten that Truman was also only a one-term President. He hit all-time lows that have never been surpassed as the Korean War strangled him, but even then it took a loss in the 1952 New Hampshire primary before he knew he was done.

Another one-term inheritor of the seat, Lyndon Johnson, hit problems. LBJ’s massive win in 1964, and even more massive successes in winning passage for his free-money Great Society Programs and the 1964 Civil Rights Act, should have meant a smashing reelection in 1968, but Vietnam killed that.

But it happens with the two-termers also. Nixon and Watergate of course. Bush 43 and the combination of Iraq war hangover and the smash-mouth impact of the GFC saw his popularity approach Truman levels as he exited.

The successful two-termers are the ones who managed to negotiate the downs. FDR and the 1937 economic downturn; Eisenhower and a heart attack; Reagan and the 1981/82 recession; Clinton and the GOP takeover in ’94; Obama and Obamacare.

Of course it was never expected that Biden would even run for a second term; he was simply the most acceptable anti-Trumper for 2020 that the Democrat National Committee could back. Despite some rather deluded high hopes from some corners, his history, lack of principles and low-IQ alone predicted poor outcomes, even before taking into account his fading, senile old brain.

  • The Afghanistan disaster, complete with 13 dead soldiers and damaged relations with allies.
  • The crisis on the Mexican border (2 million illegals by year end).
  • The continuing Covid-19 problems (which he said he’d end).
  • The failure to enact his gigantic spending programs (assuming you even think they’re good in the first place).
  • Growing economic problems with energy costs and inflation in general.

And so….

This is also not just a snapshot but yet another one of a series of major polls showing him sliding.

There are several differences between Biden and those other Presidents who have recovered from poor 1st term polls.

First off, he never had the personal fan-base and support in the first place, as witnessed by his failed Presidential runs in 1988 and 2008, so has nothing to fall back on bar core Democrat Party support.

Second he does not have the party majorities needed to enact really big stuff that might save him.

Third, this is very much a post FDR/LBJ world. The big stuff, even if passed, is likely to make things worse economically. There’s only so much government spending that can be blasted into an economy before it starts back-firing, not to mention that the $29 trillion of debt cannot be ignored for much longer, especially when the Federal Reserve has to raise rates to fight the inflation.

Fourth, on the Foreign Policy front, Americans don’t normally give a shit unless something goes wrong. So more positive developments like AUKUS will have no impact, whereas another Afghanistan will. Taiwan. North Korean missile tests, Iran-Israel. Those time bombs are out there ticking away.

Fifth, and perhaps most importantly of all, Biden does not have the political skills to work through all these problems. Unlike Reagan, Clinton or Obama, he can’t dig himself out of these holes and nor can his party. There is no change on the horizon for either group: what we’ve seen from all of them in the last few months is it.

Like the US debt, this is not going to get better unless providence shines upon Biden.

Written by Tom Hunter

October 7, 2021 at 6:26 pm

Generational Toxicity

with 3 comments

Over on the Bowalley Road blog Chris Trotter has really been letting the words flow wildly in relation to the news of the AUKUS pact that has been announced, with two articles in one week on the subject.

They’re the usual combination of themes one would expect from his Lefty age group: pro-China, anti-US, anti-nuclear, fears of a new Cold War, fears of NZ getting sucked back into another “Anglo Saxon Imperialist” world and so forth.

But it was actually this passage that intrigued me:

It is also quite possible that, by 2023, the United States will be embroiled in domestic strife bordering on civil-war. 

Followed by a lot of ignorant guff about the USA and the Republican Party. Now I’m not averse to the arguments about a possible second Civil War in the USA: it’s increasingly being discussed in non-fringe circles on both the American Left and Right. Even in popular culture I saw the “comedian” Sarah Silverman talking the other day about the nation splitting up because Democrat and Republican voters increasingly cannot stand dealing with eachother.

But there’s another aspect of this that should be taken account of: the growing war between the generations. Specifically between the Baby Boomers and … every other generation: Gen-X, Millennials and Gen-Z. Admittedly this more of a US thing than elsewhere: I don’t think NZ Baby Boomers ever fitted the label of being the “Me Generation” after Tom Wolfe’s famous 1976 article.

I’ve already covered some of this in two posts, Ok Boomer and Hand over the $35 trillion, you old fart, but a recent article by a Baby Boomer in the New York Post should be more of an eye-opener for Boomers, Millennials’ extreme hatred for Baby Boomers is totally unjustified:

Baby boomers who cried “Don’t Trust Anyone Over 30” during the Vietnam War should be scared to death of millennials. Because, at least among the Twitterati, they hate us — they really, really hate us.

Last week I took a beating from younger readers over an essay I wrote lamenting the decline of the “power lunch.” Although it only partly blamed the phenomenon on millennial habits — e.g., preferring avocado and kale to beef and baked potatoes — hundreds of thousands on Twitter either posted or retweeted such insults as “Old man yells at lunch table” (I’m 69), “What’s it like to be an antique?” and “We’re the ones doing the actual lunches while you’re having three-martini lunches.”

Millennials (and to some extent their Gen-X and Gen-Z brethren) hate their elders with a ferocity never before seen in our culture.

Generation gaps will always be with us. Historian Marc Wortman found a generational split over sending young men off to war way back in 1941. But unlike those of us who came of age in the 1960s-early 1970s, who merely disapproved of our elders’ “colonialist” wars and shag rugs, millennials (born between 1980-1994) can’t stand the air we boomers breathe.

Young hippies outdoors.

To some extent? This guy should go to some of the chat areas of Reddit and other non-FaceTwit Social Media.

He’ll quickly discover that Gen-Z are right up there on bringing the hate and Gen-X even more so given their proximity in time. Few things piss off X’rs more than being pegged as Boomers by being born in the 1960’s, as if we remember Woodstock and “Free Love”.

Unfortunately the article then delves into the reasons why and thus demonstrates even more how Boomers just don’t get it.

But if they spent more time studying actual history, which can’t easily be found on iPhones, they’d know that boomers were, and remain, the most socially and environmentally conscious generation America ever has ever known.

FFS. He thinks this is because of Greta Thunderhead and her influence on 16 year olds re Climate Charge.

Oh no, dear fellow, there’s a lot more to it than that. There’s only one sentence where he alludes to just one thing stemming from that wonderful “socially conscious” generation:

Maybe too much so — our universities’ overwhelmingly “progressive” agendas originated in the 1960s and have become more dominant ever since.

That’s because the Boomers who were the radical students of the late 60’s/early 70’s now dominate those universities as professors and administrators, and are hard at work teaching the next generations the same stuff, without any opposing arguments or ideas.

Being “the most socially and environmentally conscious generation America ever has ever known” isn’t an excuse or a defense, it’s an unwitting confession of guilt.

What this guy and the millions of Boomers like him miss is that this shite has now spread into every other part of the USA: the MSM, entertainment, government, bureaucracies and even corporates and the military.

I know of no American member of the younger generations who thinks that Social Security or Medicare/Medicaid will be there for them in their dotage of the late 21st century. Or a military that can actually win a war either. Not to mention housing costs, energy costs, career progression, jobs in general or the chance of getting married and raising a family because it’s so bloody expensive in more ways than just dollars.

What he also misses is that these younger generations, or at least a good chunk of them, might be objecting to having had these institutions trashed by the ideas of a generation that aggressively devalued the traditional things on which they rested, even as there are members of Gen-X/Millennial that have learned from their forebears and joined in with the trashing, as this guy points out:

As a college professor for over 35 years, I’ve gotten to know three generations of students: Gen X (born between 1965 and 1980), the Millennials (1981-1996), and now Gen Z (1997-2012). And because I teach rhetoric, I’ve read thousands of their papers, providing substantial insight into the way they think.

In general, however, I found that Millennials presented unique challenges. They were, as a group, the most entitled, judgmental, and arrogant of all the students I’ve taught, often basing an inflated sense of self-importance on scanty evidence.

Essentially, they are the “participation trophy” generation, the unwitting victims of countless artificial “self-esteem building” experiments by the education establishment, not to mention their own parents.

Ouch. But there is hope:

There is another generation of bright young people — Gen Z — following right on their heels and therein may lie our temporal salvation.

In comparison to their Millennial predecessors, my Gen Z students tend to be more open-minded, more interested in facts and logic, more inclined to question the status quo…

That partially explains the Fuck Joe Biden chants that have swept across college football stadiums in the last few weeks and even spread to the Yankees-Mets game in NYC of all places.

They also take a more nuanced view of history and are inherently distrustful of ideologues on either side. 

Let’s hope so, and that inheritances will add up to avoiding a different type of American Civil War.

Written by Tom Hunter

September 21, 2021 at 1:09 pm

Inflation you say?

with one comment

Why are people surprised?

Back in 1993 the newly installed Clinton Administration was mad keen on a “stimulus plan” that would revive the US economy from the “terrible” recession of George H W Bush. The plan was classic Keynesianism but it was strangled in the crib for two reasons.

First of all the recession, which was a fairly mild one starting in late 1990, had already finished by mid-1991, as is usually the case. Things like unemployment lagged of course, which was why the MSM was able to make such a meal of it. The crown in the jewel were TV scenes of a four-wide line of job seekers stretching around a city block in the snow in early 1992, applying for jobs at some new Chicago hotel. Had it been filmed in Black & White by Dorothea Lange it could not have been better.

As a result, by the time Bill became President in January 1993 the entire economy was really picking up a head of steam on all fronts, and it was obvious to everybody and their blind dogs that no “stimulus” was needed.

Incidently, having done it’s job up to the election in getting a Democrat elected, the MSM promptly began painting sunny headlines about how well the economy was doing under the youthful leadership of Bill, even while everybody again knew that no credit could be given to an administration that had not passed any legislation, let alone anything that could affect the economy in less than six months.

Second was that Bill made a crucial mistake in appointing Senator Robert Byrd to lead the stimulus bill effort in the Democrat-controlled Senate and House. In addition to being a former Grand Kleagal of the KKK (and whose death years later would result in an ecstatic eulogy by then Vice President Joe Biden), he was also known as the Porkiest of the Porkmasters of Congress. There was hardly a highway, courthouse, outhouse or doghouse in his state of West Virginia that didn’t have his name on it as a result of the money he’d extracted from Congress. Even Democrats rolled their eyes at what a stimulus package in Bryd’s hands would mean.

The effort rapidly faltered and that was a good thing for the USA, which economy did not need a “stimulus” from the Federal government: the 1990’s would go on to be one of the great economic times in recent US history.

But lessons are not learned. While there might have been some justification for the 2009 stimulus spending plans in the wake of a financial meltdown far worse than that of 1987 (which also led to another such failed effort by the Democrat Party in the face of Reagan’s opposition), it was obvious by the end of that year that it had not spiced up the economy. Obama regularly bemoaned the reports that landed on his desk showing only moderate improvements, bluntly asking his experts and fellow Democrats why all the spending was having no effect.

But in the face of a government-induced lockdown of a roaring economy there was never a need for the insane amounts of spending to continue as the Chinese Lung Rot pandemic waned and the lockdowns and other restrictions were lifted. All that was required was for the government to simply allow the economy to come back to life, as it had in 1992/93 and earlier recessions. Yet each of the subsequent recessions of 2001/2, 2008/9 and 2020 have been met with ever greater stimulus efforts.

Yet, far from helping, there’s good evidence that government efforts in 2021 have caused unemployment to stick in the face of massive welfare incentives not to return to work. Then there’s the rapidly rising inflation in the USA, as all that created credit chases products and services that are not increasing as fast as the tsunami of money. The incredible number of business destroyed by the Covid-19 pandemic response will not be magically re-created by Federal spending.

So we have that graph of US debt, piling onto trillions of already existing debt, even as the spending it allows fails to do its Keynesian job.

This cannot end well, and is already not going well. As the economist Hebert Stein once wrote: “If something cannot go on forever, it will stop.”

Brace for impact.

=================================

See Also:

Stagflation and Pretty Graphs – May 2021

This is not going to get better – Feb 2019

The Great Crash of 2034 – June 2020

$5,630,859,000,000 – August 2020

Written by Tom Hunter

July 17, 2021 at 3:00 pm

Stagflation and pretty graphs?

with 4 comments

For two decades after the end of WWII, economists, bureaucrats and politicians were pretty sure that they’d nailed the problems of controlling a capitalist economy.

The ruling theory was Keynesianism, named after the famous economist John Maynard Keynes, whose key insight in the 1930’s was that in times of economic recession, and especially depression such as The Slump of the 1930’s, governments should not cut back on their spending but increase it.

Prior to that governments had always taken the same attitude towards a shrinking economy that households and businesses did: you cut spending in line with your falling revenues, tax in the case of government. Keynes argued that this was the wrong thing for governments to do; they were different because they controlled the creation of credit so debt was not the same threat to them. They could go into debt, perhaps quite a lot of debt, and keep spending money to keep the economy afloat until the private sector came out of its shell and started investing and spending again. The idea was not so much to inflate the economy as to stop a blackhole effect where the shrinkage fed on itself.

At least in the USA under FDR from 1930 on, and here in New Zealand under the First Labour government, the theory seemed to work although there were a few problems with the argument in that period:

  • The NZ economy was already recovering by the time Labour gained power in 1935 and its Finance Minister Walter Nash, although pushing big increases in spending, never let NZ go into the sort of debt Keynes proposed.
  • The US recovery stalled completely in 1937, with unemployment rising to 17% again. FDR’s own Secretary of the Treasury was appalled at the result after so much money had been blown. In the end it was the industrial powering up for WWII that got the economy growing and flattened unemployment.
  • Australia and Britain simply never took the Keynesian approach, yet there was no evidence that their depressions were any worse, nor their recoveries any slower than those of the US and NZ.
  • In 1946 Keynesian economists were terrified at the prospect of eleven million military men returning home to a nation where the government was already cutting spending in the form of ending huge military contracts for tanks, planes and guns. Their fears grew when a newly installed Republican House and Senate promptly cut spending even further in 1947. And from a GDP approach you could also see their point as it contracted by an incredible 11.6% in 1946 and another 1% in 1947. By contrast it shrank by 12.9% in 1932. But far from a second Great Depression the post-war US economy took off and kept powering away, with only occasional mild recessions for more than twenty years.
  • The so-called “neo-Keynesians” of the Kennedy Administration, figured that if Keynes theory could reduce unemployment down to 5% there was no reason why more Keynesian stimulus couldn’t soak up that last portion. An economy running at 100% all the time. BZZZZZTT: hitting-the-edge-of-the-envelope time again and Hello, late 60’s US inflation.

Still, the Keynesian theory settled in as Western governments coped with those mild recessions by following the formula of increased spending during a recession, as well as Central Banks dropping interest rates. It all seemed to work, even as Western Economies started to get changed by all this government intrusion.

What is neo-liberalism? Who are Reagan and Freidman?

To be fair to Keynes he always made it clear that when the economy started growing again governments should ease up on the increased spending and start paying down their debt in preparation for the next economic downturn. Suffice to say that those aspects have been increasingly ignored.

From the mid 1960’s on, it all began to turn pear-shaped. In the USA inflation began to take off with the impact of all the spending on the Vietnam War and LBJ’s Great Society programs (also Kennedy’s neo-Keynesians mentioned earlier). The Federal Reserve tapped the interest rate brake, government spending under Nixon slowed slightly – and caused a mild recession in 1970. Releasing the brakes on both factors, the economy started growing again, but so did unemployment and inflation, something that was not supposed to be able to happen together. It got worse when recessions hit again and inflation and unemployment kept climbing through the 1970’s, with only occasional and temporary drops.

Thus was born the word “Stagflation”, followed by people paying less attention to Keynes and more to the monetary theories of Milton Friedman, as well as the economic control critiques of Friedrich Hayek from decades earlier, together with the associated politics of Reagan and Thatcher (and here in NZ, Roger Douglas, Australia with Bob Hawke) as they tried to reduce government influence in the economy.

It must be pointed out that despite all the privatisations, de-regulations and fighting over those issues, when it comes to the Big Basics of government spending and debt, it’s as though nothing has changed.

Certainly with the rise to power in the 2000’s of the likes of Bush, Blair and others, plus the shocks of things like the NASDAQ crash of ’99/00, the 9/11 attacks and of course the Great Financial Crisis of 2008, the world of Big Government spending has returned in full force.

The Great Chinese Sinus AIDS pandemic of 2020 just added rocket fuel to it all.

Amidst all this – and I’ve covered much of it already in these posts…

This is not going to get better – Feb 2019

The Great Crash of 2034 – June 2020

$5,630,859,000,000 – August 2020

… the fact was that in each of these situations in the last twenty years inflation did not take off, and while the economy recovered far more slowly than the stimulus spenders of Obama’s time had hoped for, it did at least grow, and unemployment kept going down while inflation was nowhere to be seen. These happy times became even happier under Trump as the economy boomed through 2018/19 before hitting the Covid lockdowns.

With the slow (too slow) unlocking of the economy many people figured that things would get back to normal rapidly. Yes, the Cassandra’s were still harping on about the fantastic increases in government spending, government debt and government credit creation – but we’d heard all that before.

In the case of the GFC it appears that much of that credit creation did not get into the pockets of consumers, being swallowed up by the banks instead – who did actually manage to pay Uncle Sam back for the TARP program, with interest too. Noted Keynesian economist Paul Krugman was angry that the 2008-9 stimulus programs were so small: he argued for programs in the range of $2-3 trillion and for it to go straight into the pockets of consumers.

It took a decade but that’s exactly what the $2.2 trillion CARES Act did in early 2020, followed by smaller ($900 billion) spending programs in late 2020. Then came the $1.9 trillion American Rescue Plan under Biden.

There may be more to come, with the proposed $2.3 trillion American Jobs Plan and the $1.8 trillion American Families Plan.

Krugman must be beyond joy at this moment.

Of course the thing about Cassandra was that she was telling the truth, and so in the Year of Our Lord 2021…

CNBC

Dow Jones estimates had been for 1 million new jobs and an unemployment rate of 5.8%.

New jobs were 266,000 and unemployment rate rose to 6.1%.

NASDAQ news:

The consumer sentiment index unexpectedly crashed to 82.8 in May from 88.3 in April. The decrease surprised economists, who had expected the index to rise to 90.4.

“Unexpectedly”! I always love that. Perhaps if those economists had paid a visit to a US timber yard or looked at the incredible increases in commodity prices across the board they might not have been so surprised about consumer confidence. Massive and rapid increases in prices tend to do that, of which the M2 chart above is merely one indicator. Here’s a better one.

Too much money chasing too few goods: supply vs demand. The oldest rule in the economic theory book. The only question is whether the US is going to add to the demand with those spending programs?

Of course, looking at this history of the last twenty years, it may not actually make any real difference to the path the USA is on, except possibly to act as a trigger point. As always the question is whether we’ll know that the trigger has been pulled. Mixing metaphors, we can be certain that a fuse has been lit.

Written by Tom Hunter

May 17, 2021 at 10:43 am

$5,630,859,000,000

with 24 comments

That’s what the US government has spent in the first ten months (October to July) of this fiscal year.

It hardly needs to be said that this is the largest amount of money that the government has ever spent.

The good news is that they collected $2,823,564,000,000 in taxes, also a record.

That’s also the bad news because of course it means that they’ve set a record deficit so far. Those “trillion dollar deficits” of the early Obama years?

HA! This year’s deficit is $2,807,295,000,000: a $2.8 trillion deficit. They’ll likely beat the $3 trillion mark before the fiscal year ends Sep 30.

The big spending components were:

  • $1,005,897,000,000 – Department of Health and Human Services
  • $ 915,775,000,000 – Social Security
  • $ 540,442,000,000 – Department of Defense spent
  • $ 309,415,000,000 – Net Interest

The following graph of inflows and outflows shows that this is an exceptional year, as it is for all nations, with that huge “Income Security” payout to try and compensate workers for their jobs being shut down by order of the fifty state governments – the extent of shut down differing by state. But even taking that element out we’re still talking record deficits and ones that will likely continue for years now.

The proponents of Modern Monetary Theory don’t see a problem with this of course, and it makes arguments about it almost a moot point, since the USA is effectively practising it right now. But they can only do this because, unlike a little nation like New Zealand, their currency is basically the world’s currency.

I don’t see how this can go on. But then I’ve been saying that for years now and somehow it does. Perhaps the figures just don’t mean anything to ordinary people any longer? Perhaps they don’t think it will affect them: that when the day of payment comes they’ll simply refuse and allow the institutions of federal government in far-off Washington D.C. to collapse?

See also:

The Great Crash of 2034

This is not going to get better.

Written by Tom Hunter

August 16, 2020 at 9:21 am