Recklessness, Security and Fantasy (June 14, 2007)
The media and our government leaders (elected and appointed) are constantly reassuring us that our nation, lifestyle and economy are safe and secure. Nothing truly threatens Pax Americana and our global hegemony except the GWOT (global war on terror) which is going well because there have been no follow-up attacks on American soil after 9/11.
Our politicos are slightly annoyed by China's huge trade surpluses, but nobody else cares--the shelves are full, housing has bottomed, the stock market is hitting new highs and the indefatigible U.S. consumer has money to spend: retail sales rose yet again, "beating analysts' expectations."
I think you either know, or sense, that we are not secure at all, which is why you're reading this site and others like it. Our leadership has recklessly led us to a precipice which they obscure with distortions, cheerleading and/or outright lies.
Is this a rant? Is it a rant if everything is factual?
It is fact that oil shale and switchgrass are incapable of replacing our 21 million-barrels-a-day petroleum consumption. Yet how often have you read this simple fact? Buried in the fine print, so to speak, you might read that oil shale produces 2 million barrels a day, and that much of it has been contracted to China and the nation where it is processed, Canada; but unless you already know the U.S. uses 21 MBD, then it might seem like a lot.
But the simple fact is we as a nation will be fortunate to get 1 million barrels a day from these "bigger than Saudi Arabia" oil reserves. In the big picture, 1 MBD isn't enough to make a difference. Yet you will never read a media story or hear a government official place the oil shale fields in a realistic context.
Why? Because it might suggest the reality, that we are extremely dependent on a handful of quasi-allies or unstable regimes for our daily "fix" of 25% of the globe's petroleum consumption. Even worse, the super-giant fields in Mexico and the Mideast which we have been depending on are running dry.
Is this mere oversight? Of course not, any more than the headlines blaring that housing prices are still rising is an oversight. Does the story contain an explanation how a few mansions selling for millions can skew the median price upwards, even as 90% of the houses sold have declined in price? No, it doesn't.
The truth is a gigantically profitable debt/lending machine has been recklessly unleashed to chew up anyone foolish enough to believe the endless hype about "the ownership society" and "housing never goes down." Should there be any regulation whatsoever on lending standards? How about on "saving" the lenders who foolishly handed billions to unqualified borrowers? No?
Yes, let those greedy lenders go down--and all their CDOs and credit-based derivatives, too. But guess what, folks--those uncollectable debts are held by your pension fund and your 401K mutual fund. The bankers who issued the CDOs weren't stupid enough to hold them--they sold them to pension fund managers "seeking higher returns." So when the debt bubble pops and untold billions vanish, it will impact millions of people who were misled into believing their pension and 401Ks were "safe."
Frequent contributor U. Doran sent in these three stories on the topic:
Banks Sell 'Toxic Waste' CDOs to Calpers, Texas Teachers Fund
Property Taxes, Retirement Promises, and Municipal Bonds
Fears over helping hand for mortgage defaulters
The lending spree was not safe--it was reckless. If you read the last story, you will come to understand how the reckless risk is being hidden--at least temporarily. Mr. Doran summarized the situation with a quote by Warren Buffett: "It's only when the tide goes out that you see who is swimming naked."
The war--oh, right, we are at war, aren't we? Eight U.S. soldiers killed today, ho-hum. What's on sale? The newspapers are filled with glossy ads for luxury goods and expensive real estate, and cultural "news" about hyphy hip-hop (worthy of coverage, or merely a desperate attempt to snare some younger readers? It's your call), celebrities of one flavor or another, fancy food fetishes, and what's on TV. Oh my gosh, The Sopranos!
How many Americans know someone in Iraq? How many see the eight KIA and feel a chill of fear? Not enough, it seems, to cause a ripple in the body politic, which seems to accept that the war was recklessly launched without prudent planning--but oh, well.
Frequent contributor Michael Goodfellow sent this link to a detailed depiction of the U.S. Federal Budget. Find the interest paid on the National Debt: The Budget Poster.
Now calculate what the annual interest will be if interest rates rise--a thesis I have covered here in detail for months. We currently pay $261 billion in interest on the National Debt, which is money borrowed via Treasury bonds to fund the accumulated deficit--a number which has risen by trillions in the past six years of "prosperity."
It would only take a modest click upward from 5% to 7.5% for the interest cost to rise to $360 billion--roughly equal to the entire cost of Medicare. These are simple extrapolations, but in the recent past, interest rates in the range of 7% to 9% were considered normal. To claim that the recent period of multi-decade lows in interest rates is now permanent is, well, a lie--as rising rates this very week attest.
Do you think adding trillions in debt during six years of super-low interest rates was prudent? Or was it reckless? When we're paying more in interest than for Medicare, I think it will be abundantly clear that it was reckless in the extreme.
I have mentioned our friend who recently discovered she had a large brain tumor. Surgeons removed what they could of the tumor, but much remains intertwined in her brain; she lost the hearing in one ear and some feeling in her face, and has experienced short-term memory loss/damage--all in all, not much loss for such an invasive operation. Now she must gain strength to face radiation treatment, where it is hoped that most or all of the remaining tumor can be destroyed.
Our friend works for a Fortune 500 media company based in the U.S. If she is unable to return to work because of various motor-control or short-term memory issues, she will be "let go" (such a polite term!) and her medical insurance cancelled. She can opt for COBRA, but as you probably know, COBRA is outrageously expensive and only short-term "gap" coverage.
Our friend has worked all her life and paid taxes; she has a 15-year old son. So what "safety net" is there for her when she is let go and her healthcare coverage vanishes? I assume she can apply for Social Security disability, but what about medical coverage? I have no idea just what coverage is available through any government program for a 45-year old woman who may be unable to work, or work at her previous wage and level, ever again.
But I do know there shouldn't be any doubt that a U.S. taxpayer in her situation should not have to be destroyed financially before some "safety net" is available. Yes, her family is doing all they can, but the medical costs of her treatment, once her coverage lapses in a few months, will bankrupt any family unless they are multi-millionaires.
Is this a national "safety net" we can be proud of? Is it "secure"? Maybe if you're lucky enough to reach 65 years of age, but what about if you're 45 and losing your job and coverage? Is it too bold and "politically incorrect" to say that our medical and healthcare system is recklessly insecure? That it is an embarrassment that we spend the most of any nation on earth as measured by percentage of GDP expended on medical care (15% compared to France's 10%), yet if a taxpayer is struck down with a chronic condition in his/her middle years, he/she will be thrown out of coverage right at the moment they need it most?
Yes, I am disgusted by the constant reassurances of the media and political hacks like Greenspan that everything is just peachy and safe and secure; I am disgusted that the realities of our national recklessness are swept under the rug or mentioned in context-free (and therefore purposefully obfuscatory) stories buried deep on page C-11.
According to the current Atlantic magazine, which cites a Pew Research Center study, only 32% of the American public are aware that Sunni and Shia are the two main branches of Islam. Sure, Americans don't read anymore, but you also have to wonder: is the "news" they're watching and reading so execrably distorted that they are brainwashed as much by what they're not told as by what they are told is "true"?
Yes, housing has bottomed--it's been announced monthly since the "top" was identified. In the last housing decline, the "bottom" was duly announced in 1990, 1991, 1992, 1993, 1994, 1995, 1996 and 1997--at which point it became more or less true. Eight years of lies by industry spokespeople and various pundits, breathlessly (and uncritically) repeated by a media desperate for revenues from the real estate industry, which goes to show that if you repeat the lies long enough, they might just become "true."
Here are the fantasies: there is plenty of cheap oil for decades, if not hundreds of years. The supplies are safe and secure. The healthcare system in the U.S. is the finest in the world. The war in Iraq is all about bringing democracy to the Mideast. Our financial system is very secure, and derivatives cushion the system against risks. The housing bubble has popped, and now is a good time to buy. Buy on the dips, as the stock market is in a Bull market which has decades to run.
Do you sense security, or merely recklessness well-cloaked?
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