Collapse 2013?

My “New Year’s predictions” post I did last week was not received well by everyone. In an homage to the Amazing Criswell, fake psychic of the 60's and 70's, I offered a mix of possible scenarios mixed with outright absurdity. You can count on me to mix absurdities with what I hope are astute observations of the human condition and the current situation. 

Here is one of my "predictions" that I actually think likely. 

All the goldbugs will continue to predict economic collapse. They will be wrong. The strength of the economic system will continue to amaze the naysayers. The dollar is headed up. In the US things will actually improve with modest growth. What do you expect to happen with the Fed printing 1 trillion dollars? Japan will implode, but not in 2013. Europe will implode as well, also not in 2013. The can will be kicked. Buy gold anyway. (Note I am not an investment advisor, but an unpaid satirist.)

This is the most likely outcome, decades of malaise. This actually makes me an optimist. Unemployment will be stuck at 7 to 9% for the foreseeable future. Government deficits will continue in the $700 billion dollar range. Inflation, official inflation, will continue but at a slightly higher rate, 5% or so. Revenues will increase faster than spending so the deficit will gradually decline. The Republicans will be blamed. 

But tipping points cannot be anticipated. So another scenario is along these lines:

If Bernanke can pull off a recovery, he is a superhero! I do not think this scenario likely, but it can not be ruled out. 

Another scenario is that the Great Recession is actually just a normal business cycle recession. Krugman would be in heaven. The one trillion dollar money printing added to the one trillion dollar fiscal stimulus, the deficit, will actually work and save us all. Right. 

Ben Shalom Bernanke would deserve canonization if he pulls this off. The world is full of odd coincidences, the fact that Ben Shalom in Hebrew means "son of peace" is one of them.

On the off-chance that the Son of Peace fails, what should we do as individuals? Reduce debt and increase your personal financial reserves. Do it now, for as bad as the situation is right now, it could get worse.

The Visigoths are Coming

“I wonder if the Emperor Honorius watching the Visigoths coming over the seventh hill could truly realize that the Roman Empire was about to fall. This is really just another page of history, isn't it? Will this be the end of our civilization? Turn the page.” Captain Jean-Luc Picard, “The Best of Both Worlds”

When one has training or knowledge of history, they look to the long term. I have little doubt that the US is headed for its own Visigothic episode. What my least favorite Captain was referring to was the battle that is often acknowledged as the end of the Roman Empire.

The usual date of 476 for the end of the Empire is when the Western Emperor abdicated, some sixty years after Rome was sacked by the Visigoths. Both dates have some validity. The process took over 60 years. You could even argue it took centuries.

How and why did Rome fall?

There were lots of reasons. Roman money had become debased--less and less gold. A whole underclass evolved that fled the farms because of taxation. Games were provided as a distraction to the impoverished masses. In earlier years free bread was provided from the taxes placed on Egypt. Egypt was long gone. The military of course got bigger, so big that the military could not be maintained.

The US has for over 60 years been in decline, since Johnson decided we could have guns and butter in almost unlimited quantities. Right now there are 1.1 people on various forms of public assistance for every full-time worker--just as in ancient Rome. The US populace seems mired in popular entertainment, like the upcoming Superbowl. Need I point out that it does not matter who wins? America divides itself into artificial groups to root for sports teams, just as in ancient Rome the reds and the blues in the games were in artificial conflict. Just as in Rome, the military is a huge expense. But even if the US military was cut 100%, the budget still would not be balanced. The Federal Reserve is printing about a trillion dollars a year, just like ancient Rome did by reducing the gold in their coinage.

Where is the US headed? How long does the US have? Do the citizens of the US see it coming? No, as long as they have their free phones, their MTV, and the occasional short victorious war.

When will the Visigoths come? Are the barbarians at the gates?

Collapse

While I do not expect a collapse, it is not impossible. I do not think most of us understand the fragility of our current economic system. The decentralization of the market has been replaced with centralized corporate control. I think the market will keep a collapse from occurring. Of course, the market may be hobbled by government action. 

With this in mind I thought I would put on the blog my Amazon review of a book I just read called Collapse by Richard Stephenson. I rated this book three stars. 

Because of our economic malaise there are many books on the market that portray a quite dystopian future. The popularity of such books is based in part on the fears we have that things might get worse. As we read such works we can feel thankful that such a world does not yet exist. 

I find the characters interesting, especially the grizzly police chief of a small Texas town and the world's richest, smartest man who is quite dysfunctional. All the various characters were quite good and believable. 

Even Video Games Are Predicting Collapse. I am perfectly willing to suspend credulity when a read a novel of the future, but you need to at least have a plausible plot to explain how society became so dysfunctional. The proposed "bogey man," Iran, is a very unlikely superpower. How does Stevenson explain the lack of response of Israel to this? He proposes that Israel only had one nuclear bomb, which Iran somehow manages to steal. In addition, five separate hurricanes hit Florida at once. Give me a break. These plot details I found so implausible that it hurt my enjoyment of the novel. 

While I can live with bad editing, the editing here was very bad, especially the huge paragraph margins--large enough to hurt readability. The frequency of short paragraphs also was an issue. As a blogger who writes about economic issues at my blog at prophecypodcast, I understand the difficulties of editing. I spend almost as much time editing as writing. 

Can I recommend this book even at the reduced price of $2.99? While I got it for free on a special deal, I would not pay $3 for it. I doubt I will finish the series. 

Jim Rogers Interview

Today's interview from the documentary Bubble is from Jim Rogers, former Soros partner.

Praying for the Fiscal Cliff

I think that the chart on the right will explain why I hope for a fiscal cliff. If we go off the cliff, the US government deficit goes down a lot. If you want more information, you can read about it on Wikipedia. 

While the fiscal cliff will not solve all our fiscal issues, it will solve many of them. The main issue I have is that next year’s estate tax will force many family farms and business to be sold to pay the death tax. I do not think the world will come to an end if the tax structure reverts to what it was 10 years ago, plus an additional  3% increase in the tax rate if you have a large capital gain. We have to take our collective medicine. Yes it will taste bad—no cherry flavoring for us! The automatic spending cuts associated with the "cliff" may be the only way to actually "cut" spending. (Remember that there are in fact no cuts, just a decrease in planned increases.) 

We will still need to reform Social Security. This will be relatively easy. A modest change to a cost of living calculation from the current wage increase method to determine the cost of living increase is needed. This is rather arcane, but the bottom line is a smaller increase in the increase of the social security checks every year. We can also gradually raise the retirement age more than the current law does, and we move the coming Social Security bankruptcy from 20 years from now to 50 years from now. 

Not the medical dog I have in mind.No doubt there will be some sort of deal next year to snatch defeat from the jaws of victory, but until this happens I have switched from guardedly pessimistic to guardedly optimistic. I expect I will switch back next year. 

The main issue that will dog the US until it is solved is the US medical system. It has reached the point that for me, I have more confidence in the Russian medical system than the US system. The system is so bad that a single payer system would be better. I do not think this is by design. Never underestimate the power of stupidity. I would prefer a free market approach, but that seems unlikely. 

So get out of debt, and pray that Obama and Boehner will not come to an agreement.