Bacon's Rebellion

Sooner or later, someone is going to have to pay for the dogma-saturated legal forays of Kenneth Cuccinelli, Virginia’s firebrand Attorney General.

At long last, the Boomergeddon blog has gone live at its permanent URL address, http://www.boomergeddon.us/. I would have preferred to have nailed down the .com address, but some slimeball snaked it before I could register it, and I refuse to pay money to buy the name. Fortunately, the “.us” domain works in this case — kind of like Boomergeddon USA!

Now, time for a quick little Q&A.

You: Gee, what is “Boomergeddon” anyway?

JAB: To quote from the blog: “Boomergeddon is the day investors stop buying U.S. Treasuries — the day the U.S. government goes into default, the global economy is thrown into turmoil, the American empire begins to crumble, and the social safety net starts to unravel.”

Virginia closed out the fiscal year with a $220 million budget surplus, no mean accomplishment considering that it faced a $1.8 billion deficit in January. The press release from the Governor’s Office has the details.

Some of the surplus will be allocated to a bonus for state employees, who have gone without a pay raise for four years, to local school districts, and to Virginia’s Water Quality Fund, with the balance to be divvied up later. A humble suggestion: Start repaying that $650 million owed to the Virginia Retirement System.

Update: Norm Leahy with Tertium Quids deconstructs the governor’s press release from a fiscally conservative perspective.

What’s the world coming to? The Russian SVR, successor to the KGB, has inundated us with long-term moles who are on deep cover and penetration missions of middle school soccer games and “Six Sigma” management principles. Their goal is to infiltrate American ruling and opinion-making circles and wait in place for the big move, if it ever comes.

In his previous post, “On the Fourth,” EMR suggested using the metric, “U.S. Net National Savings as a Percentage of GDP,” as an indicator of the extent to which U.S. society is preparing for the future. Why is savings so important? As EMR often says, the benefits of civilization are expensive. We have three choices: (1) Save the capital ourselves to pay for those benefits, (2) borrow the capital from foreigners, or (3) live without the benefits.

Since the 1980s, the U.S. has chosen Option 2. We can continue borrowing until our level of indebtedness gets so high that foreigners stop lending to us. It is the thesis of “Boomergeddon” that such a day will come, probably some 15 to 20 years from now (although with each passing month I am tempted to advance the date by several years).

To grasp our sad state of affairs, view the chart (based on OECD data) at the top of this post. That compares the household savings rate (excluding business and government) of the U.S. to that of other nations in the 2006-2007 time frame. Our consumers then were among the most profligate in the world. Since then, the household savings rate has ticked back up to between 3% and 6%, still a fraction of what it will take to pay for all the things that need paying for.

The good news is that between higher savings and defaults consumers have reduced their liabilities significantly since the Global Financial Crisis, although they still have a long way to go before the household debt/income ratio return to rates prevailing in the early 1980s, as shown in the chart above (based on Federal Reserve Bank data).We can be grateful that consumers are not actively mortgaging the nation’s future. But consumer reluctance to spend does create a short-term problem in an economy in which consumer spending accounts for 70% of all economic activity.

On the positive side, U.S. business is piling up large sums of cash — the most since the 1970s. (This chart comes from the PIMCO Group website.) On the positive side, U.S. business is strengthening its balance sheets. On the flip side, this helps explain why the rate of job creation is so low. Businesses would rather hang on to their cash than invest in growth. Unfortunately, slower economic growth = lower tax revenues = higher deficits = higher national debt.

As we all know, the big deficit spender in recent years has been government, especially the federal government. We can argue all day long as to whether deficit spending is needed to spur economic recovery, but the fact remains that the spending is occurring and the deficits are mounting, bringing Boomergeddon — the day the government cannot borrow any longer in public markets — that much closer.

One last chart. When it comes to total indebtedness, the U.S. is not the most profligate of all advanced nations. As can be seen from chart at left published in the Economist (based on data published by the McKinsey consulting firm), that distinction belongs to Japan.

Unlike the U.S., however, Japan, Britain, France, Italy and Germany have resolved to shrink their deficits. Whether they will succeed in doing so remains an open question. But having peered into the abyss of sovereign default, the major European countries apparently have made the decision to suffer the pain of a potential double-dip recession today than the conflagration of a meltdown in sovereign debt a decade from now.

So, how does this tie in to EMR’s discussion of environmental sustainability? It will take mucho dinero to make the transition from our current energy-intensive, natural capital-depleting economy to an economy that is environmentally sustainable. As EMR frequently observes, the window of opportunity to develop efficient human settlement patterns at reasonable expense closed back in the 1980s. It will be far more costly to do so now, even if we were committed to doing so, which we are not.

Right now, Americans are still enjoying the benefits of a global capital glut, but that inexpensive capital will disappear as the world’s largest economies shift from being net savers to net consumers of capital and as governments commandeer an ever increasing share of that limited supply of capital to cover their deficit spending. In another 15 to 20 years, the window will slam shut — with plywood boarding bolted on, to boot — on any hope of redeveloping our human settlement patterns in more efficient configurations.

Boomergeddon is going to be a real bummer.

The Risse Household has celebrated the 4th of July for as long as EMR can recall.

During WWII there were pot luck barbeques in the live-oak-shaded picnic grove next to the orchard. Households with members serving in the military from that part of the Santa Inez Valley – some years one or more were home on leave – and Households stationed at Camp Cook who were living off-post on nearby farms were guests of honor. The first 4th of July after The War ended, there was fireworks at the Lompoc Airport and a lug of cherries – no cherry bombs.

In the Northern Rocky Mountain Urban Support Region the 4th was often celebrated with fellow trail crew members – college students who were working for the Park Service for the summer. Home made ice cream and newly ripe Flathead Lake cherries were on the menu. No fireworks, roman candles start forest fires, even in July.

It was only after THE ESTATES MATRIX was completed that EMR fully realized how profoundly different the world was after 4 July 1776. It was not JUST that date but 4 July 1776 was the most important landmark in the fifty years from 1770 to 1820. This era included the American Revolution, the French Revolution, the Haitian Revolution the Louisiana Purchase and the War of 1812. As documented by THE ESTATES MATRIX, that period witnessed Fundamental Transformations of the Estates that manage human society.

Now it is time to embrace new set of Fundamental Transformations. These Transformations are required to accommodate what has happened since 1800 with respect to the economic, social and physical context of human existence.

These Transformations must evolve in a way that preserves the rights of all citizens and not just the privileges of individuals, Agencies, Enterprises and Institutions who have taken control at the top of the Ziggurat.

Which brings us to 2010 and Bacon’s Rebellion.

Jim, Larry, Groveton and Peter continue to throw rocks at empty pigeon holes.

Citizen need those rocks – and all those that are tossing rocks – to work together to rebuild a foundation that will support a sustainable society now that there are 6.9-Billion humans who are dependent on the remaining Natural Capital.

Enough of having fun with red meat. It is time to get to work.

Things are not looking good.

Groveton may be right that, in light of recent events, the traditional Donkey Clan will not be able to win an election for 20 years, if ever.

Based on that criteria, it will 40 years, if ever, for the traditional Elephant Clan to win an election. The friends of Big Enterprise are not riding a wave of popularity.

A recent CNN poll: (“Who is to blame for the current economic conditions?”) Donkey Clan 24 percent, Elephant Clan 48 percent, Both 24 percent, Undecided 4 percent.

On the current trajectory neither Clan will ‘win.’ The way the cards are being played, there will again be a 49.9 percent to 51.1 percent split between two coalitions beholden to least-common-denominator platitudes and fueled by The Anger of Ignorance.

Groveton says the stock market is a ‘leading indicator’ of the economy.

EMR suggests a better indicator is the US NET National Savings as a percentage of GNP. (See CNNMoney’s 30 June reprint of a Fortune article “Personal savings rate: worse than we thought.”)

The stock market is a gambling venue.

Personal savings rates, and more important the “US NET National Savings as a percentage of GNP,” is an indication of individual and Organizational commitment to preparing for the future.

Recall Jared Diamond’s the two criteria for avoiding Collapse…

See “Collapse, An Appreciation” Column # 64, 8 Aug 2005.

Fundamental Transformations OR count on your fingers the number of times that you will be able to celebrate the 4th of July in public and without guilt.

Happy Fourth!

EMR

Yes… the flying car. Air cruising speed of 115 mph, range of 450 miles. The retail price of 130 quid will give it limited market appeal. Yet… according to this UK news report, 70 people have already forked over a hefty down payment for an advance order.

In 1955, then-Senator John F. Kennedy wrote the book “Profiles in Courage”. The book documents eight US senators who took tremendous political risks by supporting unpopular causes. President Kennedy’s book won the Pulitzer Prize.

Everybody in America should be quite concerned about Paul Krugman’s most recent Op – Ed piece in the New York Times. Mr. Krugman is a staunch and loyal supporter of Barack Obama. However, Krugman is now saying that the current recovery may very well collapse leaving the economy in what he is calling The Third Depression. His recent Op-Ed piece can be found here.

In order to understand the magnitude of Krugman’s recent column it’s important to understand a bit about Mr. Krugman himself. Krugman is a Yale and MIT educated economist who won the Nobel Prize in Economics in 2008. His academic credentials are beyond repute.

However, in addition to being a pre-eminent economist Krugman is also a liberal’s liberal. Like his credentials in economics his credentials in liberalism are also beyond repute. Mr. Krugman writes a twice weekly Op – Ed piece in the New York Times. He is a long time and bitter critic of George W. Bush to the point that he often seems to exhibit Bush Derangement Syndrome (BDS). Finally, he has written what I can only imagine to be the world’s shortest book – The Conscience of a Liberal. If you look up “liberal” in the dictionary you find Nancy Pelosi’s picture next to the definition. However, if you look up “coherent liberal” it will be Krugman’s hirsute likeness next to the definition.

For the last 18 months Mr. Krugman has been heaping praise on Barack Obama in general and Mr. Obama’s economic policies in particular. Which is why Krugman’s recent Op – Ed piece is so shocking. At first, he seems to be admitting that the New Keynesian economics theory which he and President Obama espouse has failed. However, a closer reading of the Op – Ed piece reveals that Mr. Krugman actually thinks that New Keynesian economics is just what the world needs. Unfortunately, the world is just too dumb to realize the economic healing power of the monetary printing press. Mr. Krugman finds special fault with the recent European belief that endless spending and deficits may actually be harmful. It seems that Krugman and Obama have accomplished the seemingly impossible – they have “out liberaled” Europe.

Despite all this apparently bad news I see three rays of light in an otherwise jet black sky. First, Bacon’s new book ought to be a best seller if we are really headed for a Third Depression. Hopefully, Mr. Bacon will remember all of us “little people” when we send him e-mails asking, “Hey buddy, can you spare a dime?”. Second, even uber-liberal Paul Krugman has stopped blaming Bush and moved on to the somewhat improbable thesis that it is the Europeans who are the new villains. Finally, Ed Risse’s long running predictions of doom and gloom may be coming true. Perhaps his prescription for reducing the inevitable pain will gain a wider audience.

Hoo-ah! My first column in the online op-ed section of the Washington Times:

The financial media put a positive spin on a joint statement Sunday by the wealthiest members of the Group of 20 countries that they would halve their deficits by 2013 and stabilize their debt burdens by 2016.

In the words of the Wall Street Journal’s lead story, the announcement was “a signal to international markets and domestic political audiences” that the G-20 countries “are taking seriously the need to wean themselves from stimulus spending.” Wrote the New York Times: “The action … signaled the determination of many of the wealthiest countries … to now emphasize debt reduction. And it underscored the conviction of European nations in particular that deficits represented the biggest threat to their economic stability.”

What both newspapers neglected to mention is that the goals require virtually no change in U.S. fiscal policy in the near term and only modest changes by the second half of the decade – at least if you believe the 10-year budget forecast prepared by the Obama administration. For all practical purposes, President Obama could have announced, “The Europeans can do whatever they want. We’re not budging from the status quo.” More.

Hopefully, there will be more columns to come — addressing less arcane topics than G-20 summit announcements.

Three years ago, Prince William County achieved notoriety by adopting legislation that was supposedly designed to stem illegal immigration but in reality harassed Latinos, many of whom are hard-working and law-abiding.