Wednesday, March 9, 2011

Our Number of Options is Decreasing

Consider the embryonic, pluripotent stem cell.  These cells have the almost magical potential to become any cell in the body.  As soon as the first change is made, however, the number of options goes down.  If the stem cell has started to move down the blood cell line, it doesn't go back to being a stem cell and then become a bone cell.  As it progresses down it's path of differentiation, the number of options available becomes limited, eventually resulting in it becoming one specific type of cell.  Nerve cells don't de-differentiate back to stem cells and become bone cells (well, they sometimes do, and that's called a tumor - but ignore that)
That's where our economy is now: end of a line and out of options (and isn't that the most bizarre reference you've ever come across for the economy?)

TL In Exile beat me to commenting on this story today: "The Insanity of a $6.1 Billion Dollar Debate", so consider this an add-on to his piece.  Mrs. Graybeard and I were discussing this subject over the last few days.  The cuts to the budget being discussed are to discretionary spending, which is less than 15% of the budget, and are small cuts to that.  The budget deficit this year is about $1.4 Trillion dollars; divide that by 365 and you get $3.84 billion per day in pure deficit.  The amount that is causing widespread argument and mutiny (and has Dick Turban in fits) in D.C. is less than 2 days worth of spending out of a year.  Less than 1/2 of 1%.  

Last month's deficit alone was over 36 times that proposed cut. 

They're not talking about paying off debt, they're not talking about stopping deficit spending; they're barely even talking about slowing down spending.  To be real, they probably loose more than $6 billion in a year and would never notice it being gone. By my thinking, if they cut out discretionary spending completely - no more FCC, no more BATFE, no more EPA, NASA, DOJ, National Park Service, no more Department of Energy or Education... it wouldn't be enough.  If we borrow 35 or 40 percent of what we spend, we need to cut spending by that much.  That's more than all discretionary spending combined. 

And that doesn't even address the really big unfunded mandate, Medicare, which has commitments to pay out $98 Trillion dollars - as I look it up at the time of this writing, including the prescription drug portion. 

Our number of options is decreasing.

Option number 1 (do your best Casey Casem voice) is to default.  Not pay anything on any debts or bonds.  Nobody gets Medicare or any other promised payouts.  You make everyone in the world that has a US bond or other debt instrument mad at us (hmm...might already be starting).  The Chinese show up with Nukes, but we have Nukes, too.  Maybe we pay them off by giving them the Federally owned lands out west.  People are dying in the street, but - hey - it happens.  You wanna make an omelet...

Option number 2  Inflate the money to worthlessness, and this appears to be the path we're on.  We promised you $1000/month: here it is.  You can buy one Lifesaver candy with it.  No, not a roll, a Lifesaver.

Option number 3  Soviet gulag?  Some gray, dystopian future where everyone has exactly the same things in life: nothing?  Long lines at the stores to get toilet paper, or mystery meat sausage.  But that may be optimistic. 

Time is getting short.  The number of options is going down.  


  1. I think that total US' liabilities amount to $300,000-odd dollars per capita. That's when you take unfunded liabilities into account ... public-sector pensions, future health costs and so forth. Not a hope of dealing with that, especially when you consider the comparatively small proportion of your population which is actually productive.

    I predict a "fire-sale" of epic proportions. A rush to privatise land, buildings and services. Of course, this will be coupled with back-pedalling on all the promises made to gullible voters ... Free Health Care, Generous pension and so on. Very likely, you will see your pensions and savings sequestered, too. Just a few weeks' ago, the Hungarian government effectively Nationalised all private pensions; using force, the only tool in the State's toolbox.

    We're seeing it now, in the UK. Just today, the Public Sector is being told to expect much-reduced pension entitlements and the prospect of working for a further TEN years before retirement. Instantly, of course, there are the threats of strikes and civil unrest. Those sucking at the teat of State will fight to defend their "right" to keep on feeding ... all the while ignoring the reality that the rest of us are being compelled to fund their lifestyles.

    One way or another, the State has to shrink. It won't do it willingly, of course.

    We have parasites at the top and leeches at the bottom. Each group is supping at the feast which is provided by the productive middle. I say provided, but I really mean "coerced from".

    Coupled with the impending shortages in energy and raw materials, I expect that we are heading for a truly "perfect storm" of global proportions, within the coming decade. I just wish that I was 20 years younger, so that I can see how this pans out. (Assuming that I'd be one of those who is lucky enough to survive.)

    Hope this cheers you up.


  2. Bogbeagle, excellent comment and summary.

    I've written about our 401k accounts being seized a few times before, and I'm basically watching for more of a warning sign before I pull the plug and take the tax penalty. I think that seizure is a certainty, within the next one to two years (and, yes, there's a risk that if something bad like an actual dollar collapse happens, it won't be possible to get that cash, but it will probably be worthless at that time).

    "Parasites at the top and leeches at the bottom" is an excellent choice of words.

  3. Inflation is the favorite tool for getting out of these messes. I keep leaning towards fast (though not hyper) inflation, but it may be too late for that, so yeah, I can see other outcomes. I hope it doesn't come to that.

    So, Graybeard, RE taking that tax hit, what are the warning signs you're watching for? (If you don't mind sharing them, no disclaimers needed, you're not giving investment advice, we know.) All I can think of is an rapid acceleration of the downward spiral.

  4. BS - I'll be the first to admit I may be naive or stupid, but I think that any move to grab the 401k accounts will be seen. The financial advisor market and all the companies that make money managing 401ks are watching that like a hawk, since it will put them out of business.

    So I expect there will be a real outcry, "wailing and gnashing of teeth". I think that such a bill will raise a lot of ruckus before it passes and then there will be some sort of period before it happens, since most laws go into effect on the first of the fiscal year, or at the start of the second quarter - something like that. If that looks like it's even getting close to a vote (you know they won't put things up for vote until they know they win) I'm pulling my bucks outta there.