Monday, December 31, 2012

Red Flag Warning: We just don't know.

Well here we are. December 31, 2012 and nationally, we’re standing about neck deep in fiscal debt about to wash us over the edge. It’s as if we are ten feet away from the edge of Niagara Falls, we’re resisting with all our might, but the torrent of debt is edging us closer and closer to that moment when, as a nation, over the falls we go. What then?

Just like the guy in the barrel going off Niagara Falls, we haven’t a clue as to the out come. Will our nation be smashed to bits by the economic fallout from crashing on the rocks below? Will we be lucky, just bounce around a bit, and then float to the top mid-stream as we sail triumphantly down the river? Those are the two extreme endpoints of flying off the edge of the falls. But maybe, and more likely, something in between will happen. We might get banged up pretty bad from the initial landing, take on a lot of water, bounce around at the bottom of the falls for a while, then slowly bob up to the surface where we’re caught in an eddy current of stagnant water off to one side of the river.  Surviving the fall, but going nowhere fast.

Here is where we find ourselves caught in the Law of Unintended Consequences (LUC).  Donald Rumsfeld, former Secretary of Defense, said it best about LUC,

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.” 

LUC is an outgrowth of logic from one of the basic laws of physics that states for every action there is an equal and opposite reaction. We think we know what may happen if we dive over the edge, certainly most of us will be facing new tax requirements and many associated with the Department of Defense industry, government as well as contractors, will be hammered. But beyond these knowns, we don’t know what unknowns are lurking in that eddy current. The unintended consequences, the spin-offs from the initial action may be both good and bad. We just don’t know.

Some negative outcomes discussed by our pundit class, the talking heads who so accurately called the election for Romney, believe we will face massive unemployment, sharp rise in business failures, a increased inflation spiral, economic depression much worse the great recession, and the collapse of the student loan bubble, as well as, the housing market. But we just don’t know.

But might there be a silver lining in the debacle? How could that be, given the potential horrific economic conditions predicted?  Just maybe America will wake up from its debt-induced stupor.  Maybe our citizens will realize they can’t have it all for free. The free lunch promised to citizens, including our government, using easy credit is over and we have to go make it our selves.  Maybe our citizens will return to the founding principles that government can not, nor never will, provide for all our wants, but only for a few of our most essential needs.  Perhaps we’ll rediscover that spark of liberty in individual action that propelled our nation to its greatest heights.  Perhaps through hardship, austerity, difficult grinding day-by-day work we’ll find our way out and with that effort, find a new awareness of our America’s exceptional soul.

But we just don’t know. Good LUC in the coming New Year!

Sunday, December 30, 2012

Red Flag Warning: The future is now.

It is a question of not if, but when. When will the proverbial caught between a rock and a hard place occur? When will the basic fact that when what comes in does not match what goes out dawn on government leaders it can not go on indefinitely?  When will those who take from those who provide realize that those who provide can no longer support those that take?  When will the tipping point occur where the upward exponential curve of rising debt and interest surpasses the ability of the flat curve of revenue (taxes) to meet even the payment of interest? When will it come to pass that all income is taxed and it is still not enough to pay the piper?

Again, our liberal elite in the confines of their beltway newsrooms has failed to understand basic principles of economics, and even worse the lessons of history.  A quote from one of the leading liberal pundit class, Sally Kohn:

And amidst the back and forth drama between the political parties, who are so few leaders and political commentators addressing the false premise in the first place -- the simple, mathematical fact that the debt just isn't even close to America's biggest problem right now?”

Read more:
December 07, 2012

 I have to admit Sally is partially right.  Yes, right now the debt is not America’s biggest problem. Right now America’s biggest problem is its failure to recognize the debt will become the biggest problem in just a few years unless we do something about it now.  Mathematically, today, the debt is just a blip on the fiscal curve of life. It was rising slowly by millions, then billions in the past 20 years or so. However, since Obama came into the White House, he has added multiple TRILLIONS to the debt and plans yet more in the future.  This uptick in spending is equivalent of injecting steroids into Lance Armstrong.  The President juiced a crippled system so much that even at a “low” 3% interest rate, the mathematical resulting curve goes exponential in just a very few short years. 

For those of you with a public school education, imagine Al Gore’s green house gas CO2 graph he demonstrated so effectively in “An Inconvenient Truth”. His graph showed the CO2 steroidal injection creating an exponential curve shooting so high he had to get a cherry picker to lift him up to the expected top of the curve. Just change the graph’s units from tons of CO2 to dollars and bingo; you see the debt curve that is facing America in a few years down the road.

You may not like his tie or his politics, but Mr. Paul Ryan’s debt analysis is factually based and damned scary. His projection is we have but a few years to correct this massive upturn in the curve before the window closes and we shoot the moon with a mountain of debt that is unmanageable. What then, say you Ms. Kohn?

High unemployment is a crisis. The increase in poverty is a crisis. The foreclosure rate is a crisis. The deficit is not a crisis. It is an excuse for bad economics and bad policy that will hurt America today and in the future.”

Read more:

The question, When is American’s future going to come home to roost?  Ms. Kohn’s economic theory has us on a course too not only go over the cliff, but right off the edge of the universe. She has swallowed Obama’s approach of increased spending us further into debt to the point where our debt to GDP is over 100%. (Ms. Kohn points to this occurring during the Great Depression and how Saint FDR’s New Deal, got us out of that situation. What she forgets to mention that it took a World War to do it, as the New Deal had gone south by the late 30’s!)  

The result of such a debt to GDP ratio in the modern era is an economy like Japan or Greece. Think years of stagnation, horrific austerity, and years of chronic unemployment for millions.  Sound like a bright future you want for your children?

When the collapse of our debt occurs, what happens then? When America cannot even pay the interest on its racked up debts, what happens then? When our creditors (think communist China) call the loans, what happens then?  The resulting hurt, pain, and destruction of American’s financial security will be far worse than if we bite the bullet now, get our fiscal house in order, and then move carefully into the middle of the 21st Century, stronger and far more capable of meeting the global challenges of our world.

Ms. Kohn, the future is now.