Wednesday, March 15, 2017

A brief summary of the situation at this time.

It is obvious to everyone that there is a catastrophic amount of debt that has built up in the US economy. The total government debt alone is far in excess of what can be serviced without serious cut backs in government spending. So far financial eclipses that have loomed have been avoided by raising the debt limit and borrowing from the Federal Reserve, but with interest rates rising that measure will not offer as much relief as one might think.

There are no visible alternatives to cuts in entitlement spending. The vast bulk of the boomer dominated workforce is not in a position to accept this demand for productivity. Most boomers are in their productive twilight, they cannot acquire new skills. They also cannot remain economically viable for much longer:  even if they successfully remain employed, the rising health costs associated with an aging workforce will ultimately produce a decline in their net productivity.

One could get into the weeds of this and try to figure out how much debt is internal to the country and how much is external but quite frankly I fear that picture may be misleading as the two debts are linked. The mantra of "forgive internal" and "repay (or "forget") external" is not actionable - as the two debts aren't necessarily separable.

There are few a big picture workarounds - each comes with caveats.

  1. By careful automation, one could theoretically reduce the skill gap in the workforce. This works up to a point beyond which the robot is way cheaper to own and operate than the human workers.
  2. Another solution would be to import labor from foreign lands and fill the ranks of the middle aged with more taxpayers. This works up to a point where the immigrants drop the price of labor to a point where the native labor is no longer profitably employed. That is the point at which the nativists gain ground and incite violence.
  3. Assets can be sold to foreign buyers at a premium and with that one can hope to reduce the debt. This comes with other problems as the foreign sources can be contaminated with conflict capital flow which are very corrosive to our economy*. 
The following are non-solutions - the create far more problems than they claim to solve
  1. Stopping immigration - this cuts out the supply of cheap labor and over-inflates the labor price to the point where no productivity is sustainable. Given that there are cheap labor markets world wide - the companies elect to move/outsource.
  2. Adding Tariffs - If you tariff imports - your exports are taxed via reciprocity. If your primary exports are agricultural (like the US right now or India was right after independence)  - a reciprocal tariff will kill your food production Famines become endemic and people die in large numbers. 
  3. Burning down the system - This is like cutting off your testicles to spite your enemies. The system is what redistributes wealth imperfectly. If you burn it down - you shut down the redistribution mechanism. Disparity rises - the rich get richer, the middle class gets poorer and the poor die. You have to be pretty sociopathic to actually want that. 
As things are right now - the US, EU and UK are on the crazy train to complete self-destruction. Between the Trumpers (who were seduced by DJT's fake promises) and the Berniecrats who seem to want to destroy the system - well because...  - one cannot see a clear horizon to anything. 

There is high likelihood of the US going into default on its debt. We are falling down a very deep and dark hole and there is no clarity on where the bottom is. 

* Conflict capital (or "money with menaces") usually is laundered with costs that are barely below the rate of legally moving regular capital. Since the capital is collected by a "aggressive capitalists" - their notion of a rate of return is quite absurd and disconnected from any economic realities. Financial advisers who deal with such capital often can't tell their clients that they lost money on a high risk investment so if you allow conflict capital into your economy - you are risking a major backflow of white capital along the conflict money channels., This can easily sluice the wealth from your country. This is what the DJT Admin is putting the US at risk of. No one in their right mindwants to the see the entire US stock market robbed blind to pay off Putin and friends! - and yet that is where DJT, Bannon and Co are leading us. 


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