Tuesday, April 29, 2008

Dark Days A-Coming.

I'm not very shy about the fact that I have contempt for radio hack AM Glenn Beck. Most of what he says is tremendously easy to write off as right wing propaganda. Generally I feel that you could take the opposite of what he says, and embrace it as truth. Still there is one obsession I have that I share with this asshole- the coming collapse of the American economy. Beck is certainly not the first figure to warn of bad times ahead. Roger Waters, bassist and songwriter for the band Pink Floyd, predicted the implosion of the Western economy in the 1970's. His numbers were off, but not by much. Before the debacle of George W. Bush's administration, such concerns seemed alarmist. Now they just appear merely realistic.

So what's my response to this type of noise? How do I confront the fears of an impending depression? I mostly try to push it to the back of my mind, and prepare to enjoy the ride the best I can. After all... how long did the Great Depression of the 1930's last? A couple of decades, perhaps? Can that still happen here? Look at oil prices. Doing that very thing made me take the step of creating a personal household budget the other day. I went to fill up my foreign sedan, and noticed that prices have exceeded $3.50 per gallon. This is becoming the single biggest drain on my finances. I drive about 1600 miles a month, and the costs of refueling certainly add up quickly.

I decided that I would get a taste of the future by adding up all of my expenditures, and including gasoline at an anticipated cost of $5 per gallon. I thought that maybe my salary could absorb such a price, and still allow me to save a few bucks. When all was accounted for, I found a shortfall of about $300 per month. This reality sent my mood into an immediate tailspin. I began to realize just how close I am to the margins of insolvency. My prospective budget did include a fair amount of wiggle room. If I quit smoking cigarettes (which I really ought to do anyway), I can save about $130 a month. I can go out less on the weekends and cut another hundred out of my loss column. I could cut down on the number of iced mochas I buy every week.

But there are some expenditures that can't be negotiated. Having a kid is very expensive- more so than I had expected. Between household necessities (non-food) and stuff for regular maintenance of the baby, my wife and I are spending about $900 a month. And that number is only as low as it is because we are getting a tremendous deal on daycare. We will be paying out this money until E. is in kindergarten. Also my mortgage and car payments will remain stable. And the price of food (for which I budgeted $300) threatens to rise dramatically with the increase in oil prices. Utilities are also subject to fluctuations in the oil market. Perhaps I could get a better deal on car insurance (if I have a better driving record for a few years), but I can't count on that either.

What's especially scary is that my prospective budget does not take into account emergencies or unanticipated costs. I didn't figure in car maintenance- like inspection, oil changes and new tires. There is no accounting for clothing purchases. I didn't figure in the cost of giving gifts to family and friends. I didn't include money for replacement appliances, should something break around the house. No cash for vacation, for art materials, for art... no DVDs, music, or books. No eating out. Absolutely no luxuries. And when I look at my salary, I know that it is above average. It makes me wonder how the bulk of America is going to weather a steep economic downturn. This is going to be a very different country in the next several years. If you don't believe me, make out a budget for yourself, and see how your own life is likely to change.

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Anonymous Anonymous said...

We can only hope for the sake of justice that the retribution comes now and hits some of the people most responsible for the problem.


I doubt that E or the people in their generation will be very forgiving. Even public education (for which there won't be money) will find it hard to explain away this one.

4:29 PM  
Blogger Merge Divide said...

I fear that the people responsible for the state of this nation will never be held accountable during their lifetimes.

9:03 PM  
Anonymous Anonymous said...

I think this might be one of the best summaries of the situation we are in.

"The Federal Reserve Bank is cutting interest rates, printing money, and ladling out the public’s cash to mortage speculators. When folks get their hands on this money, will they invest it in things that will cause the U.S. GDP to grow in the long run? Consumers will buy stuff, presumably manufactured items made in China or oil from Venezuela and the Middle East. Companies will invest some of the money, but presumably where they think it is most efficient to invest. In the old days, U.S. companies nearly always invested somewhere in the U.S. China was closed to foreign investment. India was tangled in bureaucracy and regulations. South America was unstable politically.

How does the U.S. stack up right now as a place to invest? Our workers are expensive because the cost of living here is high and their taxes need to be high enough to pay for a lavish government sector and an Iraq adventure that Joseph Stiglitz estimates will cost $3 trillion, a sizable fraction of our annual $14 trillion GDP. Our college graduates are roughly equivalent in ability to other nations’ high school graduates (story) and a lot of our high school graduates could not compete on the world market for any jobs other than manual labor. Our transportation system is comprehensive, but traffic jams can take an hour or more out of a worker’s day. Unlike other countries, we have no plans to implement congestion pricing. In communications, we lag countries such as South Korea in broadband speed and percentage of households connected; we lag all of Europe and most of Asia in mobile phone coverage. Our consumer market is huge, but it is also brutally competitive and most consumers have all of the stuff that they need; emerging middle classes in India, China, and Arab countries represent more of a profit opportunity.

If we handed out $500 billion right now to U.S. businesses and told them to invest it, how much of that investment would happen here in the U.S.?"


1:27 PM  
Anonymous john morris said...

Also, you wouldn't know about this-- The Clinton Surpluses never existed! They are lies.


"Notice that while the public debt went down in each of those four years, the intergovernmental holdings went up each year by a far greater amount--and, in turn, the total national debt (which is public debt + intergovernmental holdings) went up. Therein lies the lie.

When Clinton (and others) said that he had paid down the national debt, that was patently false--as can be seen, the national debt went up every single year. What Clinton did do was pay down the public debt--notice that the claimed surplus is relatively close to the decrease in the public debt for those years. But he paid down the public debt by borrowing far more money in the form of intergovernmental holdings.

Interestingly, this most likely was not even a conscious decision by Clinton. The Social Security Administration is legally required to take all its surpluses and buy U.S. Government securities, and the U.S. Government readily sells those securities--which automatically and immediately becomes intergovernmental holdings. The economy was doing well due to the dot-com bubble and people were earning a lot of money and paying a lot into Social Security. Since Social Security had more money coming in than it had to pay in benefits to retired persons, all that extra money was immediately used to buy U.S. Government securities. The government was still running deficits, but since there was so much money coming from excess Social Security contributions there was no need to borrow more money directly from the public. As such, the public debt went down while intergovernmental holdings continued to skyrocket.

The net effect was that the national debt most definitely did not get paid down because we did not have a surplus. The government just covered its deficit by borrowing money from Social Security rather than the public."

What this means in hard numbers is that the Social Security system during the Clinton years was runnining large surpluses, due to a favorable ratio of workers to retires while he was in office. The government in a manner that would never be legal in the private sector then used this extra cash for current spending, making the deficit look like it went away even though it knew the huge obligations comming in the future.

What it actually did was spent the money, and placed government IOU's in the so called "trust fund". This is like a person spending a million dollars and then claiming they still have it cause they owe themselves a million dollars in the future. In this case what that means is that future taxpayers owe that money, cause it's gone.

All the real numbers are in the link.

10:58 AM  

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