When will the deficit become a problem?

Source: https://www.cbo.gov/sites/default/files/52370-Outlook_OneColumn.pdf

The U.S. can probably handle a budget deficit of up to $800 billion per year without a problem.  We already have a national debt of almost $20 trillion, so this only adds 4% per year.  However, I think this is about the limit.  We are projected to bust through this in 2022.  So until then, there is really nothing to worry about.

That is, if we never have a recession again.  If we do have a recession, which I think we almost certainly will next year, then all bets are off.  The only way we know how to handle recessions is to increase spending in the magnitude of trillions.

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Also note that the deficit is projected to "bottom out" in 2018 at $494 billion.  After the deficit will start going up again at the rate of $50 to 100 billion per year into infinity.  And that is the rosy scenario, assuming no recession ever and no problems with social security.

When will the Social Security Trust Fund peak?

Source: https://fas.org/sgp/crs/misc/RL33028.pdf











According to a report by the Congressional Research Service in 2015, the SS trust fund will not peak until 2019.  So, if it hasn't peaked yet, then why are we worried about it running out in about 12 years?  Good question.  A better question is, what will the deficit be when it does run out?

According to the same report, the trust fund will have only a $95 billion balance at the end of 2033, which it will quickly exhaust in 2034. In 2033, the non-interest income is projected to be 2,021.8 billion and the costs are projected to be 2,526.8, for a deficit of 505 billion in 2033.

Quote:  "Projections for years after 2033 are not shown because the Social Security trust funds are projected to be exhausted in 2034 under the intermediate assumptions."

So, we can't project past 2033, which makes it the end of the line according to that report.  Another report says it is 2029.

Ok, we before we start to panic, what will the deficit, excluding social security be, be in 2033, according to intermediate assumptions?  Umm, the latest projection doesn't say the amount in trillions, it just says 6.2% of GDP.  What will GDP be in 2033?  I'm seeing the number $35.5 trillion for nominal GDP in 2033.  So a good guess for the deficit will be $2.2 trillion.  Now add $500 billion to that.  So the deficit will be $2.7 trillion in 2033.

You can panic now.  Or, you can shoot the messenger - not me, the Congressional Budget Office.  Or it you want to get technical, you can wait until 2019 to panic.  But it won't make the problem go away.

1970s California Cults

Here is an incomplete list of "hippie" cults, mostly from California, listed randomly:

• Synanon. Cult leader: Charles "Chuck" Dederich. Started in 1958.  The headquarters was in Santa Monica. Started as a drub rehabilitation program, became an alternative community, and then became authoritarian, promoting violence.  The downfall started in 1978 when members placed a rattlesnake in the mailbox of an attorney who sued them.  Disbanded in 1991.  At its height in the early 70s' was earning $10 million per year, and troubled juveniles were placed there by the courts.
• Peoples Temple.  Cult leader: Jim Jones. Started in 1955 in Indianapolis, then moved to San Francisco in the 1970s.  At its peak had 3000-5000 members.  Moved to Guyana, where 918 people died in a mass suicide/murder in 1978.
• Children of God. Cult leader: David Berg.  Started in 1968 in Huntington Beach.  Proselytized by using "flirty fishing".  Had over 130 communities world-wide by 1972.  The original group was supposedly abolished in 1978.  Berg died in 1994.  The group still exists today (greatly reformed) with the name The Family International.
• The Manson Family.  Cult leader: Charles Manson.  He established himself as a guru in the Haight-Asbury district of San Francisco in 1967.  Developed a cult following of mostly females who travelled around the west coast on a hippie bus.  He believed in a theory called "Helter Skelter", in which murdering people would start off a race war.  His followers started a crime spree in 1968-1969 which culminated in the murder of actress Sharon Tate.  Manson was sentenced to life in prison.
• Scientology.  Cult leader: L. Ron Hubbard.  Founded in 1954, and has a headquarters in Riverside County. The attraction was that it promoted a rational philosophy of life to help them become better persons.
• EST. Cult leader: Werner Erhard.  Founded in 1971 in San Francisco. Held a series of transformational seminars until 1984.  An unrelated but similar group exists today called the Landmark Forum.
• Heaven's Gate.  Cult leader: Marshall Applewhite.  This group doesn't really belong here as it didn't exist in the 1970s but it kind of fits.  It ended in 1997 with a mass suicide of 39 people.
• Self-Realization Fellowship.  Cult leader: Paramahansa Yogananda.  Founded in 1920 in Los Angeles. Yogananda died in 1952.  Daya Mata lead the group until 2010.
• Symbionese Liberation Order.  Cult leader: Donald Defreeze.  Defreeze escaped from prison in 1973 and tried to start a revolution. Kidnapped and brainwashed Patty Hearst, who was with the SLA when they robbed a bank in San Francisco in 1974.
• The Source Family.  Cult leader:  James Baker aka "Father Yod". This was a vegatarian/ Yoga/sex cult that started in 1969 in Hollwood.  Their unconventional ideas caused problems with local authorities, leading them to flee to Hawaii, where Father Yod died while attempting to hang-glide off a volcano. There was a movie made about them in 2012.
• Altamont Free Concert.  This doesn't really belong here because it was an event, the Woodstock of the West, held December 6, 1969 at the Altamont Speedway, 30 miles east of San Francisco, featuring the Rolling Stones and other bands.  A fan who tried to climb on stage was stabbed to death by a Hell's Angel member who was doing security.   This event came to be viewed as the end of the hippie era.

EPCOT

The first 10 minutes is about Disneyland.  It really starts going about 13:20.

The Experimental Prototype Hellhole of Tomorrow

EPCOT would have 100,000 people living there, but everyone would be there temporarily - the maximum would be 9 months.  No one under 18 or over 65.  No schools.  No one could vote. Of course no one would own their house.  No small businesses allowed, instead everyone would work for mega-corporations.  No cars, everyone would ride people movers or monorails.

The idea would be similar to a cruise ship, or living in a mall or in Truman.  People would work at the theme parks or in high tech jobs. Except there wouldn't have been enough jobs for everyone.

There is no way this could have worked.  Which is why the Walt Disney Co. totally abandoned this vision and make a world's fair sort of thing.

By 2030, Student Debt will exceed $16 trillion

Source: http://www.valuewalk.com/wp-content/uploads/2016/01/RhiRel5.png

The best thing about it?  This is literally free money.  This isn't part of the National Debt, because it isn't owed by the federal government.  Nobody will be hurt if it isn't paid back, because it isn't owed to banks.  And indeed, most of it won't be paid back because there are no good paying jobs for most of the college graduates. And this is non-inflationary spending, because if inflation does ever start to emerge, the debt will just suck it up.

This is the best thing ever.  FDR invented the home mortgage, which allowed the middle class to emerge. Obama invented the government subsidized student loan system, which raises the aspirations of college students but puts a giant chain around their necks, preventing them from ever escaping the debt trap.

CBO Long Term Budget Outlook

https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52480-ltbo.pdf

This report does not use the word "unsustainable", which previous reports did.  I found this interesting quote:
 CBO also assessed the effects of larger budget deficits so that cumulative deficits (excluding interest payments and macroeconomic feedback) would be $2 trillion or $4 trillion greater through 2027 than they would be under the extended baseline. On those paths—after accounting for the economic effects of the increase in debt—federal debt would be substantially higher than CBO projects in the extended baseline. For the +$2 trillion path, federal debt would equal 202 percent of GDP in 2047; the +$4 trillion path would result in federal debt exceeding 250 percent of GDP in that year.

By 2047, net interest costs would be 6.2 percent of GDP, raising total federal spending to more than 29 percent of GDP.

Either the $2 trillion or $4 trillion path would be a big problem.  That sounds like a lot of money, but over ten years, it is only $200 or $400 billion per year.  A recession, which almost certainly will start next year, will cause a huge increase in spending, and put us on that $4 trillion path.

There is also a discussion in that report on what would happen if Social Security benefits were paid from the general revenues.

International Dollar vs Domestic Dollar

[Martin] Armstrong says there is going to be a major “monetary reform” in the not so distant future, and the U.S. will end up with a dollar for domestic use and a dollar used for international trade, sort of like a “domestic dollar” and an “international trade dollar.” Armstrong says, “Yes. All it is doing is replacing the dollar as the reserve currency.  That would satisfy China and Russia, and it would simply be maintained by an international board.  I strongly advise against the IMF.  It’s way, way too corrupt.”
http://usawatchdog.com/strong-dollar-could-cause-bond-market-crash-martin-armstrong/

It sounds like there would be a new international financial institution to take the place of the IMF.  The international dollar would be the new world currency.  This new institution would be like the Federal Reserve but for the whole world, and it would have Chinese and Russian stockholders.  Call it the "International Federal Reserve" or IFR, until we get more details.  The headquarters would probably remain in NYC.

The Battle of Berkeley

Crisis in 2029

Source: https://www.cbo.gov/publication/52298

I believe that the United States will have a fiscal crisis in the Year 2029 which will lead to a breakdown and financial collapse.  We need to wake up and prepare for this so we can prevent it from happening if possible.  I now think that this crisis will not be based on excessive debt, but on a default on an implied social contract, and the rebellion of the underclass who will not accept the default.

The above chart comes from the Congressional Budget Office, and shows that benefits will not longer be paid as promised at some point about 2029.  Social Security is the most stable of the social benefits with its own dedicated trust fund which is supposed to be rock solid.  If SS will not be fully paid, then neither will Medicaid, Medicare, food stamps and any number of other benefits.

What is the big deal, you say, it only means that benefits will be cut about 20% or so.  True, but you can't explain that to someone who is brainwashed into believing that they were "promised" benefits, and who will throw a temper tantrum if they don't get what they were "promised".

We need to start a national conversation about this NOW.  We either need to increase social security taxes, decrease benefits, or be honest with people about the ponzi scheme that Social Security is.  You could "fix" social security by diverting money from the general funds, but this is only a temporary fix and will lead to SS and Medicaid swallowing the entire budget.

Note:  I started this blog believing that the US would have a crisis in 2022.  I have changed this year various times as I do new projections.  The last projection I made was that the system would last until 2039,

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Update 4/21/17:
The numbers on this seem kind of vague.  The CBO report referenced above just gives numbers as a percent of GDP.  I tried to do my own calculation and I think the SS Trust Fund could possibly last until 2031.  (I think the exact year isn't important, so I will leave it at 2029 until the CBO re-evaluates it again).  The question is what happens when it is exhausted.  There will be a $500 billion per year hole.

Choices are: 1) default. Even if people don't riot, this will decrease GDP by about 1.5-2.0% per year which could cause a recession.  2) Pay it out of the general funds.  This will cause the deficit to increase by $500+ billion per year about the year 2030, speeding up whatever fiscal crisis will occur.  None of the long-term projections I have seen, including those I have done before, take into account this jump in the deficit.

So in conclusion:  I still agree that this problem needs to be addressed.

Peak Fertilizer

Phosphorus and potassium cannot be synthesized—they're found in significant amounts only in a few large deposits scattered across the planet, in the form, respectively, of phosphate rock and potash. After less than a century of industrial ag, we're starting to burn through them. In a column in the November 14 Nature, the legendary investor Jeremy Grantham lays out why that's a problem: These two elements cannot be made, cannot be substituted, are necessary to grow all life forms, and are mined and depleted. It’s a scary set of statements. Former Soviet states and Canada have more than 70% of the potash. Morocco has 85% of all high-grade phosphates. It is the most important quasi-monopoly in economic history.
--http://www.motherjones.com/tom-philpott/2012/11/are-we-heading-toward-peak-fertilizer

Social Breakdown Point

I started this blog 7 years ago with the premise that at some point in the near future, the US would face a financial collapse. At the time, I calculated that it would be in 2022.  Obviously in hindsight it was way too pessimistic.  In the last "official" calculation I did in 2013, I estimated it as 2039.  Now it appears that even this is too pessimistic and we are in better shape.  Plus, I haven't taken into account the government's ability to engage in austerity, such as cutting the military, social benefits, and even interest rates.

The most likely scenario is that the total financial collapse I foresaw before will never occur, or at least not in my lifetime.  Yea, we will have more financial crises a la 2008, but we know how to solve them - by flooding the system with trillions in newly printed cash.  And if inflation gets out of control, just jack up the interest rates like was done in the early 80s.  And the total amount of national debt doesn't matter because the Fed can just buy it up.

However, it just hit me that a much more likely scenario is what I call "social breakdown".  This is where the underclass, which feels entitled to a certain amount of welfare and "social" benefits, is deprived of such benefits, and takes its revenge by rioting and looting.  We have seen this several times in the near past, in Los Angeles in the 1992 Rodney King riots, in New Orleans in 2006 after Hurricane Katrina, and in Ferguson, MO in 2014. And in New York City in the 1977 blackout.

Yes, logically, we can get out of a government deficit by cutting benefits, pensions, Medicaid, etc.  But can we really, without the underclass rioting on a massive scale?  And not just the underclass, the far-left groups such as Occupy Wall Street, Black Lives Matter, and Antifa.  I think we have a massive problem on our hands.  And since I am big on predictions, (which I do just for fun since they never turn out to actually occur), I think I should try to analyze when a national social breakdown will likely occur.  Stay tuned.

Global Credit Impulse

Source: http://www.zerohedge.com/news/2017-04-14/china-just-flooded-its-economy-record-amount-new-debt

Credit impulse is the "change in the change" in credit.  So a zero isn't a bad thing, it just means that credit is being increased at the same rate as a year ago.  Even a small negative isn't necessarily bad. But that range of change, the steep vertical line, is something to watch.  If it continues in a freefall, it may mean a recession is coming.  It's interesting that this is dominated by China.

Crash Course on Hyman Minsky

See also: Minsky's Financial Instability Hypothesis (https://www.youtube.com/watch?v=HrXngX2J1K0).

If the system has too much debt, then it only takes a small increase in bad debt to make the system instable.

Blackout 1977

Ten or Eleven Year Financial Crisis Cycle

Jim Rickards sees a ten year financial crisis cycle:
“In my book The Road to Ruin I look at the two recent crisis situations in 1998 and 2008. Both times we came within hours or days from a complete collapse of the financial system. That’s not an exaggeration. In 1998, we had the Long Term Capital Management crisis where I negotiated that bailout. In 2008 Bear Stearns failed, Lehman Brothers failed in September 2008, Fannie and Freddie… the entire rest of the dominoes would’ve fallen as well. That didn’t happen because the Federal Reserve intervened to the tune of tens of trillions of dollars.”
https://dailyreckoning.com/jim-rickards-heading-straight-recession/

What were were the exact dates?  The first crisis occurred on September 23, 1998.  The second one occurred on September 15, 2008.  

There was a previous event when the system was within hours of an absolute collapse on October 20, 1987.  This was 11 years instead of 10, but that kind of shows a pattern. What about 10 or 11 years before that?  Well, there was a financial crisis in New York City.  On July 13, 1977, there was a blackout, which lead to widespread looting, vandalism, and arson.  
Before that? "The so-called credit crunch of 1966 has long been recognized as the first significant postwar financial crisis, and one that required the first important intervention by the Federal Reserve Bank .  ... To some extent, 1966 proved to be the first verification of the "financial instability hypothesis" that Minsky had been developing since the late 1950s."  (Source: https://ideas.repec.org/p/wpa/wuwpma/9902009.html).  The date?  September 22, 1966.

So if you believe in cycles, we can anticipate another financial crisis in September 2018.  Let's call it September 11, 2018.  And maybe the ten year cycles and the 17 year cycle will coincide.  

Disclaimer:  It's fun to make predictions of gloom and doom, but I am never right, thank God.

Peak Sand

Sand is the essential ingredient that makes modern life possible. And we are starting to run out.
https://www.nytimes.com/2016/06/23/opinion/the-worlds-disappearing-sand.html

1960s Urban Sprawl

A Ride of the Future

https://www.youtube.com/watch?v=fEgboXXflwo(click the link to watch)

This is a retrofuturistic movie from 1977, about the personal rapid transit system at the University of West Virginia.

Amazon Robots

Slay the Zombie Economy

The ‘zombie economy’ ... is an economy where enterprises and entire sectors that have outlived their useful existence are artificially kept alive by external support, notably from central banks and governments. Resources are wasted on helping such zombie enterprises and industries to survive, rather than encouraging and investing in new areas of potentially dynamic growth.  By propping up the economic status quo, by doing all they can to preserve economic stability almost regardless of the consequences for lowering growth, these state policies have unintentionally helped to sustain and entrench this zombie economy – and so perpetuate the depression.  ...it will be necessary to slay the zombie economy by kindling the forces of creative destruction and establishing a fourth industrial revolution. 
http://www.spiked-online.com/newsite/article/why-its-time-to-slay-the-zombie-economy/19626

1950s Urban Sprawl

America's Biggest Problem

The biggest problem is the psychological effects of urban sprawl. The narrator is very entertaining.