Massive Problems come with Massive Debt

Massive government debt is nothing to sneeze at. Particularly when the debt goes to pay off voters and political cronies -- with no possibility of ever paying off the debt. That is not merely "bad debt." It is catastrophic debt.

Here is a good look at central banks, and their pathetic attempts to deal with massive modern debt:

Because governments are in disagreement, bodies are taking their place that are turning into ersatz governments: the central banks. The ECB's decision to buy up unlimited amounts of the sovereign debt of European countries is a replacement for political solutions for which there are currently no majorities in the governments and parliaments of euro-zone countries. The decision by the American Federal Reserve Bank to inject hundreds of billions of dollars into the markets again to stimulate economic growth results for the inability of Democrats and Republicans to agree on a compromise between limiting debt and economic stimulus programs. Printing money -- or betting hundreds of billions once again -- is the last desperate response on both sides of the Atlantic.

What began four years ago with the bursting of a credit bubble in the mortgage market is being combated with more and more new debt in the trillions, thereby inflating the next, even bigger credit bubble.

The fresh trillions circle the world in the search for yield, but only a small part of the money flows into the real economy, where investments in new production plants produce lower returns. Instead, the trillions slosh back and forth, from one financial market to another, from the foreign currency market to the commodities market, and from the gold market to the stock market and back again.

Because these trillions are not reaching the real economy, the risk of inflation is currently smaller than Germany's central bank, the Bundesbank, and its president would have us believe. But every saver and everyone with a life insurance policy pays for the central bank's low interest-rate policy with low interest rates. When central banks keep interest rates close to zero for long periods of time, which they have done for years, they disadvantage ordinary savers and favor major investors, gamblers and banks, which can borrow at low rates and invest the money elsewhere at a profit. _Spiegel

As seen in the image, it requires more and more debt to generate less and less growth, over time. Governments and central banks get caught up in a tangled web feedback loop of out of control debt spending, with no clear way out.

Government officials "play at the problem" with no real intention of addressing the central concern: Governments have grown to an all-encompassing size and degree of control over their now-subservient societies. How can societies be subservient to governments when governments run on the surplus production of societies? Because governments have grown to be parasitic upon their underlying societies.

This story does not have a happy ending. But it will have to have an ending, because better stories will not wait indefinitely to be told.

Malthusian Doomers Appear Totally Ignorant of Basic Economics

Two recent articles in the economic blogosphere point out the basic ignorance in economics of Malthusian doomers:

The neo-Malthusian extrapolation in doom-laden pieces like “Welcome to Dystopia” never ceases to amaze me (I sometimes think such articles can be best understood by applying psychology rather than economics. Most – including Grantham’s latest – could be productively revised through the author asking themselves the simple question: ”Why is the lamp by which I am writing this not lit by whale oil?”).

For starters, Grantham has never heard the warning of a former a British Chancellor of the Exchequer, “Beware of extrapolation: it can make you go blind” (even though he quotes Kenneth Boulding to the same effect at the start of the article). Again and again, Grantham holds one item constant, and draws a straight line to chaos, doom, starvation and war.

Like many business leaders today, Grantham is also not afraid to release his Inner Authoritarian, writing that the only people who seem to understand what is going to happen to future commodity prices (Up! Up! Up!) and the world economy (Down! Down! Down! – though how that squares with Up! Up! Up! is not explained), are the Chinese Government and the military forces of the US and UK. I know that fear sells, and this is an investment newsletter, but Wow! – for a man who’s made millions, Grantham sure lacks faith in the price mechanism. (Grantham also fails to recognize the limits of developmental autocracy in China, but he’s hardly alone there).

Truly, “Welcome to Dystopia” is a catalog of self-contradiction and error. Like many “The world is running out of X” pieces, Grantham cites Leading Authorities about dwindling supplies of various essential commodities, and paints dire straight lines between present trends and doom. He fails to explain convincingly, however, why this time innovation, spurred by price, won’t drive substitutes and solutions. Hasn’t he heard of the Simon and Ehrlich bet? Oh. I forgot: ”This time is different”. I suppose he gives fair warning by using the terms “paradigm shift” and “phase change” right off the bat.

As close friend pointed out to me a few years ago, “When you buy commodities, you’re selling human ingenuity.” I may not be as wildly optimistic as some, but I certainly don’t think Grantham makes a persuasive – or even logically consistent – case for a coming commodity dystopia. _Strategy, Surprise, and Disruption

Much more with informative price trend graphics at the link above. The concept of the "price signal," and the effect it has on future behaviour of people in the marketplace appears to have escaped most doomers.

Interestingly, the author of the piece above has challenged doomer Jeremy Grantham to a 10 year bet on future trends in commodities prices, a la the famous Julian Simon : Paul Ehrlich wager. Another article pointing out the lack of economic savvy among doomers looks specifically at peak oil doomerism:

Every few years, another author comes out and says that we just reached peak oil and should begin preparing for the onslaught that will be starting to occur -- then, of course, it doesn't occur, mostly for the following 3 reasons.

Problem 1: Innovation Changes Economically Recoverable Oil Supply

When economists begin formulating theories, they often make one of the most critical mistakes possible -- something, thankfully, the Austrian school doesn't do. They begin assuming that economics involves static numbers.

George Soros's theory of reflexivity is probably one of the most important concepts investors should learn to understand. It's the notion that people react to people and change their actions, and the other people react to the changes, creating an endless feedback loop.

This feedback loop is why it's impossible to assume that trends are constant when they are about society. This includes economics, innovation, demand for certain goods and services, and other things.

Peak oil might make sense if we were stuck with a set amount of oil, people were not going to begin shifting away from oil consumption 'in time', if innovation didn't exist, and if economically unrecoverable oil couldn't become recoverable with higher prices.

Of course, all of the above aren't true. In fact, this is one reason researchers at Harvard are making the opposite predictions of the oil-peakers.

From Harvard's Kennedy School website on June 26th:

"Oil production capacity is surging in the United States and several other countries at such a fast pace that global oil output capacity is likely to grow by nearly 20 percent by 2020, which could prompt a plunge or even a collapse in oil prices, according to a new study by a researcher at the Harvard Kennedy School...

Contrary to some predictions that world oil production has peaked or will soon do so, Maugeri projects that output should grow from the current 93 million barrels per day to 110 million barrels per day by 2020, the biggest jump in any decade since the 1980s. What's more, this increase represents less than 40 percent of the new oil production under development globally: more than 60 percent of the new production will likely reach the market after 2020."

Far from reaching peak oil and seeing prices increase forever, we're seeing a very real possibility of the opposite. Innovation exists. Oil supply can increase. Not forever, of course, but certainly long enough for society to transition to another energy source altogether, like electric or something else.

Companies like Exxon (XOM), Chevron (CVX), and BP (BP) are dedicating huge amounts of money to make sure that innovation and exploration get better every year -- not static.

Problem 2: Higher Prices Change Economically Recoverable Oil Supply

Innovation makes some oil sources economically recoverable that used to not be recoverable. For example, according to the Economist last year, we were seeing demand outstrip supply. But that doesn't mean we were seeing peak oil. Even with increased demand, we were seeing a boost in production.

When demand begins to outstrip supply, this has an important impact on the market. It makes some oil that wasn't economically recoverable suddenly more recoverable because of the higher prices.

Just look at shale oil. As prices begin to increase, as well as technology, more and more oil is suddenly recoverable and can be put on the market. Apparently, supply and demand still work.

Problem 3: Higher Prices Automatically Cut Demand For Oil Products

This is probably the most important concept we need to understand. Higher oil prices make non-oil based fuels more economical. This means electric cars or something else entirely. We're decades away from even needing electric cars, but if there are long-term trends of oil price growth, then we'll see people transition to fuels that are cheaper. It's the way the market works.

This is one reason having higher fuel standards on cars actually is an economically destructive thing, because higher gas bills for consumers can end up pushing billions toward developing new fuels, allowing us to move to more economically friendly fuels decades earlier than with higher fuel standards.

Once again, government action misses the point of "higher prices" in the first place. Governments often miss the fact that ignoring prices with policy is economically destructive. _Shaun Connell

The author of the second piece above likewise points out the importance of the "price signal" in changing economic behaviour.

If a person cannot even comprehend the most basic concepts of economics and economic behaviour, their prognostications about the future are unlikely to reflect what will actually occur.

California's Big Problems in Higher Ed.

This is a nice summary of California's higher education bubble, in the days prior to its imminent collapse.

If you take a broader look at California, you will learn that things are hard all over.

The entitled classes ensconced within California's universities are matched by entitled classes at every level of California's state and local governments. It is unlikely that the people will stand for this nonsense for much longer -- particularly when dysfunctional government policies of spending, regulation, and taxation, are driving more and more profitable businesses and employers out of the state.

Video H/T Boots and Oil blog

China Slowdown Coverup Fools Analysts

Many veteran China watchers appear to have been fooled by faked statistics coming from Chinese government sources. It appears that the economic slowdown in China may be deeper and more extensive than previously suspected -- rivaling the slowdown of late 2008 - early 2009.

Record-setting mountains of excess coal have accumulated at the country’s biggest storage areas because power plants are burning less coal in the face of tumbling electricity demand. But local and provincial government officials have forced plant managers not to report to Beijing the full extent of the slowdown, power sector executives said.

Electricity production and consumption have been considered a telltale sign of a wide variety of economic activity. They are widely viewed by foreign investors and even some Chinese officials as the gold standard for measuring what is really happening in the country’s economy, because the gathering and reporting of data in China is not considered as reliable as it is in many countries.

Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.

The executives and economists roughly estimated that the effect of the inaccurate statistics was to falsely inflate a variety of economic indicators by 1 or 2 percentage points. That may be enough to make very bad economic news look merely bad. The executives and economists requested anonymity for fear of jeopardizing their relationship with the Chinese authorities, on whom they depend for data and business deals. _NYT

As mountains of coal, copper, and other commodities continue to pile up at Chinese depots, China analysts are beginning to wonder if they can trust any numbers whatsoever that hove their origin within the Chinese government or state owned entities.

Serious economic decline linked to a banking crisis has affected several countries in Europe, and lower oil prices are beginning to take their toll on Russia. If China is forced to reduce its massive commodities stockpiling and the massive infrastructure overbuild, exporting nations such as Brazil and Australia may begin to feel the pain.

Al Fin economic analysts have been warning readers of this possibility for well over a year now, but as of yet global commodities prices have not yet dropped back to 2007 levels.

The Chinese government has very good reasons to not show any public sign of economic weakness at this time. But if it is forced to back off from its ambitious building stimulus scheme, the global repercussions in commodities markets may make 2008 / 2009 look like boom time.

Debate Over China's Economic Slowdown

Michael Pettis discusses the economic debate over China's slowdown, and the question of whether China's CCP government can pull the economy out of its decline. Pettis discusses some of the main problems with China's current policies of malinvestment and misallocation of resources.

Patrick Chovanec provides a wealth of links to articles on China's economic situation. This "links feature" from Patrick is turning into quite a treat. Using this information, a person can browse the data points and draw his own conclusions.

Coal stockpiles rise as economy dips

Watching the growing stockpiles of essential commodities is one way of monitoring economic progress. Another important checklist to update is overcapacity in manufacturing and real estate.

If Pettis is right, and China is being forced into another round of stimulatory infrastructure overbuild, we will need to be able to monitor the extent of this overcapacity.

China can easily prop up its near term GDP numbers at the cost of future stability. In the process, it can lend false hope to its commodities suppliers such as Brazil, Australia, and several S.E.A regional countries.

In the end, China will have to reform its corrupt and dysfunctional system of state owned banks and enterprises and crony government, or it will resort to escalating nationalistic xenophobia and war, or China will schism into antagonistic fragments.

The crisis point will likely occur sometime in the 2020s, within years of a similar crisis point in neighboring Russia.

A Return to 2008? Speculators Banking on Ever-Rising Commodities

Money managers expanded their combined net-long positions across 18 U.S. futures and options by 25 percent to 671,915 contracts (.MMLOSH) in the week ended Jan. 3, Commodity Futures Trading Commission data show. Bullish bets on cotton rose the most since April 2009 and those on coffee doubled. Crude-oil holdings reached a three-week high. _Bloomberg

They are betting your pension and 401K money, university endowments, municipal holdings and more -- just as they did in 2008.

Commodities to be Volatile this Year
The recent history of commodity prices has not been so good, overall, and if recent unfavourable developments in China and Europe continue on their downward course, commodities prices could be subject to further significant drops.

Prices of raw materials have plunged this year. The prices of copper, coffee, aluminum, cotton, nickel, natural gas, wheat and silver are all down more than 20% since the end of April, according to Bloomberg. Gold, widely viewed as a barometer of inflation, has fallen 11% since its September high of $1,900 an ounce.

Inventories of commodities have gotten so high that metals dealers have had to buy extra warehouse space for them.

In November, copper warehouses in New Orleans were 98% full, and aluminum inventories in the U.S. are at an all-time peak, according to FastMarkets.com. _USAToday

The prices of commodities futures depend upon anticipated demand from the big consumers of commodities. That would be China, the US, and Europe. But with a turbulent decline in Chinese real estate and stock markets, and a Eurozone crisis of confidence still building, what could be boosting the confidence of hedge funders and institutional investors?

Bloomberg attributes this aggressiveness by fund money managers to recent favourable economic news from the US government, such as improved job numbers. But these job numbers have already been shown to be unreliable at best and uniformly misleading at worst. Are money managers so easily manipulated by fudged numbers?

Many funds managers are particularly excited by the prospects of a huge runup in oil prices, just as they were in 2008. Looking at current prices of oil in dollars, prices do seem to be trending upward. But look at the chart below, showing the price of oil in gold:

Source
Another aspect to consider when looking at historical price trends, is the inflation of the US dollar. One cannot compare today's prices of commodities such as oil with historical prices, unless one first adjusts for inflation.

Here is a table that shows the inflation adjusted price of oil beside the historical price of oil.

A handy US dollar inflation calculator

It is not possible to predict future prices of commodities with any great precision. But by understanding the bases of commodities demand, there are benchmarks which one can monitor.

Economic data from governments is apt to be fudged. Always confirm and corroborate.

Originally published at Al Fin Energy blog

China In Hard Landing Mode?

China is obviously in hard landing mode: Excavator sales in China tumbled 27% in October from the previous month, the sixth consecutive monthly decline. Cumulative sales volume through October were up only 16% year-on-year after surging 78% in the 12 months to last December. With property sales falling, developers are buying less land from local governments, which rely on land sales for around 70% of their revenue. The ratio of land acquisition expense to property revenue for leading developers is now as low as 21%, according to a report of Centaline Property Agency. _EM

China's communist government was certain that it could control the swings and uncertainties in a mixed industrial economy. But the CCP figured wrong.

In the middle of plans for its once a decade transition of power, deep schisms are forming both within the Beijing government, and between the central government and the regional governments.

China is now in an export hole. Reuters reports flows are down. Exports fell in sequence 2% lower in each month in the 4Q. West Coast ports data comfirms the same trend. November marks six months in a row of YoY declines.

This squares with my theory that the Chinese export sector began a severe contraction back in early part of 2011. The only thing that sustained exports in the first half were warehouses of inferior goods, which are now emptying. If imports from China are down for the reasons I have always cited, it does stand to reason that a little marginal production might move back to the US.

So at tremendous cost and because Chinese exports are hollowing, the US gets a minor uptick in production output, that could last all of about a quarter or two. Remember that the spin last year was that the BRICs would keep growing and support the global economy. Now it centers around this artificial and expensive pickup in US activity.

For anybody who is alert in the US, the quality of Chinese goods is way down. My girl friend is so in tune with this that she checks manufacturing tags. One aspect she has noted is that origin is now frequently omitted.

In the surprise, surprise Dept. it turns out that China is the epicenter in illicit financial flows, with over $2 trillion in illegal money moving in and out of China between 2000 and 2009, according to a new report from Global Financial Integrity. GFI defines illicit financial flows as “the cross-border movement of money that is illegally earned, transferred, or utilized.” And noting what I observed years ago, GFI cites trade mispricing as the major conduit for transferring illegal money in China.


Factoid front: every year since 2005, more than 20% of China’s GDP has consisted of construction-related spending versus 6% in the US. To put this in perspective, in 2010 China consumed 25 X of the US consumption of concrete. China’s low hanging infrastructure build out fruit has been largely picked, and projects on the board are declining. China has built out the equivalent to the entire EU housing stock in less than a decade. 60% of elevator delivery go to China. On a paved road per car basis, China is far ahead of it’s development curve. Charts taken from a Societe General report. _EM

Between China's trillion dollar "infrastructure to nowhere" and its massive overcapacity in real estate and manufacturing capacity, China is getting a crash course in capitalist economics 101. That is the economics course which all NYTimes columnists are required to have either flunked or skipped.

Regardless, in the real world, what a government wants and what it can achieve in the end, are usually two different things.

Jim Rogers Explains Current Economic Situation

Jim Rogers is a world class investor with a useful perspective on current economic trends. It is worth a bit of time to listen to his POV. Although Mr. Rogers is not perfect nor omniscient, his ideas are thought provoking and closer to the truth than what one generally hears from the skankstream media.

In a pyrrhic victory for America, Rogers believes things will eventually get so bad that Americans will finally vote for real change and economic progress. Alas, the measures he feels are needed to cure our economy are so harsh that those same officials will also get tossed out when voters realize just how harsh the road back to prosperity is.

Regardless of the necessary suffering, spending cuts are needed in order to save the most fiscally responsible citizens, those whose savings are funding this disaster.

"What the Federal Reserve is doing now is ruining an entire class of investors," says Rogers. By forcing rates down and keeping the economy on a flatline, he believes the Fed could cause another lost generation of investments. Suffice it to say, vaporizing those who faithfully accumulated savings over the years is no way to restore confidence in our financial markets.
Rogers isn't simply a disgruntled American patriot, he's an investor with a legendary record of success. That being the case, and having established what the depths of suffering the world is facing now, the obvious question is where Rogers is putting his money to avoid or even profit from the pain. _YahooFinance

The US Federal Reserve is following the dictates of the Obama administration. The US regime which is currently in power, has dedicated its political capital to the destruction of the private sector and the middle class of the US. Both fiscal and monetary policies of the US government -- along with bureaucratic regulations and judicial trends -- all lead to those ends.

Knowing this, you had best do whatever you can to protect your assets and locate yourself in a reasonably secure location. Even if you do not live inside the US, the fallout from the Obama devastation of the US economy will spread to cover the globe.

China's Overreliance On Government Directed Investment

China's property bubble is set to burst, causing greater damage to the domestic economy than the U.S. suffered after its housing market collapsed in 2008, a government economist warned in comments published Friday. Yi Xianrong, a researcher at the Chinese Academy of Social Sciences with a reputation for speaking out against the government's housing policy, said the U.S. housing bubble was smaller than China's and still burst, despite the country's superior legal and credit systems. _SeekingAlpha

China’s problem, however, is that most of this investment is state-directed and this means China’s investment expansion is arguably more likely to create a financial bubble and be less productive than that of the US, Germany et al before it. Again, past is prologue. Both Korea and Japan’s investment spree ended with a bubble bursting – Korea’s in the Asian financial crisis in 1997 and Japan’s in 1990. _FT

Read both of the articles above in their entirety, for a balanced view of China's predicament.

When China's export markets collapsed in 2008, the CCP government turned to local infrastructure spending to maintain employment and GDP growth. But much of the spending and construction occurred on the basis of government direction, rather than in response to the needs of any market. This type of central economic planning led to the collapse of the old USSR, and is leading to chronic creeping poverty in Cuba, North Korea, and increasingly in Venezuela.

China's regional governments are going further and further out on an economic limb to finance projects which may look good on the balance sheets, but which will not provide enough return to pay back the loans which were extended to finance them. The famous "ghost cities," "ghost shopping malls," "ghost trade centres," and such are but the tip of the iceberg.

When this widespread overextension of banks, governments, state-owned enterprises, and politically well-connected enterprises becomes stressed sufficiently, the painful effects of this misallocation of capital and the "Potemkin economy" will be more difficult to hide.

Which Comes First? Collapse of Commodities Prices, or the Crumbling of BRICs?

Common wisdom assumes that commodity prices, including oil prices, will continue to rise on exponential demand from emerging nations, such as China, India, Brazil, Turkey, Russia, etc. But under the sheen of those rosy projections, exists a growing excremental stench of corruption and decay. If the magical trajectory of the BRICs should falter, how far would commodities prices fall? And what would be the repercussions for already stressed world financial markets, desperate for safe havens and hedged to the hilt?

China's property bubble is set to implode, and when it does, the Chinese economy will cool far more than anyone thinks, taking commodities along for the ride. Commodity producers like Australia and Canada are at extreme risk as well. _Mish

Not just Australia and Canada are at extreme risk. Two BRICs -- notably Russia and Brasil -- are gambling on continued high commodity prices into the indefinite future. Corruption in all of the BRICs is hampering genuine market-based growth, but economic dependence on raw commodities prices is particularly bad in Russia.

When commodity prices dive, Russia may well grow desperate.

Prime Minister Vladimir Putin, the country's uncrowned czar, has linked his legitimacy to the economy's performance by offering the Russian people a grand bargain: submit to his increasingly autocratic rule and the state will compensate with economic goodies like higher incomes and hefty social-welfare spending. Now that the economy is faltering, Putin is under intensifying pressure from a discontented public to restore Russian democracy, potentially destabilizing Russian politics. He has already faced protests in Moscow against his rule amid the economic downturn. There's also a risk that leaders in Moscow will resort to nationalistic appeals to distract the public from problems at home, escalating tension with Russia's neighbors, the rest of Europe and the U.S. _Time

Russia's ongoing demographic collapse, and the threat of losing much of Eastern Siberia to Chinese influence, is not helping the mood in Moscow. But without the clout that comes from high energy prices, Russia becomes an angry dancing toy bear with nuclear weapons.

Venezuela, Iran, the Arab states of MENA, Mexico, and many countries in tribal Africa and Asia, are also pathologically dependent on high commodity prices, due to internal corruption having squeezed natural markets to death. How will their people deal with the many difficulties and hardships they will face when their governments cannot feed, clothe, house, or water them?

Even the US is vulnerable to a fall in commodities prices. The US is the world's third largest oil producer. The recent boom in US shale oil & gas production is one of the few bright lights in an otherwise dim Obama economy. And although the jobs, housing, manufacturing, and other sectors in the US economy continue to sag, Obama has not had enough time to entirely destroy the US private sector.

Few readers of this blog understand the precarious state of China's economic house of cards. That is because almost all of the economic information coming out of China is closely controlled, and coated with a shiny facade. But it is time for readers to begin asking themselves about the global repercussions of a more sustained commodities price slump than they have seen.

Taken from an earlier article at Al Fin

Out of Control Debt An Important Sign of Global Instability

...leading economies, the U.S., Japan, and the E.U. are declining. That is, about one-sixth of the world's population is losing ground. These big economies are the ones that lead the rest of the world, including China. Countries like China, India, and Brazil, depend on the health of the big economies to keep buying their products and commodities so they can grow and generate wealth for their citizens. _ZeroHedge

Who will be the last man standing? In the coming clash over debt, both within and between nations, what country -- or portion of a country -- will survive and prosper? Difficult to say, given the ubiquity of the deadly duo: debt and demographic decline.

In Europe, one can locate particular problem points, where endebted nations are reaching the end of their borrowing capacity. These nations are coming flashpoints for a fire of unrest that could explode out of control with incomprehensible haste.

A visit to Spain the prior week demonstrated that Greece's financial woes were just the tip of an iceberg on a continent of debt -- the Greek national debt crisis seemed like the first card in a flimsy house. To be in a nation as it is unraveling has an eerie, surreal, mostly indescribable feeling. The storefronts in Athens outside of the tourist areas looked like they'd been through several rounds of a boxing fight, and were just waiting for the knockout punch. Other than the lights being on, the difference between shops closed indefinitely and those currently operating were hard to distinguish. Unless they were pushing merchandise, people wore saddened expressions as they walked by decaying and graffiti-covered buildings. _thetyee

In such environemnts, deadly, destructive riots are always just a spark away. There is no telling where the next upsurge of violence and mayhem would end.

The situation can only get worse, since nobody's interests align. The Greeks want more time to meet their budget targets without having to make more cuts that would cause more public angst. The Germans, whose opinions arguably matter the most since they have the financial ammo, are already in a huff with German Chancellor Angela Merkel about expanding the eurozone's bailout fund. More pushback from Greece about meeting its current austerity measures only fuels the fire. _Time

Towards the end of the last decade, it was popular to proclaim Europe as an example of what we in North America could achieve. This notion was led by books such as Jeremy Rifkin's The European Dream, which described the difference between North American and European values. He argued that on the other side of the Atlantic, citizens found security not through individual accumulations of wealth but through connectedness, respect for human rights and sustainability. _the tyee

But now, as Europe's demographics collapses in on itself, we can see that not even utopia can escape the twin demons of debt and demographic decline and collapse. Europe's states are like teetering dominos, as long as they are coupled together economically. But if Europe is smart enough to decouple, still only a portion can survive the coming wildfire.

In the third world, we will have "The Coming Anarchy." In the developed world, the anarchy will focus on the third world enclaves, the multicultural cities and non-assimilating banlieus, and spread out from there.

Consider the relative places of safety, where you might find a place for yourself and your families. Hope for the best, prepare for the worst.

Two Strikes Against China, Europe; Global Economy Deterioriates

China's two strikes for today are:

1. China's aging population: a demographic time bomb. China is not ready for the demographic sledge hammer rapidly descending upon its head.

2. Massive overcapacity: the limits to government dictate. China's economy was unable to adjust properly to the radical drop in export income dating from 2008, 2009. Bubble trouble in spades.

Europe's daily double:

1. The birth of gangland: Unwise immigration policies lead to societal fragmentation and rising crime

2. Crash of the nanny state: Welfare state economics confronts the shrinking taxpayer demographic collapse. Welfare states are pyramid schemes. They do not work in aging populations. Hence Europe's rapidly growing economic problems.

The US is facing many of the same problems as Europe, and is also burdened with the Obama administration -- arguably the most destructive US presidential administration ever.

Globally, the economic situation is even worse, since the world economy needs for the US and Europe to thrive, to have someone to buy the emerging world's exports. Mish has more about the economic problems from the BRICS to Canada to Asia. There is very little in the global economic picture about which to feel encouraged.

Global Economy: Problems, Problems, Problems

The North American and European investment markets are behaving as if they are oblivious to the way the global economic cookie is crumbling. They are due for a very rude wakeup call.

My basic sense is that we are at the end of one of the six or so major globalization cycles that have occurred in the past two centuries. If I am right, this means that there still is a pretty significant set of major adjustments globally that have to take place before we will have reversed the most important of the many global debt and payments imbalances that have been created during the last two decades. These will be driven overall by a contraction in global liquidity, a sharply rising risk premium, substantial deleveraging, and a sharp contraction in international trade and capital imbalances.

To summarize, my predictions are:

1. BRICs and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the global crisis.
2. 
   Over the next two years Chinese household consumption will continue declining as a share of GDP.
3. 
   Chinese debt levels will continue to rise quickly over the rest of this year and next.
4. 
   Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade.
5. 
   Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.
6. 
   If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012.
7. 
   Much slower growth in China will not lead to social unrest if China meaningfully rebalances.
8. 
   Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.
9. 
   European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.
10. 
    Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness.
11. 
    Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.
12. 
    Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.

_MichaelPettis_via_Mish

Here are the six key ideas that Mish is emphasising, out of Michael Pettis' analisis:

1. China Will Slow Much More than China Bulls and Commodity Bulls Think
2. 
   Non-food Commodities Take Big Hit
3. 
   Eurozone Experiment Ends in Breakup
4. 
   US Protectionism Takes Hold
5. 
   Deficit Countries Control Demand, Thus Have the Best Cards
6. 
   Disaster Hits BRICs

_Mish

If the BRICS are hit hard by blowback from the twin "debt and demography" crisis hitting the developed world, the panglossian investors of North America and Europe will be hard-put to find any rays of hope whatsoever.

As long as world leaders in the EU and the US are caught up in political correctness, welfare state dogma, and the faux environmental ideas of carbon hysteria and resource scarcity, they will be unable to make the necessary changes in course to free their economies from the twin curses of "debt and demography."

Until those crucial changes are made, the economic future looks bleak, globally.

Obama's Coming Double Dip Recession and How to Avoid Its Worst and Most Lasting Complications

Obama appears determined to drive the US economy into the trash dump. The policies of the Obama administration -- from designed energy starvation to crony fake stimulus payoffs to unions and radical organising groups etc etc -- are custom made to destroy the productive classes and to empower the parasitic classes. Economies cannot thrive under such conditions and policies. But if the Obama gang would only take the trouble to learn some lessons from earlier debacles -- such as the Carter recession -- perhaps it could blunt the worst effects of the coming Obama double dip recession-cum-depression.

A look at a past double-dip, the recessions of 1980 and of 1981-1982, suggests we are due...the 1980s experience points to something horrible: We need a recession to get a true recovery.

The trouble that time actually started in the 1960s. Back then, policy makers feared inflation less than a recession. Scholars alleged they knew how to manage "creeping inflation" before it morphed into "galloping inflation," the unstoppable animal. A famous economic textbook at the time, written by Paul Samuelson, claimed that inflation was all right as long as it stayed below 2 percent. John Kenneth Galbraith deemed inflation "a normal prospect." The view was that oil shocks, loose monetary policy, taxes, deficits and labor strikes were also mere obstacles to grow past.

In the mid-1970s, the inflation rate -- measured using the Consumer-Price-Index value for urban consumers -- crept above 5 percent, and it seemed to want to stay there.

Federal Reserve Chairmen Arthur F. Burns and G. William Miller tightened interest rates repeatedly over the decade's course, so that the prime rate, the interest rate charged by banks to creditworthy customers, climbed from 8.5 percent in February 1970, when Burns began in the job, to an astounding 11.75 percent in early August 1979, when Miller left office.

...The inflation rate moved above 10 percent regardless of the Fed's rate increases. This was partly because of energy prices, but only partly. The deeper problem was a shift in attitude.

Prices don't merely reflect what people think things ought to cost today; they also reflect what people expect items to cost tomorrow. Markets suspected that the future contained less growth and more inflation than advertised. They also suspected that the Fed would always hesitate to raise rates out of fear of hurting growth.

That suspicion was reinforced in 1978, when President Jimmy Carter signed the Humphrey-Hawkins Act, which mandated that the Federal Reserve strive for both full employment and stable prices.

Then, in the summer of 1979, with the inflation rate exceeding 10 percent, Carter appointed the inflation hawk Paul Volcker as Fed chairman...For weeks, Volcker worked hard to build consensus within the Fed for raising rates. He also summoned the Wall Street Journal's opinion editors, Robert Bartley and George Melloan, to lunch in the dining room of the New York Federal Reserve Bank to try to win their support. Then he held an unusual Saturday meeting of the Fed’s board of governors on Oct. 6. Afterward, the Fed announced it would raise the discount rate, which it charges banks that borrow at its window, to 12 percent.

When this news was announced that night, not everyone understood its importance. Pope John Paul II was visiting the U.S. at the time, and CBS asked the Fed spokesman, Joe Coyne, if their announcement mattered. “You'll remember this long after the pope has left town,” Coyne told the network.

Coyne was right. For what Volcker was really saying was: "We are not afraid to force recession, whatever the statute says. Our only job is to stop inflation."

...Volcker used his monetarist cover to tighten violently. Between summer 1979 and December 1980, the prime rate rose to 21.5 percent from 12 percent.

Why so high? To wring extra money out of the economy, certainly, but also to prove the Fed meant what it said. Volcker incurred the wrath of many. Homebuilders sent the Fed two-by-fours to symbolize the houses they were not building; car dealers sent in keys to unsold vehicles. "We were negotiating for a house when Mr. Volcker came along and knocked the struts from under us," a husband told the New York Times in 1980.

In the second dip, which officially began in summer 1981 and ended late in 1982, unemployment rose past 10 percent. "That recession resulted from the absolute necessity to kill inflation," George Melloan told me.

The Fed didn't move the discount rate below 5 percent until the 1990s.

Eventually, people became convinced that the U.S. was serious about inflation. And the lower interest rates that followed enabled millions of Americans to build, invest and buy homes. Volcker's work made the work of future presidents, Republican and Democrat, easier. _Bloomberg

In fact, much of the prosperity -- both true wealth-building and bubble-building -- of the US 1980s and 1990s was due to the renewed confidence in the US monetary system which Vocker's tough love approach earned. Unfortunately, under the "weak dollar policies" of Greenspan and Bernanke there has been far too much bubble-building and far too little genuine wealth-building in the US the last two decades.

There will be a price to be paid. The sooner the underlying lessons of sound money policy are learned, the better position the US society will be in to pay that price and to go on to prosper.

Rosenberg: US Crash in 2012 Roubini: China Crash in 2013

David Rosenberg of Gluskin, Sheff, & Associates, predicts a 99% chance of another US recession in the year 2012.

Nouriel Roubini predicts that China is in for a "hard landing" by the year 2013.

"I was recently in Shanghai and I took their high-speed train to Hangzhou," he said, referring to the new Maglev line that has cut traveling time between the two cities to less than an hour from four hours previously.

"The brand new high-speed train is half-empty and the brand new station is three-quarters empty. Parallel to that train line, there is a also a new highway that looked three-quarters empty. Next to the train station is also the new local airport of Shanghai and you can fly to Hangzhou," he said.

"There is no rationale for a country at that level of economic development to have not just duplication but triplication of those infrastructure projects." _Reuters

Roubini also sees the Eurozone in crisis, and possibly heading for a breakup.

The twin processes of debt and demography are poison for both Europe and the US. China's problems lie largely in the corrupt command economy's political constraints and inability to allow market forces to work their creative destruction. China's government appears addicted to the "broken window fallacy," which can create impressive GDP numbers but is hugely wasteful of resources -- human and otherwise. Ghost cities, ghost super-trains, ghost highways, and ghost shopping malls are the least of China's problems.

In no small part due to the US Obama administration's anti-market bias and ultra-cheap dollar policies, the global economy is experiencing multiple simultaneous and interactive shocks and aftershocks.

Getting rid of Obama will do very little good, however, unless the entire bandwagon of catastrophe that brought Obama into office is likewise disposed of. That bandwagon is massive, with a historical momentum that appears unstoppable. Debt and demographic decline can only smooth the way for the monstrosity.

That is why it is so important for future oriented individuals to plan for the possibility of a sustained economic collapse due to dysfunctional government -- as occurred in Zimbabwe, Cuba, the USSR, Mao's China, modern day Venezuela, etc etc etc.

Obama's America in Collapse from Within and Without

US President Obama's destructive influence on the American economy and on the US government's credibility around the world, appears to come from within the man and his circle of influence. From the moment of Obama's nomination as his party's candidate for presidential office, a milieu of confusion and uncertainty has grown over the direction and fate of the world's only superpower.

When Barack Obama took office, the official normal money supply of the United States was about $1.1-trillion. The $3-trillion in federal budget deficits that have been run up since then have largely, technically, escaped the money supply, though accretions have almost doubled the official total, an unheard of rate of growth (about 40% annualized) in a hard-currency country. About 70% of this debt has been paid by the issuance of bonds to the central bank of the United States, the Federal Reserve, a subsidiary of the United States government. Whatever the balance sheets say, this has produced the effect of a money-supply increase, which has brought pump-priming to a level of over-achievement not seen since Noah felt the compulsion to build an ark. And the annual trillion-dollar deluge is forecast to continue for a decade.

The world’s reserve currency, the fabled vehicle of the “faith and credit of the United States,” is now virtual money — a symbol for all the other massive problems afflicting the U.S. economy. _NP

The incompetence of the Obama government is being felt internationally on all fronts -- from economic markets to the global balance of power. There are plenty of problems originating outside the US:

The world economy is losing strength halfway through the year as high oil prices and fallout from Japan’s natural disaster and Europe’s debt woes take their toll. _

, but any response that the Obama crew is able to scrape up is invariably inadequate and couterproductive.

Obama's expensive economic stimulus programs have been revealed as corrupt payback schemes to supporters. But the wealth transfer from the productive classes to the corrupt and non-productive classes -- friends and supporters of Obama -- seem to stretch out indefinitely into the future. Boss Tweed can only be Boss Tweed. He and his gang know no other way to govern but the way of corruption and thuggishness.

Meanwhile, in the heart of many of America's largest cities, the violence among Obama's most dedicated supporters only grows. Here are America's ten most deadly cities -- strongholds of Obama supporters:

1. Flint, Mich.

Population: 109,245
Violent Crime Per 1,000: 22
2010 Murders: 53
Median Income: $27,049 (46.1% below national average)
Unemployment Rate: 11.8% (2.8% above national average)

The number of violent crimes committed in Flint increased for all categories considered for this list between 2009 and 2010. Perhaps most notably, the number of murders in the city increased from 36 to 53. This moves the city from having the seventh highest rate of homicide to the second highest. The number of aggravated assaults increased from 1,529 to 1,579, a rate of 14.6 assaults per 1,000 residents, placing the city in the No. 1 rank for rate of assaults. Flint police chief Alvern Lock stated late last year that he believed the city's violence stemmed from drugs and gangs. Flint has a relatively small median income of about $27,000 per household. The city also has a poverty rate of 36.2%.


2. Detroit

Population: 899,447
Violent Crime Per 1,000: 18.9
2010 Murders: 310
Median Income: $26,098 (48% below national average)
Unemployment Rate: 12.7% (3.7% above national average)

The city crippled the most in America's post-industrial era is almost certainly Detroit. The Motor City has suffered from high rates of unemployment, homelessness, and crime. The city has one of the ten highest rates for three of the four types of violent crime identified by the FBI. Detroit has the sixth highest murder rate, the fifth highest robbery rate, and the second highest rate of aggravated assault. In 2005, a major reorganization of the city's police department took place after a federal investigation identified inefficiencies within the system. According to an article in The United Press, opponents of Detroit Mayor David Bing called for further intervention by the Justice Department in several shootings that occurred last year.


3. St. Louis

Population: 355,151
Violent Crime Per 1,000: 17.5
2010 Murders: 144
Median Income: $34,801 (30.7% below national average)
Unemployment Rate: 9.3% (0.3% above national average)

Violent crime in St. Louis fell dramatically between 2009 and 2010, and has decreased since 2007. Despite this, crime rates remain extremely high compared with other cities. In 2010, the city's murder rate and rate of aggravated assault were each the third worst in the country. With regards to both violent and nonviolent crime, St. Louis was rated the most dangerous city based on FBI data released six months ago. As of December 2010, the murder rate in St. Louis was 6.3 times that of the state of Missouri. The city's gunshot murder rate for residents between 10 to 19 years old is also the second highest in the country, behind only New Orleans, according to the U.S. Centers for Disease Control and Prevention.


4. New Haven, Conn.

Population: 124,856
Violent Crime Per 1,000: 15.8
2010 Murders: 22
Median Income: $38,279 (23.8% below national average)
Unemployment Rate: 9.6% (0.6% above national average)

New Haven has historically had the highest rate of violent crime on the east coast. The impoverished, crime-ridden parts of the city stand in stark contrast to affluent Fairfield county to the West, and elite Yale University, which is located within the city itself. The number of murders in the city doubled last year. New Haven has the eighth highest rate of robbery and the fourth highest rate of assault in the U.S. The New Haven Police Department is considering adding cameras at every intersection in one of the neighborhoods where shootings are the most common.


5. Memphis, Tenn.

Population: 673,650
Violent Crime Per 1,000: 15.4
2010 Murders: 89
Median Income: $34,203 (31.8% below national average)
Unemployment Rate: 9.9% (0.9% above national average)

Memphis has high rates for all the violent crimes considered for 24/7 Wall St.'s rankings. It has the sixth highest rate in the country. Incidents of violent crime in the city dropped slightly less than 15% between 2009 and 2010 though. Memphis Mayor AC Wharton attributes this decrease to Operation Safe Community, a citywide plan developed in 2005. The plan consists of a number of strategies meant to increase crime prevention, through toughening punishments for criminals, and the effectiveness of the city's legal system, through changes such as expanding court programs so that they operate consistently and at full capacity.


6. Oakland, Calif.

Population: 409,723
Violent Crime Per 1,000: 15.3
2010 Murders: 90
Median Income: $51,473 (2.4% above national average)
Unemployment Rate: 11% (2% above national average)

Oakland's violent crime dropped about 5.5% between 2009 and 2010, from about 6,800 to 6,260. The city nevertheless has the tenth-highest rate of rape, the ninth-highest murder rate, and the second highest robbery rate in the country. In 2010, there were 7.12 robberies for every 1,000 Oakland residents. According to an article in the San Francisco Chronicle, Mayor Jean Quan has attempted to combat break-ins and theft by creating programs to keep potential wrongdoers off the streets by starting late-night basketball programs. It it unclear if these policies have worked.


7. Little Rock, Ark.

Population: 192,922
Violent Crime Per 1,000: 15.2
2010 Murders: 25
Median Income: $38,992 (22.3% below national average)
Unemployment Rate: 6.8% (2.2% below national average)

Little Rock has one of the highest rates of aggravated assault and forcible rape in the country. Since 2009, reported assaults has increased while reported forcible rapes have decreased. According to Lt. Terry Hastings of the Little Rock Police Department, quoted by local station FOX16, Little Rock was "down almost 12 percent across the board on crime" in 2010. This may be accurate for many crimes, and especially nonviolent crimes, however, according to FBI data, violent crime increased from 2009 to 2010.


8. Baltimore

Population: 639,929
Violent Crime Per 1,000: 14.6
2010 Murders: 223
Median Income: $38,772 (22.7% below national average)
Unemployment Rate: 7.4% (1.6% below national average)

Baltimore had the eighth-highest rate of violent crime per capita in 2010 among cities with 100,000 or more residents, and the second-highest east of the Mississippi. The number of violent crimes has dropped slightly in the past year -- from 9,600 to 9,300 -- but the Maryland city has some of the worst rates of dangerous offenses in the country. This includes the tenth-worst aggravated assault rate -- and the fourth-worst murder rate in the country.


9. Rockford, Ill.

Population: 156,180
Violent Crime Per 1,000: 14.5
2010 Murders: 20
Median Income: $36,990 (26% below national average)
Unemployment Rate: 13.3% (4.3% above national average)

Rockford has unusually high violent crime rates for a city of its size. Most notably, the city has the fourth highest rate of aggravated assault in the country, with 10.5 cases for every 1,000 citizens in 2010. During the same period, 20 murders occurred, almost double the number in 2000. Quoted by the Rockford Register Star in 2007, Winnebago County Sheriff Dick Meyers said that he believed the city's "location worked against [it,]" as Rockford receives traffic from the drug markets in Madison, Chicago, and Milwaukee, resulting in heightened rates of violence.


10. Stockton, Calif.

Population: 292,047
Violent Crime Per 1,000: 13.8
2010 Murders: 49
Median Income: $45,730 (8.9% below national average)
Unemployment Rate: 18.4% (9.4% above national average)

With a jobless rate of 18.4%, up from 18.1% a year ago, Stockton, California has one of the worst unemployment problems in the country. The huge percentage of unemployed residents may have contributed to horrible crime rates in the city, which is located 40 miles east of Oakland and San Francisco. Stockton was rated one of the most miserable cities to live in the country by Forbes in March, 2010. Violent crime was one of the chief measurements for its ranking. Of the 267 cities with populations over 100,000, Stockton has the 27th highest number of murders per 1,000 people and the 12th most aggravated assaults per 1,000. Last year, recognizing the crime problems in the city, the state temporarily diverted hundreds of California _MostDangerousUSCities

The rot begins at the very top, and spreads into most government bureaucracies, media offices, academic institutions, labour union centres, corporate personnel offices, courtrooms, law enforcement bureaus, and virtually every institution of the nation.

You may want to think about what would have to be done to bring positivity and productivity back to the productive classes of the US. Because when the US is strong, the rest of the world has some hope for improvement. With the US under Obama in danger of collapse in many areas, hope is becoming rather scarce. What do you do?

No Matter How Bad You Think It Is: It Really Is Worse

The pain of the ongoing financial and economic crisis is far more widely distributed across the US than is generally known. Certainly neither the US government nor the popular media are helping to make the situation clear. No doubt they have reasons of their own for their reticence. But anyone who wants to look into the future over just a small distance, needs to have a fairly clear idea of the present and recent past.

"If unemployment was computed the way BLS [Bureau of Labor Statistics] did it prior to 1994," the true unemployment rate in the United States "would be 22.2%".

And while the prospect of more than a fifth of the workforce being idle is scary enough, inflation in consumer prices is even scarier, particularly to the aforementioned one-in-five unemployed. And unemployed or their plight as concerns dealing with inflation in prices, he says, "In current economic analysis, inflation is largely in the eye of the beholder, and depending on how you choose to look, very different stories emerge."

This is where I thought he would mention the unemployed, or the poor, and their harrowing experiences in paying higher prices without any income, but he doesn't.

He says, instead, that it is all worse than I think, thanks to the way the American government calculates inflation. "In the US," he says, "food and beverages count for just 16.4% of the CPI [Consumer Price Index] calculation. The Chinese apparently believe that the basic necessities of life should count for more, assigning a 33% weight to the nutritional components. These differences in measurement are partially responsible for the divergent inflation climate in both countries, and make most people believe that inflation is fickle and localized."

It is not, and Mr Pento agrees, saying, almost poetically, "From my perspective, inflation is a global wave that will ultimately swamp all shores." _ATimes

Most of the financial disaster of 2008 was triggered by US government policies which forced financial institutions to make bad loans. Unfortunately, the financial institutions then tried to be clever, and built an international financial empire of risk upon these bad loans -- leveraging them to the hilt. Rating agencies failed to grasp the high-risk nature of these clever financial instruments -- "worth" many $trillions.

The disaster that followed should not have been such a surprise to anyone paying attention -- both of them. But every governmental and inter-governmental agency appears bent on 2 things: Covering up their role in what happened, AND re-inflating the bubble all over again. (Among other horrendously ludicrous mis-steps which will be covered later)

In other words, the world's economic fate sits in the hands of idiots, fools, and criminals -- big surprise!

What do you do about it, in the middle of a growing Idiocracy?

Moochers, Looters, and Producers

Makers are essential to life. Humans must exert effort to create the food, housing, clothing, and other things we need and want. Producers are the people who make that effort and deliver the goods.

Some think producers are limited to corporate moguls, but in fact, they include anyone on any level — from janitors to company presidents, in small or large organizations — who earn what they have and don’t steal from others.

Producers offer their goods through voluntary trade — capitalism. Whenever producers have been the freest, the result has been an explosion of wealth and prosperity and a high standard of living for everyone. Witness 19th-century America or today’s least-regulated fields, like technology.

The opposite type is the taker, who wants to forcibly live off others’ efforts. Looters are takers who jockey for positions in government in order to seize wealth and gain power over producers. Moochers vote the looters into power in order to receive government benefits like welfare, subsidies, grants, business advantages, or jobs.

Since its inception, America has been a land of producers. The world’s most can-do people cleared farms, opened shops, lived and traded with one another in harmony, and created the great middle class — the producer class. Now, many Americans take no responsibility for their lives. Instead, they line up for money that’s not theirs; it’s simply “Obama money.” _DC

From Madison, Wisconsin to Washington, DC, the battle of moochers vs. producers is being played out across the US. Interestingly, this contemporary battle was foreseen half a century ago by an author whose magnum opus is just now making it to the silver screen.

“Atlas Shrugged: Part I,” which opens April 15th, is a movie unlike any other. Based on Ayn Rand’s novel, it dramatizes the fundamental conflict gripping our world: the battle between those who create value and wealth through their own efforts (the producers) and those who seek them through force (the looters and moochers).

With eerie accuracy, Rand’s novel depicted — in 1957 — the very struggle between these diametrical opposites that we’re witnessing today. This battle couldn’t be more important because the fate of civilization rests on the outcome. Since this conflict inescapably affects everyone, it’s crucial to know which side you’re on.

In Atlas Shrugged, producers like railroad executive Dagny Taggart and self-made steel titan Hank Rearden create new products and services, offer them in free trade, and consequently become rich. They are exploited by looters and moochers like Dagny’s brother James Taggart and steel executive Orren Boyle, who seek government intervention that favors them and thwarts their competition. In the story, the producers are vilified and their property expropriated, until they disappear. Without them, the country collapses.

Sound familiar? Today, America is in decline. The Wall Street Journal reports that “the number of U.S. IPOs has plunged to an annual average of about 130 since 2001 from an average of 503 during the 1990s.” Our nation’s debt is skyrocketing. Government has seized unprecedented control over industries like healthcare and banking. Corruption, group warfare, and the sense of “entitlement” to other people’s money are rampant. As Steve Moore notes in “We’ve Become a Nation of Takers, Not Makers,” public jobs, money, and power are burgeoning while the private sector is shrinking _DC

More on how the US became a "looter state."
Producers may either generate something of value, or they may trade items of value on the open market. Moochers tend to beg, borrow, and steal with no intention of reciprocating value for value. When governments and government employees become net moochers, citizens often have nowhere to turn for redress of grievances. That is how life has been for the governed since the inception of central governments above a certain size.

As the above article states, the US was set up to benefit producers -- either creators of value or merchants of value. But the moochers have creeped into control over time, portraying themselves as protectors of the disenfranchised -- much to their own benefit, and to the gradual but accelerating ruination of the entire nation's economy and productive base.

Consider reading Atlas Shrugged, or seeing the movie, just to get your subconscious working on solutions to the problem. It will not be easy, because things have degenerated much too far. Start with planning a competent community able to pick itself up and take off from there. Then consider how such communities might work together over time to build entire regions that are more producer friendly.

The idea is too important to leave to just one nation.

Cross-posted from Al Fin

Economic Conditions in US Worsening as Debt Builds

Images via Financial Armageddon

Image Source
Economic conditions for everyone in the US -- except perhaps for protected government employees and special private sector friends of the government -- appear to be worsening. This is despite a massive growth in the size of government and overall government spending and debt. If the US government's intent was to invest in the future, it has clearly missed its mark. Only special interests are benefiting from this government spree.

Image SourceGovernment spending as a percent of US GDP continues to rise as more spending is of a "fixed and non-discretionary" type, and debt levels spiral out of all control.

US rankings for economic and other measures of societal well-being have done nothing but decline under the Obama regime.

Despite the artificial suppression of US interest rates by the Federal Reserve, new business investment remains low. Ominously, large investors are once again looking to high-risk investments -- just like in 2005 before the crash.

Gold and precious metals prices continue to rise, as persons at all levels of wealth and income lose confidence in their governments.

State and local governments across the US are beginning to feel the pain, and find themselves struggling against the death-grip of public sector unions just to survive.

Beneath everything else, there is the demographic collapse among the best educated, most skilled, and most intelligent populations of the developed world. Japan is showing the results a bit sooner than most other developed nations. And most observers who are fed a steady diet of mainstream media pablum are likely to never understand the crucial effect of the demographic implosion upon their lives. But smarter people will factor it into their plans.

Hope for the best. Prepare for the worst.

Images via Financial Armageddon

Unions, Failing Cities and States, Organised Extortion . . .

Unions have always been difficult to distinguish from organised crime. Violent extortion is violent extortion, no matter how you paint it. But over recent decades unions have found more subtle ways to choke the life out of taxpayers. It has taken a prolonged economic recession under a president who owes his political life to unions/organised malefactors/machine politicians for the tangled web to become more clear.

There are many reasons why so many of America's cities are dying, and why so many states are desperately seeking paths to bailout and bankruptcy protections. Thanks to public sector unions, the credit ratings of many US cities and states are approaching junk bond status, and soon they will reach the limits to borrowing unless the sugar daddy of American unions can wrangle a massive and unaffordable bailout for the states and cities from an increasingly hostile US Congress.

Here is a short list of just a few cities that are in trouble:

• Grand Rapids, Michigan
• Flint, Michigan
• South Bend, Indiana
• Detroit, Michigan
• Pittsburgh, Pennsylvania
• Cleveland, Ohio
• Rochester, New York
• Hialeah, Florida
• Vallejo, California
• New Orleans, Louisiana

_Newsweek

Their populations are fleeing, their tax base is shrinking, businesses are bailing out, and unions are doubling down on demands from their hand-picked political poodles.

Something has to give.