All The Same Old Lies and BS

As we go through the kabuki theater of another "debt ceiling crisis" the same old tropes are showing up all over again.  Same old lies.  Same old bullshit.  Same old charade, drama-llama, attention-grabbing, media whore-fest as always.

I've been hearing them saying that not raising the debt ceiling means the US is going into default.  Check your favorite corporate media outlet (CNN?  NY Times?).  Pick one; all of them are running stories about looming default.  It's an old lie.  Some cursory searching shows the first time I blogged this was in July of 2011, about a 1-1/2 years into the life of the blog. 

No it's not default.  By definition, the debt ceiling means they're not allowed to borrow more money.  They're not allowed to issue bonds and spend more than the insane amounts they've made up already.  Read that again: it's not even a balanced budget, it just can't be more unbalanced than it is now.  Not being able to borrow is not default   Default is to not pay their mandatory payments and among the most important of those obligations is the interest on the debt they already have.  That interest, estimated as $300 billion, is a small percentage of Federal revenues, on the order of 10%.  

Only a government can be stupid enough to think that not being able to borrow means ignoring their obligations.  Rather than default, this would be better called "living within their means" or "being responsible."  We won't default unless the administration chooses to.   

You'll also hear them talking about a tough, temporary deal to put off facing the debt ceiling and (gasp!) shutting down the government.  There's a cartoon I've been running for years, almost every reference to the debt ceiling, that I really think sums up the whole story.  

Yup.  They drag it out as long as they want, make it sound as dire as possible, all so that they can look like heroes, as in the last panel.  I went to the credit, in the lower left of the cartoon and the web site appears to be gone, with just a place holder there.  

Let's be honest about this.  The other way of saying "government shutdown" is "paid vacation" for the lucky Fed.gov 's nonessential workers.  The longest government shutdown ever was 35 days between December of '18 and January of '19, under President Trump.  The essential workers had to work without pay until the deal was made and their pay could be issued and that must have been tough.  The result, though, was that while they suspended the ceiling, the debt kept going up (see below).

The biggest lie, however, is that there's really a debt ceiling at all.  There hasn't been one time since the debt ceiling became law in 1917 that the ceiling has been reduced.  It's either raised, or suspended - which pretty much means ignored - every time the limit seems like a hard limit.  If every time the ceiling becomes a restraint the ceiling is raised or ignored, how can they claim to have a ceiling?  Does it create even the smallest amount of restraint of spending in the congress?  

It took me an unusually long time to find a plot of the debt ceiling this time. 

I was only able to find two graphs of the debt vs time.  This one (from Sherman research) goes farther back and does a better job of showing the congressional debt ceilings as blue steps.  That difference at the right, where the blue line stays at $22 trillion while debt goes up to $28.4 trillion is the deal from the end of the second Trump shutdown until this year.  

I Hate Reruns

Nothing seems to be a bigger waste of time than to go the TV to see something I wanted to watch and then finding out it's rerun.  Especially if I've seen the show more than once and remember enough of the dialog to recite it along with the show. 

When I was starting this blog I tended to cover a lot of politics and a lot of economics - which means a lot commentary about the Federal Reserve and the insane politics of the Obamanoid years.  But covering the same stories and saying the same things over and over seemed like a waste of time.  Over the years, I had done a lot of "Techy Tuesday" posts, as well as a few series on technical topics and the shop.  At least some of those were very well received.  When the space programs visible from my yard started getting very active, I just naturally shifted in the direction of more technical topics and fewer political rants.  I first tagged a post with the label "space" in May of 2019.  I'm fairly sure I'd written on space topics before that, but that idea is harder to find.

So why do I bring this up tonight?  To introduce a rerun, of course!  Not a full column, but the critical ideas I've been writing about for the life of the blog. 

In the last few weeks, there has been almost a constant replay of a topic I've written about almost since the first year of this blog: the recurring disappointment of the "debt ceiling".  This wasn't a topic every  year because the debt ceiling isn't approached every year.  As I pointed out many times,  

The biggest lie, however, is that there's really a debt ceiling at all.  There hasn't been one time since the debt ceiling became law in 1917 that the ceiling has been reduced.  It's either raised, or suspended - which pretty much means raised - every time the limit seems like a hard limit.  If every time the ceiling becomes a restraint the ceiling is raised or ignored, how can they claim to have a ceiling?  Does it create even the smallest amount of restraint of spending in the congress?

In 2015, I added this:

Six times in history, they didn't pass the debt ceiling increase in time, and the country continued to run without going into default.  Either that, or they simply ignore the ceiling and allow the Treasury department to use "extraordinary measures".  If you or I did that, instead of "extraordinary measures" they would say we "lie, cheat and steal".   In July of 2013, I did a story on the Treasury Department's spending clock suddenly stopping from May of '13 until the debt ceiling got raised.  Newsflash: the spending didn't stop; they just lied about it.

The next big lie is "we're going to go into default."  Again: bullshit! 

This week's bullshit is that restraining spending so that our budget remains under the debt limit means the government goes into default.  That is not default - by definition.    Default would be refusing to pay the payments due on our debt - the interest on the debt.  Rather than default, this would be better called "living within their means" or "being responsible".  We will not default unless the administration chooses to. 

The Debt Clock tells me that the Time Of This Writing, the interest due on our national debt is roughly $568 billion.  The Federal Tax Revenue is $4.61 trillion, meaning the interest on the debt is 12.3% of revenue.  Only a fool, or someone deliberately trying to destroy the "full faith and trust" in the dollar would choose to not pay the interest on the debt.  Holding the spending limit where it is would not affect that at all.  I'm not saying they wouldn't do it, I'm saying that only a fool or someone deliberately trying to destroy the dollar would do it.  The more people who know they're trying to destroy us the less likely they are to do it openly.  

Then there's the whole idea of government shutdown.  I think I only heard one mention of that - so far.  When you see those words just cross out government shutdown (did it for ya) and write "paid vacation" for the lucky Fed.gov 's nonessential workers.  That's all it is. 

The longest government shutdown ever was 35 days between December of '18 and January of '19, under President Trump.  The essential workers had to work without pay until the deal was made and their pay could be issued and that must have been tough.  The result, though, was that while they suspended the ceiling, the debt kept going up.

So why do we go through this crap every time the subject comes up?  Political theater.  Kabuki (overly dramatic) theater.  They drag it out to the last minute so they can look like heroes.  If they shut down the Fed.gov, so what?  Those workers get their time off and their pay, so it's "no harm? no foul."  Feel sorry for them?  I think if one works for fed.gov, one should have a savings buffer of a few weeks to ensure you can buy your groceries in the even of shutdown.  It's not like nobody knows a shutdown is coming. 

There's a cartoon I've been running for years, almost every reference to the debt ceiling since 2013, that I really think sums up the whole story.  In a way, a Star Wars parody reference.

Yup.  They drag it out as long as they want, make it sound as dire as possible, all so that they can look like heroes, as in the last panel.  I went to the credit, in the lower left of the cartoon and the web site appears to be gone, with just a place holder there.

Oh, yeah.  I also reference to the Trillion Dollar Coin Scam, too.  Yeah, Divemedic said he saw that in the last couple of weeks.  Can't leave any piece of LCS theater untouched. (Where LCS = lying, cheating, stealing)  We're on Modern Monetary Theory now, and it must be unethical to ask them if that has ever worked anywhere or any time in human history because not one reporter has asked that.  

 

Bad Memes Are Like Zombies

They keep coming back.  This week's bullshit is that restraining spending so that our budget remains under the debt limit means the government goes into default.  That is not default - by definition.    Default would be refusing to pay the payments due on our debt - the interest on the debt.  Rather than default, this would be better called "living within their means" or "being responsible".  We will not default unless the administration chooses to.  The Fed.gov will get approximately nine times more tax revenue than the interest due, so we don't default unless congress chooses to spend the tax money on the equivalent of hookers and blow instead of paying the debt.  According to the Fed.gov themselves, this fiscal year our interest on debt is $402,435,356,075.49 or to put it more conveniently, $402 Billion.  Estimating the federal income tax collected through the end of the year based on the Debt Clock shows tax revenues will be $3637 Billion, almost exactly nine times the amount needed to avoid default.  

I know I've written about this endlessly in the five years I've been blogging, but I'm pretty sure I have a lot of new readers and I have to assume they haven't read the many posts I've done on this.   (Example from four years ago)   Let me recap a little.

First, although they're going to make a big deal about the debt ceiling, I believe that the US effectively doesn't have a ceiling at all.  I say that because there isn't one time in history that we've  held the debt ceiling in place.  Whenever it comes up, our "representatives" sainted leaders vote to raise the debt limit.  Six times in history, they didn't pass the debt ceiling increase in time, and the country continued to run without going into default.  Either that, or they simply ignore the ceiling and allow the Treasury department to use "extraordinary measures".  If you or I did that, instead of "extraordinary measures" they would say we "lie, cheat and steal".   In July of 2013, I did a story on the Treasury Department's spending clock suddenly stopping from May of '13 until the debt ceiling got raised.  Newsflash: the spending didn't stop; they just lied about it.

Second, I believe that since they go into these times knowing with 99.9% certainty that they will raise the ceiling, this is all theater so that each side of the two-headed ruling class monster can claim to be heroes to their supporters. 

So what's the big picture:

• This is all theater
• They're going to raise the ceiling because they don't have the restraint of a drunken sailor, who, after all, stops drinking when he's broke.  
• The government is not really going to shut down and it absolutely isn't going to get smaller in any meaningful sense because to do that would hurt the ruling class.  
• Corollary: the only way the government shuts down is if one side or other believes they get a lot of political points by doing so.  I actually think the president wants a shutdown so that he can shame and blame the Stupid party.  The Stupid party is actually so stupid they think they can make points in the press that it's the president shutting it down.  
• The president says that these discussions may lead to another 2008 economic crisis: find me someone who says debt ceiling discussions had anything to do with it.  As you can see from the above graph, the debt ceiling ratcheted up without interruption throughout that time period.
• This only ends when the world decides to stop putting up with our stupidity and stops using dollars.  This is not just theoretically possible, all the major players are moving in that direction now.  That could happen this year or not for a few years to come.

As I say, I've written an acre of posts on this.  I just felt obligated to pass on a few points for new readers and new liberty-minded people. 

I'd Like To Kill a Meme Or Two

First meme:  The debt ceiling must be raised. 

Addressing the possibility of the GOP-led Congress not voting to raise the debt ceiling, Austan Goolsbee, President Obama's top economic adviser, histrionically asserted this month: "This is not a game. The debt ceiling is not something to toy with. If we hit the debt ceiling, that's . . . essentially defaulting on our obligations, which is totally unprecedented in American history. The impact on the economy would be catastrophic."

This is not hard.  Not raising the debt ceiling isn't default; it means we can't spend even more money we don't have.  We don't have to raise the debt ceiling if we cut spending.  Cut spending hard.  Drastically.  Now.

(Michael Ramirez at Townhall for Dec. 7, 2010)
I could go on for a while about how hypocritical it is for our administration to talk this way, when the president, Harry Reid, and others in the power structure criticized the previous administrations for doing what they're doing.   Art Laffer has a good summary in the WSJ.  The point is that this argument is the usual hypocritical, political BS.  Don't believe it.  You're paying attention, so you won't, but save scraps of this to show your doubting family members or neighbors. 

Look: we're virtually at debt = 100% of GDP.  It's crisis time.  We're bleeding money like a chopped artery.  Stop the bleeding. 

Meme 2:  the 2010 tax cuts.  There have been no tax cuts; the rates have been kept the same as they have been for the last 10 years - for many workers, these are the only income tax rates they've ever known.  In agreeing to a two year extension of the current rates, the Evil Party has set themselves up to prosper if the country fails (getting to be quite the habit with them).  This all comes to a head in time for the 2012 elections.  They're positioning themselves to destroy any chance of real growth, and then say "see, we told you the tax cuts wouldn't work, now let's tax those rich bastards!".  If, by some miracle, a recovery starts, it's all their wisdom in getting the Obama tax cuts passed in 2010.  There have been no cuts.

The media was buzzing with the term "Bush tax cuts".  I think some of the radio talking heads, like Hannity in particular, like that phrase because they want to make Bush sound... less awful (I can't say go...  guh....guh...).  They're playing right into the commies' hands.  Again, there have been no cuts.

OK, repeat after me: instead of raising the debt ceiling we can cut spending.  Good.  Now: there were no 2010 tax cuts.  Great.  Now let's go kill those memes.

Never Lose Hold of the Truth

The endless talk about the debt ceiling and "default" would try the patience of a saint, and I'm not one.  It's about as riveting as watching paint dry, but way more terrifying because they're bargaining away our futures, and the futures of everyone we hold dear.  Plus we hear things like the "Gang of Six" proposal and people react as if it's a "done deal" when it's just someone's proposal.  So let's go over some of the fundamental truths.  Chances are we all know these on some level, but I'm putting it in one handy place to remind my family of it all.

To begin with, it's hard to know if the August 2nd date is real or not.  It doesn't matter if it's 2nd or the 15th - we are going to hit our debt ceiling at some point because spending is way beyond what revenues support.  We are borrowing roughly 43 cents of every dollar we spend, so when they run out of ability to borrow, 43% of the budget collapses. 

Note that not being able to borrow is not default. 

Economist John Lott, who most of us know as the author of "More Guns, Less Crime", wrote this critical analysis, "Seven Myths About the Looming Debt Ceiling 'Disaster' " about a week ago.  The fact that hitting the ceiling is not default is myth number 1:

Not increasing the debt ceiling only means that the government can't borrow more money and that spending is limited to the revenue the government brings in. And, with interest payments on the debt making up less than a ninth of revenue, there is no reason for any risk of insolvency.

Time after time, congress and the president have failed to agree on a debt ceiling increase and still there has been no default. Examples include: December 1973, March 1979, November 1983, December 1985, August 1987, November 1995, December 1995 to January 1996, and September 2007.

You should RTWT.  Lott, as always, brings the logic and fact to the story, which is currently so full of flaming rhetoric that it's almost impossible to listen to.

Since all of the spending and revenue is public information, it's relatively easy know how much revenue is expected.  You will hear something like $200 billion, which is the annual revenue average per month; Denninger uses figures from Bloomberg that say August is a relatively low income month, and it will be somewhere around $150 to $170 billion. 

Here we go, assuming we have $150 billion (I'm a pessimist) in revenue to spend.

First, there's what we must pay.  That's $29 billion in interest.  We have $121 billion left.  Everything else is, legally, a choice.
...
We will not default in August, unless Treasury intentionally spends the money that they are legally required to pay in interest on the equivalent of "hookers and blow" instead. (emphasis in original)

They can assign priorities - and if Congress doesn't the President will.  I believe that means this President would pay the EPA and HUD to stay at work and not pay the military (i.e., "hookers and blow"), whereas you and I would pay the military and shutter the EPA, HUD, DoE and more (not to mention sending Holder and his pegboys at BATFE to the Mexicans who would like to... thank him for Gunrunner).  If you think Obama would do otherwise, you're more impressed with him than I am.  He's threatening to destroy anything he can to keep the spending he so dearly loves.  As Kerodin put it:

There is nothing meaningful in these debt/deficit discussions, but for the reinforcement that the Establishment and their supporters encompass a very large body of Americans and they have zero interest in genuine Constitutional values.  They want the Constitution out of their way, and they have taken the decision to burn the republic to the ground to get their way. (emphasis added)

While I might dispute that the arguing in DC represents "a very large body of Americans", clearly, the administration doesn't feel there are any drawbacks to continuing spending.  While you get the feeling of austerity planning, if not the actual phrase from the Tea Party-led crowds, it never leaves the lips of the evil party.  To them, it's "laissez les bon temps rouler".  Mark Steyn, in this piece in the OC Register, says:

The word has become so instantly ubiquitous that Leftie deadbeats are already opposed to it: "Austerity Protest Takes Place In Dublin." For the rentamob types, "austerity" is to this decade what "Bush" and "Iraq War" were to the last. It can't be long before grizzled old rockers are organizing some all-star Rock Against Austerity gala.

By contrast, nobody seems minded to "speed austerity measures" over here. The word isn't part of the conversation – even though we're broke on a scale way beyond what Ireland or Portugal could ever dream of. The entire Western world is operating on an unsustainable business model...

We are, as Steyn says, the brokest nation in history, but only a small number of elected officials seem to care.  To most, this whole "debt ceiling" bit is a charade; after all, every other time in history the question has come up, the ceiling has been raised, so for all intents and purposes, it doesn't exist at all.   They criticize Paul Ryan for having a plan, but the evil party hasn't proposed a single plan of their own.  They just want to blame the stupids for everything that's wrong. Back to Steyn for a moment (and you should RTWT):

Obama has done his best to pretend to take them seriously. He claimed to have a $4 trillion deficit-reduction plan. The court eunuchs of the press corps were impressed, and went off to file pieces hailing the president as "the grown-up in the room." There is, in fact, no plan. No plan at all. No plan whatsoever, either for a deficit reduction of $4 trillion or $4.73. As is the way in Washington, merely announcing that he had a plan absolved him of the need to have one. So the president's staff got out the extra-wide teleprompter and wrote a really large number on it, and simply by reading out the really large number the president was deemed to have produced a serious blueprint for trillions of dollars in savings. For his next trick, he'll walk out on to the stage of Carnegie Hall, announce that he's going to play Haydn's Cello Concerto No 2, and, even though there's no cello in sight, and Obama immediately climbs back in his golf cart to head for the links, music critics will hail it as one of the most moving performances they've ever heard.

The only "plan" Barack Obama has put on paper is his February budget. Were there trillions and trillions of savings in that? Er, no. It increased spending and doubled the federal debt.

What else do you think that whole charade about "I can't promise social security checks will go out" was all about?  Or the Paul Ryan-esque clone pushing grannie's wheelchair over the cliff?  Nothing but political gamesmanship aimed at keeping control over the throttle.

While a better illustration might be Nero fiddling while Rome burns, this one does have a more realistic feel to it.  (The only issue I have with this cartoon is a subtle implication that the elephant is driving; a better caption would be "What do you mean "turn"? I thought you were steering.")  Or, as Steyn concluded,

In the debt-ridden treasuries of Europe, they're talking "austerity." In the debt-ridden treasury of Washington, they're talking about more spending (Kathleen Sebelius is touting new women's health programs to be made available "without cost.").  At the risk (in Samuel Johnson's words) of settling the precedence between a louse and a flea, I think Europe's political discourse is marginally less deranged than ours. The president is said to be "the adult in the room" because he is reported to be in favor of raising the age of Medicare eligibility from 65 to 67.

By the year 2036.

If that's the best offer, there isn't going to be a 2036, not for America. As the Europeans are beginning to grasp, eventually "political reality" collides with real reality. The message from a delusional Washington these last weeks is that it won't be a gentle bump. (emphasis added)

Everyone has, and is entitled to, their opinion of how the world will play out if a deal isn't reached.  I lean (as usual) to the non-mainstream view that raising the debt ceiling without concrete plans for spending reductions is the worst possible outcome.  We may not need an actual balanced budget amendment to start circulating, but if we don't end up with a path to much less borrowing, that's when the dollar collapses.  A temporary rise in the ceiling would be accepted by the markets if there was a solid plan for reducing it again.  If we don't even produce a path to lower deficits, less spending and fiscal sanity, we've proven our political process is incapable of fixing the republic and the US is not worth the credit rating it has.  That's when the dollar goes Zimbabwe.  

I Hate to be the Bearer of Bad News

... but the Federal Government did not shut down last night.  If you're a Fed.gov employee whose job has been rated “nonessential,” sorry, no paid vacation for you, and if you're considered essential, you already know you weren't getting that paid vacation.  Yes, I know that you don't get paid until the issue is settled so you need to live off savings for the few minutes or days that are shutdown. It never, never, hurts to have some savings you can use for times when things go pear-shaped - or however you like to describe it. 

As usual, talk about that mythical debt ceiling came up and that linked article (Business Insider) brings that up as something that was a problem. 

Republicans denied Trump's request to suspend or even eliminate the debt ceiling, which would have resolved a thorny political issue in advance of a likely GOP effort to extend Trump's 2017 tax law. According to Punchbowl News, Johnson said Republicans have agreed to address the nation's borrowing limit next year when the GOP will retake entire control over Washington.

I call the debt ceiling mythical because not once since it was made a law has the debt ceiling actually decreased or done anything to stop the debt from increasing.  The best it has done was to hold the measured debt constant for a short period while the things being shutdown stopped the debt increasing for a few days. Which has historically often meant the groups keeping track of spending and the debt were lying.  LCS - lie, cheat and steal - gets them through these times.  

Here's a chart I put together using a crude tool (Microsoft Paint) that tries to depict the life of the Debt Ceiling since its inception. There are no stops, no point where the ceiling goes continually down, nothing but constant increase. The place where they meet was labeled $6 trillion on both plots, but the vertical scale is a bit compressed on the right, so the situation is actually worse-looking.

Notice how this plot ends at about $28 trillion in 2022?  The current national debt, according the excellent US Debt Clock site is $36.25 trillion dollars. We have been adding another $1 trillion roughly every 100 days. That's pretty much 3 months or one quarter of the year. These fights and threats to shut the government down are show business of the worst time.  Not only is the outcome known in advance, they spend months writing these Continuing Resolutions or CRs to keep the government running and then drop 12 or 1500 page turds laws on the legislators with about two days to read it and approve it. Clearly proposing any changes is actively discouraged. I've run this cartoon since it first showed up because it sums up the story completely.  They set everything up so that they can look like heroes. It's all a show for people who understand nothing but headlines.

You might want to read the poem at this link: it's one of Rudyard Kipling's best.

$17 Trillion Debt In the Rear View Mirror

Do you remember the story hanging around from mid-July, just under the surface, about how the Fed.gov never let the official federal debt increase?  No one ever talked about it except a few of us crazy bloggers.

That entire three paragraphs from CNN is a lie.  Utter bull crap.  Because we would have hit the [debt] ceiling in May, the 18th to be precise, if the Department of the Treasury was telling the truth.  You see, they haven't adjusted their "debt clock" since the end of the day on May 16.  The reported debt has remained the same for 75 days so far. 

Anyone except the most devoted Obama groupies knew this was fake; they were moving assets around like a New York thug's shell game.  Today, with new authority to borrow like the spending addicts they are, the Treasury reported the total debt exceeded $17 trillion for the first time in recorded history.   

U.S. debt jumped a record $328 billion on Thursday, the first day the federal government was able to borrow money under the deal President Obama and Congress sealed this week.

The debt now equals $17.075 trillion, according to figures the Treasury Department posted online on Friday.

While I don't particularly trust the new number either, it was pretty plain that the numbers they were handing out since May were bogus.  In fact, they tell us as much:

The giant jump comes because the government was replenishing its stock of “extraordinary measures” — the federal funds it borrowed from over the last five months as it tried to avoid bumping into the debt ceiling.

Wait... they borrowed money to keep from raising the debt?  What?  How can borrowing money not increase debt?  What planet does that work on?  Let's let our friends at Demonocracy.Info show us what the debt ceiling we just crossed looks like, as pallets of $100 bills.

Just remember, the president said (only a few weeks ago) that raising the debt ceiling "does not somehow promote profligacy".  It doesn't increase debt. Then showed up minutes after the debt ceiling was raised with a list of things to spend money on. 

I'm torn between wanting to retreat into the bunker o' doom and hide until the zombie raids stop and a morbid interest in how long it can keep going before everything collapses into a pile of poop.

$318 Billion in One Day

A few weeks ago, I said there's no debt ceiling.  Just ignore the hype coming out of DC and know that you can absolutely count on them not being grownups, not showing any fiscal restraint and eventually raising the debt ceiling.  There has been a legal debt ceiling since 1917 and they've never not raised it before, so why should we expect that with the fractured mess we have in DC now that they'd suddenly grow up now?

As predictably as the coming sunrise, a deal to increase the debt ceiling was reached; the only novelty being that this time the president dealt directly with the Evil Party instead of the traitorous members of his own party.  (As an aside, while we decry Mitch McConnell for being spineless and the Stupid Party for being unable or unwilling to do anything they ran on doing, you have to credit Chuckie Schumer for being, perhaps, the most effective senator on the hill, simply for the amount of time he gets his way).  As they've done before, the Treasury Department magically slowed the rate of debt increase by special means, the rest of us call that "lying", and then on last Friday the national debt suddenly and equally magically increased $318 Billion in One Freaking Day, so that now we're well over the $20 Trillion National Debt level.

“Yeah, we need to cut spending, but we can't do it now!  We need to provide relief for those Hurricane Harvey victims in Texas!  It's different this time, not a regular debt ceiling!”  Don't worry, though, there will be something else next time to prevent the discipline.  Don't we remember Pelosi saying there's nothing left to cut in the budget?  The fact is that they'll never cut the budget.  It just ain't happening.  There are far too many people and groups who depend on that flow of money - and those people and groups funnel money to the ruling class to perpetuate the system.

Over a dozen years ago, Dick Cheney famously said, “Deficits don’t matter.”  In the short term, that might be true.  Seed corn wouldn't matter if you knew there'd never be another tomorrow.  Hungry?  Eat the seed corn.  If there was no tomorrow, there'd be no reason not order a few extra desserts, no reason not to have a few more drinks, no reason not do just about anything.  But there is a tomorrow.  You need to plant the seed corn so you can eat next year.  You might find the extra drinks lead to a hell of a hangover.

Since there is a tomorrow, the debt will matter.  I can't tell you just when or just how it all comes crashing down, but it's fake.  There is no real wealth backing it up, just phony money.  It's the biggest pile of phony money in the history of the world, and it's going to make the biggest mess in the history of the world. 

A New Low in Government Truth

Have you heard that we're going to hit the dreaded debt ceiling again in the fall? 

On Wednesday, the Treasury Department said again that it can continue to pay the country's bills in full without breaching the legal limit on borrowing until sometime after Labor Day.

Nailing down an exact date is hard to do at this time, because of several factors affecting the government's cash flow, according to Matthew Rutherford, assistant secretary for financial markets.

But budget experts forecast that the debt ceiling will likely have to be raised by mid- to late fall because of a better-than-expected fiscal picture.

That entire three paragraphs from CNN is a lie.  Utter bull crap.  Because we would have hit the ceiling in May, the 18th to be precise, if the Department of the Treasury was telling the truth.  You see, they haven't adjusted their "debt clock" since the end of the day on May 16.  The reported debt has remained the same for 75 days so far. 

(CNSNews.com) - According to the Daily Treasury Statement [pdf] for July 26, which the Treasury released this afternoon, the federal debt has been stuck at exactly $16,699,396,000,000.00 for 70 straight days.

That is approximately $25 million below the legal limit of $16,699,421,095,673.60 that Congress has imposed on the debt.

For the record, check the US Debt Clock website, which shows the current debt at $16.883913  Trillion at the moment, not $16.669421 (I use rough numbers because it changes as I try to copy, and I want to get down to the single millions in digits).  If they were to add $25 million, and we borrow almost $3 Billion per day, they'd go over the limit.  I can't say I'm entirely sure what the game is, although it seems to be all theatrical effects, "because we can".  If they hadn't frozen the date in May, they would have had to start the theatrics of arguing over the debt ceiling back last spring.  Does fall make better political theater?

 (source is clearly VirtualShackles.com)

For new visitors, I've often said we don't have a debt ceiling in any real way, because we always raise it when we get close to it.  It's theater, but not particularly good theater; politics is show business for the ugly, right?

Captain's Log - I'm Tired, So Tired

So we're getting ready to hit the debt ceiling again?  I'm so tired of the talk that hitting the debt ceiling is default.  IT IS NOT.  I say this every few months, but default would be not being able to meet interest payments, and we have enough tax income to pay interest.  It's not default, it's just not spending like a drug addict.  Like I said last summer, the whole debt ceiling debacle is just theater.  You know they're going to raise it because we don't have  a debt ceiling in any real sense.  They may delay for a few weeks, but it always gets raised.  And if they make it nice and dramatic, they get to claim to be heroes. 

(source is clearly VirtualShackles.com)

The other thing I'm tired of is the "raise the minimum wage" argument.  I'm tired of that subject, and I'll bet that you are, too, but the WSJ ran an article last week that "Almost Everything You Have Been Told About the Minimum Wage is Wrong".  Elizabeth Warren (Princess Fauxcahontas) has argued that to keep up with worker productivity increases, minimum wage should be $22/hour.  There's a few problems with that, but the biggest is that she's lying.  Let's be charitable a minute: she's as wrong as first grader doing fractions.  She's comparing the productivity of other workers, not workers on minimum wage.

Taking a longer view, from 1987 to 2012 the same BLS data show that worker productivity in the food service sector rose by an average of 0.6 percent per year. In limited service restaurants, the gains were slightly lower, only averaging 0.5 percent per year. Meanwhile, unit labor costs have risen by an average of 3.6 percent. Over this period the minimum wage has risen from $3.35 to $7.25 per hour which is an average annual increase of 3.1 percent. In other words, at least in food service, the minimum wage has risen at a rate five or six times as fast as justified by the gains in worker productivity. [Emphasis added - SiG]

That says the fast food worker on minimum wage is overpaid now.  Or, as the WSJ says,

These numbers reveal not just the selective statistics employed by the proponents of raising the minimum wage, but also that the debate has little to do with helping the poor. Instead, this is really a debate about income redistribution. Raising the minimum wage is actually just an attempt by liberals to punish a subset of business owners by redistributing a share of their supposed wealth to their employees. It is just another attempt at class warfare.

Wait... it's not about helping the workers, it's about income redistribution?  And the people who eat at fast food restaurants and are therefore going to be hurt by the inevitable price increases are frequently the people who work at minimum wage jobs?  It's just about political power and agendas?

What's next?  You going to tell me to expect the sun to rise tomorrow?

It's Like This...

Michael Ramirez in Town Hall. 

So the buzz today is that "a deal" is near, and our economic troubles are over.  They've done it!  They've slain the beast!

"And hast thou slain the Jabberwock?
Come to my arms, my beamish boy!
O frabjous day! Callooh! Callay!"
He chortled in his joy.  - Jabberwocky, Lewis Caroll, 1872

Two words:  Bull. Crap.

Let's get real.  The debt ceiling is going to be raised.  No plan that I've been able to see details of actually cuts spending in any meaningful way.  Of course, we don't have a debt ceiling in any meaningful way, either.  Debt always goes up.  The ceiling always gets raised.  Can you say "exponential"? 

 

Hat tip to Zerohedge - my previous charts only go back to 1980.

More real: we're not going to default unless the President orders it.  Just as the social security checks he threatened about will go out, unless the president orders them not to.  We talked about this before and often enough that I feel my blood pressure spike every time I hear some media moron say "default" when they talk about borrowing more.  (h/t Zerohedge)

Instead of dangling the default threat every chance they get, Obama and Geithner should be telling the world that the U.S. has every intention, and the resources, to meet its debt obligations. They should shout it from the rooftops, put a banner on the Treasury Direct website, and use the Sunday talk shows to reassure investors, not frighten them.

We don't know exactly what's going to happen because terms of the possible agreements aren't being discussed.  There's talk of kicking the can to a "special committee" to recommend fixes by Thanksgiving with "automatic cuts" if the congress doesn't agree to specifics.  That sounds sufficiently spineless that many congresscritters would vote for it - but didn't they just do that with Erskine Bowles/Alan Simpson commission?    If they didn't listen to that commission, why would they listen to this one?

But the debt ceiling going up was a foregone conclusion.  The Stupids only control 1/2 of the legislative branch which is 1/3 of the government (or less - think of the czars and the bureaucrats).  They simply don't have the power to do anything other than try to prevent anything from getting to the president.  Which isn't such a bad option.  Except it leads me to think he would take that opportunity to do what he wants and dare the rest of us to stop him.  "So sue me".

In my book if nothing changes, nothing changes.  The long term prognosis is still grim.  The chances of economic collapse are still great, the chances for QE3 are still high, and the fact that some really bad times are coming is bet-your-life guaranteed.  On this trajectory, we eventually do default and collapse as a country.  Not because of this, but because eventually, no one will buy our bonds.  Right now, the dollar is doing well, because the whole world's financial system is as solid as jello, and they reflexively think the dollar is safe.   

Eine Kleine Economics News

Eine kleine translates as "a little", and I'm grabbing the term from Mozart's Eine Kleine Nachtmusik - meaning (more or less) "a little serenade".  Play this while you read what follows. It might help you feel better:



The Debt Ceiling and "default". 

Only a government would call not being able to spend beyond their means indefinitely "default".  While I wouldn't bet a penny that the debt ceiling won't be raised, it has never not been raised, they're already calling not raising the debt ceiling a default.  Default would be being unable to pay the "minimum payments" - the interest on our debts.  Much like the last time we went through this, the fed.gov gets plenty of tax revenue to pay the interest on the federal debt, so the .gov wouldn't default, it just wouldn't be able continue spending 30% more than income.  Shall we go through the numbers one more time?  Scaling last year's income and deficit numbers (this whole "shutdown" thing is establishing this year's numbers) to a more realistic income level, let's divide all of the federal budget numbers by 25 million. Imagine you were a family with an income of $100,000. 
 

Federal:	Scaled to $100k
Income	$100000
Spending	$152000
Deficit	$52000
Current debt	$676000

If you were the federal government, you'd be spending $152,000 on an income of $100,000 for an "annual deficit" of $52,000.  Just put it on the old credit card.  On which you already owe $676,000. If you went to your bank with that income statement and asked for more credit, do you think you'd get it?  That's what you get for not having Ben Bernanke as your banker.

Ben Bernanke to Janet Yellen:

Speaking of the Bernank, it sure looks like his successor will be Janet Yellen.  Don't think anything is going to get better - she will just attempt to manage the collapse of the US according to the same rules Bernanke has been using.  Peter Schiff, whom I agree with fairly regularly, says she'll be the worst Fed Head ever.  Quoting Peter from an article on Yahoo Finance: 

Well I think she is going to be even easier. If you recall, she was a governor who is in favor of negative interest rates. She argued that rates should be negative, and people should actually be punished or penalized for saving money.... more so than what they are losing just through inflation. They should actually have part of their savings confiscated.  [emphasis added - SiG]

Be prepared for the money faucet to be turned up to full.  Obviously, she's a believer in QE - she may well be the one who is responsible for the Fed doing it until now.  Numbers posted by Tyler Durden over at ZeroHedge show that for every $1 of debt we've made up, instead of a "growth multiplier" of 2x or more, it has actually been negative.  Every dollar of debt has added about 15 cents of GDP!  If you think spending a dollar to lose 85 cents is a good idea, you too can be a Federal Reserve Bank Chief. 

Let me be plain about Janet Yellen's policies.   If you're trying to save money, she is going to destroy you.  Pure and simple. 

EDITED 13 Oct 13 1440 EDT:  There is an organized campaign to oppose Yellen called NoOnYellen.com.  For whatever use a petition campaign is. 

It Was a Weird Week

"She's the kind of a girl,
who makes the News of the World
yes, you could say she was attractively built"
- Polythene Pam, Lennon and McCartney, 1969, Abbey Road B Side

The guy progressives think is evil incarnate because his media empire includes Fox News, Rupert Murdoch, killed the British tabloid News of the World this week, over a "scandal" involving hacking the phones of a dead schoolgirl, some victims of the 7/7 Tube bombings and some British servicemen who died in Afghanistan.  Classless? No doubt.  Rude?  You betcha.  But that's what tabloids do. The News of the World was a 168 year old newspaper and still wildly popular - can the NY Times say as much?  As the inimitable one, Mark Steyn, said over at National Review,

"Nobody much cares if the Aussie supermodel Elle Macpherson and other denizens of the demimonde get their voicemails intercepted, but dead schoolgirls and soldiers changed the nature of the story, and events moved swiftly. On Thursday, Rupert Murdoch’s son and heir announced the entire newspaper would be closed down. The whole thing. Gone."

and to follow up:

"Last Sunday, it was the biggest-selling newspaper in the United Kingdom and Europe. This Sunday, it’s history. To put it in American terms, consider those George Soros–funded websites claiming they pressured Fox into “firing” Glenn Beck. This is the equivalent of pressuring Mr. Murdoch into closing down the entire Fox News network."

Now the left knows exactly what it has to do to get Murdoch to flinch.  Just bait someone in the hated news service du jour, and keep baiting until they do something that gets a reaction.  Expect this to step up.   

Congress?  We Don't Need No Steenkeeng Congress!

The White House is starting to believe they don't need congressional approval to raise the debt ceiling.  Such sterling legal scholars as Chuckie Schumer and even the occasionally-sane Chuck Grassley are starting to say such things.  Schumer, of course, has taken life on as the politically correct replacement for the phrase, "when the Schumer hits the fan" or "Schumer flows downhill", so he's already a laughing stock.  Grassley is doing good work on Gunwalker/Fast and Furious, and does display occasional cogency.  On the other hand, Grassley is one of the guys who got corn ethanol subsidies passed.  He is from Iowa, after all, a corn-intensive state, and bringing home the bacon, um, bringing home the bread, or cornbread is what he thinks his job is.   

Am I the only one who thinks this is a bad idea?  The debt ceiling has been a legal falsehood since 1917 - false in the sense that a ceiling has never, never, been held when congress wanted to spend more.  So now, when we finally might have the stupid party invertebrates in congress growing the most rudimentary spines and standing up against spending, the president is going to decide this?  Excuse me? 

And, of course, not passing a debt ceiling doesn't mean default - I'm tired of hearing that.  It simply means we have to eek by on $200 billion per month tax income; a lot, but 2/3 of what they want to spend. 

Casey Anthony,  Planned Parenthood's Mother of the Year, Not Guilty

I really shouldn't say much about this, because I did my best to avoid the story.  It was wall to wall on the local news when the poor little girl disappeared, and has been in the news ever since.  For a couple of years, I've been hitting the mute button when coverage came on TV.  As I said in the OJ case, you'd have to be a pretty bad writer to not be able to come up with some plausible scenarios where someone else did the murder.  I know because I'm a pretty bad writer, and I can come up with at least a few. 

So not being contaminated by any, you know, actual facts, I can pontificate with the best of the media.  I think the jury simply concluded the state didn't prove the case beyond a reasonable doubt.  As others have said, our legal system is deliberately set up with the view "it's better to let 100 guilty men go free than to hang one innocent man".  I don't think we measure up to that, even on our best days, but it's a worthy goal.  We go so far as to allow juries to nullify laws they find immoral or "wrong" - even if the defendant is thought to have violated that law - by finding them not guilty.  Is young Miss Anthony a psychotic?  Sure looks like it to me.  But being psychotic and being a murderer are not identically equal. 

"...although I will say that there is no truth to the rumor I’m starting that the National Organization for Women (NOW) will be honoring Casey as the “Woman of the Year” for pioneering abortion in the 11th trimester." 

(source)
And if you're as old as I am, you'll remember a two season long satire show in the 1960s called "That Was The Week That Was".   

Paul Krugman Missing 48 Hours With No Trace

We here at The Silicon Graybeard have an exclusive story to report.  We have been informed Paul Krugman, Nobel Prize winner in Economics and Opinion Page writer for the New York Times went missing for almost 48 hours.  He was first reported missing Saturday, after submitting an editorial to the times calling for the return of the 91% tax bracket, implying that the extreme rate was responsible for the prosperity of the 1950s and early 1960s. 

NYPD investigators located Dr. Krugman, who somehow became trapped in a large brown paper grocery bag in his apartment and was unable to analyze a way out of the bag.  Authorities suggest that a few more hours of being unable to think his way out of a paper bag would have proven fatal to Krugman, 59. 

Over the top?  I don't think so.  Krugman is the poster child for more Keynesian spending and completely opposite my way of thinking, but this one ought to be about as hard as finding your way out of a paper bag.  The US was preeminent in the post WWII years despite those tax rates, not because of them.  The reason we had sustained economic growth is that Japan and Europe had been bombed back to the stone age and not only couldn't compete with us, they depended on our factories producing the goods to keep them alive and restore their infrastructure.  The rest of the world (rural China, the rest of Asia, South America and Africa) were either heavily damaged by WWII or didn't have enough infrastructure to compete with us.  The US grew to superpower size and status because we didn't fight any of WWII on the mainland, and precious little on "home turf" at all!  If we had a 91% top rate in today's competitive world, we'd be collapsed and gone in within a year.  Perhaps that's his goal. 

Obviously Krugman has never seen this graph which shows that since 1980, as the tax bracket on the richest 1% has gone down, the larger the share of the national tax burden they've paid.  It's not like this is secret information, though. 

Nor has he seen Hauser's work, which demonstrates that tax revenue - as a percent of GDP - remains remarkably constant regardless of tax rates.  This data goes back to the 1950s and shows the 91% rate he pines for.  The revenue was the same; all that the high rate did was punish those people who were paying it and keep GDP from growing. 

But it turns out Krugman isn't the only big name idiot out and about today.  Turbo Timmy Geithner says we should eliminate debt ceilings.  It seems Timmy, bless his pointy little ears, is not real good on hard data and facts.  Fact is we have never not raised the debt ceiling, so he already has his way.  Then he comes up with this knee slapper:

"We've had 100 years of experience with it, and I think only once--last summer--did people decide to use it to threaten default on the American credit for the first time in history as a tool for political advantage"

As I said at the time, not raising the debt ceiling is not default, it simply means we can't borrow more money.  Default means not paying the interest on the debt and we were never at risk of that. 

And quoting John Lott from that July '11 post:

Time after time, congress and the president have failed to agree on a debt ceiling increase and still there has been no default. Examples include: December 1973, March 1979, November 1983, December 1985, August 1987, November 1995, December 1995 to January 1996, and September 2007.

I gotta tell you, I'm not used to this much prime idiocy in one day's headlines.  It sure has been a bumper crop of bull crap this year!

1000 Days

Today marks 1000 days - almost 3 years - since the United States Senate performed one of their basic constitutionally mandated tasks and submitted a budget.  The last budget they passed was on April 29, 2009.  Instead, they have worked by continuing resolutions and funding embedded in 1000 page bills - funding that is unrelated to anything actually being legislated.  I don't need to, but will remind readers the Senate has been under the control of the Evil party since the 2006 elections.  The stupid party controls only the House of Representatives, and only since 2010. 

Wanna bet that gets mentioned in the SoTU? 

Harry Reid (D. Uranus) is said to think preparing a budget is "a foolish idea" - in my opinion it's because he doesn't want to put all the stupid or corrupt spending in one easy-to-read place.  Not enough camouflage - no place to hide.  Investor's Business Daily puts it this way:

A published budget would be an election-year death warrant for Senate Democrats, because Republican Senate candidates would stuff its highlights into every mailbox they could.

On a related note, you probably noticed a few weeks ago that the president has asked for the debt ceiling to be raised by another $1.2 trillion, again.  If you're keeping score, that will raise the "on books" debt to $16.4 trillion dollars or approximately 108% of GDP.  The House has voted against this, but it's purely symbolic and the death spiral, debt ceiling is expected to be raised this weekend.  They agreed to not stage a real revolt over the debt ceiling the last time we went through this. We don't call them the Stupid and Evil parties for nothing, you know. 

I am no fan of Speaker of the House John Boehner, but I will give credit where due.  I wandered into a room with a TV on Sunday and caught a few seconds of an interview between Boehner and host Chris Wallace.  Chris was trying to press Boehner on the "do nothing congress" platform that Obama is running on.  Wallace said in the current session they had only passed 80 laws and 20 of them were naming post offices or other meaningless things, so didn't this prove Obama right?  Boehner asked incredulously, "The number of laws we pass is a measure of how good a congress we are?".  Wallace sheepishly replied, "it's a measure", to which Boehner said, "Most people think we have way too many laws and think we shouldn't keep passing more".  I was surprised, but credit where credit is due. 

And, as of a few hours ago, it was still impossible to confirm the rumor that India and Iran have agreed to allow the sale of Iranian oil to be paid in gold, however that site observes that India doesn't have enough gold reserves to do that for long. The megatrend of the dollar slowly dying is undeniable, though.  The BRIC countries developing their own basket of currencies or trading in their native currencies will only help bring on the death of the dollar. 

Listen closely.  Hear that sound?  That's the death rattle of the dollar. 

Separated at birth?  Maybe Senator blob fish would publish a budget.

Has Janet Yellen Received a Terrible Medical Diagnosis?

Just over two weeks ago, Fed Chair Janet Yellen was commenting on the prognosis for the economic future.  She does this all the time, only this time she let slip what might be a terrible announcement:

Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.  [Bold added - SiG]

She doesn't believe it will happen in our lifetimes?  Just whom is she referring to there?  You got a mouse in your pocket, Janet?  I assume there were both 20 year-old and 80 year old listeners; does she honestly think that no one alive today will ever see another crash?  On the other hand, maybe she meant the royal "our" and just meant herself.  Did she just let it slip that she recently got a horrible medical diagnosis and expects to be gone in under 6 months?

Saying "we'll never see another crisis" seems to me to be like saying, "I've never had a flat tire", or "our pitcher has a no-hitter going"; that sort of "famous last words".  If you're a betting person and hear something like that, bet that the opposite of the statement is coming.  Simple "reversion to the mean" is reason enough.

There's already a reasonable argument we're likely to see one before the end of the year - five months away.  As Bill Bonner puts it:

First, because falling oil prices and bond yields signal a slowing economy. A recession is already overdue.

Second, debt levels are higher than ever. There is said to be more than $250 trillion worth of debt worldwide. And running up debt is like stacking blocks of wood. The higher you stack them, the more likely they are to fall over.

Ms. Yellen says the banks are better-regulated and less likely to fail in a crisis. But the latest stress test shows bank vulnerability to credit card debt has actually increased.

Besides, bank debt is only a part of the picture.

Personal debt is a problem, too.  Quoting again from Bonner, who creates an interesting illustration toward the end. 

Consumers are running into a debt ceiling of their own. They’ve got $14 trillion of household debt.

Without real job and income growth, they can only maintain standards of living by borrowing more. But they already owe more than they did on the eve of the 2008 financial crisis; their knees are beginning to buckle.

Used auto prices are falling, putting the whole structure of $1.2 trillion worth of auto debt in danger.

Student loans – another $1.2 trillion of debt – are increasingly uncollectable.

And states and local governments have $5 trillion worth of unfunded pension liabilities.

Corporate debt is at record levels, too, near $8.5 trillion.

In the next crisis, many marginal borrowers will have trouble paying back their loans. Write-offs, defaults, and bankruptcies will blow up.

And don’t forget that the whole world economy is interconnected.

That whiff of smoke you smell could be coming from China. That country has become a giant Debt Depot.

And somewhere… in the corner of some abandoned warehouse, a small pile of debt-soaked rags smolders.

When the flames break out… sparks will fly across the Pacific in a matter of seconds. Minutes later, the entire world’s finances will be aflame.

In light of all this, maybe Dr. Yellen can say she doesn't believe she'll see another crash in her lifetime because she knows she won't be around long enough.   It's really too bad.  We haven't mocked her nearly enough.

Janet Yellen - Hannah McKay, Reuters photo

A Looming Government Shutdown? It's Like Old Times

Ah, gee.  It's like old times, gang.  We haven't had a pending fake shutdown in forever!  Gosh, it must have been back when the Administration Party and "Party of No" wore different tags.  So long ago... It was September of 2016.  I can barely remember that.  Do you recall where you were?  Do you even remember how old you were?  Someday, we'll all talk about the great government shutdown of 2017, too.  At this rate, it'll be around a year from now. 

As always, this is a bunch of melodramatic theater; made-up crap so that they can avoid doing their real job (creating and passing actual budgets) and instead pass their Continuing Resolutions, which (IMO) is done for that great DC buzzword Plausible Deniability.   
 

At least this time, they're not invoking the mythical debt ceiling.  As I've said more times than I can recall, we don't have a debt ceiling.  It has never, once in history, been lowered.  It has never, once in history, not been raised.  Once or twice, it was held steady for a few extra weeks, but it has always been raised.

If I recall correctly, the last time they actually went though the silly government shutdown ritual was 2013. 

Back in October 2013, Democrats and Republicans fought over the implementation of parts of the Affordable Car Act and the debt ceiling. The sides couldn’t agree on a continuing resolution to fund federal government operations, and the federal government saw a 16-day shutdown as a result.

Obama - vindictive, obnoxious little prick that he is - made a point of shutting down things that were popular, such as public lands, memorials and parks which cost more to put roadblocks and barricades on than to leave open.  WWII veterans were blocked from visiting their memorial.   Classy things like that.

Sorry if I seem jaded, I just think it's kabuki theater; brinksmanship so that the Evil party can show they're doing something to stop the Stupid party, and the Stupid party misreading the public's contempt for the situation that causes these arguments. 

The very last line in this cartoon from VirtualShackles.com (which I've used multiple times) sums it up perfectly.  Paraphrasing to fit the situation  "Just sit on the agreement a bit longer so we look like heroes." 

Things to Keep An Eye On

It's that time of year again.  September 1st is this Friday, and September brings some things to keep a wary eye on.  The significance of September is that it's the last month of the government fiscal year, and because of that, stock market corrections tend to come on September 30th, plus or minus one month.

Before the end of the fiscal year, we're going to go through the debt ceiling theatrics we have to go through periodically.  New readers: let me tell you something all my long term readers know: it's a show.  There is no debt ceiling.  I mean, there's technically, legally a debt ceiling, but since it has never once in history been lowered, not even held as fixed cap, but always gets raised, you can ignore the "sound and fury signifying nothing", you can ignore the government shutdown kabuki theater, and know it's just a show so they can appear important.

If you look at market indicators of all sorts, red lights are flashing that something bad is coming.  The CAPE ratio, the Cyclically Adjusted PE Ratio, is the third highest it has been in history.  The highest was just before the Dot Com bubble popped in late 1999, and the second highest was right before the 1929 crash that led into the Great Depression (which would have just been a milder, plain depression without Roosevelt's and the still-new Federal Reserve's meddling).  It's in very bad territory. 

Another metric, the price of a share of stock compared to the sales generated by that share of the company is higher than it was before the 2008 crash, but not quite as bad as it was before the 1999 crash.

Small company's stocks (smallcap stocks) are more expensive than before the 1999 and 2008 crashes.

In short, stocks are at their highest prices since the dot-com bubble burst.  Yet the underlying economy that creates the sales that keep those companies going is weak.  It's all pumped up by the phony money created by the Federal Reserve.  

Railcar traffic, a sign of goods moving around the country to customers, went through a flurry of activity after the election but has been declining since March.  We're entering the fall, when the retail stock pipes should be filling with merchandise for the holiday sales. 

Phil, over at the Vulgar Curmudgeon, posted a link to a story on BloombergMarkets that major banks are warning that the current market highs and the "post 2008 recovery" may be getting ready to reverse.

HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.

Bonner and Partners developed a "Doom Index"  to assign actionable values to a handful of things as a warning to coming market crashes and corrections.  It's flashing a "soft warning", that trouble is possible.  That was a month ago, before the subprime auto loan crisis was fully recognized and talked about.  I don't have an updated value.

So is the market going to crash in the next few months?  Here I'll quote Bill Bonner, since his words could almost exactly be mine.

We’re no better than anyone else – and perhaps worse – at telling you when the next crash will come. Or even how. But that it will happen… we have no doubt.

And when it does, the loss – judging by similar events in the past – is likely to be more than 50%.

Worse, the loss could be almost permanent – as it has been in Japan.

Nice To Have Backing

Hat tip to Bayou Renaissance Man for a link to Mark Steyn's Article on National Review Online, and a sobering paper by a couple of economists named Kitchen and Chinn.  Kitchen is from the US Department of the Treasury and Chinn is from the School of Public Affairs; and Department of Economics, at the University of Wisconsin.

Steyn begins:

There is something surreal and unnerving about the so-called “debt ceiling” negotiations staggering on in Washington. In the real world, negotiations on an increase in one’s debt limit are conducted between the borrower and the lender. Only in Washington is a debt increase negotiated between two groups of borrowers.

Actually, it’s more accurate to call them two groups of spenders. On the one side are Obama and the Democrats, who in a negotiation supposedly intended to reduce American indebtedness are (surprise!) proposing massive increasing in spending (an extra $33 billion for Pell Grants, for example). The Democrat position is: You guys always complain that we spend spend spend like there’s (what’s the phrase again?) no tomorrow, so be grateful that we’re now proposing to spend spend spend spend like there’s no this evening.

On the other side are the Republicans, who are the closest anybody gets to representing, albeit somewhat tentatively and less than fullthroatedly, the actual borrowers — that’s to say, you and your children and grandchildren. But in essence the spenders are negotiating among themselves how much debt they’re going to burden you with. It’s like you and your missus announcing you’ve set your new credit limit at $1.3 million, and then telling the bank to send demands for repayment to Mr. and Mrs. Smith’s kindergartner next door.

Nothing good is going to come from these ludicrously protracted negotiations over laughably meaningless accounting sleights-of-hand scheduled to kick in circa 2020. All the charade does is confirm to prudent analysts around the world that the depraved ruling class of the United States cannot self-correct, and, indeed, has no desire to.

Kitchen and Chinn's paper (pdf) is called "Financing U.S. Debt: Is There Enough Money in the World – and At What Cost?".  This is a topic I've written about here many times, and they unsurprisingly conclude, sure there's enough money in the world.  We just need to borrow one fifth of the world's GDP.  To quote them directly, the warning is:

...unprecedented levels and growth of foreign official holdings of U.S. Treasuries will be required to keep longer-term Treasury security interest rates from rising substantially above current consensus projections.

But other than that, no problem!  No one in another country would ever hesitate at that!  I say when we need to borrow about $4.5 billion per day, there's not many places to borrow that.  It's more than the GDP of all but about 10 countries, and of those, there's really only three that are likely: the EU, Japan and China.  Guess what?  They all have their own problems (remember Greece, Italy, Spain and so on?  The quake and tsunami?  Seen the Shanghai stock market index?).  Chances are there won't be as many bonds sold as we need. 

Steyn again:

The authors’ answer is yes, technically, there is enough money in the world — in the sense that, on current projections, by 2020 all it will take to finance the government of the United States is for the rest of the planet to be willing to sink 19 percent of its GDP into U.S. Treasury debt. Which Kitchen and Chinn say is technically doable. Yeah. In the same sense that me dating Scarlett Johansson is technically doable.

Unfortunately, neither Scarlett nor the rest of the planet is willing to do it. It’s not 2020 and we’re not yet asking the rest of the planet for a fifth of its GDP. But already the world is imposing its own debt ceiling. Most of the debt issued by the Treasury so far this year has been borrowed from the Federal Reserve. That adds another absurd wrinkle to the D.C. charade: Washington is negotiating with itself over how much money to lend itself.

and finally,

Meanwhile, the World’s Greatest Orator bemoans the “intransigence” of Republicans. Okay, what’s your plan? Give us one actual program you’re willing to cut, right now. Oh, don’t worry, says Barack Obluffer. To demonstrate how serious he is, he’s offered to put on the table for fiscal year 2012 spending cuts of (stand well back now) $2 billion. That would be a lot in, say, Iceland or even Australia. Once upon a time it would have been a lot even in Washington. But today $2 billion is what the Brokest Nation in History borrows every ten hours. In other words, in less time than he spends sitting across the table negotiating his $2 billion cut, he’s already borrowed it all back. A negotiation with Obama is literally not worth the time.

Ready for the kicker?  The Kitchen and Chinn paper doesn't include the full debt of the US - just the "on-budget" amounts!  It doesn't include social security or medicare, which taken together raise our current debt from 98% of GDP at 14.5 Trillion to $115 Trillion.  

As I've said a bunch of times: don't worry, it's not that bad.  It's much, much worse.