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Sunday, June 12, 2011

Some Crystal Ballin'

I'm in one of those Crystal Ball moments:  What's going on in the nation and world, and how will it effect us?

Most have heard reported that QEII ends this month.  Bernanke swears the Federal Reserve won't be buying any more Treasury Bills.  Really?  There has been no movement whatsoever that the federal government is going to curb its spending anytime in the near future, let alone by the end of this month.

I believe old Uncle Ben is word-smithing us again.  Like when he said the Federal Reserve wasn't printing up hundreds of billions of dollars to buy our debt.  He was creating electronic dollars.  The result was the same.  He and his cronies will do something similar with whatever is coming up in the future.

So, at least in the short-term, we will have to keep borrowing to pay the bills.  Through August 2nd, they will be robbing from the federal employee retirement funds to keep the cash flow coming.  After that, they will either have to, (1)  reduce spending to equal tax receipts or, (2) raise the national debt limit and continue borrowing to fund expenditures.

Option 1 by itself is highly unlikely.  The government will not cut its spending by August, nor can it increase taxes quickly enough to cover the shortfall.  Neither of these can realistically happen in such a short timeframe.

Option 2 is much more likely.  The Republicans will cave in and vote to raise the debt limit.  They'll get promises to cut future spending.  Some may actually happen, but future Congress' will pooh-pooh the "draconian measures", and we'll be back where we were.  Some slimy-dog Congressman always seems to be able to find a loophole, or simply enact new "emergency" legislation that effectively counteracts the older restrictions.

Perhaps more importantly, if the limit is raised, who will buy our debt?  Who is going to pick up the $100 billion per month slack that the Federal Reserve was purchasing?

I heard Larry Kudlow on the radio yesterday, and he seems to believe Bernanke.  He thinks things are turning around, the dollar is going to get healthy.  I didn't hear his whole show, so I don't know if anyone asked him how the US plans on paying its bills if the Fed doesn't buy our own debt.

He sounded like he was trying to convince himself that economically, things are swell.

On a micro-economic level, he might be right.  You can find a company here or there that is prospering.  It might be in a niche market that prospers during tough economic times.  Discount stores and the like.  Places that offer value.

But in the macro-economic view, I just don't see it.  Kudlow said he expected this to be a, "jobless recovery."  What the hell kind of recovery is that?  Who's buying the goods and services if they don't have a job?  It was just about the most stupid thing I've ever heard.  At best, it could last for a short period of time, but there is no way for it to be sustained.


Let's play Devil's Advocate, and say that the Republicans hold strong, and the debt limit is not increased.  That would mean our expenditures would drop by 40%.  Immediately.

Where are they going to cut?

You may remember that in 2010, for the first time since The Great Depression, more direct cash payments were made to individuals than was received in taxes by the federal government.  That means the money for the rest of the federal government was borrowed.  Every federal department - defense, commerce, education, Congress, the White House, the court system... whatever - was loaned to us.

So, will they cut Aunt Millie's Social Security payment, or shut down an NEA art exhibit?  How about choosing between funding student loans or making Section 8 housing payments?

[I know I ask this a lot, but can anyone show me the article or amendment in the Constitution that allows for federal taxation and payments for ANY of those things?  At least Aunt Millie MAY have paid into the Social Security system and is being reimbursed for her forced participation in the plan.  The rest are nothing but bald-faced thefts.]

If they cut Social Security, the seniors will vote them out.  If you cut student loans, the twenty-somethings will riot.  If you cut the Section 8 housing, you'll have massive Dependent Class rioting.  Cut the NEA... hmmm, that one might be kinda painless.

The problem is, there aren't enough painless NEA-type cuts to be made.  Too many have become too dependent on handouts.


So, I'm putting my bettin' money on the feds keeping up the borrowing game.  At this point in time, I think this is the best option for those of us who don't want big government.


It buys us time.  Time to prep.  Time to acquire tangible assets.  Time to train.  Time to plan.

Eventually, things will go squirrel-y on us, and the Greece-style austerity riots will ensue.  Social Security will be a fraction of its current promised value, so you'd best not make it the centerpiece of your retirement plans.

I'm re-thinking my whole plan on owning land.  At least the concept of adding permanent structures to a piece of property.  The higher the value, the higher the taxes.  Local governments are hard pressed right now for money, and increasing property taxes is one way to keep their boat afloat.

We've got Prop 13 here in California which currently limits how much property taxes can be raised, but I don't know how long it will stay intact.  I think we're going to end up like may other states that raise taxes as they see fit, regardless of the market value of the property.

I'm not a member of any special interest group, union or racial minority group, so I can't expect any special union deals, minority discounts/affirmative actions or other special dispensation that will allow me to suckle for free at the Nanny's teat. 

I've worked hard my whole life and saved a couple of bucks.  I've chosen to risk a huge proportion of those saved dollars on the two businesses I own. 

Those formerly noble choices will be used against me when I belly up to the bar to get my Medicare and Social Security re-payments.  If I am successful, I will be reducing the amount of money I will be able to recuperate from the federal government because "means testing" will surely be a part of the equation when my time comes.  Only if I fail, will I get the money.

What kind of crazy system is that, where failure is rewarded?

What an idiot I've been.

It always comes back to self-reliance, doesn't it?  Acquire and retain as much as you can.  Retain being the operative word.  Hold on to as much as you can while going through the rough spots so you can prosper on the other side...

Copyright 2011 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


Adventures in Self Reliance said...

I think the cali will be a ground zero state. Can you and your business surive a tank in the economy? Or Feds records check and confiscation?
You are perfectly suited for a SHTF moment, but will the feds see you as a competitor.
Do you have a fall back position? If not I would think about heading to sagebrush states. I'd say Idaho Montana, Wyoming, if Mormon, Idaho and Utah. Plus all are very pretty states with lots of land. Idaho was big in mining as you well know so you might give it a look.

Anonymous said...

For what it's worth Social Security is solvent. They do NOT pay out more then they take in. Sometime in the future it is predicted that they will pay out more then they take in BUT the government too trillions out of the SS trust fund and now owe SS about $4 trillion. That $4 trillion would make up the difference for about 100 years.

On the other hand federal welfare exceeds $1.2 trillion a year. This is pure giveaway not like SS where the retiree contributed to his specific retirement. The sad thing about welfare that we can all see around us is so many of the people who get it are capable of supporting themselves they just prefer to get welfare. And worse welfare takes away their drive and desire to succeed. I cannot imagine my life if I had not worked to take care of my family and to be able to buy a home, etc. The satisfaction of being able to take care of myself and others and what I have learned over the years I would never trade for cradle to grave welfare. We have destroyed the lives of people on welfare by denying them the opportunity to try and yes to fail and pick yourself up and try again. What an incredible waste.

Chief Instructor said...

Adventures, my gun business, in particular, thrives during tough economic times. People are worried, and that gets them looking for a bit of self-reliance training.

The business is easily transportable, as all of my certifications are national. It would obviously take time to re-establish a reputation, etc., but the biz can be moved.

The gold/silver business has three distinct parts to it: Buying gold and silver scrap jewelry, buying and selling gold and silver bullion, and buying and selling numismatic coins.

The scrap jewelry biz is doing/will do the best in tough economic times, though it is steady at all times.

Gold/silver bullion also does best in uncertain economic times as people look for safe havens for their money. Like scrap gold, it is a steady, but slower business in good times.

The collector coin (numismatic) is just the opposite of the other two: Slow but steady in uncertain times, screamingly hot in good times.

We currently service all three markets, with the scrap and bullion business booming right now, and the numismatic being luke warm. People in general look for intrinsic value right now, not beauty or rarity.

Not as easily transferred to another city/state, but very do-able. Location is HUGE with this business.

Re: Feds. Right now, our bullion screams off the shelves. Much of the time, we must order from wholesalers to fill orders. In the last FDR confiscation, that's all that was taken, not the numismatic stuff which turns over much more slowly.

Ahh, Idaho. My wife and I took a week's vacation a while back looking over the state. My wife wanted more "homey" locales such as Eagle and Star. I liked more rural areas like Nampa and other outlying areas. More land, fewer people. We could consider going as far north as McCall, but the snow would keep us out of the far north areas of Coeur d'alene.

Ten feet of snow?! Not for this Cali boy!

Chief Instructor said...

Anon, I strongly disagree with you on Social Security.


Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years.

SS is insolvent by any measure other than government accounting.

Think of the US as an individual who makes $60k a year, but spends $100k - needs to borrow 40% of its cashflow.

The SS "lock box" is a myth. It is full of Treasury bills backed by fiat currency. There's no there there.

When the Treasuries are redeemed, they are paid out of that $60K in income OR more fiat-backed Treasuries are manufactured.

I had noted that I don't expect any money from SS. Let's say I DO get it. What will it be worth? For the FedGov to have the cashflow to pay me, they will HAVE to print up money. That means the dollars I get are worth less (bordering on worthless). See Zimbabwe or Weimar Republic for previous examples.

No one other than a government could behave so illegally without going to prison.

I go back to my days as a credit underwriter. "Let's see, you make $60k, borrow $40k, have no marketable tangible assets - all of your cash flow is going for current expenses or debt service, and you want me to lend you MORE money? Are you on crack?!"

You're spot-on with regards to the welfare state. It rots your soul. When I was last on unemployment payments (before starting my companies), I actually cut myself off early. I was bringing in $2k a month in UI payments and all I and to do was fill out a piece of paper saying I had sent out resumes each week.

That was ALL I was doing. Sitting at the computer, firing off resumes, and cashing the checks.

Many of my friends said I was an idiot, and should get back as much from the system as I could. At the start, I agreed with them, but it honestly rots you from the inside. All drive and ambition was getting sucked out of me. It was horrible.

Anonymous said...

You are 100% correct that the lock box is a myth. However you seem unaware that the federal government does indeed owe SS $4 trillion they gave them notes for the money they took out (that means it is a legal obligation) and they must pay it back. Part of the recent hype about SS being broke is about not wanting to pay back the money they took out. So don't get confused by the hype. With current SS payments into the system and the $4 trillion owed to the system SS is NOT broke.
As for the claim that SS is now paying out more then it takes in, maybe, maybe not. The government has lied about this exact thing before. However SS chooses to pay people who never put into the system. All they would have to do to put the system in the black is to eliminate that practice.

But all in all you missed the point. Lets say that SS was bankrupt and couldn't pay. The government entered into a contract with everyone on SS. They took the money and now they have a fudicial legal obligation to pay the benefit. There is NO such legal contract with anyone on welfare, with the producers of ethanol, with foriegn aid, with aid to the states. So if things get really bad I say CUT SS, but onlhy after every penny we spend on welfare, subsidiesm forien aid and all other forms of unconstitutional spending are eliminated. In fact I would be proud to give up my SS if my government would reduce their spending to military and justice costs only!!! I'm guessing that should be about $700 billion in today's dollars.

suek said...

>>they must pay it back>>

>>They took the money and now they have a fudicial legal obligation to pay the benefit>>

I don't think they have an obligation to pay a specific amount...or any amount. I've read somewhere (sorry - don't remember where) that Congres could simply eliminate SS tomorrow if they chose to do so. (yeah, highly unlikely, but they could)

As for the first statement, you can't get blood from a stone. If the bucks aren't there, they aren't there. How are you going to _make_ them pay it back?

Chief Instructor said...

Anon, the SS administration does indeed have $4T worth of Treasury bills, as I noted. The problem is, we don't have the cashflow to make good on the promise to pay.

Let's say you have a promissory note from your next door neighbor. He promises to pay you $1000 in a year. At that time, you come for your money, and he tells you he doesn't have the money. He has no collateral that can be taken and sold to satisfy the debt. What are you going to do?

The way the SS law/code is written, the congress can change anything, in any way they see fit. They can add a means test. They can increase the retirement age. They can do as they wish.

Like your neighbor's promissory note, what are you going to do?

Our country is doing the same thing all other countries that got in over their head have done. They are trying to pay their debts with fiat currency. They simply create more of it to "satisfy" their debts.

I again suggest you look at the Weimar Republic and Zimbabwe. I forgot to throw in Argentina, which is going through it right now.

By inflating the currency, even if they pay you the amount promised, the dollars buy you nothing. During the Weimar Republic, it took a wheelbarrow full of marks to buy a loaf of bread. In Zimbabwe, their $100 TRILLION note would buy you an egg.

With regards to where we should be spending our tax dollars, you'll get no argument from me. But the bastards in DC don't see it like that. As I noted, if they cut off one of the Dependent Class recipients, there will be riots. They know this from history, and they see it right now in places like Greece, England and Spain.

So, I'll re-assert my initial statement: SS is broke. Simply because you hold an asset - Treasury bills or your next door neighbors promissory note - does not mean that asset has any value.

Anonymous said...

Again you are missing the point. I am all in favor of cutting the budget, paying down the debt and reducing taxes. However if the government cannot pay SS then they have no business paying one penny for welfare or paying $130K a year for air traffic controllers or paying billions in foriegn aid or giving college grants or giving money to the states to build light rail. None of those things should be funded if they cannot pay a contracted responsibility. To do so would be like a father who spent all his money on gambling and strip clubs and then told his wife there was no money for food and bills.
So I repeat: I would be proud to give up my SS if the federal government fires 400,000 civil service workers, ends all welfare and subsidies, gets out of the student loan business, stops giving our money away to foriegn nations, deports the 20 million illegals who are draining our tax money, etc. The only constitutional responsibility of the federal government is the military, the federal courts and funding congress and the presidents office.

I do disagree that congress could suddenly end SS without any recourse. It would be interesting to see what the courts would say. I'm sure there are judges who would agree with that decision because many of our judges like to play legislator. Imagine if in your business a judge could simply decide a contract you made was null and void. Say you spent $100,000 to buy PMs and then the guy didn't deliver and a judge decided in his favor. If the courts do negate legal contracts perhaps we are all lost...

Tracy Dear said...

Can you educate us on this?

Number 6.

Chief Instructor said...

mama, you got it. 6am tomorrow morning... More guess than educate, though... ;-)