After the Fall: Agenda Points for Renewing America   (July 9, 2009)

"Agenda" sounds like blah-blah-blah, but we have to start somewhere.

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If you assume (as I do) insolvency of the Federal, state and local governments in the U.S. is only a matter of time, then the question becomes: what do we do after the Fall? Just as rough-and-tumble start, here is a short agenda of points to cover:

1. In the big picture, the differences between the Democratic and Republican parties are trivial. Consider:
A. Each stood by while the banking/securities/mortgage industries looted the nation. Neither supported criminal investigations, both support the "too big to fail" ideal.
B. Each has enabled and supported the cartels which exploit and impoverish the citizenry: banking, "healthcare," et al.
C. Each is in thrall to special interests who lavish tens of millions on their campaigns.
D. Each supports a version of the "Savior State" which seeks to save everyone from themselves; "personal responsibility" is an empty phrase unless you don't have a good trial attorney.
E. Each has added trillions of dollars to the national debt, impoverishing future generations should interest rates rise (which they will); each has stood by as $600 billion current account deficits destroy the dollar's value when priced in gold.
F. Each allows graft, greed, corruption, embezzlement and cheating on a vast scale; to the taxpayers, the $200 Pentagon hammer and welfare fraud are essentially equivalent.
G. Each has supported Imperial over-reach as the fundamental foreign policy of the nation.
H. Each hides behind the other as an excuse for why "compromise" waters down "reforms" to just another layer of complexity on an already overly complex system.
I. Each assumes minor policy tweaks (you will now pay $10 more for your Medicare coverage, we're raising the CAFE standards a few miles per gallon, etc.) will miraculously (eventually, we're told) solve deep, structural problems.

In sum, the supposedly vast "partisan" differences between the two status quo parties are 1) fund-raising gimmicks and 2) good entertainment for the "news" (entertainment/circus) media.

I know, I know, this is the status quo and it can't be changed except glacially. Until, of course, the glacier melts.

2. Cheap abundant oil is almost gone. We have 400 years of coal, blah blah blah. Great. Try shoveling it into your car and that 747 aircraft awaiting refueling, etc. Gasify it? Fine, but it won't cost $2.50 a gallon. And please show me the plants which will gasify 20 million gallons of gasoline a day plus millions more of jet fuel, diesel and other distillates. And also show me the rail lines which snake from the coal fields to these wonderful gasification plants.

Clean coal? Nice, but it's not cheap. We have nuclear energy, blah blah blah. Yeah, and Peak Uranium, too. Breeder reactors--maybe. There's something like two in existence. And they make electricity, not jet fuel. So plug the electrical recharger cord in that 747 aircraft and hope somebody discovers super-light cheap batteries which have energy densities equivalent to jet fuel.

And just remember all existing alternative energy sources supply about 3% of global energy consumption.

3. Complacency and fatalism are both traps. Either people blissfully assume some magical "American can-do" will appear and save us from actually having to change anything or they've given up, passively awaiting their fate. Neither is a constructive approach.

4. "Healthcare" is as broken as a body that fell from the Empire State building. The cartels which profit from the current Kafka-esque nightmare of "the world's finest healthcare system" (George Orwell, where are you now that we need an update to 1984?) have a chokehold on the Demopublicans and thus on the pursestrings of the cash-cow government. They will only loosen their grip on the cash-cow when it groans, teeters briefly and then flops to the earth, insolvent and no long able to pay off the cartels.

Instead of looking at other First World "healthcare delivery systems" which are also heading for insolvency, we might benefit from examining how Third World countries supply care to their citizens. That will be more in line with our budget.

5. The U.S. gets $600 billion a year from our hapless trading partners (via the current account deficit) and borrows another $2 trillion from anyone trusting enough to think interest rates will stay low forever. A great cheer arose when it was discovered the profligate U.S. consumer mended his/her ways and started saving again, at the stupendous rate of $680 billion a year.

Oops, except the government includes money allotted to paying off debt in that "savings" number. So maybe Americans are actually stashing much less, say $300 billion a year. But then they're still saving huge sums of money in their 401Ks and IRAs, right? You do mean, of course, all those retirement plans which cash-strapped folks have stopped paying into... but never mind the millions who are jobless, let's reckon another $700 billion is flowing into the coffers of retirement accounts.

Great. That means if every dollar saved in the U.S. was (foolishly) invested in U.S. Treasury bonds, we'd only have to borrow a mere $1 trillion from overseas governments, central banks and investors. Wow, who knew it could be so easy to fund $2 trillion a year in deficit spending?

OK, so governments are pouring billions into the public-employee pensions, and life insurance companies are investing in America, etc. etc. so let's add another $500 billion into the savings pot, increasing it to $1.5 trillion (that's being generous to the point of unreality, but let's assume the best).

But realistically, will every dollar actually be invested in a T-bill? So maybe at best some $750 billion (of the total $1.5 trillion) would flow into Treasuries to fund the deficit. That still leaves a $1.25 trillion sum which must be borrowed overseas.

And let's not forget that these poor trading partners are getting $600 billion a year in paper money we give them for the oil, manufactured goods and commodities (i.e. actual real stuff, not paper money) they ship us. That's supposedly "good" because they're forced to recycle all that paper into Treasuries, but perhaps we should wonder if they're tiring of that scam and may want to buy something tangible themselves with that $600 billion a year.

Just a thought.

6. A funny thing happened on the way to unlimited alternative energy. Costs went up throughout the economy. That battery-powered tractor sure is neato, and so is that solar array to power it. But those gizmos weren't exactly free. Neither are the battery-powered trucks to haul the produce to market and bring in the organic fertilizer (itself more costly than the old chemical nitrogen), etc.

It turns out that when cheap oil is gone, so is cheap anything.

That limits what we can do with all the above situations because a terribly ironic paradox comes into play here: just as we need to invest trillions of dollars in creating alternative sources of energy (and ramp up energy conservation), we have to spend ever-larger sums on fossil fuels and interest payments on all that debt we took on keeping the status quo unchanged.

Try not to laugh too hard at the irony. Your healthcare insurance might not cover that condition and you'll have to pay in cash.

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Lagniappe thought on the stock market: You know the drill here--this is not investment advice, it's just the wandering musings of an amateur (please read the HUGE GIANT BIG FAT DISCLAIMER below very carefully).

Now that everyone else is a Bear, too, I'm getting nervous. When the most popular story on Marketwatch is a clarion call to go short/sell because the neckline in a head and shoulders pattern has been broken, I got the urge to go long (and I did, all in today in calls and 2X long ETFs). I'm seeing 10 puts for every call in some ETFs--that means the vast majority of players are betting on a big downturn.

We all know the U.S. economy is in dire straits, and is basically terminally over its head in debt, deficits and unfunded liabilities. But as often noted here, the stock market (contrary to popular opinion) has no connection to the real economy.

A real Bull market likes to crawl up a "wall of worry"--that is, a reserve of Bearish worries, and a Bear market likes to chew through reserves of Bullish hope (the so-called slope of hope). Now that everyone has their eyeballs glued to the broken neckline, and placed their bets via a lopsided put-call ratio on a big downturn, there's basically no Bulls left standing--I mean legitimate analysts, not cheerleaders who are always bullish.

Legendary trader Jesse Livermore observed that the market takes along the fewest possible participants on every profitable ride. When punters have snapped up 10 puts (bets the market will plummet) for every call (bet the market will rise), well, it just doesn't seem likely that the market will reward the 10 and take the money from the one. In every instance I can recall with such lopsided put-call bets, the market takes the money from the 10 and rewards the one contrarian.

Maybe this time it will be different and the herd will reap vast profits. Maybe, but I'm off to the side on this one, watching the herd run headlong into the unknown. Maybe it's about to enter a field of easy gold (i.e. the market crashes, rewarding the herd) or maybe it will run off a cliff (i.e. the market shoots up, wiping out the bearish bets).

We'll see who's right, the millions who are betting on that broken neckline (blah blah blah) or Jesse L.

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