Too many Foghorn Leghorns?
The thing about playing chicken is that fatally high stakes are a prerequisite of the game.
And someone — not excluding, say, an entire country — is going lose.
If you believe market pundits like Jim Rogers (an American trader of some fame who chooses to teach his daughter Mandarin and now lives in Singapore) the U.S. has already lost its triple-A credit rating in all but fact.
“Everyone already knows that the U.S. has lost its ‘AAA’ status,” Rogers said (while alternately lambasting the press for taking seriously what he called the ongoing Washington “charade”).
“Anyone who knows what is going on, already knows that the U.S. is now the
biggest debtor nation in the history of the world. It’s only S&P and Moody’s [the ratings agencies] that haven’t figured out what is going on. The investment world knows that the U.S. is not ‘AAA.’”
The truth is, the ratings agencies have figured out the U.S. is not triple-A. But those entrusted with grading the U.S. debt at the ratings agencies have been on the phone frequently with Washington, which means their allegiances are subject to crushing political pressure.
In this case, the ratings agencies are being pressured to do nothing. And so far they are complying. (Remember, these were the same ratings agencies that gave triple-A ratings to the toxic assets ginned up by Wall Street for years leading up to the financial crisis.) Bottom line: all things labeled “AAA” must be treated with extreme chariness.
(Speaking of As, a reader recently sent us this, a complete list of U.S. government departments and agencies. Note that departments and agencies under just the letter ‘A’ go on for a full page. Your great-grandchildren’s tax dollars, working for you.)
Meanwhile, the gridlock in Washington has become untenable, as calls from furious Americans have flooded Congress. Yesterday marked one week to go before the U.S. runs out of cash (or, really, one week to go before the congressional recess, during which the deep thinkers in Washington would rather be numbing their pain rather than bracing for default).
To put into perspective how many trillions of dollars the U.S. owes, here is a simple visualization, courtesy of one of our hedge fund friends who’s actually considering not raising his children in the U.S., for fear of saddling them with uniquely American obligations and debts he feels they shouldn’t have to pay.
In addition to realizing that the U.S. has already received a downgrade on its credit in the eyes of the world, Wall Street realizes something else, and has for quite some time. In the words of Alex D. Patelis, who studied at Princeton under our current Fed chief, Ben Bernanke, and now runs Patelis Macro:
“A legacy of high government debt – against very high domestic inequality, a large chunk of debt owned by foreigners and little leeway to increase taxes or cut spending – means that the U.S. has an incentive to weaken its currency and create inflation as its preferred strategy to reduce that debt longer-term.”
Meaning, your dollar is likely to buy less in the world for the foreseeable future.
More importantly, this battle raging in Washington over slashing entitlements vs. raising taxes isn’t actually offering a real solution. If one looks at the verdicts of the non-partisan Congressional Budget Office in response to the various plans being put forth by Congress, there is no solution on the menu.
For the time being, we have spent more than we can pay, and no amount of tiny cuts to the federal budget or taxes or gimmicks will lead to a quick fix.
“one of our hedge fund friends who’s actually considering not raising his children in the U.S., for fear of saddling them with uniquely American obligations and debts he feels they shouldn’t have to pay”
Very few Americans have the resources to consider the choice available to this “hedge fund friend.” He gets to bail out; the rest of us don’t. That’s as much a reflection on him (presumably it’s a “him”) as it is the state of affairs within the U.S.
I sat with my children–now college aged a couple days ago to “cartch up”. My 21 year old told us that his childhood friend Greg had dropped out of college due to family finances and a sense that there was great risk to incurring student loan debt–which cannot be escaped by bankruptcy—-given the awful job market in Boehner’s Ohio.
So Greg joined the Army—just returned from bootcamp –and is shipping out next week for Afghanistan. They induced him to join to learn special skills. He will sit on a hilltop in Afghanistan and direct $2 million rockets at piles of rocks where 15 year old Afghan boys with $75 AK-47s crouch. Others of Greg’s team will go out in the open to “draw fire” so Greg can identify the sources of the muzzle fire.
Both Greg and the Afghan boys are being told be their respective leaders that they are heros and patriots. Both are being treated as cannon fodder–expendibles for some cause. I can see the reason why the Afghans say that—I have a tough time seeing the reason for Greg to drop out of college and sit on a hill until the older Afghans bring down a satellite located morter round on Greg.
Greg was a smart, wonderful, positive, honest, diligent and dependable child that deserves better. So do his parents and all the others that are fed to the meatgrinder in order to justify continuing the flow of $$$ to military contractors.
It must stop—we voted to stop it—Obama promised to stop it. I remember the same lies and flawed arguments from 1970. Nixon running an antiwar campaign –then expanding the war. What benefit did Vietnam bring to any soldier who fought there except the West Point generals now selling arms to the US govt –using printed dollars.
It must stop. There is no alternative. It is wrong to do this to Greg –to waste his life like this. It is wrong to print money to buy unnecessary overpriced non-functional weapons. They continue to say that even if the entire military budget was cut–we would still be in a hole. But Greg would not be. The consent to govern to does not exist—if the govt must be shut down entirely to stop this awful human waste–then let it be so.
That is terrible. I also know many younger people afraid to go to university these days because they don’t want to incur paralyzing student loan debt. I cannot believe it has gotten this difficult just to pay off a school loan. When I left uni, my monthly payments were no more than my mobile phone bill.
The extension of Pell grants were one of the budget busters that supposedly forced the failure of agreement last night. today the average cost of keeping a kid in prison for marijuana possession in states where its not yet legal is $21,000 /year–not counting the costs of arresting and processing, paying prosecuters and govt funded defense attornies. The cost of an older prisoner is about $100/day because of free health care in prisons.
In Boehner land it has become almost common for elderly men to walk into banks with toy guns and pass over a note to the teller demanding a $1 payout in the “armed robbery”. Thus they obtain a sort of “full ride” with medical for free and do not have to sleep on the streets when their homes are siezed and bank accounts frozen. If the elderly do this en masse the system collapses.
But of course, their treatment will not be nearly as generous as Bernie Madoff’s. They only stole $1—-the theft of many billions somehow in this country is deemed to deserve more respect.
Nearly 1% of the population of the US is incarcerated–75% on drug-related charges. The total cost includes judges, police, parol officers, attorneys, and a lifetime “tail” of increased welfare. medicaid, and reduced taxes.
The average cost of room, board, tuition, books and misc expenses for an undergrad at a state university is about $20,000/annum. There are some subsidies bulit in there to be sure–and I imagine a summer semester adds one-third. The average cost of a private college is about $35,000———smaller class sizes etc presumably make the cost per credit hour higher private vs public school. However this $35,000 sets the outside cost to student and society of the cost of college education–if the kids do not live at home like Greg did.
I shudder to think what the cost of training, equipping and transporting Greg to Afghanistan must be. The cost of keeping him there for a year. The lost payroll taxes alone on this missing slice of his life. Then, what the DoD folks refer to as “the tail”——–the cost of long term health care for injuries, including depression upon return and recognition of the fact that the promise to “see the world” and learn “special skills” are hollow–and not only are jobs scarce, and underpaid, but employers harbor a subliminal fear of these damaged souls’ dependability. Will they freak out and come in with an M-16 if they get laid off? Will they develop lung cancer from breathing in particles of depleted uranium [3% active U-235] byproduct from the hardened DU encased shells used to penetrate bunkers, tanks etc. Commonly used in Iraq for years.
So it seems that there are many common sense ways to cut govt costs. The questions create political issues that politicians prefer to avoid. it is simply easier and politically safer for judges and other politicians to hand down sentences with enormous long-term social and economic costs. It is easier and apparently at the moment politically safer to send Greg to Afghnanistan than college.
All of these things should be subject to cost/benefit analyses–setting aside the political considerations. Give the conservative voters the clear choice: Do you want to send Johnny to prison for possession of 4 ounces of pot in exchange for a 25% reduction in your social security check. Do you want to send Greg to Afghanistan in exchange for a 50% increase in your medicare copays? The representative system is failing or has failed because the elected representatives cannot answer these questions. The two-party system constrains the ability of the system to free itself of the deadlocks that result from the existence of two polarized groups ready to spend other peoples’ money without restraint on their extremist phylosophical belief systems. It is impossible to make the compromises that are necessary when the old school republicans demand to send Johnny and Jane to jail and Greg to Afghnanistan –so long as their rich constituents do not have to pay more for the privilege of enforcing upon all their belief systems.
In another put the $$$ on the table issue that reflects belief systems rather than common sense. Abortion and heroic expenditures for life-saving-extension medical procedures.
is HUMAN LIFE so valuable? Why is a fetus of a crack addicted teenaged mother worth more than Greg’s life? Why are 6 weeks more of pain and sufferring [life?] of an 88 year-old worth more than an education for children of parents who have lost their jobs. These equations make no sense to me. But the cost of these irrational decisions are crushing the entire political and socio-economic system. Until there are parties that allow PEOPLE to aggregate in support of their own decisions, to form coalition govts, we are driven like lemmings to the cliff.