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Debt Leaves U.S. Economy No Way Out

By Rick Ackerman Posted on May 24, 2011, 2:18 am EDT Last Updated May 24, 2011, 3:21 pm EDT

[ Doug Graham, a frequent contributor to Rick’s Picks, finds striking similarities between the U.S. economy today and that of 1980s Japan just before the bottom dropped out. Can we change the big picture in time to prevent an economic collapse? Not likely, says Doug, who saw clouds gathering over Tokyo a generation ago, when he worked for a Japanese firm as a sales liaison to Compaq Computer in Houston. RA]

In the late 80’s I often visited Japan for work with the IC companies.  It was an amazing time.  They appeared rich and powerful.  Their dominance was awesome, and with a little extrapolation it was obvious they would soon rule the world.  They seemed unstoppable.

It was 1987 and I was employed by a Japanese IC maker and responsible for sales to Compaq Computer in Houston, Texas. For a twenty-something, it was a thrilling job.  I was taking classes in Japanese.  I’d visit Japan every few months.  Two things jumped out at me regarding Compaq’s use of technology.  Of course, they built computers, and computers were productivity machines, so they made sure that every Compaq employee had one and used it to its extreme.  It made sense, since they could consume their own product and create their own productivity at cost.  Second, e-mail.  In 1988, Compaq was (internally) communicating like crazy electronically. 1988.   Most companies weren’t and this was a great advantage.  They ate their own cooking.

Juxtapose that with Tokyo:  In nearly every department, on every story of our humongous Tokyo building:  two rows of ten desks, butted up against each other.  At the end of the row was one computer (they were extremely proud that they’d made it) which all twenty employees would share.  Internal communication was in person or by phone or fax.  Inefficiency by design.  My thought was, “You guys are gonna get smoked!  You have no idea how fast the Americans are running.”  I am not condemning the Japanese, I am merely stating that they had a culture of inefficiency and the U.S. did not, and it would surely end the Japanese swagger.  (Demographics is just another layer.)

Waste ‘Unstoppable’

It was soon to be over, and there was no way to save it unless they bit the bullet and dramatically changed, but change is difficult.  Sound familiar?  I feel the same way about anything connected to U.S. government.  It simply cannot support its expense forever.  Yet, nothing stops the waste: expenses rise while revenues decline.  The departments, jobs, pensions.  They all are at risk.  And nothing will change because the system and its participants won’t allow change.

Regarding Japan, a generation later, all of this is obvious in the data.  The Nikkei is down 75%.  Most of this occurring in the ’90’s. Ditto for real estate.  Total wealth has contracted back to 1980 levels!  My point is this:  Big trades are obvious, but the trees,  the day-to-day action, the various articles screaming this or that, cloud the obvious.  They call it “normalcy bias”.  Critical thinking leads you elsewhere.  Our big trade: The entire U.S. debt structure and the currency in which it is based must be bet against. Our public debt and unfunded commitments weigh heavily on all productivity.  Sure, some entrepreneurs overcome it and their creativity gives us all benefits.  I’ll suggest that unless they are inventing new, inexpensive energy, however, they are merely temporarily swimming against an overwhelming debt current.

The world is going through a gigantic upheaval in its currencies and its public debt structure, which are virtually one and the same.  There is no way we can pay our debts without fantastically devaluing the currencies.  Yet our government openly states that making government cuts will increase unemployment, and that it is therefore the wrong thing to do.  Sounds Japanese to me.

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  • Chris T. May 26, 2011, 7:04 am

    Aramco gold coins/medallions:
    sounds interesting!

    In any case, the post about the military above is correct too, guns ensure acceptance of the dollar.
    ANd its not just our guns forcing this on unwilling, irs also our guns helping the local oligarchs stay in power.
    We have let them be so utterly corrupt for so long, they are completely dependent on the support we give, and will give, so long as they toe the line.

    If they drop that, we drop them, but the localry will never thank these long term corrupts, but cashier them.
    Thas how we use our guns in the M.E., the first is more often seen in Latin America

  • mario cavolo May 25, 2011, 8:23 am

    Hey, let’s, by the way, give Rick and team huge kudos for the fabulous new babe banner…oh so delightful and dumb she is…masterful marketing…

  • mario cavolo May 25, 2011, 7:44 am

    Here’s another angle or two from a macro point of view…

    While the west (North America and European continents) are at the peak of long term economic cycles, facing historically high debt levels, struggling to figure out where future growth could be, the fact is that the Asia Pacific region plus Brazil/SA region is now on a historic rise led by China.

    That being the case, if we look at the picture as “global” expansion, and with the USD as the world’s reserve currency, then perhaps the liquidity expansion of the monetary base is ahead of the game, but down the line will be absorbed and balanced on the global monetary scale?…Even Soros well pointed out that re-capitalizing the U.S. banking system was unavoidable. The bastards really did bring the whole system to the brink and it had to be done, no matter the elitist, rotten, lawlessness.

    The point for the U.S. economy is this: Becoming a relatively smaller player on a growing global playing field. That’s realistic. In other words: Due to Asia’s expansion, global GDP is healthier than U.S. GDP. We can agree on that much. And so the U.S. GDP and European GDP as a percentage of global GDP will be expected to decline, while Asian GDP as a percentage of global GDP is rising. So U.S. and European GDP overall will be smaller slice of a still growing pie. That’s called rebalancing, not necessarily a crisis or a disaster. It makes sense after decades of excessive U.S. economic dominance. The crisis, the disaster, is happening internally within those countries and we know that crisis is the decline of the lower/middle class.

    Of course this global scenario depends on these countries ability to play nice together on the global playground. If any one country gets too far out of line, there will be a myriad of societal and economic woes further upon us; the global economic connectedness now unavoidable.

    Think about it from a “foreigners” POV, a foreign country’s POV; that the Asia Pacific region led by China does NOT under any circumstances want to see the west, the U.S., European markets or their currencies to sink, decline and burn. For the simplest of reasons, those countries are their CUSTOMERS, their demise will hurt the mighty creditor deeply. I can safely suggest to you to China’s leadership has zippo interest in becoming the next world’s leading, driving global superpower. No no no, they just want to quietly continue to gain wealth with a far more insular and pragmatic approach sans the warm fuzzy global holding hands together crap.

    Language & Currency Barrier – with English as the world’s dominant leading language, and the USD as the world’s currency reserve, don’t try to imagine a day when Mandarin and the RMB will actually take their place. Perhaps a century or two down the timeline…?…it just doesn’t look at all to be in the cards the Chinese wish to play.

    Cheers, Mario

  • F. Beard May 25, 2011, 3:51 am

    There is no way we can pay our debts without fantastically devaluing the currencies. Doug Graham

    I disagree. Imagine for a moment that US banks were put out of the counterfeiting business with a 100% reserve requirement and that the Fed was forbidden to create any new money. Would that not be massively deflationary as existing loans were repaid? Now imagine that the US Treasury created some new debt-free full legal tender fiat, United States Notes, and distributed it equally to the population (including savers) at a rate that just cancelled the monetary deflation. Voila! The debt is paid down with no debasement of the currency and no new government debt! Furthermore, savers are compensated for years of artificially suppressed interest rates.

    As for the national debt, that should be paid off as it comes due with a different form of fiat that is only legal tender for government debts, not private ones.

    So you see, restitution and reform can be combined in a neat package. Of course we need fundamental reform in money creation too.

    • Mark May 25, 2011, 6:14 am

      The reason foreigners accept USD is our military and the fact that the Fed pretends to “loan” the money to the Treasury.

      If the Treasury were to issue a fiat without any alleged source (such as the Fed), then the military would have a hard time keeping everyone in line, as the trick would be obvious to all, not just the smart ones. This would lead to immediate devaluation of a new fiat, so much so, that there will be issued hundred time more of it, leading to the hyperinflation.

      Secondly, you can’t have two “legal tender moneys” in circulation at the same time, if the two are of different quality. The Gresham law would make all the 100% backed notes disappear in a flash, while the only available, offered and used money would be again, the fiat.

      Thirdly, the last thing any government would want is a deflation. A government exist for a purpose of extracting wealth from the general population and delivering it to the groups that control the government. Thus, the wealth is spent back into economy. Deflation would mean that the government would have to not only pay back it’s debts (treasuries, fiat and liabilities such as Medicare, etc.) in the currency that is increasing in value. This would mean that the government would have to have the wealth is had already spent.

      This is why no government worth it’s badges will allow deflation. The wealth is gone as soon as it is extracted, so, no deflation, no status quo, only inflation and hyperinflation is politically possible.

  • C.C. May 24, 2011, 9:49 pm

    @gary –

    Understood, but… Is not the ‘safety’ of a currency affected by its debt, or is it more a matter of the perceived safety in the given currency?

    Aside from our geographical size and the fact that we are the reserve currency, what intrinsic safety is there in the USD?

    In a world debt contagion, what are are the underlying mechanics or fundamentals that would allow us to ‘survive’ better than anyone else?

    Thanks –

  • Ned May 24, 2011, 9:38 pm

    Debt?

    There is no debt in usual understanding of the term. Seriously. There are three categories of debt:
    -debt to foreigners (treasuries they hold and FIAT)
    -debt to nationals (treasuries, fiat and promises)
    -debt to FED

    Debt to FED is simply a running tally of how much debt we have already defaulted on. It is already in the past, it doesn’t have to be paid again. Check – kitting scheme, that is all.

    Debt to nationals will be defaulted upon, through inflation. There is no need to worry about this one. All three subcategories of it: the treasuries, the fiat and the promised will be suitably devalued in time due. This is the purpose of having treasuries, fiat and promises after all, unless you actually think that someone ever intended to pay on that as agreed without devaluation (childish).

    Debt to foreigners. Treasuries and fiat will be devalued. They will protest by refusing to issue new debt. For this, we have the military. Anyone refusing to cooperate will be proclaimed a roadblock to freedom, revolutions in their nations will be initialized and international coalitions against them will be summarily formed. If you think I am joking them you probably believe that we have this gigantic military to “protect ourselves form invasion”.

    Thus, as you can see, there is no debt that we can’t pay or deal with. The rates are going up? Well, then the amounts borrowed will have to go up, the basis for everything in commerce will have to be recalculated, new money printed making the old debt insignificant in retrospect.

    China has sold us a huge load of stuff. They got paper fiat in exchange. They might just as well give us all that for free. There is a simple rule: you don’t loan out to someone you can’t control, and if you still want to, you may just as well make it a gift. As soon as loaned out, that wealth should be counted as gone. US could loan money to Japan, and if they devalue or default, then we drop the 3rd one. But Japan loaning out to US is a joke, as it is unenforceable.

    The only mistake we made with china is that we have gotten liabilities (cheap consumer crap) and not assets out of exchange. But still, this is all a resource, after scrap yard processing, however small but still free.

    • Chris T. May 24, 2011, 10:32 pm

      And on that note:
      Don’t forget all those European countries that store THEIR gold in NYC Fed for “safekeeping”, first from the evil Germans, then from the evil empire.

      The total hold in the NY Fed is much much larger than what is (supposedly) in Fort Knox.

      Safekeeping, LOL: keeping!
      Just you let them TRY to get it back.

    • Mark May 25, 2011, 6:00 am

      I believe they tried… unsuccessfully.

      The outcome was that they had to keep their mouth shut, for if their citizens found out how foolish their rulers were, they would be revolutions.

      France, was the only nation that cashed out, due to the overwhelming size of De Gaulle’s cahones..

      Also, Arabs made a deal where they were paid in paper plus gold for every barrel. To hide this from the public, and to take it off the balance sheets, the government is minting a special non-money gold rounds. IIRC, these rounds bear “ARAMCO” on their face.

  • C.C. May 24, 2011, 6:44 pm

    When does the Anti-Christ arrive…?

    • Alchemisteve May 24, 2011, 7:14 pm

      He (she?) is already here.
      It’s one of those things that will be perfectly obvious in retrospect, like Japan 1987.
      I gave a lecture tour of Japan in 1988, and a Japanese friend told me that the land in Tokyo proper was worth more than all the land in the US, including Alaska and Hawaii. I said, “You don’t really believe that, do you.”
      “Yes”
      What are the rediculous things we believe today?

    • Chris T. May 24, 2011, 9:22 pm

      There is plenty of people who believe Google or Apple are worth a couple undred B’s too!

  • gary leibowitz May 24, 2011, 6:11 pm

    The US dollars value is not about our indebtedness. It is about finding safety among the world currencies. If you must choose among the best of the bad why not right here. In a world debt contagion you must choose who will survive.

  • Benjamin May 24, 2011, 5:44 pm

    I kind of feel “a little” compelled to throw my hat into the Steve vs Mario ring, but first…

    Nice and insightful commentary today, Mr. Graham. I do recall the common outlook for Japan back in the late 80s through early 90s, and your first paragraph pretty much nailed it. I have strange little story about that, myself.

    Way back in 1990 or 1991, my then-highschool started to teach Japanese. But it was quite suddenly cancelled after the first year year of resounding success, due to “lack of interest”. Which was bull, because so many people want in, seeing as how Japan was poised to take over the universe at the time; it was the hardest class to get into because there was only a single, one hour class every day (the other four languages offered had at least three classes throughout the day, as they always had).

    My guess is that, in an unusual show of quick response to change, the class was cancelled due to the outlook for Japan’s future suddenly going sour. But even if that was not the case, the general outlook did change. And why was that? I won’t claim to know everything about Japanese culture, but over time I’ve gained the impression that the following article probably has the right of it…

    http://www.americanthinker.com/blog/2011/03/fukushima_and_the_truth.html

    Seems that, when confronted with a sudden change for the worse, the Japanese are just not very quick to respond. But then again, that can be said of humanity in general. Which brings me to something Mario said…

    “I suggest that most, if not all solutions and strategies for both big companies and individual entrepreneurs to improve prospects and build for the future will spring from the willingness and wisdom of looking at the world as a global system, more complexly weaved together than ever, with global opportunities, not patriotic protectionist nationalism.”

    It is the nature of free-floating currencies to cause disruptive amounts of change. Change that human nature is not equipped to keep up with because in truth, no matter how smart and advanced we might become, simply cannot be done; deceit is unreality and the human mind absolutely depends on it’s anchor to reality. By the nature of deceit and the human mind, then, the forcing of the latter to operate according to the former necessiates devastating outcomes.

    In my ongoing quest to learn what truly matters in life, I have come to the profound realization that protectionism is in fact for the best. Take, for example, intellectual capital, and what the Constitution has to say about it.

    Where shall I begin? Well, for starters, it, like every other sound and humane, Liberty-respecting thing, is under intense bombardment these days (Constitutional public health policies are also under attack, but that this is the same story for another time). Often improperly labeled as ” evil protectionism”, the abolishing of the patent would in fact protect the worst that the world has to offer.

    The Founders were indeed wise to include them, and to give that regulatory power to the Congress. They realized the importance of preserving capital so that a nation based in Liberty would eventually become the world. But not without the necessary and proper fences in place. In globalization, the what being promoted (the good) is mixed into bad into an indistinguishable goo. Everything changes too suddenly, but eventually favoring the most tyrannical/unethical governments. But even the worst of them will in time find the mass of goo to be unmanagable toward the fulfillment of their own ambitions.

    But (and second), even if every country in the world were to have an exact same Constitution as ours, regulation of intellectual capital would still be a necessity. Why? Because human nature is such a thing that sees most people wanting to be first in, first out of The Next Best Thing. But the law of diminishing returns says we only need so many inventors producing the same idea. If a free-for-all is allowed, we can look forward to continuous boom-bust cycles. And as people are broken by their own rush to fulfill their greed, natural anti-liberty forces like disease (again, public health policy matters) can begin to take root. Resentment and xenophobia ensue. Civil strife follows.

    Quite simply, and quite eternally, global free-for-alls are bad for all, no matter how well they may start off. The reason is that they require two “drugs” in order to facilitate, those being steroids (overly strong exporters, doing the bulk of the work) and heroin (the sloth of easy credit, ie). But that is not how the world sees it. I am reminded of a Rolling Stones song…

    Just as every cop is a criminal
    And all the sinners saints
    As heads is tails
    Just call me Lucifer
    ‘Cause I’m in need of some restraint

    Basher, above, has the right of it. Every good thing has for too long been demonized out of practice, as “out of style”, as “hate-filled xenophobia”… where it was ever practiced at all, that is. And, of all things, the good is blammed for causing so many problems today. There is a camp that believes that globalization had for so long been delayed the “irrational, protectionist” laws of the past, that we just don’t know how to cope outside of them. But, given sufficient time, they believe, things will right on their own. We mortals do not have infinity on our side, though, and never will as it impossible for deceit and reality to ever share the same world.

    Steve is not just whistling Dixie. Obama is a truly warped individual. He is not the only one. Even Ron Paul has his detrimental short-comings. And yet, they are all just a product of a nation that has, like all the world, either never realized or abandonded sound governance. Steve, and others like him, are not HIS enemy. He is his own, like so many others world-wide who have not yet thought things through nearly enough.

    What more can I say, other than that we humans seem to be absolutely determined to have the absolute worst fate that existence has to offer? Where everything is nothing, and nothing is everything…

    What more can one say and do, other than to speak honest ill of what is honestly ill?

    • Rich May 24, 2011, 6:07 pm

      Benjamin, you raise a good point re the Fukushima Face-Saving Operation that may kill more people globally than the million Chernobyl poisoned…

      http://www.helencaldicott.com/

    • Chris T. May 24, 2011, 9:20 pm

      There is much to be negative about, but the human condition is not all bad.
      If you want to know what humans can do, with one of its best examples, put on just about anything by Bach, and if you can do that with a Gould, a Richter, a Walcha, all the better.

  • Rich May 24, 2011, 5:27 pm

    Doug, nice thought piece that reminded me my first PC was a Compaq the size of a sewing machine that ran Visicalc and Word Perfect.
    I went to the Tokyo World Orchid Conference during the Cherry Blossom Festival in 1987, and met in Investment Firm Boardrooms to pitch US small caps.
    There were urine-stained homeless sleeping in the Gaijin Hotel Shinjuku Subway Train Station while the bus, subway and taxi workers wore white gloves. Everyone was very efficient, polite and esthetics were paramount, but underneath the mercantile prosperity was an inflexible stiffness and resistance to change and foreigners that foreshadowed their 1990 peak and collapse, regurgitating US acquisitions like Pebble Beach and Rockefeller Center.
    Twenty-one years later, it appears the same.
    Japanese housewives may have been big Forex savers through the Post Office, but their children did not want to take care of them, and there were few gaijin except Koreans to take low-paying jobs like Asians and Mexicans in the US, hence the emphasis on robotics. Fukushima wiped out a lot of Seniors.
    Having lived in England, the British Island Nation seemed to have some of the same economic inflexibilities with Labour Unions and 20% VAT disappearing the economy and middle class and increasing the welfare state.
    While China may be the current global growth GDP leader, 2010 GDP per capita of $4300 put them 99th in the world, and most of that income went to the elite, with hundreds of millions living in dirt poverty, as Mario may attest. Windmills and apartment buildings are unconnected and empty in the hinterlands.
    Any attempts to import British, Chinese or Japanese political systems may doom US to economic failure, no matter what the sociopaths claim.
    The US can still service its sovereign debt, ten times the size of equity, as Ron Paul and others note.
    But by being bailout nation, it cannot repay it, as Adam Smith noted some centuries ago.
    Therefore, a combination of debt default deflation and flight from debt into equity may bode well for stocks hitting new highs.
    One indicator of how soon this occurs may be whether we refuse to raise the debt ceiling without an equal or greater cut in government spending…

    • Chris T. May 24, 2011, 9:00 pm

      Don’t worry, there will be a bit of noise from the Republicans, with a little tit-for-tat, and then you will see the new 15.9B debt-ceiling

    • Chris T. May 24, 2011, 9:00 pm

      15.9T of course!

    • DG May 24, 2011, 9:23 pm

      Does anyone seriously think a conscience will be grown now? As Shakespeare said, “and thus, conscience makes cowards of us all….”

  • BDTR May 24, 2011, 5:20 pm

    Differences well noted, Chris T, to which I’d add emphasis on a vast culture in sustained corporate corruption of Congress, the Pentagon and, of course, increasing by default with every chief executive since WWII.

    The departing Eisenhower gave explicit warning of the corrosive influence of the then designated military-industrial-complex. All one really need do is follow the concentration of wealth since as the American middle class is progressively, surreptitiously sucked dry.

    For those that echo the laughable accusation that, in this immediate instance, ‘paupers’ irresponsibility has bankrupted America, please be mindful of where the wealth has gone. This hasn’t been an assault on private property per se, it’s been one of strategic destruction of broadly held equity and savings of the middle class. The destruction of what makes economy sustainable.

    Throughout the course of this multi-generational, corporate driven erosion of legal protections against monopoly, anti-trust and constitutional monetary standards, the victims have always been promoted as the perps. Now, the floodgates for corporate political control of government have been finally opened wide by the best Supreme Court delusion can buy.

    Having the largest per-capita concentration of prisoners in the developed world, courtesy draconian, corporate conceived and politically driven drug laws further enabling the corrupt police state, we’re well supplied with overflow capacity thanks to the foresight of ‘Patriot’ act prophets of domestic terror and political usurpation ala farm-worker immigrants. Now, there was over half a billion public $’s of congressionally uncontested, serial no-bid largess to Halliburton’s elite shareholders.

    So, while the richest Americans were given executive ordered DoJ pass for stashing their untaxed Halliburton gains in off-shore accounts, bankster mass-fraud bonus rewards with taxpayer billions, record profits for public subsidised Big Pharma, Oil, Agra, and weapons-techster profiteers, … complaints of the spiralling costs of inadequate to marginal medical treatments for veterans of corporate wars are contentiously irresolvable political playthings, easily forgotten thereafter in the din of the age of predictably distracting misinformation, propaganda and pretentious distinctions of partisan irresponsibility in a one party corporate state.

    Meanwhile, the boom-bust methodology of Wall Street’s controlling elite, the one’s with no PTSD or pressing issues of private property ownership, unfunded pension worries, lay-offs, food stamp dependence, foreclosure notices nor absent eager hands-out political representation with a healthy sense of class entitlement, …lays the blame of national insolvency at the door of the great unwashed for not having more equity and progeny to surrender to Orwellian Pax Americana. Nothing of the epidemic political sleight of hand dipping into worker funded public pension and SS funds with $0.00 in taxes to publicly subsidised mega corporations with record profits and the lowest taxes on the wealthiest Americans in a century. No, it’s the fault of the stinking poor, infirm, old and slave wage migrants.

    High-tech gaming the system to death is America’s final economic solution. Technical innovation founding New World dis-Order. A predictably zero sum eventuality from the best MIT minds that fiat in delirious greed could buy insuring third world slave wages universally.

    The Japanese had no equivalent malfeasance nor abject abandonment to all but a pretence of democratic principles, political ethics and social responsibility. Never in the history of humanity has so much wealth, promise and opportunity been so contemptibly squandered.

    Now, a hard reign begins.

    “I heard the sound of thunder, it roared out a warnin’, heard the roar of a wave that could drown the whole world”
    – A Hard Rain’s A-Gonna Fall – 1963. Bob Dylan, 70 today. Happy day, Bob. Thanks for the heads-up.

    • Rich May 24, 2011, 5:47 pm

      Well writ BDTR:

      GS Chair US Treas Sec Paulson sold over $400 M of GS stock and paid no taxes. NY Fed Pres US Treas Sec Geithner paid off AIG CDSs to GS 100% on the dollar when they were selling at far less in the market, and belatedly paid income taxes due that IMF compensated in a signed document more than 7 years earlier. When we hold ‘Inside Job’ Corporate and Government leaders liable, then we may see economic recovery. Not before…

      http://www.youtube.com/watch?v=jHrK6L91BgA 9:46

    • Chris T. May 24, 2011, 8:43 pm

      Second the Bod D. congrats. Heard the first radio broadcast of Blowin’ from 62 this morning, he sure was young!

      As to your comment, not much to add:
      you can see how cleaverly they play the “have normals” against the “have nots”, all the while masking that they are stealing from the “have normals” and giving token handouts to the “have nots” to keep them mollified / pliant / dependent

      This “they” migrates, at one point its locus was the City of London (some claim it still is), but it seems to be in lower Manhattan Midtown these days.

      If you want to know that OUR game is up, just watcht the migration from that part of the US to wherever, when that happens, then we’re toast.
      Won’t happen for a long time, because despite all, the present locus is a pretty good place to be.

  • mario cavolo May 24, 2011, 4:14 pm

    “If the futures blow past the 123^21 target I’ve been drum-rolling ostentatiously for the last week or so, the implications are bullish beyond anything I’ve yet to imagine, let alone comprehend”

    On your statement above, I’d like to suggest the simplest of reasonable explanations. Most observers can easily see that the bull run has lost the wind in its sail. That doesn’t mean there will be a crash, but the vast majority sense the lack of conviction and momentum suggesting a further strong march upward as has been the case for the past year. That being the case, money is naturally flowing out of stocks, and therefore where?…into bonds, into the USD. Simple. Should it flow into Chinese RMB?…hell yes!, but that’s not a practical, liquid option for most, and so it isn’t happening. Shall everyone put their money in Euros? I think not for all known reasons. Gold/silver? Nice, but a small market relatively speaking. And so, we see our natural current flow of money out of equities and into bonds and USD cash for this cycle, perhaps a few months or longer. Simple, dare I suggest…

  • roger erickson May 24, 2011, 4:13 pm

    > There is no way we can pay our debts without
    > fantastically devaluing the currencies.

    Since all fully fiat currencies are backed not by static commodities, but by dynamic public-initiative, or more directly, public return-on-coordination … then there is a translation of your statement available.

    “There is no way to build dynamic future value without discounting past static values.” That’s called simply exploring emerging options.

    Doesn’t sound so bad when stated that way. People have always been willing to emigrate from the past to the future.

    There is no point in ceding value to static hoarders. As “context-nomads” we’re always forced to migrate to future contexts. Since all physical space on this planet is now full, there’s no easy place for lazy people to hide. We now have to emigrate to a more coordinated future.

    We ain’t gonna get there by kowtowing to banksters who claim we must cede future return-on-coordination in return for current fiat currency. That’s so preposterous I’m busting a gut laughing over it.

    Sadly, everywhere you look, dimwitted, immoral & weak-kneed politicians are busily trying to write binding contracts to that effect. Such unproductive claims will all have to be repudiated, through violent argument and bloodshed once again. All because the majority of our population lacks adequate discernment.

    • roger erickson May 24, 2011, 4:19 pm

      There is a better way.

      Adequate sampling of context = awareness.
      Adequate sampling of interaction = analysis.
      Adequate exploration of responses = maneuvers.
      Adequate mobilization to whatever works = survival.

    • Chris T. May 24, 2011, 8:28 pm

      “[fiat] =] dynamic public-initiative, or more directly, public return-on-coordination”

      That sounds swell like that but is just non-sense.
      Fiat = a confidence game.
      So long as everybody believes in it, it can go on. But once the lack of substance is discovered, kaboom!

      “static hoarders”
      Keeping SOMETHING of what you produce, deferring PRESENT consumption in favor of future consumption is nothing but good.
      It is this ability, beyond what quirrels and some other animals can do, that differentiates humans from animals.
      All your implicit derogation does, is defame prudent and wise management of ones own productive output.

      At heart, I can only think you meast believe in some form of redistributionism, egalitarianism, etc, because any system that permits and enables the kind of thieving fraud we live under currently seems to be justified by you.

      But, it seems to be like shouting into a black hole alas.

  • SteveHJ May 24, 2011, 1:36 pm

    In 1970 Britain had 3 million civil servants and 8 million working in manufacturing.
    In 2010 when the Blair/Brown government fell there were 8 million civil servants and 3 million working in manufacturing.
    A recent reliable survey pointed out that civil servants get 40% more pay for similar jobs than those in the private sector, which, when added to government guaranteed index linked pensions makes civil servants very expensive to the nation.
    The Prime Minister promises that he will get rid of 330,000 civil servants in the next four years, but as natural wastage is some 120,000 a year he is not even allowing full natural wastage to reduce the nation’s costs.
    He needs to fire some millions(say five million) but he will never do that as he wouldn’t win the next election.
    We are doomed to be leeched out of existence!

  • Chris T. May 24, 2011, 9:33 am

    Mario,

    there is one BIG difference between Japan then and us now:

    When their doldrums (as measured by the Nikkei and real-estate, that may actually not be the right metric) started, the country had humongous savings held by its own population

    Whereas, we, embarking now on the Japanese road 20 years later, have a population with little savings, only much debt.

    Even their extreme government debt-to GDP ratio (which went their much more after the collapse than before) is within the context of a large pool of reserves, and a trade-surplus.
    Neither of that for the US.

    Finally, this was not all of their own making:
    The cajoling, manipulation, etc of their currency vs. ours, which we forced on them from the 1980s onwards, caused a gigantic loss to Japan in terms of its assets abroad (cutting the value of their $ holdings by 2/3) and yet, the declining dollar did nothing to lessen our trade deficit.

    So, as sanguine as you can be about Japan, and it still being there, muddling through, and so on, the backdrop is not really comparable.
    Another major difference:
    Demographics.
    A declining popluation and shift in the young/old ratio is generally only seen as a detriment, because of the burden imposed on the young providing for the old.
    However, the need for ever more resources in such a scenario also declines…

    This is one area we are not matching overall, but actually, when it comes to the descendants of those who founded and built this country (for better or for worse), we are not all that much better off.
    It is only in those groups to whom the history of Madison, Jefferson, the enlightenment, or other core American values means less than an abstract notion, that demographic is really different from Japan.

    • roger erickson May 24, 2011, 4:21 pm

      they were saving a static metric: “fiat currency”

      we were preserving a dynamic metric: “rate of change’

  • John Jay May 24, 2011, 3:49 am

    I think we all agree with Doug, there is no way out for the US A financial system. I have read estimates of the Fed purchases in the Treasury market of between fifty to seventy percent. It’s ZIRP or collapse, a return to normal interest rates is not possible. We’ll be lucky if financial collapse is all we suffer. Who knows if the lunatics in power plan a major war with China or Russia, we are continually playing with fire around their borders. We are planning on basing USAF F-16s in Poland, that raid on the Pakistani naval base smells fishy, Obama says he don’t need no stinkin war powers act, Gates says we don’t dare touch military spending, etc. If those in power are spending like there is no tomorow, maybe they know something we don’t! OMG!

    • mario cavolo May 24, 2011, 4:18 am

      Impossible to disagree…all the system, impotent govt, and debt problems are going to weight on productivity for years to come, and may even bring the society to ruin.

      Interesting to note, on the other hand, the NIKKEI is down 75% , and yet Japan is still there. Its not ideal as a society or as an economic power, but it didn’t self-destruct into economic and societal oblivion.

      Neither will the U.S. or the USD. The next ten years could be very Japanese with the U.S. stock market possibly also 75% below its 2008 peak, the economy struggling, and all the other problems that will go hand in hand with that scenario, some of them very painful. But the U.S. and the U.S. $$ are an integral part of the global economy and society, and so the idea of a total destruction of the dollar is far more rhetorical than realistic in the future. It will have its place, over time a weaker place to be certain, but a key place nevertheless.

      Cheers, Mario

    • Steve May 24, 2011, 8:12 am

      Mario, What appears to remain in regard to all things is lawlessness from a U.S. perspective. The office of president Obama is lawless. The congress is lawless, as is the majority who elect congressmen as corporate enfranchisees without moral compass or law. Japan had/has a degree of respect for society/family that does not exist in the United States anymore. I am interested in your perspective on how a Japanese like meltdown within the Order and Respect of that culture compares to the potential/actual U.S. meltdown which is caused by illegal mexicans, outlawry in banking, misrepresentation in stock market, Bernanke lies/accounting, coporate C.E.O. rape of buyers, military disregard for Oath, and U.S. citizen military voter scheme all based in outlawry legitimized by legislative act.

      Obama is a murderer, but; all in congress and the world agree he will not be prosecuted for his crimes.

      It is not the same ole’ game from 30 years ago Mario. This time is in deed different.

    • Anon May 24, 2011, 3:43 pm

      John Jay “If those in power are spending like there is no tomorow, maybe they know something we don’t! OMG!”

      It sure seems that way doesn’t it. The economic calamity when viewed along with the natural disasters on the rise and the TREMENDOUS increase in government building of underground cities and hording food stuffs sure makes one think that maybe we are in this mess because someone does know tha there will not be any tommorrow”

      Check out these links for some astonishing evidence that John Jay may be more correct than he knows:

      http://www.youtube.com/watch?v=tsZwcrGZ4K8

      http://www.youtube.com/watch?v=h24fbn7TZPU

      http://www.youtube.com/watch?v=QqEAKerzl14

      http://www.youtube.com/watch?v=9r5IJJaE7Uw

      http://www.youtube.com/watch?v=Vm39OWE4pxc

      http://www.youtube.com/watch?v=RdpUJfJp7JY

      Then watch this (1 hour presentation) –
      http://www.disclose.tv/action/viewvideo/33373/THE_GREAT_YEAR/

      Then read this article and watch the embedded links (short vids) –
      http://blog.imva.info/world-affairs/bad-news-nasa

      Then if you are still interested and have the time this series lays it
      all out – http://rabbithole2.com/video.htm

    • mario cavolo May 24, 2011, 4:02 pm

      Hi Steve,

      yea, I feel very bitter toward the things I’ve seen going on in the U.S. over the past 20 or so years, which seem to only be getting worse in terms of deterioration and sick twisting of values in the society. But I find myself trying to resist rhetorical lines like “Obama is a murderer” Steve which don’t serve any good from any POV that I can consider… I mean, we can go back, for example, and look at any and every “military” leader whoever said yes to bombing attacks they considered necessary or justified or unavoidable, knowing that civilians would also be killed, and then call them a murderer outside the context of the situation. I will NOT get into those debates with anyone.

      I see the lawlessness, I see the government impotence and paralysis, I can’t find a leader in politics worth being called a leader who is going to do anything to fix what needs to be fixed. They have thrown up their arms and sold themselves to the system. Yet, if I was them, in that position, to preserve my own ass, my own salary, my own family’s well being, to rationalize that I can’t personally change the system even as a Senator or Mayor or Congressman or Ambassador, and so why bother getting my own ass voted out of a job just so I can say “I was right”, No, so would I do what they do and so would you, rationalizing it every step of the way as is human nature, because everything that is going on is relative, is to be taken in context, not absolute.

      How can you blame Obama?…or any other singular part of the picture? Do you think if, for example, Ron Paul could get elected, he will be able to spearhead the needed changes in banking regulations and finance law and lobbying and big pharma and big healthcare and all the other ailments of the system which are so criminally obvious? Someone violated the healthcare industry version of price gouging when they sent me and my wife a $1000 bill for a 15 minute doctor consultation. Who can complain? Where? And to whom to get a meaningful result to fix that obvious outrage? It sits there, its the new reality, therefore its ok, its not lawless, its the new law. Its real, here, now, today and there’s not a f&^%$#ng thing you or anyone else can do about changing it. Of course I won’t pay that bill, I’ll scream bloody murder to every person I face along the way as I refuse to pay that bill, yet in the end, it will simply be a mark on my credit record in the USA as an unpaid disputed bill and that’s a reality I will accept in advance.

      Truth sucks sometimes Steve, spare me the “Obama is a murdered” rhetoric…it doesn’t help or change anything, while I understand there is a lot of truth in the list of violations you wrote up. We all know.

      As Chris points out, many differences between the Japan and U.S. scenarios INCLUDING THE FACT that the U.S. is still by far like it or not the largest most powerful sovereign entity in the world, despite the issues on the table. Lastly, let me repeat my view that the U.S., while a mess, a sad mess, in many ways, is not a place you can generalize about in terms of economic health. I’ll stick with my view I continue to believe accurate upon closer inspection, that for 100 million Americans, they are like a separate marginalized society in serious decline, but for the other 150 million +, their lives have NEVER in the history of the United States, been any better than right now. An objective look at reality reveals this to be a reasonable way of looking at the situation.

      Furthermore, I suggest that most, if not all solutions and strategies for both big companies and individual entrepreneurs to improve prospects and build for the future will spring from the willingness and wisdom of looking at the world as a global system, more complexly weaved together than ever, with global opportunities, not patriotic protectionist nationalism. This being true wisdom no matter how pissed you may be at the many systemic, societal and government injustices taking place in the U.S.

      Cheers, Mario

  • Basher May 24, 2011, 3:29 am

    Let us suppose we are ready to make one big nationwide week-long voting session to end all wrongs. Do you think we can change anything? Small things only, I bet, marginal. Not the big things. And this is assuming that there isn’t going to be any media propaganda, or corruption about it. We are just going to lay it all out and make decisions. No change will happen.

    Why?

    Because, there is this thing called “No taxation without representation”. This is a guard that the founders put in the code. However, they forgot to secure the opposite from happening: “Representation without taxation”.

    Everyone is represented today. Not everyone is taxed. (Yes, covertly, everyone is, but openly, which is what counts in human psycho – far from everyone). That means that there is a group of people represented (read: having voting power) and not carrying any weight of their decisions.

    This group will obviously be interested in exploitation of the system to their own benefit only. They are voting and will continue to be voting in favor of not only “Status Quo”, but in favor of exacerbation of the current situation. This is why no reform is possible. Democracy and Universal Suffrage coupled with lack of Private Property (there is no private property in US) is a deadly mix, – aren’t you proud of the heritage?

    I think it was Jefferson who said (but I can’t find the quote) that: – “One can not possibly delegate a right to decide on the property of another, for he himself does not possess such right in the first place.” Makes sense?
    In other words, no one can vote on the property of others, not even a community.

    But this is exactly what we have been doing all along, and it has to stop even if due to the catastrophe. Paupers will make sure we have a catastrophic collapse. What else can they do, go work? They have a right to work, but carry no responsibility for the decision. Suppose you own a factory, – your vote is just the same as of any of thousands of paupers looking to divvy it all up.

    In society that was built up using private property, but that has abolished that same private property, the collapse is guaranteed, for it has to return to what would have been achieved without property in the first place.

    (I am not a tax supporter, I used tax as a concept, as a device to deliver my point).


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