RoR: Forum

Steven Moore, is the senior economics writer for the Wall Street Journal, and that is a stunning statistic (that we have borrowed more money in the last 6 months than the entire 30 years before that).

On the same show, Bob O`Brien, the stocks editor for Barron`s Online, predicts that the British government is about to collapse, to be replaced, not because of the expense accounts scandals, but because Brown has emptied their treasury with excessive government spending - O'Brien thinks it may scare our congress as they think about 2010.

Some politicians will never be scared. Barney Frank is drawing up legislation to guarantee the debt of all states and local governments that are running out of money. In 13 days California is out of money and, as O'Brien pointed out, that is when a truely ugly chain of events begins.

The federal government, which is out of money (is already deeper in debt than the entire GDP, and is still passing spending bills, and has been warned by our major creditor - China - to stop inflating) will destroy the root of states rights as it takes on all debt of all governments. At that point we might as well play the ponzi game and sell the entire country to anyone willing to buy - we'd get another couple of years worth of money, then maybe we could sneak into Mexico and look for work. [sarcasm]

You know that thread about where would you go to live.... Don't look for great amounts of freedom. Look for safety because all manners of bad things come with a collapse of this magnitude - extremes of violence to pandemics to world wars. Think about finding a nice, primitive agrarian economy on a remote island - hang out there with some good books and a short wave radio while the bad stuff goes on.

I can't tell you how much I hope that I'm totally wrong on this. On the same show, Thomas Sowell said that it might sound strange, but that he was glad he was old enough to be dead before this all plays out!

(Edited by Steve Wolfer on 6/04, 12:25am)

Post 1

Thursday, June 4, 2009 - 2:22am

Steve -- you sound kind of paranoid, dude.

Relax.

Post 2

Thursday, June 4, 2009 - 10:26am

Jim,

I know how I sound... and I find it very hard to keep thinking, much less writing such a negative prognosis. I have read books, and gotten caught up in ideology in decades past that made worry we had reached the end of our economic string. But then things turned around - the problems weren't as large as portrayed, and human ingenuity, along with the ability to change direction showed that it is often a fallacy to project a string of events into an irreversible trend.

But having said that, I have to point out that your comment offers NO evidence to the contrary. It doesn't show where the weight of the evidence in front of us is not as heavy as I'm painting it. It doesn't say what will turn things around. It doesn't address the historically unique changes we are being subjected to. It gives no clue to where the reasoning may be going off the tracks.

Please, please, tell me why my prognosis is not realistic. Tell me why it is paranoid, or over the top and not a logical conclusion. Otherwise you sound more like a stoned surfer in denial than I do a paranoid doom-sayer.

Post 3

Thursday, June 4, 2009 - 10:35am

Steve,
Thomas Sowell's remark is the most depressing. His existence has been a source of optimism for me for years.

Post 4

Thursday, June 4, 2009 - 4:02pm

Mike,

It was pretty depressing for me as well. That whole show was very hard-hitting. Yaron Brook was on and knocking Obama (and Bush before him) for not attending to the Islamic fundamentalists properly, then two senior writers - from the Wall Street Journal and Barrons, and then Sowell.

Post 5

Thursday, June 4, 2009 - 7:38pm

Steve --

Adam Smith: "There is a great deal of ruin in a country."

What I have seen so far is that Obama and his cronies in Congress have doubled the monetary supply since he took office, which will eventually mean the prices of stuff will double -- bad, but not the end of civilization.

Obama has nationalized GM -- which an extraordinary waste of money, but does any rational person expect that GM won't fail, and fail soon, and end this particular foray into socialism?

A lot of predictably bad things have happened due to the switch back to one-party rule -- though, arguably, we've had one-party rule for about the last hundred years, as the two wings of the Government Party have fought for influence.

But, a complete collapse of American civilization? We're still less socialistic than virtually all of Europe, and they've managed to stagger on despite the incredibly braindead stunts their politicians have inflicted upon them.

My prediction is a backlash in 2010 or 2012 ala 1994, when it becomes clearer to the swing voters who put the Democrats in power that this isn't working out as promised, and they return us to divided government.

This country survived FDR and Wilson and Johnson -- wasn't always pretty, the Great Depression that FDR caused really sucked -- but we survived. We'll survive Obama too, albeit with some really nasty consequences of his policies.

Or so I hope. We'll see who is right soon enough.

So what timeframe do you give for this imminent collapse of American civilization, so we can see whether your prediction of doom .... DOOOOM! .... holds up?

Post 6

Thursday, June 4, 2009 - 7:38pm

well, regarding Islam ----

http://www.faithfreedom.org/2009/04/19/the-illusion-of-reforming-islam/

thought it was well written and explanatory...

Post 7

Thursday, June 4, 2009 - 8:44pm

Jim,

I agree with one of your points... that things CAN be turned around in 2010 or even 2012... and I've written about the reasons that I feel some optimism.

But we have multiple threats facing us that are unlike anything we've faced before.

More money borrowed in 60 days than in the entire previous 30 years! That has to stun you. When a nation can't safely raise taxes enough to cover new spending, without bringing on a massive collapse in the economy then you have to print or borrow. To print the amount in question can set off a runaway inflation - the keyword is "runaway" and that is a level of destruction this country has never seen before (the times we destroyed our own currency were so long ago that we were an agrarian economy which could damn near get by bartering with chickens). To borrow at this scale may not even be possible - there is a limit not just to the confidence in our ability to repay, but in the capital available to be borrowed. And the capital markets can't absorb this kind of quantity without huge interest increases - more than we can pay at current tax levels (Yes, just the damned interest!). In other words, if we can't back ourselves out of this position and totally change these bailout, stimulus, nationalization, and federalization practices, I don't see the economy surviving. You mention the last depression... A walk in the park compared to a fall from our current height. This isn't the same country that we were in the 30's - we have built complex layer on top of layer - many more levels compared to the structure of our economy back then (mostly some heavy industry that was mostly directly financed and lots of agriculture. Not any more.)

Imagine that you have an angry, stupid teenager in your household and they take the checkbooks that let them write checks against every account you have - IRA, checking, savings... the whole thing. Imagine that your house has a mortgage greater than it's market worth. Imagine this offspring from Hell also runs up your credit card. Imagine that your boss has cut back your hours till you only make half what you did, and that withing a month or so you will be laid off. We are in that spot, but most of the nation is in denial about what comes next. They keep repeating the mantra that it has never gotten that bad before, no matter what, we'll survive, it'll be okay.

We are a different nation psychologically and our skill sets differ. Back then, we were a nation of very self-responsible individuals and there was almost no sense of entitlement among the population. A great many people had the simpler skills of survival - now we know how to twitter, bundle tranches of subprime mortgages, float bond issues, but not many of us know how to survive on a farm, fix our plumbing, build a house... and there is a portion of the population that will riot and loot. We are not the nation we once were in many ways.

And to build fresh, new business enterprises as a way of rising up out of the ashes isn't as easy as it was back when the total number of pages of regulations was miniscule but now they take a semi-truck just to move all the law books from one area to another. Each regulation is like a weight on the shoulders of a business -draining it's resources. Imagine a strong man being knocked down, and then when he tries to get up off the ground, he has to do with hundreds of lead weights hanging off of him.

There is another gigantic difference that is in the progression away from the constitution and the small federal government. The progressives in the first years of the 1900's got it started, and FDR moved it a large step forward, but Obama has gone way past that. He has left the concept of legal - he makes decrees. He got the spending via 'legitimate' vote... but no one challenged the constitutionality of TARP or the Stimulus bills. And no one is fighting against his ignoring the few limits on those new laws - he spends it where he wants, and makes decrees that have no law behind them (like firing the GM president, like setting salaries and bonuses). Law is the only tether to justice and the organized protection of rights. It has to be observed, now it isn't. He nominates Supreme Court justices based upon empathy not law.

It isn't sensible to make comparisons to how European countries have been socialistic for decades and they are in a state of total disarray. Instead compare Venezuela under Chavez, or look at the times that Argentina has been taken down the path of economic destruction, or look at Austria between the world wars. Those are more realistic comparisons, because we are experiencing a sudden change in basic principles whereas Europe made a slow, steady march into their current status. Argentina, Venezuela, and Post WWI Austria experience large changes in a short period - changes that could best be expressed as totally irrational abandonment of common sense in economics.

Post 8

Friday, June 5, 2009 - 8:04pm

Steve -- I too am stunned at the degree and rapidity of the advance of socialism. And I won't rule out the possibility of a collapse on the order of the Weimar Republic due to hyperinflation if current spending levels and deficits continue.

What would rein that possibility of a collapse in is that American voters largely vote their pocketbooks. If the economy sucks when an election rolls around, the ruling party loses power.

My concern is that Obama and his Democratic majority were swept in by a wave of naive, adoring new voters who haven't lived through a really sucky, long-term recession, who don't have the institutional memory to quickly figure out where the current disastrous trends lead. If their learning curve isn't steep enough to get us to divided government in 2010 (or at least considerably less than 60 votes in the Senate), or worse yet 2012, then this one-party rule could dig us into a really deep hole.

So, I am cautiously optimistic that enough voters in swing states and swing districts will get a frickin' clue to reverse course enough, cause enough Democratic incumbents to lose their seats in 2010, that the surviving Democratic incumbents will start reining in Obama's expansive spendthrift ways.

I'm saying I think you're wrong, but I'm not 100% SURE you're wrong. Not yet stocking up on guns and ammo, but I do have several month's supply of nonperishable food stacked around the house (a legacy of my stint as a Morman, some of whom literally believe we are in the End Times and make you look like a sunny optimist by comparison).

Post 9

Wednesday, June 10, 2009 - 9:01pm

In a nutshell, this is why I am bearish on America.

1) Federal Spending is literally out of control. The tidal wave of spending for social security and medicare is, by itself, entirely sufficient to force the Federal Government to default on its promises to pay, or to inflate the value of those promises away. Add "stimulous" and "bailout" spending to this Federal liability, and there is no question that Federal spending--and by implication, the Federal debt--is unsustainable.

2) The Federal government will, for as long as it can, inflate the monetary base to fund Federal borrowings. However, this is a losing hand, because lenders are not stupid. Within the next few years, lenders will abandon US Treasury debt en masse. Interest rates on Federal Debt will, of course, skyrocket.

3) Runaway Federal spending, borrowing, and inflating is destroying the capital base of Amerian businesses. Each of the foregoing coercive activities force the consumption of scarce and precious capital. Capital consumption guarantees tough times ahead.

4) Runaway Federal spending and inflating will eventually produce mass inflation. This will impoverish many Americans, which is tragic. But it will also greatly weaken the power of the Federal government.

5) Federal power will decline, although the form of federalism may endure, for an obvious reason: poverty. The Federal government will no longer command the economic resources to bind the loyalty of states and interest groups to its bidding. Whether through default or through inflation, the Federal government is about to lose its power to buy support from the states and people.

Post 10

Wednesday, June 10, 2009 - 10:54pm

Mark,

I think it is even worse, if you can believe that. I imagine that all of the pain, confusion, fear and panic that will ensue with collapse you describe, will motivate people to go along with anyone that is in power who promises to fix things - to make it all better - and points out an enemy to blame. (Economists never grasp the full impact of psychology in their field)

Somewhere along the way, plans will be put forward that enable Obama to pack the Supreme Court (Henry Mark Holzer's idea - as he points out, it is what FDR tried). The liberals will extend control over all aspects of life. The states will become broke and give in to the federal government. Mostly guess-work, and certainly depressing, huh?

I see a way out of it, but it takes a really big tea party type revolution at the 2010 elections that starts the process of reorganizing our fiscal and monetary systems.

Post 11

Thursday, June 11, 2009 - 8:08am

Steve, as you well know, the big problem is looming poverty, brought on by massive state intrusion into economic relationships. To many, this claim sounds exaggerated. I wish it were. Unfortunately, we have reached the tipping point of economic decay, in which businesses (in aggregate) are consuming capital. They don't do so because their owners are lazy or incompetant, but because Federal and state taxation, borrowing, regulating and inflating leave them no choice.

Of course, the state responds to this problem in precisely the wrong way, by ramping up its intrusions, ominously and on an unprecedented scale. Fed assets have trebbled from $1 trillion to $3 trillion in 2 years), and the monetary base is up 250%. The Federal deficit will approach $3 trillion this year, which is driving interest rates skyward, even as the Fed tries to force them lower.

The state is well down the pathway toward state capitalism, i.e. "free enterprise" that Mussolini would have applauded. Political favorites have their losses socialized, and their profits guaranteed. This crowds out productive enterprise.

I don't anticipate a happy outcome. But I do think the Feds will lose a lot of hegemonic clout, because Default Day is rapidly approaching. Default may encompass the reduction of SS and Medicare payments, combined with rampant inflation that decimates the value of federal tax grants.

This will put and end to Americans waging foreign wars around the globe. That's a happy thought, for me, at least.

Post 12

Thursday, June 11, 2009 - 11:13am

Mark, I disagree with you, partially, on war. The four horseman are near enough to hear a distant pounding of hooves.

While it is true we wouldn't be able to budget for a war, that has been true for some time - we finance the ones we are in with debt. After borrowing exhausts lenders, after currency inflations go so far as to rob the printing press of their powers, there comes the last refuge of panicked tyranny - the war of conquest and distraction.

When a nation's people are at the extreme short end of survival and deep in panic, the charismatic leader gives them a common enemy who is claimed to be the reason for their problems, and whips them into a destructive fury. It is just the final act of destruction. The culmination of the process of adjusting the population down to meet the new, lower levels of productivity and new, lower levels of real capital - the process of faith and force reaching their ends.

Look at North Korea to see how far down on the scales of productivity and capital wealth a nation can be and still wield military threats. We can expect one of two ends in the economic collapse of a nation that has gone too far into the dark side: The surprising collapse - like the Soviet Union, or the sudden last military destruction of a waged war that is like a compulsive gambler's inability to stop himself from hitting bottom with that last irrational bet.

The tendency is to think, "not here, not us, not now." But major changes often arrive as suddenly as a storm front. Mass psychology is a phenomena of sudden changes in response to immediate and severe stresses. The character of a nation can change at the speed of a people's panic. As fast as the making of a choice, principles are abandoned - where many of the people had neither a strong hold nor deep understanding them - and where many others stood by, watching in horror, or telling themselves, "this really isn't happening."

The last hope, at least for our lifetime, is in human ingenuity, the fact that many good people are seeing freedom being destroyed, and can fight back. They can wage a war in the courts, in public forums and demonstrations and at the voting booth. Just as the negative forces can amplify create a downward spiral, the will to fight this can spread and amplify. There is a deep psychological reservoir on both sides. We have been living among unprincipled idiots for decades, but they remained fairly impotent with their potential ability to contribute to destruction untapped because the system still has too much of the founding fathers in it. And there is a reservoir of character based upon rational principles - it is largely untapped in this war - until now - because the threats of destruction weren't seen as imminent enough. Reason is on our side, but there are no guarantees.

Post 13

Thursday, June 11, 2009 - 10:41pm

Well, you make a good point.

My hope that aggressive foreign military adventuring will get choked off by growing Federal impoverishment is probably naive. Big government is the most dysfunctional social organization imaginable.

I doubt political action of any kind could change our course.

Post 14

Thursday, June 11, 2009 - 10:47pm