None of this is surprising to those who study animal populations. When food is short, or a new disease or predator sweeps through, then the population drops dramatically. Eventually, the rains return and food is again plentiful, and the population rises to beyond the carrying capacity of the locale. As food becomes scarce, overcrowding creates tensions and enables new diseases to spread, and various "mental illnesses"/erratic behaviors become common as stress builds. The population crashes/dies off to a level below sustainability and the cycle repeats. (Barring the sudden arrival of a 20-kilometer wide meteor.)

Hmm, sounds like the Anastazi, the Maya, 14th century Europe, etc.

As supplies get tight, then conflicts over the remaining resources arise, and the temptation to "eat your seed corn" i.e. bleed the future to sustain the present becomes ever higher.

And on that note, let's take a look at the U.S. National Debt going back to 1940, adjusted for "official" inflation:

Let's take note of a few salient points on this chart.

1. The huge deficit spending required to fund World War II in the 1940s is but a blip.

2. From 1945 to 1980, fully 35 years, the deficit/debt was remarkably stable when adjusted for inflation. I can vividly recall the horror and outrage in the late 1970s when the Federal deficit ran up to the stupendous, fearful sum of $40 billion--about $120 billion in today's money.

Now we accept talk of a budget deficit 8 times as large ($1 trillion) with a barely stifled yawn.

3. The "cut taxes, borrow and spend" era began in 1981 and has continued to this day, interrupted only briefly by the rising revenues created by the dot-com era circa 1998-2000.

4. Remember "the peace dividend"? That was the reduction of U.S. military spending after the Soviet Union collapsed in 1989. In terms of its share of GDP, defense spending dropped quite a bit. But that reduction isn't even visible in this chart, is it? Proving once again that entitlements are driving the budget deficit.

5. Regardless of falling military expenditures, the debt has risen in what looks like a "blow-off" similar to the dot-com stocks and the housing bubble just before those manias collapsed. Only this bubble was a borrowing mania, not a speculative mania. Nonetheless, the future of all blow-off peaks is the same: collapse.

Here is a laughably optimistic chart of future entitlement spending. It's laughable because it's based on implausible assumptions with no connection to reality--for instance, that Medicare will grow by 2% per year when in reality it grows at least 6% - 10% per year.

What's interesting about this chart is the interest paid on the debt we will have to take on to fund all these entitlements: notice how the interest dwarfs the actual entitlements spending.

By these absurdly euphoric assumptions--taxes stay steady instead of plummeting in the coming Depression, Medicare barely rises despite the population drawing Medicare benefits doubling, etc.-- we're only in trouble by 2040, when the interest on all this colossal debt rises to 10% of GDP--$1.4 trillion in today's money, or roughly half the entire Federal budget.

If interest rates rise, we won't even have to wait that long for interest to eat up half the budget. As shown on the first chart, a rise in the interest rate back to the 9% - 10% would very quickly cause interest payments to rise in tandem with ballooning deficits to $1 trillion per year or more, effectively squeezing other government spending and private lending for business and mortgages.

Although we seem to have forgotten it, the pool of new capital available to borrow is not endless. Every dollar that is invested in Treasury debt (bonds) is a dollar which is not available to private lending for business expansion or home mortgages.

You think the government budget battles are ugly now--wait til $500 billion more has to be scraped from other spending to pay the exploding interest.

Though readers may well be tired of this chart, I reprint it here to illustrate two key points:
1. low interest rates in the U.S. are the result of massive intervention by the Chinese government banks; all the other purported "reasons" are noise
2. interest rates run in cycles of 17-24 years, and the U.S. is just beginning a decades-long uptrend in interest rates.

Those who assume interest rates can stay low for decades to come due to deflation are missing the key macro-drivers of interest rates: risk, availablility of capital to borrow, and where that capital comes from: profits and savings.

Many are expecting the Gulf Oil states' sovereign wealth funds (SWFs) to magically save the day by investing trillions in oil profits in the U.S. Nice idea, but the Export Land Model of oil reveals that the amount of oil available to export will be dropping due to exploding domestic consumption, regardless of how much is pumped. Fewer barrels sold means less money in SWFs. And let's not forget that many SWFs have already suffered stupendous losses in their initial "investing" in U.S. debt and financials.

The sheer scale of U.S. deficit spending dwarfs even Gulf State SWFs. All the oil profits available for non-domestic investment are estimated at perhaps $500 billion a year-- about the current size of the U.S. Federal deficit. That means if every single oil-profit dollar flows into Treasuries, a deficit of $1 trillion would require another $500 billion from somewhere else.

As China's economy contracts along with all other global economies, that nation's surplus of dollars will contract, too. Less dollars piling up means less dollars available to soak up the endless flood of Treasuries (i.e. deficit spending).

Astute readers Dr. K. and Craig M. both forwarded this article on how the Chinese are raising dollar reserves "through the back door" by forcing banks to increase capital reserves: Beijing swells dollar reserves through stealth (Telegraph.uk)

These tricks are not sustainable. The game is about up. Regardless of whether the dollar rises or falls, the enormous trade imbalances of the past decade will be resolved by a drying up of surplus dollars. If the U.S. needs $1 trillion to fund its wars and entitlements, and another $1 trillion (or 3) to fund its housing mortgages and business borrowing, there simply won't be enough dollars available to buy all this unimaginably vast new debt.

Recall that money is a commodity. When there is less supply than demand, prices rise. The cost of money will rise, and thus the interest paid to borrow will rise as well.

So where does that leave the beggared citizens? With trillions less in entitlements and funds available for war, space travel, energy grids, education, etc. etc. The decline in government funds available for spending on entitlements is inevitable for purely demographic reasons; in the long view, a slow erosion in "lifestyle" and standard of living is also inevitable.

When will the decline trigger some sort of revolution? Only when the unsustainability of the present model of "cut taxes and borrow and spend" runs aground on the shoals of insolvency and bankruptcy. When the government can no longer pay its bills or borrow enough to do so, then the citizenry will face a revolution whether they want one or not.

It need not be a violent revolution, but it will be a revolutionary change in expectations and goals. The current goal (unstated due to denial) is to game the system to extract as much as you can as an individual; this impoverishing ethic will no longer work because the trough will be empty.

I mentally went through all my gear I had just prepared. I was wearing part of it which included body armor with front and back ceramic plates, helmet, ballistic goggles lifted over the front lip of the helmet, a holstered pistol with spare mags, a Mossberg shotgun dangled by its sling from a carabiner clipped on my right shoulder strap, and pouches holding shotgun shells nested firmly to my front.

If we somehow got separated from the convoy or ended up on foot the most important piece of gear, my GPS unit, was also in a pouch. Sergeant H stood nearby checking out the gear of the two young specialists we were rotating in for their first mission outside the wire. It was 0400 and we would be lining up for the convoy at 0500. This moment in my memory was from sometime early in my deployment. It held great anticipation for me at the time. Now when I wake up at the same time I look back at it and wonder to myself “WTF was I thinking.”

I Rise to Object (Paul T.)

Well, I disagree with some of your discussion in "The Next Revolution". You will note that many prosperous OECD countries have a much higher safety net of benefits for the lowest quintile of their citizens than does the USA, so that has to raise some questions regarding what this country can afford. I believe that you were much more on the money on an earlier essay that opined that the US was horribly mis-managed.

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