Category: ECONOMICS

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Crossroads

     The past week has not showered our civilization in glory.  President Obama spent the greater part of an hour at the State of the Union address ignoring an nation’s economic tribulation with an impressively deaf ear to what sage pundit Mark Steyn calls “our unprecedented world record brokeness“.   Presidential candidate Newt Gingrich surveys the ever approaching economic calamity and states what we are missing is a drive to colonize the moon by 2020.  His opponent for the Republican Party nomination for president viewing the debt bomb and destructive government driven healthcare initiative known as Obamacare as “nothing to get angry about.“

     I was out with friends last night that decried the lack of seriousness of our so called leaders when it comes to western civilization’s critical debate of our times, our ability to recognize and respond to our impending debt crisis.  It is obviously more enjoyable for politicians to talk about solar panels and moon colonies rather than the sacrifice and hard decisions necessary to structure a process that maintains our quality of life while preserving our fiscal capacity for that quality.  All the difficult questions that are in front of us –  what is a safety net and what is an entitlement, how are entitlements paid for and what security do they truly provide, what are national investments and what are national kickbacks,  what reflects a caring society and what reflects a functioning one – so many important questions, so many others to consider, and yet, a deafening silence. 

     The extent of the problem has been reviewed many times on this blog  but the cold hard facts never stop to send shivers up the intellectual spine of rational thinkers.  The 31% of the entire liable debt of the 235 years of the existence of a national government of the United States was accumulated in the last three years, with no end in sight of the upward spiral.  The Gross Domestic Product of the United States, the assembled market value of all the goods and services produced in  a calender year is now less than the acquired debt.  Confiscation by tax of the entire assets of the 400 richest Americans would no longer pay for more than one year of the nation’s annual deficit.  The unfunded mandates of the United States estimated at over 100 Trillion dollars is more than the accumulated wealth of all the world’s economies.  The estimated current individual responsibility of the debt to every living American is 48, 835 dollars and counting.  The United States borrows 43 cents for every dollar it spends, and the chief country it borrows from is its ever growing adversary.



        
It seems we are at a crossroads, and the guides we have counted on our entire lives are clueless as to which road portends a better future. Leadership that forever gives us what we want, versus showing the way to what we need, is not, minus some profound epiphany, in the current crop of those who seek to lead us. The British politician Edmund Burke has been quoted as saying, “All that is necessary for the triumph of evil is that good men do nothing.” It looks like we are going to have to be our own guides on the correct road to national redemption, and pull our so called leaders kicking and screaming into recognition of the basic truths that face us all. In this case to paraphrase Burke we good men are going to have to overcome the do-nothings to inevitably triumph on the crossroads moment of our time.

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Someone Else Talking 1932

     Dominic Sandbrook of London’s Daily Mail looks to 2012 as a year that portends an ominous future for Europe.  The specter of the series of events regarding the progressive economic calamity  surrounding Europe and its Euro currency mirrors the underpinnings of trouble that enveloped Europe in 1932, and Sandbrook recalls the political reaction to them with apprehension for Europe’s future.  1932 is a year that Ramparts of Civilization has explored before. The natural tendency of drowning people is to panic and pull down those who would attempt to save them, and politically the reaction is inevitably self preservation and personal security first. The comfort provided by dictatorial fascism has repeatedly reared its head on such primitive, reactionary impulses.  Read Sandbrook’s entire article and see if you don’t think he is on to something.

     On an equally cheery note, Mark Steyn of National Review Online ruminates on the passive nature of people and governments to fail to recognize the impending view of unsupportable debts and their effect on future prosperity.  The clamor of 1932 was for governments to do something, anything, to stop the progressive slide into the myre, and people were willing to overlook the loss of personal freedom and the dark underbelly of fascistic and communist movements to at least find someone who would aggressively overcome the societal passivity to problem solving.  Read Steyn’s entire article and decide whether you think he is a false prophet.

     Happy New Year.

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Brother, Can You Spare A Euro?

  

     The sound of cracking foundation was audibly prevalent in the power centers of Europe this past week, and sent shudders throughout the world.  Having only recently applied a finger to the dike of the crushing debt obligations of the nation of Greece, the overseers of the European common currency turned around to find one of the “unbreakables”, the powerful economy of Italy swooning in crisis as its profligate barely sustainable spending habits became unsustainable, with its debt burden by creditors refinanced at the intolerable level of over 7%.  The result was the crashing down of Italy’s democratically elected government led by its Prime Minister Berlusconi and its proposed replacement with an unelected technocrat of the European Union hierarchy.  The process of collapse of governments elected by their own people to represent them, and their replacement by unelected “unity” governments appears to be the direction, only recently mirrored by Greece, under demands of Europe’s larger lending governments, is an untoward and dangerous trend.  In Andrew Gilligan’s excellent UK Telegraph article on Europe’s current crisis, he puts this anti-democratic trend succinctly:

     Many remarked that just as the Arab Spring has started to replace unelected old men with democratic leaders, the European autumn is replacing democratic leaders with unelected old men. But as in all previous rounds of this crisis, all it seems likely to do is win a brief breathing space.

          The painful reality of what is happening in Europe is the inevitable outcome of governments assuming their innate intelligence is greater than the collective intelligence of the populations that elected them.  The nidus of pre-mediated governmental failure is in all cases, “the Good Idea“.   In this particular case, the good idea was a single currency linking the European Union countries into a single economic market, linked by a single currency of economic value.  It  was the high sense of mission that led individuals in search of a Europe free of the “petty” differences that had divided it since the fall of the Roman Empire, and led to the two cataclysmic events of the twentieth century, the European borne World Wars.  A common currency would over time blend cultural and market differences and lead to a future of greater quality of life and peaceful co-existence.  It was this particular “good idea” that saw fruition in the Treaty of Maastricht in 1993 that led European countries to sublimate the wills of their elected populations and their inherent self interests to join a monetary, and hopefully political, union.  Like all unifying “good ideas”, the founders hoped that bad behavior would eventually be overcome by good neighbor examples, and therefore allowed countries fundamentally incapable of the long term responsibilities of such a union to join.

     As wikipedia notes, quoting John Lancaster of the New Yorker: ‘The guiding principle of the currency, which opened for business in 1999, were supposed to be a set of rules to limit a country’s annual deficit to three per cent of gross domestic product, and the total accumulated debt to sixty per cent of G.D.P. It was a nice idea, but by 2004 the two biggest economies in the euro zone, Germany and France, had broken the rules for three years in a row’.

Italy, the seventh largest economy in the world was supposed to be above the calamity it currently faces.  After all, even in the current recessionary times, its budget runs in surplus, and its debt is currently 120% of GDP, not dissimilar to the United States.  But Italy under crushing debt responsibilities, found itself tottering never the less, and several other countries feverishly looking to find any device to prevent the inevitable collapse of the Euro.

     Now we are left in the birthplaces of western civilization’s most sacred ideal, that of individual freedom and expression, Athens and Rome, with that most anti-democratic of processes, external demand for control.  It wasn’t that long ago that a Germany strangulating under the external demands of the World War I Versailles Treaty nations, who determined what part of Germany’s economic lifeblood should be sufficient payback for her bad behavior, threw its lot with a dictator who offered a national salvation for the painful servitude.  That certainly turned out well.

     The accumulated debt burden of the European Union countries is estimated to be 4 Trillion Euros, beyond all expectation of what is supportable by any collection of investors, China or otherwise.  The best news of all, is that the United States’ debt burden is 15 Trillion, and her unfunded mandates over 100 Trillion.  All the money in the world is not going to sustain an undisciplined United States, if it does not learn by Italy’s current climatic example.  We are at a true moment of clarity.  Europe is about to face a year of unprecedented turmoil, the United States is going to debate whether the issue of our time can be shoved down the road again,  and a western populous that has lost sight of what principles raised individual life quality to the highest level achieved in the long history of suffering humanity, ignores the lessons at their peril.  As Shakespeare said: “The fault, dear Brutus, is not in our stars, but in ourselves.”

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The End of Bricks and Mortar

    

      The time has come to put down the trowel and let the bricks lie, they are no longer needed.  Since 9/11, there has been a huge drive in technology to protect and reproduce the function of a datacenter (Backend technologies) in the event of a disaster.  Typically, companies will purchase or rent a building for the purpose of operating an identical or similar datacenter.  The idea is to fail over to the secondary datacenter and allow system processes to continue in the event the production (primary) datacenter becomes unavailable.  In some cases, the multiple buildings are purchased.  This “just in case” plan comes at a high operational cost to the organization. Funds are needed to build or rent the phyiscal location, then there is the simple cost of keeping the “lights on.”

     Enter Virtualization, a miracle technology that dribbled into the late 60s and early 70s with IBM mainframes, but did not make a resounding bang until the early 2000s.  Virtualization has been created and developed by such companies as VMware (EMC Corp) and Microsoft.  The idea is to take a single server, or central processing computer, and create several operating based systems on that single server hardware.  There are other virtualization technologies in the market place, but for the purpose of this article I will be singling out server virtualization.   So, you are probably wondering how this “virtualization” technology will ease the budgets of organizations with the operational overhead of a bricks and mortar datacenter.  It is a great concept summed up in one word…”resources.”  An organization pays for resources (such as servers, bandwidth and storage) and does not pay for the building that houses the machines. 

     So where is this virtual datacenter?  It is hosted by a 3rd party company.  One such company, Savvis (http://www.savvis.com), offers a new concept…Infrastructure as a service.  A whole infrastructure (routers, switches, servers, security devices, etc) is now offered as a service that is hosted at a Savvis Datacenter.  Essentially, an organization pays Savvis to use resources in their physical datacenter.  The benefit comes from an a la carte of infrastructure choices that can be selected in a virtual portal.  A simple datacenter can be created in less than an hour, on the Savvis site, and have the full benefits as if it were hosted internally at the organization itself.  Each device selected is virtual with respect to the organization, but in reality may either be shared on a physical server with other organizations or on a solitary server for only that organization.  Savvis offers several levels of cost depending on devices and bandwidth used by the organization, but falls far below the cost of actually building a physical datacenter. 

      There are definite benefits with regard to cost savings for organizations to use hosted infrastructure solutions, but they don’t stop at disaster recovery.  Small businesses that have space restrictions or global organizations can set up and use virtual datacenters anytime, anywhere with virtually little wait time to get the datacenter up and running.  It may be very soon that most organizations rid themselves of all bricks and mortar datacenters and adopt a plan to use fully virtual infrastructures.  Look for more infrastructure hosting companies to enter this new market place as old bricks crumble to dust.

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The Motherlode Under the Prairie

     The north center core of the United States has for several hundred years been seen as the desolate outback of the country. Sparsely inhabited at one time by nomads, it was seen initially as an endless ocean of grass to be navigated and surmounted to reach the desired bounty of the more inviting western and Pacific states. A residual back water for wheat farmers and isolationists, the prairie states of the Dakotas with their vast spaces and brutal winters were suggested to be economically inviable and best left to be returned to the condition of a laboratory for unhindered and uninhabited nature.

     No one is suggesting that now.

     It is not that the massive distances, snowstorms and winter temperatures in the 40 below range have suddenly disappeared or that large numbers of people have irrationally determined they actually like to live in arctic cold.   What has changed everybody’s mind lies some ten thousand feet under the gentle undulating prairie, formed from ten of millions of years of  accumulation of the detritus of living organisms.  It turns out that the state once voted most likely to uninhabit itself out of existence, North Dakota, is sitting on potentially the largest oil field in the continental United States, and may yet be positioned to become the Saudi Arabia of North American oil production.

     Like so often in America’s past, it is the combination of technological advance and entrepreneurial know-how that has converted North Dakota into a dramatic economic powerhouse and a magnet for job growth.  The Bakken formation, a geological formation of shale and sandstone, has been known about since the 1950’s as a potential bountiful repository for oil.  The first well was drilled in 1951.  The formation required a set of conditions however to make it profitable to drill that has not existed until recently.  For decades the easy access of the wells in OPEC countries and the transportation highway provided for by the world’s oceans left the difficult to access, expensive oil drilling process of the prairie oil fields unattractive to large oil producers.  It also left the world hostage to the manipulations of the OPEC collaborators both to price and the enormous political power of the world’s energy supply.  North Dakota drilling required two essential ingredients to be profitable, a stable oil price and the invention of two techniques, horizontal drilling and frakking, to unleash the oil from the shale rock and start the oil really flowing.  The process of horizontal drilling allows a single well access to a massive amount of teritory of oil, and frakking, the process of fracturing rock under high pressure to release capture deposits of oil, have proved ideal to the conditions present in the geology of North Dakota and Eastern Montana.   Both conditions are present today and North Dakota is rocketing up the oil production charts, soon to pass California as the largest continental oil producer with the sky , according to the US Geological Survey, the limit.  The recognition of the huge economic potential is drawing thousands of people anxious for work and economic stability to the once desolate climes of the northern prairie.

     It would seem that a process that may provide the United States with stable and bountiful energy supplies, free it from the blackmail politics of OPEC, provide hundreds of thousands of high paying jobs, and achieve energy independence in a safe onshore, environmentally controllable way would be extremely attractive to the US government.  The current administration, however, bound to the storyline that carbon is an evil energy source and that only “green” sources are worth exploring and investing in, continues to place a mountain of regulation in front of the numerous small growing energy companies that took the leap to invest in the Bakken when the larger companies felt it not worth their attention.  In a Wall Street Journal interview with Harold Hamm, the entrepreneur who unlocked the Bakken formation, Hamm quotes President Obama in a meeting he had that shows the President’s tone deaf aversion to success in North Dakota, seeing it as a direct threat to “green” investment.  Hamm recalls the conversation:

“I told him of the revolution in the oil and gas industry and how we have the capacity to produce enough oil to enable America to replace OPEC. I wanted to make sure he knew about this.” The president’s reaction? “He turned to me and said, ‘Oil and gas will be important for the next few years. But we need to go on to green and alternative energy. [Energy] Secretary [Steven] Chu has assured me that within five years, we can have a battery developed that will make a car with the equivalent of 130 miles per gallon.'”

Mr. Hamm is owner and developer of one many small companies that took the leap in North Dakota and Eastern Montana that now own the greater portion of the Bakken formation and are likely through their success to be major contributors to an economic resurgence in the United States. The impediments put forward by the current administration are bound to be a political issue that will resound in next year’s election. The aversion to real science in the climate change debate has shackled this administration to the myths of the evil nature of carbon energy and left it throwing money away on green ventures too earlier in their scientific development to be of any rational help to this country’s and the world’s developing energy needs. It required fifty years for the economic conditions to be right for Mr Hamm and others to exploit the new technologies of  horizontal drilling and frakking that have made the North Dakota motherlode accessible and economically viable.  Noteably, it was not governmental oversite that identified the potential of the fields and developed the technologies.  As usual, it was the intrepid pioneer, with indomitable will, creativity, good ideas, and some really hard work that may yet allow all of us to reap the benefits.  If you are finally listening, Mr. President, THAT is the American story….

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What’s Worse Than Bad? Much Worse…

    

     Imagine that relative no one likes to talk about. You know the one. Its the undisciplined but lovable one that always thought that succeeding in life was not about hard work, but a crap shoot. There’s always that scheme, that upstart, that’s going to a make a million if only the funds are available. At first it looks good superficially. There seems to be comfort, and some luxury – some early returns – but always the need for more money. You want them to succeed, and eventually,  you need for them to succeed. And suddenly you find yourself caught up in it, providing funds, and then assets. Then somehow, your very mortgage is used to under write the scheme, and it goes belly up. Its no longer about the relative’s lack of discipline. Its about your own survival.

     Somewhere in the next few weeks to months, Europe’s unruly relative Greece is going to go belly up on its debts, and Europe’s, if not the world’s economy is going to shudder. Europe, fused at Greece’s hip through the Euro, over looked Greece’s undisciplined governmental structure, its profligate self directed spending to secure all its citizens a cushy supported existence, and its progressive balancing of the cost on Greece’s ever more puny private sector. It overlooked all that , and took in Greece anyway into the shared economic structure of the Euro, thereby making all of the European community at risk for Greece’s inevitable bill.   Now the bill is coming due and Europe’s biggest banks are panicking at the mounds of worthless Greek bonds they will hold. Despite several ‘bailouts”, the circumstances of Greece’s internal economy have not significantly changed and the default is surely coming. Of course that’s not all the bad news. Europe doesn’t have just one wayward cousin. Most of Europe is in the same boat due to decades of voting in socialist parties that progressively padded the ‘security net’ for its citizens. Falling in behind Greece are Portugal, Ireland, and ominously, Spain and the biggest indigestible enchilada of all, Italy.

     The plans feverishly being put forth to avert the crisis lerch from bad to completely unpalatable. The United States’ ugly experience with TARP (Troubled Assets Relief Program) in 2008 that most of the country feels bailed out the old boy network at the cost of the taxpayer, without applying the market punishments that prevent bad behavior, is being considered on a scale in Europe that defies belief – after all its entire countries this time that are teetering on default. The healthier countries of Europe, left with little option are considering just such a plan, and it is predictable that the fallout to the governments that will put the burden on its citizens to pay for their wayward relatives will be magnified tenfold to the United States experience.

The lessons to the United States in this mess will be both directly and indirectly laid out. The direct effect of fractional governmental default, severe continental bank strain, and huge bills to the European taxpayer is bound to create the elements of a double dip world wide recession, or worse. The indirect effects of a Europe where the traditional powers become disgusted with their less disciplined smaller neighbors, and start to look inward and protect their own economies, is a recipe for the kind of conflict that has convulsed Europe for 500 years. No one, not the United States, not anybody, wants to go back to that. The sad truth for the United States is despite the unfolding lesson of Europe’s lack of capacity to control its internal spending on itself, the U.S. is on a headlong path to undergo the same inevitable trap. The current administration is like the relative shooting craps and hoping the money trough holds out long enough to catch a winner and fund all the nonsense.

As surely as the sun rises in the East, the European economic crisis and what it says about the future of the western ideal of democratic debate and action to address crises in a peaceful and equitable way is about to play out. There are some serious thinkers out there that are not convinced we are equipped to solve this mess. Unfortunately, for both the pessimist and the optimist reviewing the high arc of western civilization’s day in the sun, its going to be a very stormy night.

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A Run of Bad Luck

     Demotivators courtesy photobucket.com

     President Obama took some chances this past week to stem what has been a progressive crumbling of support for his chances for re-election in 2012.  He embarked on a bus tour through the midwest to mingle with the people and try to stem the tide of bad karma. At one of the stops he stated:

“We had reversed the recession, avoided a depression, got the economy moving again. But over the last six months we’ve had a run of bad luck.”

     Putting aside the President’s rather than generous opinion of his role in “reversing the recession and avoiding a depression”, the line that has seized the attention of commentators has been President Obama’s comment regarding the defining of his fate by “bad luck”.  Charles Krauthammer dissects the President’s record and responses to the economic conditions he was presented with upon election and sees the outcome more as bad excuses rather than bad luck. The sympathetic good vibes that surrounded this President with ascension to the presidency at a difficult time have dissolved with the recognition of his inflexible and ideological instincts in favor of a command economy.  Wielding a top down stimulus approach, the President has poured over 4 trillion dollars of deficit spending, selective industry protections and investments formed on ideology not productivity, and overbearing regulation in the space of three short years, and the result has been “bad luck” – persistent unemployment at over 9% (twice his predecessor), sluggish economic indicators despite the cheapest credit available in history, and a world wide sense of a second economic contraction. 

     It is an unfortunate reality of modern politics that the last two presidents “of the people”, Presidents’ Clinton and Obama, have both been among our most narcissistic and self absorbed personalities.  In President Clinton’s case, his enormous political skills saved him from his worst traits of assuming he was always the smartest one in the fight and was always right.  He could recognize when he had a “two fisted death grip on a loser” and adjust his bombastic tendencies accordingly, moving away from strangulating universal health care and  permanent welfare as a right, and working with the congress to achieve welfare reform.   He was rewarded with a second term, despite his visible personal foibles.  President Obama has no such selective antenna, no personal work experience to balance his “smartest man in the room” self absorption.  He continues to plow ahead with policies that have come up flatter than a pancake in responding to the economic stagnation. Classic for narcissism, both presidents have been quoted as saying that, “no president has ever faced more difficult circumstances”, but in President Obama’s case, the lack of acknowledging failure has taken the natural response of a capitalist economy to retrench and recover out of play, and cemented those “difficult circumstances”.   There is every indication that because he is sure he knows better, he is going to push ahead to create the ideal world he has envisioned for us, whether we like it or not, and will struggle to tell the man he sees in the mirror to recognize the answer lies in gettting out of the way.

      Bad luck has its way of forming as a response to bad policy.  Industries that are not “chosen” are unlikely to risk growth when such growth is sure to be punished.  Enemies that are told no longer to fear American reactions to their bad behavior are likely to behave badly.  Friends who have been told they can no longer count on America are likely to look to others for friendship.  Countries that recognize that your word is no longer your bond are unlikely to have the faith to invest in your future.  Your countrymen who have seen your disdain for their hard work, incentive, and risk taking are unlikely to see you as their standard-bearer.

     It comes down to the fundamental principle of time immemorial.  In problem solving, doing what doesn’t work and hasn’t worked and will never work, is unlikely to work. Mr. President,  what it comes down to is – in this life, you make your own luck.

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A Great Idea From 1935 Has Met Its Match

    

      A person born in 1935 would proudly be celebrating his or her 76th birthday this year and would be the first to admit a lot has changed since 1935. As much as it is fun to reminisce and have fondness for the earlier, simpler times, the distant year holds memories for very few alive today.  Most of the world of 1935 would be recognizable today but no one would want to rely on the best ideas of that year.  An icebox required – ice – to keep things cool. You could fly in an airplane, but no one except that crazy Lindbergh would really consider taking one across the Atlantic. A boat like the S.S. Normandie, France’s beautiful ship of passage was so much safer, and could cover the distance at an average 30 knots and in a mere 4.5 days.  Then there was the gorgeous 1935 Buick pictured above.  This magnificent car had a spectacular 8 cylinder engine that could produce 93 horsepower and navigate from 10  to 60 miles per hour in only 21 seconds. Yours for the absolute fortune of 935 dollars.  The number 1 Hollywood star was a little girl, Shirley Temple.   The world was at peace, though it did not know in one year, the turmoil in Spain would premise a dark age indeed. 

     Not everything was rosy.  Infectious disease was devastating without antibiotics.  Most of the United States was rural and wanted for essentials like available water or electricity, much less easy food or work.  The Crash of 1929 had deepened into a world wide depression, and a quarter of the population of the United States was chronically unemployed.  The average family income if you had work in 1935 was 474 dollars a year.  The average lifespan for a female 64 years, the male 59, in the high 40’s if you were African American.

     It was time for a great idea to protect the aged and infirm, the poor and the dispossessed. 1935 brought the culmination of the New Deal, the Social Security Act.

     Like the beautiful Buick of 1935, it was built for an earlier time, initiating a pay as you go fund to protect against old age poverty, once you reached the rare heights of 65 years of age.  The pittance of healthy aged that could make it to that olympus of birthdays did not worry where the money came from as there were many workers investing in the system for every retiree that would draw from it.  The economics of the Act were positioned for the 1950s , when the vast assembly of workers fashioned surpluses into the fund that seemed to go as far as the eye could see.  And so the act was expanded to take on groups that weren’t retirees, and eventually in 1965, health care considerations in the Medicare and Medicaid programs. 

     Then the economics of the Act began to get murky.  By 1980, the average lifespan had arisen to 74, and the number of workers to the number of retirees plummeted.  The adjustments were made to the cash flow by demanding higher tax contributions from both worker and employee, and still the economics staggered.  By 2007 the average female lived to 81, the male to 76.  The amounts paid out for this lifespan could not hope to be funded from the individual’s contributions, and the term unfunded liability became an  ominous new catchphrase.  Added to the inevitable mathematics of long life, the number of workers for the number of retirees plummeted, and the gross domestic product of the United States, so long in upward path, began to flatten. 

      Now we are told that the inevitable day when the funds coming in to Social Security will be exceeded by those going out, may come as soon as 2024, and Medicare Medicaid even sooner. Added to the stress is the average house hold income of 2007 -38,600 dollars, overwhelming any expected return from Social Security maximized in the mid twenties, placing substantial life quality contractures on the retiree who relied on Social Security alone.

     We have faced for sometime the inevitable collapse of a system designed for a 1935 life and a 1935 world.  Despite the spectacular changes in the past 76 years, we refuse to admit the law passed to provide security to a small minority for a long ago environment should continue without adjustment or modernization for the role we demand of it today.  We have changed the laws of the country to reflect our maturity in civil rights and equality for all.  We have changed our laws to prevent a President from serving over two terms and establishing a hegemony.  We have changed our laws to reflect the ability to travel cross country or trans ocean in the time it used to take in 1935 to cross town.  But we are stuck with the myth that the Social Security Act of 1935 put forth an eternal truth and a singular means of providing personal security. 

      Nice as it is to reminisce, we really can’t afford to live in 1935 much longer.  Today’s elected official fears the very thought of exposing the myth, but is progressively fearful of being responsible for the coming collapse.  The smart ones like Paul Ryan who are searching for a way out of the trap deserve our support. Hopefully a country where 1935 is a distant memory now for the very, very few,  can stop pretending that we were all there at the conception.

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The Debt Titanic


     On April 15th, 1912, the RMS Titanic, on her maiden voyage, the greatest and most beautiful of the White Star class trans-Atlantic passenger ships, improbably shuttered briefly, in the late evening hours, in the middle of the Atlantic Ocean. As alien and unsettling the shutter was, it was only briefly present and quickly was gone, and the ship went smoothly on her way to New York. The restored peace was false and illusory, as the fatal blow had already been delivered below the water line of the “unsinkable” three football field long craft, an iceberg buckling the hull plates past three bulkheads, and icy Atlantic water rushing in.  Within three short hours, the ship that had been considered universally from an engineering standpoint virtually “unsinkable”, had drawn an unbearable amout of water within its structure, heaving and splitting the ship, and sending her to the bottom.   The unthinkable had happened, and in a shorter time than any discerning person though conceivable,  with the loss of more than 1500 people.  The RMS Titanic, designed to be the perfect ocean ship, proved to be only too flawed and wholly unprepared for the reality of impacting an iceberg.

     On August 2nd, 2011, an iceberg awaits the titanic ship of state known as the United States economy.  On that day, the momentum of decades of deficit spending acclerated to an intolerable rate in the last few years, will impact against the immovable object of a debt ceiling beyond which the full faith and credit of the United States will be called into question if the impact is not avoided.   As surely as the mass of water finding and expanding weaknesses in Titanic’s hull, a default in the debt will weaken and crumple the solid foundations of an economy built on trust, credit, and investment and shake the country to its very foundations.  As on that terrible starry night in the middle of the Atlantic, the end will come sooner than any would have expected and the window of opportunity to make life saving corrections short indeed.

     The President and Speaker of the House have spent the past week in opposing roles.  The Speaker has been like the iceberg watchman, warning of the floating risks awaiting the ship of state and fashioning aggressive tactics to avoid the unsettling potential doom.  The President has been like the Captain of the proud ship, imperious, arrogant, convinced his place in history to drive the ship ever faster into the night and achieve the soon to be achieved acclaim.  The depressing part of this analogy is that this impending blow will occur in the light of day, premeditated, and in full view of all.  Will no one stop the inevitable sinking of this once unsinkable economy and restore it to its stable foundations?  If not, it won’t be the direct death of thousands, but rather the dagger in the heart of unfettered will, personal opportunity, and economic freedom. 

     If this President continues to drive the spend curve at the expense of fiscal sanity, if he continues to respond to the sinking ship with an insignificant simple re-arrangement of the deck chairs, he will have earned a ignominious title justly deserved – Worst. President. Ever.

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Kabuki Theater and the Debt Ceiling Debate

     The great Japanese theater tradition of Kabuki reflects a stylized avant garde theater of the bizarre to dramatize the juxtaposition of the inner and outer emotions of the participants.  Grand kabuki is going on these days regarding the debt ceiling “crisis” in Washington, and the lead actor of the bizarre is our president himself, who has played multiple roles in the last week of the “sage adult”, “budget warrior”, “aggrieved victim”, and “petulant child”.  It would approach comical if it wasn’t so darn serious and sad at the same time. 

      In the grand tradition of kabuki, this story is predominantly one of tragedy. The most self-sufficient country on earth has managed to amass a 14.5 trillion dollar debt and over 4 trillion of it was prodigiously produced in just the last three years. The government currently borrows 43 cents on every dollar it spends and there is no end in sight. In this particular theatrical tragedy, the president warns of the calamity that will befall us if we don’t raise the debt limit allowing us to continue to sew the seeds of our own destruction, not the calamity that will befall us if we continue to spend like spendaholics and accumulate even more massive debt for us and our children. The shared responsibility of the accumulated debt for each of the over three hundred million Americans is a nice round number of about 45, 000 dollars per citizen, and that does not include the unfathomable sum of 100 trillion more of estimated unfunded liabilities.

     What does our Kabuki grand master say about such dire scenarios? Well, its obvious to him that the obstruction to fiscal sanity is the rich not paying their fair share. That’s an effective mask to wear when emoting in front of a hurting American public, but the facts would suggest that if President Obama succeeded at confiscating 100% of the earnings of the top ten percent of the country in taxes, he would manage to pay off a third of the total budget he currently spends in a single fiscal year. Nice start and sorry about that confiscation angle, but clearly that rhetoric doesn’t even remotely budge the burgeoning debt exposure.

     The apparently difficult thing for everyone to understand is that if you spend considerably more than your income, the best way to reduce your fiscal vulnerability is to only spend maximally what your income is. Certainly we can even argue that spending every last dollar of your income is probably not good budget management either, in that one would hope there would always be savings for future needs. Instead we are spending for past needs, present needs, and future needs all on present income. Somehow the government senses we will figure a way in the future to fix the mess when the problem has ballooned to even more stratospheric levels when we find our currently collective will to solve it now is non-existent.  This is what George Will of the Washington Post refers to as the government’s “terrifying self-confidence”.     

The actors in kabuki are participants in a play where the greater audience can see the unfolding tragedy and are powerless to stop it. The issue fundamentally will never be whether the United States should be permitted to default on the money it is indebted to pay. The issue is whether we will ever ask ourselves again as adults used to do in this country,what are we spending money on, is it money well spent, and can we afford it. People in Washington DC, come on! The play is over, real life is here, and its time to put away the masks and the party favors.