America The Insolvent

News & Current Events Public News & Current Events
1

Watching the world these days, I’m experiencing the same fury that rises up from my gut when the driver in the car ahead me is weaving drunkenly, endangering everyone on the road.

Fury is a normal and rational human response when threatened with unnecessary harm. Women who are groped (or worse) by a disgusting predator like Harvey Weinstein, pensioners whose funds are stolen by Wall Street shysters, everyone who is being fleeced by corporations in search of a few extra dollars this quarter --  all have the right to be infuriated.

It’s been especially hard of late for those of us who are "reality"-based; who value data, fundamentals and historical context.

I earn my living by reading, analyzing and making sense of the world, and then working to help orient people’s actions to align with both the current reality and future probabilities. But that's become pretty damn difficult in a world where the financial markets are rigged and the main news outlets are unwilling (unable?) to cover the real issues, preferring instead to focus on distractions that mainly serve to keep us isolated and divided.

The trajectory our global society is on will not end well, and that infuraties me. And the fact that most of the coming suffering is unnecessary if only we'd make better choices -- that really pisses me off.

Here's just a small smattering of the threats we've created for ourselves:

  1. $247 trillion of global debt, growing exponentially
  2. Off-budget liabilities well over a quadrillion dollars globally ($220+ trillion in the US alone)
  3. Massively underfunded pensions mathematically unable to meet their future obligations
  4. A coming peak in world oil supply somewhere between 2020-2030 (and around 2022 for the US)
  5. A global economy that requires perpetual growth, but can't grow for much longer due to planetary resource constraints
  6. Huge demographic imbalances in Japan, the US, the EU and Russia that will leave too few workers supporting too many elderly
  7. Collapsing ecosystems and increasing heatwaves on both land and sea, threatening crop failures and food chain disruptions.

Collectively these all point to a future of less. Perhaps even a future of nothing.

Our only option for safely navigating towards a better future is to start dedicating a huge amount of focus, time, energy and resources to addressing these threats.

But, unfortunately, that’s simply not happening right now. 

Unsustainable Finances

We don’t have much time left to get prepared. Yes, it’s rare for things to suddenly fall apart overnight -- so if you're playing the odds, we probably have a few years left before the status quo as we know it begins to break down. Maybe until 2020; possibly to 2023. But not much longer after that.

The trends are just too severe. And they're building up steam.

Setting aside for a moment the frightening ecological and energy trends, a cursory glance at the fiscal and economic data still screams: This is unsustainable!

Look at the projected deficit for the US government:

The US government is currently in fiscal tax year 2018. That means next year's projected deficit will breach the trillion mark, and things only get worse from there. By 2028 the deficit will be at least $1.7 trillion and possibly as much as $2.4 trillion.

It bears noting that current US tax receipts are just a smidge over $2 trillion. And as the chart below shows, they tend to drop precipitously during recessions:

Delusionionaly, the government's projection of federal deficits doesn't include any provisions for recessions over the next decade. This is nuts; recessions are a normal and recurring part of our economic system.

And due to the Federal Reserve's tinkering to control the business cycle by replacing it with a credit cycle, the next recession is likely to be a doozy -- because when credit cycles burst, they are immediately and powerfully contractionary.

So it’s not at all unthinkable that at some point between here and 2028 the US government will find itself borrowing more than 100%(!) of tax receipts in a given year.

That, my friends, is an express ticket to Venezuela-style insolvency.

But wait, there's more. Two other very much out-of-control elements exacerbating these fiscal deficits will be rising interest costs and Social Security.

Debt Will Become More Costly To Service

Interest costs have a bad habit of being self-reinforcing. The more you borrow the higher your interest costs. But if you're the government, there's an added complexity: the more you borrow, the more you tend to also drive up the interest rate, which is an additional compounding factor.

Interest payments are already 25% of tax receipts and are certain to climb as the US federal government tacks on another $13 to $17 trillion in additional debt over the next ten years. Or possibly nearly twice that if a severe recession comes along, as is highly likely.

Under the best scenario (“only” $13 trillion) and assuming a very generous average rate of interest of 3%, that will result in some $400 billion of new, incremental yearly interest payments by 2028.

Under the worst scenario, (let’s assume an incremental $25 trillion of new debt at 5%) that would balloon to an incremental $1.25 trillion in new interest costs. Per year.

Social Security Reserves Are On Their Way To $0

Social Security is now in a cash deficit.

It's drawing down its “trust fund”, even though this "fund" doesn't have any actual money in it (just IOU’s from the US Treasury). Put simply, every time the SS administration draws upon the trust fund, it hands some of those IOUs to the US Treasury in return for cash.

And how does the US Treasury get that cash? That’s right: by issuing more debt.

As we can see in this next chart from the SS administration, nearly $3 trillion will be required over the 2018 to 2032 period. After which point, the SS trust fund reserves are gone:

NOTE: we will be going much deeper into these kinds of data at our Summit in New York City with David Stockman on Sep 16, 2018. As former head of the Office of Management and Budget under President Reagan, David has a near-unparalleled command of the vulnerabilities of the US economy and financial markets, as well as what likely repercussions their failure will bring. To learn more about that event, click here.

By Definition, This Will End

All of the above is simply an exercise to show that just when looking at the US economy alone -- forget about the issues facing other countries and accelerating depletion of key resources (soil/aquifers/fossil fuels/pollinators/etc) around the world -- the current trajectory is entirely unsustainable.

Meaning it must someday end. Whether that will manifest in a sudden castrophe, or in a drawn-out crescendo of accumulating crises, who knows?

But what won’t be happening is “more of the same”. Or a straight-line continuation of business as usual.

I can make the same trend extrapolation arguments for water aquifers and glacial flows serving billions of people. And with soil loss, and oceanic dead zones, and oil production.

None of this is sustainable.

This existential threat to our safety is the root reality, whether we're conscious of it or not, underlying why so many of us are feeling infurated these days.

And while that fury often takes a partisan bent, our predicaments have nothing whatsoever to do with any particular political party. All are the same when it comes to fostering business as usual. All are identical in their support for endless growth. They merely argue over which misguided steps to take in pursuit of those doomed goals.

As the video below explains, everyone buying into the false 'left vs right' framing is being manipulated. Just as two rats in a cage, shocked by an unseen scientist, will direct their anger at each other, oblivious to the true assailant:

https://youtu.be/hs34OWRs0lA

The Elites Are Already Making Preparations

The sheer obviousness of our collective predicaments combined with the near complete absence of any collective conversation about them is infuriating.

Worse, the powers that be are very busy propping markets in order to send the signal that “all is well” when everything is very much not well. Far too many people fall for this deception for my comfort.

As we can plainly see in the data presented above, the US is now utterly insolvent and headed towards bankruptcy. Most other nations are just as bad off, or worse. All are pursuing the same insane, impossible policy: Grow exponentially. Forever.

Which makes the current crop of politicians and monetary authorities no better than heavily-intoxicated truck drivers, drunkenly weaving their gigantic rigs in front of your family's car. Their recklessness to everyone else's well-being is infuriating.

The few paying attention, like you, can see that all of this falls apart sooner or later. The critical question to ask ourselves is: What should we prioritize doing now, in advance of the reckoning?

That's the question an increasing number of elites are asking themselves. Yes, these are the people controlling the system today and benefitting the most from it, usually at our expense. But they can see that the racket they're running has an expiration date. And they're extremely worried about the hell that may break loose when it arrives.

You may have read some of the recent news stories about billionaires drawing up emergency plans for the social disorder they fear will erupt when the status quo breaks down. I can tell you from first-hand experience these stories are true. We've had a number ultra-wealthy individuals and families approach Peak Prosperity for consultations on the same topic.

In Part 2: The Rich Are Planning For Catastrophe, we explain what the wealthy are doing and what frightens them the most. Like them or not, these people have access to the best information and the most resources with which to take action. We'd be foolish not to pay attention to what they're planning for and how they're planning for it.

Time is short. The elites are making their own preparations. Be sure to get your own in place soon.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

This is a companion discussion topic for the original entry at https://peakprosperity.com/america-the-insolvent/

2
Huge demographic imbalances in Japan, the US, the EU and Russia that will leave too few workers supporting too many elderly
This is where I disagree. We have robots to support people now. Or rather, we could, if “we” decided to. Here is the problem: ACME Corporation used to make a million widgets a year and employed 400 people in its factory to do this. They spent $50 to make a widget and sold them for $60. This means they had expenditures of $50,000,000. Let’s say half of this was for labour, so $25,000,000 went to real people as wages ($62,500 each). Let’s say labour pays half of its salary to taxes. That means the government used to collect $12,500,000 in taxes from people. Now, 20 years later, due to robotics, ACME corporation can now make a million widgets using only 200 people instead of 400. To do this it had to invest one year’s profit to buy the new robots. For the years after this expense, let’s look at their new balance sheet. Assume real inflation adjusted wages haven’t gone up, so the workers now take $12,500,000 instead of $25,000,000. The government still takes half so now the government gets $6,250,000. The result? The government now gets half the real inflation adjusted revenue it previously did (from that sector of the economy), because you can’t tax robots. But the government now has greater required expenditures because it needs to support the 200 people who just lost their jobs. Double whammy. “No problem!” say the polyannas. Those 200 people that lost their jobs can just be motivated to get off the couch and become entrepreneurial and start their own companies to “produce” something else in a different sector of the economy and make additional wealth that will make everyone richer!!! The problem is, this constitutes economic growth, which I am not going to spend any time here explaining why it is not possible at this point in time, since that is what we have been learning about here for the past 10 years. Basically, we are limited by resources and ultimately, prices of goods would rise quickly if real economic growth took off which would then stifle those "green shoots" of growth. You can’t de-couple GDP from resources; it doesn’t work. As for the multinational corporation, well its costs went down because it now only has to pay 200 workers so it gets to double its profits. It has good connections with shady insider politicians so it avoids paying much tax. (And beyod this, it decided to relocate its factory to China where it only has to pay people $5,000 a year salary, and it cut the expenses associated with cleaning up its toxic effluent due to lax environmental regulations. But for simplicity sake let's ignore this.) So the total amount of wealth available to society hasn’t gone up or down in my hypothetical scenario over those 20 years. The same amount of widgets have been “produced” and they still cost the same after accounting for real inflation. The wealth has only been re-allocated – away from real people and governments, and into profits for large corporations which ultimately goes to the elites, who find good ways to avoid paying taxes so that the original $12,5000,000 the government used to get, is never matched again. Of course I’ve made some large simplifications here and omitted other factors affecting balance sheets, but this is the dominant transition that is happening right now and causing stress on economies. This is the main reason why there are tent cities everywhere. The other big factor affecting government revenue is that to maintain the same level of services year after year, government expenditures must go up due to the real rate of inflation which is 10%. Interestingly, this seems to be close to the rate of increase in government deficit in the chart provided above: This wouldn’t be a problem in a completely evenly distributed inflationary scenario since wages and tax revenues would go up 10% just like everything else and government funding would be sustainable. The problem is, peoples’ wages are the last things to go up with inflation, so while government expenses go up 10% per year, the tax base shrinks due to two factors: 1) as discussed above, half the workforce becomes unemployed from robots so the income available to tax goes down, and 2) the remaining workers’ wages don’t go up with inflation so the remaining tax revenues don’t go as far to support government expenditures. People getting old is not a real social problem. We have just decided to let it become a problem because collectively “we” refuse to force multinational corporations and the elites to pay their fair share of tax. The increasing amount of retirees is perfectly matched to the decline in demand for jobs in the economy due to automation. The two should go hand in hand to maintain social and economic order.
3

Content seemed perfect. Only comments are you might consider dropping the music volume a bit relative to your speaking (maybe 25%-33%) and there are a few typos in the text.

4

I love that term, but I’m not sure about the quotes around “reality.”
Loved the video, also.
One of the realities I’ve been learning more about recently is the current state of animal agriculture, including CAFOs (confined animal feeding operations). There is one that we’ve been fighting for 10 years that is about to open 15 miles from my house and I’m on well water. Ugh!
Anyway, having read “The China Study,” I’ve become aware of the science pointing to a link between consumption of animal sourced food and a host of diseases today including the two big killers, cardio vascular disease and cancer. CVD and cancer are number one and two, in the US, claiming the lives of over 60% of us. The China Study showed that people, in China, who ate predominantly whole-foods, plant based diets, had incredibly low instances of CVD, cancer, obesity, diabetes and a slew of other common Western illneses. People in China who consumed more animal sourced food had an increasingly more Western disease profile.
Additionally, animal agriculture is one of the big three environmental evils, along with the global transportation system and war. Some people think it’s the number one culprit. Others think our transportation system is number one. I bet, if you added the additional health care cost associated with treating CVD, cancer and other illnesses to the animal agriculture cost, it would be the stand-out number one environmental issue.
So, you’d think that people in the West would be gradually migrating to a healthy, whole foods plant based diet (WFPB), right?
What is happening instead, is that people in the East, when they get wealthy enough, are adding more animal foods to their diet and developing the same illness profiles that we have!
Add to this the math that the world doesn’t have the resources to switch many more of it’s inhabitants to an animal based diet and you have yet another non-reality based trend.

5

Chris, as always - an excellent article. Your articles often give “voice” to how I feel. This article certainly does that. This is especially so this week. All week, I have been seeing “Russiagate” headlines. Sometimes, I read the articles but often I find the whole thing too repulsive to read more than the headline. My feeling is: “What in the name of god is wrong with the American media? This country has serious issues to address. And we we are being fed this rubbish!”
I am absolutely appalled by the whole thing.

6

Chris,
Thanks for your continuing efforts to turn back the tide. It seems that you’ve transitioned from an ex-scientist who has a helicopter’s-eye view of the herd rushing towards the cliff to a financial advisor suggesting ways to minimize one’s personal catastrophe as the socioeconomic and environmental system collapses. I note this only because I have admired your analysis for a long time, and I think the idea of surviving the coming crash is a bit, uh, let’s just say not fully thought out.
Yes, I’m sure that by relocating to a ranch in Wyoming (or a farmstead in Western Mass.), one creates a possibility of longer survival for one’s family. Certainly, one’s family and one’s self are important. I just find it hard to imagine what joy might emerge from remaining comfortable once the collapse occurs, especially for someone smart enough to understand much of the extent that collapse entails.
I grew up in Queens, born in 57, and remember the rusting fallout shelter signs over some back doors to my apartment building. Even then, I recall thinking, basically, “yeah, right.” Then, in college, I recall colloquia in which we were told how the fruits of science – this was a science school – were going to lead us to utopia. Even then, I recall thinking “you’ve got to be kidding.”
As I read (the free parts of) your eloquent essays, I respect your understanding of what we’ve done. I just find myself beginning to go back to “yeah, right,” when I hear you dishing “financial advice.” You are the best Cassandra I’ve heard; perhaps that is where your efforts are best devoted. I say that with fondness from afar.

7

I shared it on Facebook. I suggest everyone here do the same.

8

It strikes me as somewhat absurd that we continuaily find ourselves looking up and wondering when the sky will fall. The U.S. financial system has, for the last number of decades, operated on the assumption that its reserve currency is what keeps the world solvent. When Nixon took us off the gold standard, he essentially proclaimed that the U.S. would be in charge of what things had value and what did not. The fact that a reserve currency is nothing more than an social obligation to meet someone else’s demands, it only figures that those demands are only as sound as one’s abilty to deliver. The current Trumpovian trend to force debtors to deliver the goods, only highlights the insipid folly of this mind set. Until we focus on those things(relationships, environment, resource stewardship, etc.) that make this world a worthy place to be, we really can’t expect things to change. Now, is the time to seriously start to explore our options. How many more student debts will have to be issued for training in skills that will soon be automated. Talk about a guaranteed bad investment! Perhaps Chris is right about the level of infuriation in the world, but a more grateful view of what we have would go a long way in soothing to looming foment.

9
mjtrac wrote:
Chris.... you've transitioned from an ex-scientist who has a helicopter's-eye view of the herd rushing towards the cliff to a financial advisor....

Good points in your post, but for any new members or casual readers here: Chris would probably be the first to correct the notion that his articles constitute financial advice in the legal/licensing sense.

10
Uncletommy wrote:
How many more student debts will have to be issued for training in skills that will soon be automated. Talk about a guaranteed bad investment!
I submit that the guaranteed bad investment are degrees in areas that have no significant economic value or which didn't previously require a college degree.
11

Bravo. In all the internet world the only damned person(s) who seems to understand reality are the founders of PP. I still need convincing that there is a future once the Great Collapse begins. Like everything it will be a lottery as to who survives or even benefits but those with their eyes open to reality generally get the better odds.
Nevertheles a life lived in fear is a life not lived. Two thousand years ago people lived in villages afraid they would lose everything the first time marauders rode through town. That cruelty will probably return to humanity at some point but like then it shouldn’t stop us from living nor planing practically for the worst.

12
  1. $247 trillion of global debt
  2. Off-budget liabilities
  3. Massively underfunded pensions
    . - Currency revaluation will sort these out by just deleting debt. $1000 = 1 new dollar. Wages, goods and services paid in new dollars.
  4. peak in world oil supply
  • Transition from oil burnt in vehicles to gas burnt in power stations for use in electric vehicles. Extend and pretend for another decade or two.
  1. A global economy that requires perpetual growth
  • Introduce other ways to create our money supply other than through debt. A living wage perhaps.
  1. Huge demographic imbalances.
  • The elderly deserve no sympathy, euthanize the lot of us. it’s through our greed that the world is in such a predicament. (I include myself)
13

Always the doomsayer. Scare the crap out of us all. In the end the government will NOT allow any form of anarchy to take hold. They will do the same stupid things they did before. Borrow against future unknown earnings that don’t and won’t exist. As it is now they are letting the existing bonds just roll off without cashing them in. That’s how they’re keeping the interest rate just under 3 on the 10 year. They’ve got lots of other tricks up their sleave.

14

Reluctant Preppers had an interesting interview with Lynette Zang back in June, “How the Financial Reset Will Impact You”, that they’ve just re-posted as an “encore” presentation. She discusses the anticipated monetary reset, how it will affect us, and how people can try to position themselves beforehand. There’s a lot of similarity to what we hear here, at PP.com, but she looks at it from her own angle/perspective, which I think is useful (complementary).
I enjoy listening to Lynette’s interviews and think she’d make a good off-the-cuff guest some time.
Edit: I should add that Lynette Zang is Chief Market Strategist at ITM Trading.com.