Tony Robbins warns of economic troubles ahead

Vote to defend the US against flesh-eating space aliens

Another gloom and doom video

July 2010 Update

The CBO update for July 2010 recently came out and I am updating this. There is a mismatch between the discretionary and mandatory numbers.

Compare to: http://aftermath2022.blogspot.com/2010/07/2010-update.html

Category	2010 YTD	2010 extrap.	2010 Budget	My 2010 est.
Revenue	1753	2104	2381	2132
Mandatory	1192	1430	2020	2041
Discretionary	1543	1852	1368	1377
Interest	191	229	164	185
Total Spending	2926	3511	3552	3603
Deficit	-1173	-1408	-1171	-1471

Civil war brewing?

More than 50% of spending comes from deficit spending

I guess this has happened last year, but this is a horrible sign:

Wednesday's monthly Treasury statement said U.S. government revenues in July totaled $155.55 billion, compared with $151.48 billion in July 2009.

Spending was higher, totaling $320.59 billion. July 2009 spending amounted to $332.16 billion.
--WSJ.com

So taxes cover only 48.5% of spending, for July at least.

The Decline and Fall of Western Civilization

Martin Armstrong, a former hedge fund manager who is now in prison, has written a fascinating article entitled "The Decline of the West: Has Western Society Come to an End?" In this article, he discusses the ideas of Oswald Spengler, a German philosopher who lived from 1880-1936, and contrasts his ideas with those of Arnold Toynbee, Karl Marx, Robin Collingwood, and Edward Gibbon. Excerpt:

The Political State born of revolution, will always and without exception, adopt the various policies against which it had justified its taking of power by force. ... The United States was born on the core issue of a battle against tyranny. ... Here we are today, the wheel of fortune has completed here revolution and the United States has come full circle. ...There is no question that the seeds of our own destruction have been planted. No one in their right mind will every actually believe that as a people we will actually pay the national debt. ... There is a serious risk of revolution. For that is presented by the collapse in the rule of law.

How long does it take to rack up $1 trillion in debt?

Note: This is an article I wrote in May 2010.

The US debt is currently at $12.987 trillion and will surpass $13 trillion next week (to pick a date I will say 5/25/10). The $12 trillion mark was reached on 11/16/09. So that is only 6 months. The debt limit is $14.3 trillion, which should be reached in January 2011.

The Obama Administration claims that the budget deficit will be reduced to $912 billion in FY 2011 and $581 billion in FY 2012. This is due partially to the massive tax increases that will kick in on January 1, 2011 due to the expiring Bush tax cuts. However, I think that it is likely that the revenue raised will be less than they expect. Also, they project that spending will increase only 2% in 2011 over 2010, ignoring the massive costs of the Obama healthcare plan. So I think at best, the tax increases will only cover the increased costs.

Assuming the burn rate remains the same (which is very conservative since it is likely to increase), the government debt can be expected to reach the $20 trillion mark by the end of 2013, which is double what it was in 2008.

The real question is when does this become unsustainable. The US is still incredibly strong, and the dollar is still the global reserve currency. Europe will crack up before the US does. It may be able to manage a debt as high as 250% of GDP before reaching junk bond status. Right now the debt as a percentage of GDP is slightly below 100%, maybe 95% based on a GDP of about $14 trillion.

I am really making this up, but in 2020 the situation may look like: debt of $45 trillion, GDP of $20 trillion, debt/GDP ratio of 225%. It's not a pretty picture, but yes it is sustainable (as long as hyperinflation doesn't kick in) at least until 2020. But its hard to see how it could last much longer than that.

Edit: The real problem with this is interest rate jumps. Lets say the debt does reach $20 trillion. At 2.5% interest, this is only $500 billion/year, slightly more than 10% of the budget in 2014. But if the interest rate suddenly jumps, to say 12%, this would be $2.4 trillion/year in interest, making the deficit skyrocket from $2 trillion/year to $4 trillion/year. And when this changes it will happen very quickly.

New Social Security Trust Fund Report

The Social Security Trust Fund Report was released today.

The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2037, the same as projected last year. The Trustees also project that program costs will exceed tax revenues in 2010 and 2011, be less than tax revenues in 2012 through 2014, and then permanently exceed tax revenues beginning 2015, one year earlier than estimated in last year’s report.

The South Sea Bubble

The year 1720 was really the first "modern" economic collapse, featuring both the collapsing Mississippi Bubble in France and the South Sea Bubble in England. These bubbles involved the national debt, financing speculative growth, derivatives, and hyperinflation. John Law was ahead of his time with his economic theories. And financial regulation was the result. There was a proposal in Parliament that bankers should be tied up in sacks filled with snakes and dumped into the murky Thames River.

See also: HOW THE FRENCH INVENTED SUBPRIME IN 1719.

John Law and the Mississippi Bubble

A cute cartoon about the first bubble caused by issuing paper money.

Mary Poppins and the banking crisis

A wise 6-year old boy wants his tuppence back and causes a bank run.

The Aftershock Economy

As the authors of Aftershock point out, home prices in the U.S. appreciated about 80% between 2001-2006. According to the Bureau of Labor statistics, wages increased just 2% over the same period.

Then in 2006, the housing market collapsed. Homeowners who had lived on the increasing paper profits of their homes over the previous decade faced sudden and surprising destitution. By 2008, with the seizure of the financial system in the U.S., the stock market collapsed in turn, and millions of people — mostly men — lost their jobs in a panic of corporate layoffs.

One after another the bubbles burst in a predictable sequence of spectacular implosions: starting with real estate and reverberating in tectonic waves through stock values, private debt, and discretionary spending.
...
The collapse of the housing and stock markets forced consumers into a corner, clinging to their jobs and managing their personal debts by cutting back on discretionary spending. The Federal Reserve — fearing the worst — escaped the immediate catastrophe by printing money — $1.7 trillion in 2009 alone.

This sudden increase in the supply of money — and the inflationary pressure it portends — functions to decrease the overall value of the U.S. dollar, thus making it less attractive to foreign investors.

“One way to look at this is to think of the United States as a big mutual fund,” the authors write. “When our performance is good, foreign investors throw their money at us, but when performance is not so good, they throw less money at us. And when performance becomes bad enough, they are going to want to take their money and go home.

“Based on our analysis, we foresee foreign investors beginning to significantly lose confidence in their U.S. holdings sometime in 2010 to 2011, and increasing over time, with the likelihood of a mass exit by 2012 to 2014 becoming very high.”

The amount of debt held by investors, which include China and other countries as well as individuals and pension funds, will rise to an estimated $9.1 trillion this year from $7.5 trillion last year. When the dollar implodes, the U.S. government debt — now at a staggering $13 trillion and set to exceed GDP by 2012 — will surely be called-in by its owners.

--http://pajamasmedia.com/blog/the-aftershock-economy/

Wow. Just wow. When I started this blog, I thought there would be a collapse about 2022, thus the name of the blog, and then I started feeling like that was too pessimisstic, and my current projection is about 2029. But these guys think it could happen as early as 2012.