When An Accident is Waiting to Happen, It Eventually Does

My grandfather was a coal miner and a farmer, and one of the world's great economists.  He said if you spend more than you make you'll go broke!

By Rich Kozlovich

As my regular readers know I subscribe to John Mauldin's Thoughts From the Frontline", which appears every Saturday.  He published this article, This Time Is (Not) Different, saying:

The old saw about doing the same thing and expecting a different result is less simple than it seems........... when you see a long succession of smart people doing the same thing and getting the same bad result, it’s fair to wonder what they were thinking. Such is the case with government debt. National leaders who let too much debt accumulate always think their situation is different. It’s probably not. 

This came to mind as I was thinking about the magisterial 2009 book This Time Is Different by Carmen Reinhart and Ken Rogoff. They systematically reviewed hundreds of debt-driven crises over eight centuries, finding (surprise!) all unfolded in roughly the same way. “This time” is rarely different.  I reviewed This Time Is Different back when it was first published in a letter you can read here. With the US (and many other developed economies) now set to join the long list of countries whose debt habits ended badly, it’s even more timely no

The Congressional Budget Office projects the national debt to $50.7 trillion in 2034, but since the CBO is so bad at these predictions, and if things remain the same, one has to conclude, it'll be worse, and I think much worse.  

Are the banks sound and safe?  It turns out the FDIC has a shortfall of $70 billion.  Now...that's a lot of short fall.  Banks are paying a fee to the FDIC which is supposed to be self funding, how did that happen?  No one seems to know.  

The national debt is rising rapidly to a two trillion dollar deficit a year now, and the interest payment on that debt going to soon surpass the spending on the nation's defense.  That's just the interest on the national debt.  He notes in the year 2000 the national debt was $6 trillion, in 2016 it was $21 trillion, and will be $35 trillion this year, projected to be $46 trillion in 2028, just four years from now, and he notes the debt incurred by the individual states and local governments in the U.S will be an added $4.4 trillion in 2028.  According to Mauldin that means the interest on all that debt "will be more than the total amount of Medicare and defense spending combined"!  As for Social Security:

SSI assets will be depleted in 2033, at which point recipients would get automatic benefits cuts of around 20%. That won’t play well, obviously, but how would Congress fill the gap? Raise taxes, cut other spending, borrow more? No good choices. But doing nothing would no longer be an option.

And what about inflation in this mix?  Make no mistake, deficit spending is a massive driving force for increased inflation, and the machinations by the FED on interest rates will not prevent "an accident waiting to happen" once the expected, albeit unknown crisis strikes, and no one can tell what that crisis will be, when that crisis will occur, or how.   But it will happen, that's history, and that history is incontestable.

We're hearing all sort of plans, promises, schemes, some of which are downright treasonous, but I don't see anyone giving any serious thought, at least publicly, on how they're going to repay the national debt.  Why?  Because there's entirely too many people in the Congress and the government that don't want to fix the national debt, end deficit spending, stop the insane borrowing and spending because in some way they're benefiting from it. 

Mauldin is of the view the national debt can't be fixed by just cutting foreign aid, welfare, taxing the rich, or raising tariffs.  He feels it will require massive cuts in spending, and huge tax increases, all of which will "spark a societal conflagration".  I disagree with that in part.  

There are some things that are so obvious it boggles the mind that no one seems to notice them.  The legislative and executive branches of every government entity in the United States must.....must.... stop kicking the can down the road.   Then we need massive cuts in the size of government, followed by a deficit reduction budget.  In 2022 the federal government took in $4.4 trillion dollars, and spent $6.16 trillion and the deficit gap is widening. 

Mauldin quotes the authors of "This Time is Different" discussing confidence in the nation's economy by the society and the predicted unknown crisis saying:

“Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.”

As Mauldin points out:

Debt is sustainable until it suddenly isn’t. Some event, some last grain of sand, triggers the hidden fingers of instability and it all collapses. And anything can be that trigger.  This is why debt crises are so destructive. By their nature, no one is prepared because no one sees them coming. A few expect them, yes, but they never know the timing. History shows over and over that in a debt crisis, everything is fine and then it’s not. The transitions happen fast.

Mauldin's view is there's a debt crisis headed our way, and I agree.  

What will trigger it?  Who knows, but it's coming, whether that trigger is another war, a recession, terrorist attacks, cyberattacks, a pandemic, or natural disasters, none of which is factored in the CBO's predictions, its coming.  All of which has triggered more taxes, spending, borrowing, 

He says this time it won't be different.  I disagree, it will come, it will cause havoc, but there are solutions that are viable, and available.

Many years ago I was invited to a meeting where the Chairman of the Budget Committee, I don't remember if he was in the House or Senate, and the Speaker of the House, were attending and speaking.  I pointed out there were five public employee retirement plans and when Strickland was Governor here in Ohio they were $60 million dollars underfunded.  I asked are they still underfunded, and if so by how much.  

The man gave us a dissertation on the budget process, and it was impressive; he really did understand how that all worked.  But he never answered the question I asked, and I pointed that out.  Finally he said it was still underfunded and he didn't know by how much.  It's amazing how many questions these politicians can answer no one asked, and how many questions asked they won't answer.....unless you insist on an answer.

There's one question I've yet to see asked of all these politicians running for office: What do you plan do to fix the national debt?  I would love to see someone really hold all their feet to the fire and refuse to accept the red herrings and diversions they all spew out.

• The Inevitability of a U.S. Government Default

Since they're clearly clueless, and/or gutless, it apparently it will take the bug man to give them the answer, starting with these two foundational truths.  Culture is king, and history is everything!

Let’s start with the cost of regulations, because they will amount to the same thing to business and the consumers, higher costs.  In 2013 it was estimated that it would cost the American consumer 1.75 trillion dollars to pay for the regulations imposed by the federal government.  According to the National Association of Manufacturers, that cost has soared to $3.079 trillion. 

Although that number is disputed because of the way in which that figure was computed, it has to be recognized that its massive and we know its growing.  And its the consumer who pays those costs, because as businesses costs go up prices go up.  At least until the costs get so high that they go out of business because the consumer can no longer afford it.   

Up until 1911 the goal of the federal government was to get federal lands into the hands of private individuals in order for that land to be settled, developed and generate capital, which is why there's very little federally owned property east of the Mississippi River.  However, after the Teddy Roosevelt era of conservation that all changed. 

Here are some realities based on 2013 figures.  The federal government owns almost 25% of all the land mass in the United States, and most of that is west of the Mississippi River.  In Alaska the federal government owns 225,848,164 acres, 61.79 percent of Alaska's total land, while Nevada is virtually a property of the federal government owing over 80% of the state. 

That land should have been turned over to the states after they were no longer territories, and it’s time the states demanded it. That would get rid of these tyrannical agencies that rule over those lands like petty dictators. There are vast amounts of natural resources tied up in these lands all of which these leftist nitwits are controlling, and preventing from being used. It's Time to Sell Federal Properties, all of which would pay off the national debt, return the money stolen from SSI, fund medicare, and fully fund the nation's defense. 

As of 2013, offshore, the federal government owned some 1.76 billion acres of lands and mineral estate, extending out 200 nautical miles from our shores.  The federal government’s total mineral estate holdings are therefore about 2.515 billion acres of lands.  Thus, the federal government’s mineral estate land holdings surpass the total surface land area of the nation of Canada.

It's time to start liquidating a lot of federal properties, because the total dollars involved is massive. The total worth to the economy of fossil fuels on federal lands of $150.5 trillion, and based on 2013 figures that was over 9 times our national debt.

Federal real property totals over 900,000 assets with a combined area of over 3 billion square feet and more than 41 million acres of land.  In fiscal year 2009, federal agencies reported 45,190 underutilized buildings, an increase of 1,830 underutilized buildings from the previous fiscal year. In fiscal year 2009, these underutilized buildings accounted for $1.66 billion in annual operating costs.

Stop borrowing, and stop spending, and do it now! Not spread out over time, as that can and will be curtailed by some future Congress, and do it massively!!!!! 

 

Where to start?  Start with eliminating the number of federal employees, massively, all of whom are making more than those in the private sector.  Eliminate 80% of the 438 agencies and sub-agencies of the federal government, and do that by "massively" cutting their funding in the budget, and that's a good start.  

 

Remember, culture is king, and when you read what economists say they're not really talking to you. They're talking to their peers, and most of them will not say anything that will get them kicked out of their peer group, i.e., their culture.   I like John, but he's still one of them, just a little better than the rest, but, as you read his solutions, he's still a tax raiser.  Those were his Thoughts From the Frontline.  These are my Thoughts From the Back Row; he's still not a coal miner and a farmer.  

 

Observations From the Back Row

By Rich Kozlovich

There's so much going on that's so outrageous, so dangerous, and so demented with societies all around the world it's almost become impossible to keep up with it.  I've saved untold numbers of articles in drafts on just about ever subject we see in the news.   I've files on the attack on Justice Thomas and SCOTUS, the Durham Report, China's war with the world, Russia and the complex relationship with the EU and America, and so on.  

At times I find I have so much I can't decide what to write about, which is where I am right now, especially since I have so many tasks outside with my gardens and various summer projects. I'm having time issues, because writing a worthwhile commentary on each and every one of these issues is actually quite time consuming.  

I wrote an article about bed bugs and sleeping sickness a number of years ago and it took ten hours, most of that dealt with researching the information as thoroughly as possible.  That's the time killer, and then organizing it properly deciding what to use and what to throw away is not only time consuming, it's a bit agonizing.  Deciding what's relevant and what's was accurate takes time, and some material is really great but not relevant and has to be painfully discarded, or saved for a future piece.

Also, reviewing a complicated article the next day is important, at least I think it is.  After a day has passed you can catch any errors in logic and fact, and any spelling that needs correcting.  

So, I'm going to take the easy way out and list pieces that I think are relevant to understanding what's really going on.  Let's start with this piece, which I found worth a chuckle or two. 

London Breed holds presser in SF junkie nest to denounce fentanyl, gets chased out by violent, screaming mob..... From the annals of 'What was she thinking,' here's San Francisco's mayor, London Breed............San Francisco Mayor London Breed and the city’s board of supervisors were forced to retreat inside after a meeting they attempted to hold in a notorious open-air drug market was disrupted by jeers, shouting and a woman who hurled a brick into the crowd, according to a report............You don't go into a tiger's lair to talk about how you'll be taming the tigers. You don't go into a terrorist den and denounce terrorism if you have anything resembling a brain. And you especially don't go into an open-air drug market, full of dealers and their customers, to talk about how you'll be ending the fentanyl crisis, putting junkies in compelled treatment, and shutting the scene down because "everyone" opposes this activity.

One of the things these leftist nitwits never seem to understand is when you create an unstable society, that society will act unstable, and right now, and they're shocked when all that instability turns on them, and that includes most of San Francisco.  

Breed and her foolish fellow leftists leading the nation's major cities have destroyed those cities, and they're not coming back any time soon.  Portland, Seattle, New York, San Francisco, Los Angeles, and a host of other major cities run by Democrats are turning into hellholes of drugs and violence.  That can't be turned around easily or quickly, and  I don't think it can be turned around at all.    Here's the trend in Cleveland.  I love this town and intend to spend the rest of my life here, but the fact remains, some things have changed, dramatically, and it's disturbing.  In 1965 Cleveland's population was 1,875,000. As of July of 2022 it was 361,607.  Whites make up only 38% of the population, blacks 47% and are still granted minority status. Violent crime in Cleveland is 17.4 per 1000.  In all of Ohio it's only 3.76 and nationwide it's 4.  

That's the pattern nationwide, and much worse in cities like San Francisco.  The result?  Businesses are leaving and they're not coming back. Large downtown office buildings have huge vacancy rates that makes it impossible to maintain those buildings.   With the internet, it's easier and cheaper to permanently move to suburbs or small towns where stupid politicians aren't fouling everything with stupid restrictive regulations and taxes.  Who's to blame?

 “The Democratic Party of today is the party of crime and lawlessness, the party of mobs, unchecked illegal immigration, runaway government spending, late-term abortion, and government overreach. The Democratic Party lacks any accountability, yet they abuse governmental powers to suppress those who dare to oppose their opinions,” …Egline McArdle, Chairwoman, W.Va., Republican Party.

What could possibly go wrong?

Well, a lot.  The nitwit governor of  North Carolina has declared a "State of Emergency"!  And it's over what?  This piece by Nancy Andersen notes this governor loves his veto pen and he loves "State of Emergencies".  During this false pandemic he locked down all the schools and churches!  Put masks on.... students”......and kept the schools closed.  

But he knows who butters his bread, and has declared another "State of Emergency", to prevent all those "evil [Republican] legislators from giving parents educational options.  They are killing government schools, because giving parents options and having our schools compete for excellence is not fair!"  Well, in most states the legislature can overturn these political "States of Emergency" with a simple majority vote.  But, we'll see.  Oh, yes, one more thing.  Where does this governor send his kids?  

“If he believed so much in public education, why did he spend thousands for his own kid to avoid it?” …”What a hypocrite. Public schools aren’t good enough for his kids, but they are for yours,” Independent Women’s Forum senior policy analyst Kelsey Bolar blasted."...."Here’s another story that reveals additional school choice hypocrites such as Joe Biden, Kamala Harris, Nancy Pelosi, Gavin Newsom, and J.B. Pritzker."

Then we have the default hysteria.  Jack Hellner, who I think is a great writer, published this piece in American Thinker today, The Biden admin, with the help of the complicit media, sure pretends a lot, saying:

Janet Yellen has been screaming about the dire consequences for months if the Biden administration didn’t get a clean debt ceiling increase. Now she admits that her department, that pays the bills, hasn't done a thing to prepare, which shows they aren't worried or don't care.

Let's face it, the left lives on hysteria, lies, corruption, media complicity to keep everyone ignorant and scared.  It's not working as easily as it used to because now there's an alternative media, and that media is now becoming more and more preeminent over a corrupt main stream media that's losing viewership and readership in a spectacular fashion, and Fox is an example of that. 

We're seeing outright and obvious voter fraud,  which includes an incredibly deep corruption of our government law enforcement entities, corruption of the media, corruption of our system of commerce, almost total and complete corruption of our scientific community, our system ofit's clearer every day which party is radical, extreme, dangerous, and flat out crazy.

The question left to answer is: Can democracy be saved?  Given the observations made in this article, the answer is there may will be a civil war on the horizon to save the republic. 

What Evergrande’s Default Means, and Doesn’t

Chris Temple December 30, 2021

Earlier this month, Fitch Ratings made official what the markets already knew: China’s Evergrande Group and two of its subsidiaries were downgraded to “restricted default.” This followed the grace period expiring on Dec. 6 for some $1.24 billion in overdue interest payments on two chunks of U.S. dollar-denominated debt originally due back on Nov. 6.

By and large, this event passed with hardly a mention, let alone any real concern. After all, China’s regulators and central government for the last few months have acknowledged that they would engineer a “marketized default” (their term, not mine) of Evergrande. A likely long, tedious process was already underway before Fitch became the first of the major credit reporters/watchdogs to announce its anticlimactic decree.

Whether global markets should be essentially ignoring Evergrande’s unwinding—and that of the broader, bloated Chinese market and financial structure to boot—is another matter. No major economy on the planet has so abused debt to engineer its frenetic “growth” in the last two decades than has China. Its reckless blowing of asset bubbles, obscene over consumption of raw materials and associated over-construction are well beyond what happened in the United States back in the early “aughts” (2000–2009) leading to the mortgage and housing busts back then............To Read More....

George Soros warns China is facing an economic crisis

By Charles Riley, CNN Business January 31, 2022

China is facing an economic crisis after a real estate boom ended with a bang last year, according to investor George Soros. The billionaire said in a speech at Stanford University's Hoover Institution Monday that President Xi Jinping may not be able to restore confidence in the troubled industry, which has been hit by a series of defaults by developers and falling prices for land and apartments. China's real estate boom was based on an "unsustainable" model that benefited local governments and encouraged people to invest the bulk of their savings in property, Soros said. Government policies designed to curb the boom made it difficult for indebted real estate behemoth Evergrande to pay its debts, he added.............To Read More....