Before I begin...
I have never before edited or censured comments on this Blog. That policy is no longer. All intelligent, thoughtful, helpful, reasonable comments are welcome no matter how much they might disagree... Mean spirited, demeaning, asinine, pointless, thoughtless, and just plain sh*tty comments by morons, nit wits, and the immature will be deleted forthwith.
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It is a cold, cruel world. And as it turns out, "Peak Credit" (the term coined by Mike Shedlock) is likely as big a problem in the West as "Peak Oil", and likely will be for another few years... we shall see just how correct folks like Me, Jeffrey Brown, Saif Lalani, Ken Deffeys et al have been with our export/import models soon enough - by the end of 2011, I should think.
Right now, while the "financial system" has been stabilized, it certainly has not been fixed. I am going to speak of the U.S. economy, for the most part, and its effects on the American people and the ROW. This is going to be a brutal, politically incorrect assessment of where the U.S. finds itself, and what the U.S. is going to be like post purge - because that's what's up, the U.S. is about to purge, major gastro-intestinal distress with a release coming from both ends.
How did we get here? Glad you asked. Sooooo.... here comes MY definition:
We got here because "WE" wanted to reconcile an unfair and unjust world with the fair and just G-d that our people were purported to believe in, but Who just seemed to be falling down on the job (otherwise why play G-D?). After all, as George Carlin famously quipped:
G-d is all knowing, all powerful, all seeing, and all wise... he just can't handle money. He always needs money!
Just kidding.
Anyway, since life was not fair, and we all agree that it is not, and we wanted to show what kind of society we were... the nice folks in the FDR administration came up with what we now know as Social Security et al (by et al I mean all of the myriad state and federal transfer payment programs). From the Wikipedia Social Security site:
U.S. Social Security is a social insurance program funded through dedicated payroll taxes called Federal Insurance Contributions Act (FICA). Tax deposits are formally entrusted to[3] the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund. The main part of the program is sometimes abbreviated OASDI (Old Age, Survivors, and Disability Insurance) or RSDI (Retirement, Survivors, and Disability Insurance). When initially signed into law by President Franklin D. Roosevelt in 1935 as part of his New Deal, the term Social Security covered unemployment insurance as well. The term, in everyday speech, is used to refer only to the benefits for retirement, disability, survivorship, and death, which are the four main benefits provided by traditional private-sector pension plans. In 2004 the U.S. Social Security system paid out almost $500 billion in benefits.[4] By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for social security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid.[5] Social Security is currently the largest social insurance program in the U.S., constituting 37% of government expenditure and 7% of the gross domestic product[6] and is currently estimated to keep roughly 40% of all Americans age 65 or older out of poverty.
You can read the above link yourself, you don't need me. You can see the years where the coverage was expanded, and the steady increase in the tax rate, and the expansion into healthcare in 1965, and the many adjustments to the system thereafter...
Now, superimpose the timeline in the above link over the Oil production and export/import timeline for the U.S. In 1935, the year Social Security was enacted, the U.S. was the world's largest exporter of Petroleum. In 30 years, 1965, when Medicare was enacted, the U.S. was only 5 YEARS from the peak of its production, and within an additional 35 years, imports of Oil into the U.S. were DOUBLE domestic production. In other words, in a time span LESS THAN A HUMAN LIFE Social Security went from enactment to insolvency and the U.S. went from the world's largest Oil exporter to largest Oil importer. When Social Security was enacted in 1935, the presumption was that the U.S. would be able to expand its Oil production forever - and that presumption has turned out to be quite wrong. There was also the presumption that Social Security benefits, and later Healthcare (Medicare) could continue growing at 2X or 3X the rate inflation or GDP - and that presumption has turned out quite wrong.
So here we are, its 2010 and Medicare and Social Security, 2 programs growing exponentially and that have entered their terminal apogee at the extreme NE quadrant of a quadratic table:
This is the graphical representation of "e". Conceptually, anything growing exponentially will grow to infinity, or have the slope of the line go vertical. Since Medicare and Social Security cannot GO vertical... well, we all know what has to happen.
BUT!!!
Addicts have no idea about graphs, and slopes, and exponential functions... they only know that they need their fix - the government check in the mail, cheap oil to drive 40 miles each way to work, credit cards to assuage depression brought on by long commutes, expanding waste lines and boring love lives... by consuming sh*t we don't need and forcing us to work at jobs we hate to continue to do so, not to mention to pay off those student loans... and, boy! was the Government ever successful at addicting millions of people to years and years of idle time funded by the demographic tail end of that graph...
So, here we are... with demographic time bombs going off all around us... otherwise known as California, Illinois, New York, the Federal Budget.... and crazy people educated well enough to know better insisting that the above sloped line is NOT true - pay no attention to that man behind the curtain - none of us has any responsibility at all because all we have to do is tax the "rich"! AND mock people living in fly-over-land because they had the inability to see the simple logic that the elites know better...
Now the time has come... soon the check WON'T be in the mail... because the international bond market won't let Uncle Sam get to the post office (they're broke, too)... Soon... lunch won't be free, love won't be free (whoever said "free love" clearly had never been married and divorced), healthcare certainly won't be free...
Americans will be forced to save money and live within their means! Can you believe THAT? We will actually question taking on 200k in debt for Liberal Arts educations, pack lunches, cook in, buy things second-hand, wear hand-me-downs, work until we die, and pay for our own mistakes with our own money. The first generation going through this won't like it one little bit, but those that come after won't know any other way. Some people will still get rich, and others will not. Some people will be good looking, while most will be as plain as Abe Lincoln. Some will live long, while others die young. We WILL get over the idea of trying to legislate LUCK away. Luck will always happen to a few, and not to the rest and we will give up trying to make life fair by hiring government thugs. People who call themselves "Liberals" or "Humanitarians" won't be much of either unless they can do it with their own money, but they won't have much so that won't be an issue.
Old people that have no family and that have been relying on the government are in for an incredible experience - and not a positive one. Most recent college grads will be fortunate to find menial work having nothing to do with their training for pay that will leave them living on top of each other Manhattan style - but with none of the benefits of living in Manhattan. Each and everyone of us will be forced to actually produce something or go hungry. On a happy note, divorce lawyers will starve to death... not that I'm not bitter...
The Great Recession and the Great Deflation are going to be bigger than Peak Oil for the near future, and they are going to humble Great and Small alike.
To Be Continued...