Resistance Begins at Ohm!

Wednesday, March 18, 2009


I need to preface this post with some explanation. My son is 30-ish, and does not fit into any ideological pigeon hole. I have called him libertarian (small l) at times and a communist at others. We have been having this discussion off and on over several years. I have invited him to post here. Alas, I have only his permission to repost with editorial rights. This is not something I believe you will find on your typical political/ideological blog. It is really interesting!

Okay, I finally got through a fair portion of this. I'm just going to say that I never believed in borrowing money from entities who loaned for profit. It just didn't seem plausible. The assumptions never worked for me. Wages are decided principally by what employees need to survive in a manner they can accept.

When banks loan money to those same individuals, they enter into direct competition with their employers. Inflation goes up by three to five percent annually, wages run behind at one and a half percent. The entities who loan for profit are looking to get the same fifteen percent profit all companies need. This necessitates the passing around of an unnatural deficit like a hot potato. While everyone who wants to engage the individual consumer will have to touch it, they need to be sure it doesn't remain on the books long enough to permanently scar their efforts. Before this concept became the norm, companies were careful to provide products that people could buy with actual money they had saved. Not so much anymore. The potatoes are becoming more numerous and exponentially hotter.

I believe the only way to get out of this mess will be the gradual readjustment to these old ideas or the total collapse and gradual rebuilding of another equally fallible system of self depreciation.

The real truth of the matter is that you can't continue to make money doing nothing. This is the same idea I was trying to convey previously when you thought I was trying to take someone's earned money out of their hands. Investments ultimately don't work because they lead to a psychological shortsightedness which generally seems to reenforce itself.

I know these ideas seem to leave a lot of real successes out but in the end everything has it's useful cycle. People, businesses, and institutions all come upon a time when they can no longer pass muster. The problem with the latter two are that there are always interests that suffer losses when their vehicle for investment ultimately breaks down.

The only survival I see for a truly global community is a society that gives and walks away from the vehicle they have been expecting to carry them. And it is the the institution of economy that is failing us. We need to get back to creating the goods and services that further our causes rather than the ones we think can make a quick buck before getting too hot.

And since I never bought in to begin with, none of this is particularly scary at all. I have no assets to lose.
end quote

Seriously, if you are reading this, you will need to think about what he is saying. He makes some big jump-skips. Just because you may not see his connections doesn't mean they aren't there. I had to think about this for quite awhile before I understood the whole message as well as it's parts. I'm not saying I agree with his conclusions about furthering our causes. What if our cause is to create wealth? But the point about financial institutions being at the root of the problem and making money without earning it as the core value in error - well he does have an interesting construct there. And it is so old-testament!
Still some things I am not getting like system of self-depreciation. Until I get it all, I don't want to try and wordsmith around his thought jumps as I might jump totally off-point, making an ass of myself.

Gross domestic product and national debt

Since Reagan, both parties have been whistling this tune past the graveyard:
As long as I keep making more, I can keep borrowing more.
What this means is that our politicians have been relying on an ever increasing economy to fund an ever increasing debt obligation. (And when it becomes apparent that the debt is getting out of hand, well we just take those obligations out of the budget - don't count them at all)
In the beginning of 2008 and even late 2007, the economy started to shrink. And tax revenues also started to shrink. As a country, we have less money (I believe because of the 2007-08 price of oil and other energy), we spend less, therefore companies sell less and employ fewer. Unfortunately, it also means tax revenue goes down substantially, driving up the deficit and increasing the percentage of your money that goes to the government. Start the cycle over. The only people who come out ahead are the ones that don't have any money and therefore nothing to lose. But we feel bad for them, so we will give them some money to lose in hopes that it will make things better for the rest of us. Huh?

Fortunately, the decline in business and employment means a decline in the use of and therefore the price of oil. Remember, the money we pay for oil goes overseas, not back into our economy for the most part. We tripled the amount of money we sent overseas for oil between 2006 and 2008. And then we wonder why we don't have any money left to spend here. Duh. The housing bubble was happening before oil prices peaked. But I digress and should probably put this in another post.

Of course, the other side of debt is the ability to pay it. The gross domestic product (GDP) is the total value produced by the economy in the course of a year. In 1980, the debt was about half of the GDP. Last year, it was about 75% (three quarters) of GDP. In 2009, the GDP will be less and the debt will be substantially more. In 2008, the estimated GDP was $14.3 trillion.

As of February 5, 2009, the total U.S. federal debt was $10.71 trillion [2], or about $37,703 per capita. 2009 GDP is estimated at $13.26, -3.86% from 2008. 2009 is also expected to add at least $2 trillion to the debt (not counting the future payments of benefits, nor the federal reserve lending). Basically, it looks like the GDP and the national debt (as figured on a cash basis) are going to be about the same in 2009, closing that 25% gap in just about 15 months.

Disturbing: It took 25 years to have the national debt go from 50% of GDP to 75% of GDP. It is taking less than 2 years to go from 75% of GDP to 100% of GDP - the same relative distance in less than 10th the time. The future of the national debt is increasing far faster than any rosy best scenario for the GDP. So in 2011, the debt could be 125% of GDP (if the rate stays constant) or 200% of GDP if it follows the current trend. This is an astounding, possibly disastrous shift in federal policy with implications far into the future (decades upon decades). Yet we have not discussed this in Congressional hearings, in national debates, in political campaigns at all.

National borrowing and interest payments

A significant chunk of change paid out with each year's budget is for interest. $451,154,049,950 in 2008 according to the Treasury. It would be one thing if the interest payments were going back into the US economy, but they aren't. About half the debt is now held by foreign countries and investors. So, not only are we sending huge amounts to China for goods, India for services, and the middle east for oil, we are sending something like 20% of federal government revenues ($2.521 trillion in 2008) somewhere else besides the US. You think maybe the economy would get a boost if we weren't doing that? By the way, before 1980, we did not sell our debt to foreign countries. But the debt got so big, we couldn't afford as citizens, to buy it all ourselves.

Not even the Government Accounting Office believes we can continue down this path. But we have to reverse the direction, not just stop where we are now. The solutions will be painful and it comes down to how many generations you want to feel the pain.

We can not keep borrowing more and more money. Eventually we will not be able to pay even the interest. Foreign investors will want their money back before we get to this point. What are we going to pay them back with? Carbon credits?

Thursday, March 5, 2009

Credit Crisis explained

I like this video - it is a plain language explanation of how mortgages and investments are related. Check it out.
Crisis of Credit
Great job, Jonathan Jarvis!

This is Charles Krauthammer's explanation of the Obama soution. WTG!

Clever politics, but intellectually dishonest to the core. Health, education and energy -- worthy and weighty as they may be -- are not the cause of our financial collapse [see above]. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime.