Sunday, May 17, 2009

Solvency Watch

First we have the already reported news about the massively negative draw that Medicare and Social Security are going to have on the budget very soon; something anyone with a calculator could have predicted several decades ago. I just wished to add that NPR (!) this morning pointed out that the only way the trust fund would work would be by borrowing a ton of cash or dramatically raising taxes. Their reporting is a start, though neither of their points will work long term since the plans draw way much than we could ever afford any way we approach it.

Second we have John Fund reporting on the budgetary mess in California. This is of interest to me since Ohio is like a mini-California in that they have a massive budget hole of their own. It looks like California is betting that the Feds will help plug their twenty billion dollar hole. As Mr. Fund pointed out though, Obama had earlier told California, who was trying to save money, that they couldn't cut the pay for some unionized employees or else they would forfeit the seven billion dollars that they used to plug holes earlier in the year. In this way, the Feds are turning the states into debtor slaves where no doubt the likes of Obama and Pelosi will write every budget in the country via regulation; and since their budgets will always call for deficits states will always need Federal cash.


The other side of this coin is that the whole scheme reeks of the parents telling their kids that they can charge all they want so long as they buy a couple meals a week from Uncle Chuck's restaurant. With the state's and localities free to rack up huge tabs secure in knowledge that Uncle Sugar is going to bail them out, the whole scheme turns into a game of chicken with the Feds hoping that the additional local debt doesn't bankrupt the country.

That brings up the third point: where will the Feds get their cash? Currently the Fed is exhausting all of their supply routes. With falling wages and failing employment, raising taxes will only carry them so far, and may even do more harm than good (from their perspective). They can continue attempting to print their way out, but people and other nations in particular will become (even more) leery of accepting greenbacks for their goods and services. We can continue to borrow, but for how long will other nations care to lend money to us when they're just going to get a stack of American Monopoly money in return? This would be the same money backed by the full faith and credit of Obama, his tax cheat treasury head, and a corrupt CONgress (among others).

However, much as the Feds are trying to do to the states, other parties are developing similar plans for our nation. Karl Denninger notes a BBC piece that points out that Japan's opposition party would rather buy U.S. debt backed by some other currency, namely the Yen. On first read I blew it off: there's no way our government would be so incompetent as to sell our nation out like that. Right? ......Right?

The more I thought about though, the more I became afraid that they would actually do it, that they would turn the United States into a Weimar Republic, not because of losing a war, but because of an unending addiction to government bloat. Mark my words, if something like the 'samurai bonds' (or as Karl Denninger calls them 'seppuku bonds') it will be game over. The day the U.S. issues foreign denominated debt, you should leave if you can, at least while you're money has worth. This isn't me being petty over some partisan difference, it's me being realistic about the fact that at that point our nation will be sold off in huge chunks and it will only exist in stasis in the vaults of overseas banks.

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