Interest Rate Explosion

This looks like fun, but it won't be. I have been warning for some time that the US was facing a crisis because of debt service. The "buzz" on this is starting to reach the mainstream. I read an article on interest paid by the US government on Investor's Business Daily recommended by a Texas congressman. Right now the percentage of the budget spent on interest is under the danger point—18 %. The non-partisan (as you are always supposed to say) Congressional Budget Office, has estimated that it will be 20% in 2020. This assumes the US will have revenue growth due to economic growth, and that interest rates will remain low for the foreseeable future.

I have already predicted low interest rates and modest growth for a few years, a little breathing space. This is why I am guardedly pessimistic. We still have time to get our house in order. But based on the latest rhetoric from Obama this is almost a forlorn hope. The unwillingness of Republicans to cut their own sacred cows is part of the problem as well. 

Interest rates are not just low; interest rates are not just as low as they have been in recent memory; interest rates are as low as they have ever been in recorded history. Look at this list of interest rates to see what I mean. 

I am not out on a limb when I say that these rates cannot last. They were over ten times higher in the 80's. That would mean that interest rates would consume 200% of the budget in a few years if rates get that high. 

Let’s say interest rates are double the projections, not at all out of the question. This would mean that interest on the US debt would consume 40% of the budget in 2020. Based on the fact the budget borrows 40% of every dollar it spends, this would mean that paying interest on the debt would consume 2/3 of all tax revenues. 

Do I have to point out that this cannot happen? 

So look for more of the same from the educated idiots in power. Things will continue on as they are. It will look fine on the surface, until the dry rot causes the structure to collapse. I do not expect the whole building to fall over, but the US will have to live with a rotten floor for some time. But the floor can be repaired. 

Are you ready for the great stagflation of the next decade? If not, get ready. You have some time as the sucker's rally takes place over the next few years. 

Opinion Polls and Manipulation

The average voter is pretty easy to manipulate. All major news outlets are masters at it. One reason Obama won was that he and his team was better at it than Romney and his team. 

I remember a public opinion poll I read years ago. They asked two questions that you would think would have the same answer. The first question was, "Is Abortion murder?" The second question was, "Should a woman have the right to have an abortion?" In this survey both answers got a high percentage of the "vote." In fact 17% of those surveyed thought that abortion was murder and should be allowed. Note that they were not asked that question, it is the result of comparing the two answers and subtracting. 

While this is somewhat incoherent, I find myself in that percentage. The reason is the fictional quote I blogged about yesterday. Livia, the wife of Roman Emperor Augustus and mother and grandmother of emperors: 

And it’s no use arguing with you republicans. You refuse to see that one can no more reintroduce republican government at this stage than one can reimpose primitive feelings of chastity on modern wives and husbands. It’s like trying to turn the shadow back on the sundial: it can’t be done.

Instead of preaching that abortion foes get together and vote, instead I suggest that the preachers try to actually convince the hearts and minds of the people. This is a lot harder. It would require a whole generation of preachers to approach the subject differently. I have blogged about this before. 

But while I do not plan to hold my breath as I wait for preachers to abandon salvation by politics for salvation by Jesus, if I did I would die, I hope to do my part by continuing to talk about how "the powers that be" work. 

One way they control the people is through fake opinion polls. How this works is described, far better than I could do, in the British Sitcom, Yes, Minister. 

Señor Healthcare

If you think I am pessimistic, you should read this article from Forbes:

The Trustees of the Medicare program have released their annual report on the solvency of the program. They calculate that the program is “expected to remain solvent until 2024, the same as last year’s estimate.” But what that headline obfuscates is that Obamacare’s tax increases and spending cuts are counted towards the program’s alleged “deficit-neutrality,” Medicare is to go bankrupt in 2016. And if you listen to Medicare’s own actuary, Richard Foster, the program’s bankruptcy could come even sooner than that. 

What? Three years? Can this be right? 

Exercise will reduce future medical expenses. I am not ready yet. I think it was in the early 80's that I understood that I would be on my own when I was older—no help from the government. At the time philosophically this made sense to me, and it still does. I have tried to be ready for this, but I have not yet finished my preparations. Are you ready? Do you really expect the government to cut you a check every month until you die? Even a great skeptic like me expected a few years of senior welfare. Instead I think we will have señor welfare where large number of seniors with moderate means go to southern countries and pay cash for their health care—saving about 80% of the cost. For me this would be Russia. 

My wife was recently charged $1000 for antacid at the hospital. This was after the insurance paid their part.

What can't go on, won't go on. Are you ready for the coming crisis? I do not know how or when it will start, but it will come eventually. I have been saying 3 to 7 years if the current trends continue. I have been guardedly pessimistic and hope for a series of mini reforms to keep the wolf from the door. But it looks to me like the wolf is already in the house and in bed pretending to be grandma. 

If you are my age, I am 58, be sure to treat your children with respect—they do have that spare bedroom now that your grandchild has left. That bed might look pretty good in a few years. 

When will it break?

Tax the Rich

I thought this video shows some aspects of the fallacy of taxing the rich. Of course everyone is in favor of the rich paying taxes, the real question is how much and what the marginal tax rate is. As I will point out tomorrow, money is fungible. If money is taken away from anyone, this money can not be spent privately. To a degree, taxes are a "zero sum game."

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?