Amerika

Posts Tagged ‘default’

Democracy Implodes As Pension Bomb Detonates

Friday, May 26th, 2017

As Alexis de Tocqueville warned, at some point people realize that they can induce politicians to bribe them with money taken from taxes, and they will spend tomorrow on today and leave nothing behind. In the liberal democratic West, this takes the form of spending on entitlements, specifically pensions which have created a massive shortfall that will cause the collapse of Western democracy.

In private industry as well as in government, a pension tsunami is going to destroy solvency entirely. Pension shortfalls are bankrupting cities and despite projected taxes from new immigrants will not be solvent at a federal level either.

The fad and panic that is diversity was in fact cooked up in order to fund pensions from the people born in the 1940s and has not brought in the revenue that was hoped for, but has instead drained other social programs, on top of financial collapse of the entitlement programs which are the biggest addition to our budgets since the 1950s.

Democracy voted for free stuff, and figured it would pay it off in the future. Now the bill is due, just in time for those receiving the bulk of those benefits to eat them up in medical end-of-life costs and then perish, leaving their children and grandchildren to be born as debtors to failing nations.

Now we see how it will all end: through a pension tsunami shortfall bomb that will end Western governments:

Longer life spans and disappointing investment returns will help create a $400 trillion retirement-savings shortfall in about three decades, a figure more than five times the size of the global economy, according to a World Economic Forum report.

That includes a $224 trillion gap among six large pension-savings systems: the U.S., U.K., Japan, Netherlands, Canada and Australia, according to the report issued Friday. China and India account for the rest.

…“Pension underfunding is the climate-change moment of social systems in the sense that there is still time to do something about it. But if you don’t, in 20 or 30 years down the line, society will say it’s a huge problem.”

Right now, people are looking at the best case scenarios in order to claim that this problem can be fixed. But it cannot. Our industry thrived through several booms that now turn out to be bubbles, and the high costs of diversity plus low returns from our diverse population ensure that we will be facing other shortfalls as well.

As usual, democracies vote themselves into oblivion, and as this becomes clear yet again, even the dunces in charge will recognize that liberal democracy has collapsed just like the Soviet Union, Nazi Germany or Napoleonic France. Yet another attempt to make egalitarianism functional will have perished, leading us to conclude it cannot work at all, and that people are indeed not equal.

But first we must see the last act of the opera. Democracy will never cut entitlements because to do so is political suicide. Trump is trying, but all those checks and balances to prevent “tyranny” ensure that he will not succeed. Planning to fix the pension bomb will require austerity measures now and radical saving of money that politicians and voters both want desperately to spend.

Instead, democracy will borrow itself into collapse. In order to pay for these social programs, the first world countries will take out more debts. The debtors will soon own those countries, but find that nature is a cruel mistress, and that what they have purchased is no longer worth what they paid for it. In the meantime, Western governments will find themselves in the true death spiral of paying more in interest on past payments than they can take in per year, even though they will surely crank the taxes up to the maximum.

While all of this is happening, all of the other fond notions of voters and politicians will come crashing down as well. The environmental crisis will bloom first in crashing food species, and next in unstable ecosystems. Diversity will detonate into balkanization, which will shatter internal commerce by interrupting shipping, which will have to go through dozens of tribal areas and pay tribute. Our blithe foreign policy will collapse in many small wars. Proliferation of weapons will make them more interesting. And many other ways as well.

Governments at that point will have the ugly choice between hyperinflation and default, and they will choose hyperinflation in order to dodge the blame. But with costs rising exponentially, currency value crashing, and past debt requiring more than can be delivered, liberal democracy will die an ugly prolonged death that will victimize the voters who approved all this nonsense years ago.

And no one will pity them.

Why We Suffer Multiculturalism

Friday, May 5th, 2017

Many have wondered why the West would adopt such an obviously suicidal policy as multiculturalism and for it to go virtually uncontested. We know that those who desire permanent power tend to import foreigners, as Plato recounted, in order to have allies who keep them in power. But why did everyone else go along with it?

The answer, as usual in human concerns, is prosaic as it is crazy: pensions. The West shifted to multiculturalism in the mid-1960s, which was the point when the “greatest generation” were hitting their mid-forties and thinking about retirement. Government outlays were heading toward the fifty-percent point in the budget and it was clear that in the future, most money would be spent on entitlements.

How to fix this situation? Expand the tax base. This program was only increased under the Baby Boomers who realized that as the largest generation on record, they could expect fewer taxpayers to fund their pensions, social security, welfare, medicare/aid, and health insurance pools. We are still fighting over these benefits and how to fund them today:

Some view the search for new options as a result of Trump’s refusal to set clear parameters for his plan and his exceedingly challenging endgame: reducing tax rates enough to spur faster growth without blowing up the budget deficit.

…One [proposal] circulating this past week would change the House Republican plan to eliminate much of the payroll tax and cut corporate tax rates. This would require a new dedicated funding source for Social Security.

The change, proposed by a GOP lobbyist with close ties to the Trump administration, would transform Brady’s plan on imports into something closer to a value-added tax by also eliminating the deduction of labor expenses. This would bring it in line with WTO rules and generate an additional $12 trillion over 10 years, according to budget estimates. Those additional revenues could then enable the end of the 12.4 percent payroll tax, split evenly between employers and employees, that funds Social Security, while keeping the health insurance payroll tax in place.

This odd wrangling only makes sense if you look at the sources of government income and how through payroll taxes, the government indirectly raises the money it needs for these expensive retirement programs:

Almost half of all federal revenue (47 percent) comes from individual income taxes. The income tax is generally progressive: higher-income households pay a larger share of their income in income taxes than lower-income households do.

Another 33 percent of revenue comes from payroll taxes, which are assessed on the wage or salary paychecks of almost all workers and used to fund Social Security, Medicare Hospital Insurance, and unemployment insurance. By law, employers and employees split the cost of payroll taxes, but research has shown that employers pass their portion of the cost on to workers in the form of lower wages.

Now take a look at the debt of European nations. Pursuing the socialist idea of the welfare state and cradle-to-grave benefits, they have spent themselves into oblivion and now need to find new income sources.

As many commentators have mentioned, the purpose of “open borders” is to bring in a new labor force to be taxed in order to pay for the benefits paid to native Europeans. In the same way, in the United States, we have opened our borders to the world. We are destroying tomorrow in order to pay for the benefits promised yesterday which have come due today, and since this has failed, are heading for default instead.

The Economic Impact of The Reality Deficit

Tuesday, August 16th, 2016

The US Debt Clock measures the extent to which US Government spending exceeds revenues accrued to date. Our current figure is equal to $19,411,632 Million and it will increase noticeably by the time this piece has been published. This is an obvious problem. What is less obvious, is the knock-on problem caused by our government’s current solution. That solution involves our government utilizing an official inflation rate that understates what the common American experiences in daily life. Charles Hugh Smith explains below.

In our household, we measure inflation with the Burrito Index: How much has the cost of a regular burrito at our favorite taco truck gone up? Since we keep detailed records of expenses (a necessity if you’re a self-employed free-lance writer), I can track the real-world inflation of the Burrito Index with great accuracy: the cost of a regular burrito from our local taco truck has gone up from $2.50 in 2001 to $5 in 2010 to $6.50 in 2016.

If we did an Independent Cost Estimate (ICE) on Charles’ favorite burrito under the assumption that the USG was reporting an accurate rate of inflation that applied to all commodities equally, we would believe based on our estimate that the burrito should cost $3.40. If we define the term reality deficit as the delta between an observed cost and a should cost based upon the good faith of the USG annual inflation rate, we get a burrito-based reality deficit equal to $3.10.

Employing some mathematical prestidigitation, we can back out a fourteen-year cumulative rate of inflation equal to 36% for the ICE. The actual rate of increase on the burrito equals 160%. Economists will point out that one data point never defines a trend. Besides, once you’ve added enough Tabasco Sauce, the burrito tastes the same either way. Smith points out that similar reality deficits occur with college education and healthcare. Economists will argue computers and communications systems are cheaper. But as a heckling reporter once told Alan Greenspan; “I can’t eat an iPhone.”

So why would we understate official inflation? To borrow at a lower rate of interest by deliberately underestimating the time preference of money. The lending interest rate will consist of two priced risks. The default risk and the time value of money risk. The US Dollar is the global reserve currency of last resort. This drops our default premium near zero. The US pays the monetary time preference when it borrows internationally. Successfully under-reporting this time preference allows the USG to short customers on Treasury Bond Interest Rates. An artificially low return on Treasury Bonds becomes a form of reverse usury.

So what happens when your paycheck is going up at a notch or two above reported inflation while food and healthcare continue to rise at an accelerated rate? People can’t afford very nice toys anymore. They spend more and more to keep up, so spending diverges from actual economic growth. People also eat their seed corn as their burn rate increases more rapidly than their remuneration. The LA Times cheerleads all of this below.

Consumer spending remained strong in June, increasing 0.4% as incomes continued a slow but steady increase, the Commerce Department said Tuesday. Last month’s spending increase matched May’s, as did the 0.2% growth in personal incomes.

With spending outpacing incomes, Americans saved less in June. The percentage of disposable income saved decreased to 5.3%, the fourth-straight monthly decline.

That difference between spending and economic growth? That’s a negative impact of our current reality deficit. We spend more, get paid less and receive less in real value. We wind up saving less just to live today at the same level of expenditure. So the differential between what the Government admits to in inflation and what we experience in our daily lives is effectively a tax that covers the difference between what the government pays and what the government should pay to borrow money it does not have to cover current year spending.

Unlike the national deficit that will never be paid in an honest fashion, the reality deficit will always be paid in full until such a time that it becomes unaffordable. Once this reality dhimmitude becomes unpayable, the system will collapse. This has recently happened in The Soviet Union, North Korea, Zimbabwe and is currently ongoing in Venezuela. Only a historical illiterate would assume that it will not eventually happen to Amerika as well. Reality reacts really poorly when you fail to pay up the vigorish.

When The Circular Ponzi Scheme Explodes

Tuesday, July 26th, 2016

econopocalypse

The United States is going out like the Soviet Union, complete with a fake economy. Our ersatz economy works like a circular Ponzi scheme: government dumps money into the impoverished, who then spend it and create more demand. The middle class pays for this and benefits from jobs, but the fuse is lit on the bomb and at some point, it will detonate.

Right now housing is in a sustainable bubble. We keep building excess housing for the swelling population of immigrants. It’s not really that complicated. In fact its a pyramid scheme, complete with a prop that if you bought in long enough ago then you barely even have to pay any property tax. Come on in with your phony forged immigration documents. Bring that funny money from that speculative state subsidized pyramid scheme in Beijing, and invest it in that pyramid scheme across the Pacific in the Real Estate in Silicon Valley. Be sure and have that anchor baby and buy that house to firmly set your roots. Next forge all your cousins into the country as your brothers and sisters. No one seems to be concerned about the swelling population. So what difference does a few million more make?

Our housing bubble is invisible because we keep selling property and if the new owners default, we sell the debt to collectors who fight over how many cents on the dollar they can keep while the properties remain empty. As long as more people come in, and the government dumps more welfare aid on them, something will be selling which justifies building new homes and writing new loans. On paper, it looks great; in reality, markets are based on actual demand that can support itself, and the Ponzi scheme will eventually explode because it is based almost entirely on credit being re-sold and false demand from those who are supported by government.

Simultaneously, the sector that most depend on to keep our economy afloat, technology and internet, is wavering near disaster. Cell phone and tablet sales are receding and computer sales have not risen to previous numbers. This occurs because a bubble was created by assuming that temporary demand, as ever household rushed off to buy these devices over the past two decades, would continue indefinitely. It cannot: everyone who needs a computer has one, and they are not upgrading as much as people would like because the technology is basically stagnant. Even more, no new inventions have come about in the past decade, only re-configurations of existing technology.

Even more, the bloom is off the rose on the internet. What made it powerful — a raw oasis of quality information — has been replaced by social media which acts like daytime TV for basement-bound losers, propaganda in the form of Google and Wikipedia, and endless commercial spam and advertising which reduces its utility. As a result, the most desired consumers are retreating from the internet while the vast horde of people with little money and lots of time, who are generally not going to buy any of the high-ticket items advertised, have taken over. Ad revenues keep falling on a per impression basis which means that the value of the advertising itself is oversold, and this is another bubble which will pop.

This will lead to what economists gently call a “correction”: the false value added will become void, and the economy will adjust perceived value to be closer to actual value. This will translate to a loss of value and consequent depreciation of the currency, which if we add it to the already decreased value of the currency, means that most people will experience a massive drop in purchasing power. With this, consumer confidence will fall as well as spending, putting the consumer portion of the economy into dire straits. Add to this the strangulation imposed on the middle classes through high taxes and on business through excessive regulation (and legal liability, not least of all through affirmative action and civil rights law) and we have an economy stuck in the mud, with no burst of energy to get itself out.

On top of that, other dominoes will fall. China is teetering on the brink as its one resource, abundant cheap labor, becomes more expensive and demand falls. Numerous other countries have followed its model but with the same consequences, namely that as money pours in, expenses mount as internal complexity increases. Some companies are already switching to robotic labor to avoid regulations, labor strife and legal liability. Similarly, Europe, which has built much of its economic gains on selling to Asia and the Middle East, will see its own fortunes decline, at a time when its revenue obligations are rising to pay for liberal social programs and immigration.

The first sign of the econopocalypse will be the nation’s debt load getting downgraded by Moody’s corporation, which will trigger a wave of defaults. The real estate boom will continue for another two to three years until interest rates go sharply higher both home loans and the national debt, and this will then run into the problem of no one wanting to buy the loans which our government takes out at a reckless basis. At that moment, the economy will reach a tipping point which will touch off the full breadth of the crises described above. With currency in free-fall and no substitute for the fake wealth that pumped up the tech sector, the economy will collapse and with it the circular Ponzi scheme will unravel.

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