Saturday, August 4, 2012

Anerica 2050. What Will We Build? Part 5.

I am an historian, not a psychic. America in 2050 is just a nice round date. I believe that our destiny lies reliably in the past. If you want to know where we're going, we have to look at where we (and Western Europe) have been.

Nanny State: Path To Revolution

The recipe for a social and political revolution is fairly simple. Have a large percent of the population of a country in perpetual poverty, with a tiny rich minority holding the majority of all wealth. Insure the middle class is small and powerless. Mix in rising expectations with too slow progress, and a lost war or declining power and respect for social/religious/political structures (like caste systems, the Catholic Church, or the King). Finally add a spark, and voila, we have a full on 'blood in the streets' revolution.

The French Revolution in 1789 and the Russian Revolution in 1917 follow the above pattern pretty closely. The mass of society willingly participated, because they had little to lose and everything to gain by overturning an established order that largely excluded them from power and confined them to a tenuous periphery.

Today in 2012 in America we can view Middle and Near Eastern revolutions on our flatscreens nightly. The Libyan dictatorship has fallen, along with Egypt and soon to follow Syria. Iraq and Afghanistan are boiling under the surface, and are likely to erupt once the American military presence has withdrawn. Certainly these world events are cause for grave concern, but my focus is drawn to a much closer arena...America.

The civil rights struggles and riots in the late 50's and 60's were nothing less than a partially successful revolution. An oppressed underclass (African-Americans) rebelled at the second class citizenship that they had endured since the slaves were freed in 1865. "The long, hot summer," was something Americans heard a lot about that as the summer months approached in 1968, and it filled them with dread. By 1968, just the word "summer" was conjuring not just beaches and vacations and re-runs on TV, but also what were almost universally known as "race riots," events that today, with more circumspection, we call "urban rebellions." Large swaths of Los Angeles were devastated in summer 1965; much of Newark and Detroit (and Buffalo, and Milwaukee, and Minneapolis) went up in flames in summer 1967. By the mid-70's, however, they had largely petered out.

Why did the civil unrest end abruptly? Answer: They were paid off!

The Nanny State

America of 2012 is a semi-socialist country where over 48.5% of all households contain at least one person who receives some form of government aid. The social and economic safety net has reached an extent where our national deficit (including monies promised in the future), is estimated at $100 Trillion dollars, or over $300,000 per American citizen!

Many complain about the bloated government-sponsored entitlement programs, but few consider the relevance of the timing of their creation. Social Security was rolled out during the Great Depression. The Food Stamp program was introduced in 1964, as was the lesser known Job Corps (free trade school education for poor, urban youth). Welfare too was dramatically expanded in this decade, and the era of the "government cheese" stories were born.

One way to look at the expanding social and economic programs above is to say they were merely responses by a receptive government to a petitioning electorate. Another, less naive way to explain these expensive programs, was that they were simply bribes paid to the restless underclass to cease their troublesome activities! Current precedents are Arab Kingdoms like Saudi Arabia pouring oil money into the streets to keep their populations docile and obedient. The USA did much the same in the 60's, and has only accelerated the process to our 2012 America where the government is always expected to be there when a citizen is a good Nanny! And who would ever rebel against an entity that supplies food, housing, and the other basic needs of life?

Finally, the fiat paper dollar is the last refuge of a controlling American state. If you rebelled centuries ago, the King's head might end up in a basket, but your money was still good. Anyone in any country would've been all-to-happy to take your gold or silver coin, even if it had the face of a very dead sovereign upon it. Not so with the fiat paper dollar of 2012!

The paper dollar of 2012 is reliant solely on the 'good faith and credit of the USA'. That's it, brothers and sisters. No gold or silver is available to back these 'promises'. If you rebel against the government of the USA and win, then every dollar in your pocket instantly reverts to their inherent! If you actually succeed in throwing out the bums, you become penniless. All your hardwork over all those years was for nothing more than to build a supply of greenbacks to feed your homeless campfire!

How's that devious method for keeping your slaves loyal and peaceful?

America 2050

The social program bribes are already falling short in America 2012. Social Security is admitting to projected future shortfalls. Unemployment is high and likely to remain so. The dollar is weak, and with further QE (Quantitive Easing, or money creation out of thin air) it must continue to grow weaker based on simple supply/demand economics. Eventually between now and 2050 the US dollar will ultimately fail. When that happens the social net bribe will fall to pieces. The poor will form the majority of the populace, with the very rich occupying the tip of the new economic pyramid. The middle class will be virtually erased, and their stabilizing social and political power dramatically weakened. The America of 2050 will be a second or third rate power, eternally on the verge or in actual blood-stained revolution.

Of course, there is one possibility to forestall this revolutionary state - military run or supported dictatorship. Shooting thousands of people does make quite an impression on rebels, at least for a while. However, we need look no further than an exploding Arab world to know the end results of playing that heavy card!


Friday, August 3, 2012

America 2050: What Will We Build? Part 4.

I am an historian, not a psychic. America in 2050 is just a nice round date. I believe that our destiny lies reliably in the past. If you want to know where we're going, we have to look at where we (and Western Europe) have been.

There are many articles on 'Fiat Money' and its history. I urge you to read them. I'm seeking brevity, not comprehensiveness.

Future Economy - The Death Of The Fiat Dollar

The Founding Father's of America disagreed on many things. The extent of federal vs. state power, slavery, taxation, the form or our republic, how to give the smaller states some voice without being unfair to large ones. However, there is one thing they all agreed upon. Silver and gold constituted money - and paper fiat currency did not.

Briefly, gold and silver have been valued as money by humans for over 5000 years of recorded history. Whenever governments have tried to get around precious and scarce gold and silver as money, disasters inevitably followed.

The Roman denarius, a coin the size of a modern nickel and made of pure silver, was accepted throughout the known world two millenia ago. As the Empire shrank geographically and the size and expense of government grew, the coin was secretly diluted by substituting base metals for silver. Toward the end of the Rome, the denarius had only a thin silver wash and was universally shunned in commerce.

Why did Rome destroy the denarius? Because they wanted money to spend without increasing taxation on the already overtaxed Roman citizens. So, they tried to produce more money without the inconvenience or political repercussions of increased taxation - or the bother of mining and refining more silver. They didn't have any other choice. Paper money wasn't to be invented for over five hundred years, rendering impossible the kind of instant digital and paper money creation we take for granted today.

No, the money magic act we see today had to wait until the Chinese invented paper money in about 806 A.D. Then, the Mongol Empire in the 13th Century used their power and influence to spread it around Asia and Eastern Europe like an STD. The citizens called it 'flying money', as the slightest breeze made it fly away. At first the paper money was backed by gold and silver and the economy expanded. Eventually, however, the government decided it needed more money without the bother of taxation, and the massive printing of notes began. Within two hundred years paper money had become worthless.

Flash forward to 2012. It's been nearly a century since the first modern paper fiat currency was printed in 1913. 'Fiat money' isn't some under-powered Italian car blocking the passing lane. It means that it's money and worth something solely because the US government says it worth something. It's no longer backed by gold or any other real asset. In the last one hundred years the paper dollar has lost 97% of its purchasing power! It's lost 72% just since 1972, when Nixon severed our last connection to the gold standard. The term inflation has been an unalterable part of our lexicon, and it seems axiomatic today that things are likely to cost more tommorrow than they did today.

In America 2050 our money will be very different. In 2012 we are nearing the endgame collapse of the fiat money lie. Our National Debt exceeds $100 Trillion dollars if you include all the money we owe as well as all the money promised in our ever growing "Nanny State" social net.

Prices will fall in deflation, as we have seen. History in Weimar Germany and Austria (as well as many others) tells us that inflation and hyperinflation will then follow closely behind. Paper fortunes will be wiped out overnight. The US money supply will continue to grow because like an addict's addiction, one fix followed by another and another, growing steadily larger to avoid painful withdrawal symptoms.

As prices rise and the middle class melts away like an ice cream cone in the hot sun, riots and unrest will occur. The US Government will be called upon to "do something". History tells us they will have the following options available to them:

1. Implement Price and Wage Controls -  Nixon tried this in the early 70's to combat stagflation. It was voluntary and an abject failure. History tells us when price controls are not enforced, they're ignored. When they are enforced with heavy fines or even jail and death sentences, they likewise fail because factories would rather close than sell their products for below market prices. Goods simply disappear from the shelves. Yes, the price is low and government controlled, but the products are nowhere to be found. In Austria in 1922-1923, a thriving black market cropped up selling anything you could want from sausages to work tools, at a marketedly higher price than the state-mandated one.

The "good" part about this idiotic non-market based strategy is that the government can claim they are actually doing something. It's just the speculators and the big companies who are evil - deflecting blame from them onto the companies struggling with rising raw material costs.

2. The other strategy is more effective, but much less popular. To stop runaway inflation by tightening the money supply and raising interest rates. Increased taxes on businesses and citizens, while slashing government entitlement programs follow. Paul Volcker in the 1980's used some of these methods effectively to recover from the excesses of the Carter years. However, he had a mouse-sized problem, and in 2012 America has a Godzilla-sized monster to handle!

This latter strategy will NOT be employed by any US government, at least not without a major revolution or crash - changing the very structure of our political structure and the "democratic process". At this terminal stage they have no choice but to continue with the former choice, and keep the money machine pumping.

In the America of 2050 many rich will have lost everything they had in paper stocks and dollar denominated assets. The Middle Class will be reduced to a butcher, baker, candlestick maker type form. A large poverty-level workforce and an unemployed underclass will be present, always on the edge of desperation and a never-ending source of political and social rebellion.

We will have a money supply grounded in gold, silver, and other sources of real wealth. The economy will be forced to contract as it has been artificially bloated with easy money and credit over many decades. Prices will become stable, but the standard of living could easily revert back to an 1850 level of sustainability.

America 2050. What Will We Build? Part 3.

I am an historian, not a psychic. America in 2050 is just a nice round date. I believe that our destiny lies reliably in the past. If you want to know where we're going, we have to look at where we (and Western Europe) have been.

Future Economy

The US economy is going through massive change. Manufacturing is no longer the province of the US as it was following WWII, when the US made products for a world looking to rebuild. We were owed by the world, and the US dollar's power and value was unquestioned. "Sound as a Dollar," was a common saying, and the speakers did so without the hint of a sarcastic smirk on their face.

In 2012 America unemployment is high, indeed, much higher than the US government manipulated low ball numbers of 9 or so percent. These number don't count those who've lost their unemployment benefits, who've given up after years of futile job searches, and the massive amount of underemployed. Yes, a job as a Walmart associate counts as a job at $22,000 per year. But it can't hope to replace the income that this now overqualified person earned at his previous employer. Cases of people accepting jobs at tiny fractions of their previous salaries are now commonplace. In these cases, despite the Obama Administration's claims, do not a true recovery make. Our Walmart worker has a job, but he's not buying the goods and services he once could afford. If he's lucky he's scraping by paycheck to paycheck, and not falling back on credit cards and other loans to make ends meet.

Today's America makes virtually nothing it consumes. Our economy is 4 times larger than Germany's, but Germany's share of global merchandise exports is actually higher than America's (9 percent vs. 8.5 percent) in 2009! The other key measure -- little known in popular discussions of manufacturing -- is export intensity, the ratio of a nation's exports to its total manufacturing sales. The global average export intensity is twice as high as that of the United States, which ranked 13th out of the 15 largest manufacturing countries in 2009, higher only than Russia and Brazil. Meanwhile, the leading EU countries had export intensities 2.5 times to 4 times higher than America's. Comparisons of the value of manufactured exports on a per capita basis are even more dramatic: they are higher in Spain ($3,700), Japan ($4,000), Canada ($4,600), and Germany ($11,200) than in the United States ($2,400).

China has become our merchant of choice. In fact, Walmart, the largest retailer in America, claims that 70% of all products they sell as made in China. As a result, China has now become the supplier of cheap manufactured goods to the US. In exchange we give them paper fiat dollars that are backed by nothing other than the "Good Faith and Credit of the USA". In the past they held those dollars in Chinese banks, effectively giving us their products for free. However, rumors abound now that they are quietly spending their hoard of paper dollars on natural resources, gold and silver, mines, real state - anything to divest themselves of a rapidly depreciating piece of green paper. The resulting dollars are dumped back into the US money supply, fueling inflation through basic supply/demand economics.

Of course, in this process the US surrendered it's status as the lender to the world to the largest debtor nation on Earth. We also dismantled the manufacturing base that won WWII and offered a middle class existenance to millions, in exchange for cheap coffee makers!

America 2050 - Economy

It's hard to find a precedent in the past for a nation that has risen as high and fallen as low as the USA must by 2050. I could look at the 18th and 19th English Empire and the shrunken corpse remaining after WWII, and get an weak idea of what the future may hold for America. Once the sun never set on the English Empire. They ruled the seas and were a commanding presence in any world political event. Today they are at best a third rate power excluded from the councils of the powerful. Their economy putters on, but growth of all kinds, population and economic remains static. Like Egypt, they find themselves eternally looking to the past for their source of glory. The USA will likely be in a similar, if not much worse state, in 2050. After all, the America Empire was the largest to date in power, wealth, and prestige, if not landmass. It's only reasonable to assume that her fall would break records as well.

The erosion of the middle class is likely to continue. Jobs working as a barista at Starbucks, or a retail clerk, will never pay the wages to build a middle class existence as heavy manfacturing once provided in post WWII America. Multigenerational family living will replace the nuclear family ideal, and renters will overwhelm buyers as the most economically feasible option. America of 2050 will resemble pre-WWII US infintely more closely than the post war boom version!

Already China is showing its economic, military, and political power around the globe. They're providing Europe with loan guarantees, buying mines and resources in South America and Asia, and pointedly warning American warships to behave themselves in the Taiwanese Straits. It appears we even need them for space exploration, as the Obama Administration announced that they need Chinese help to send a manned mission to Mars!

China is certainly a shoe-in for the next world Superpower. Other Asian nations such as India are sure to gain ascendance as well. America will confine itself to our shores and coastlines, and do our level best to avoid angering our Asian friends. Maintaining a bloated military policing the world is very, very expensive. By 2050, such an extravagance will seem an absurd to a struggling once-great power. Perhaps out of the profound darkness everywhere else, this anti-imperial reality will supply a renewed glimmer of hope that one day the descendants of the Founding Fathers may indeed create the 'City on a Hill' once envisioned by our Founding Fathers! A country that spreads its light by a silent, shining example, not through the miltary interventionist policies that have sought to control the world, but instead has only bankrupted our country!


America 2050. What Will We Build? Part 2.

I am an historian, not a psychic. America in 2050 is just a nice round date. I believe that our destiny lies reliably in the past. If you want to know where we're going, we have to look at where we (and Western Europe) have been.

Baby Boomers - The Big Elephant in the Room

80 million Baby Boomers are starting to retire. Born between 1945- to the mid-1960's, they are a major part of our consuming economy. They have invested in stocks, started businesses, were famous for outrageous work ethnics, and paid taxes - a lot of taxes.

The problem now is they're retiring and expecting all the dollars that America has promised them for Social Security, Medicare, and other programs. Born in 1961, I receive my Social Security statement every few years. I always read them, but they're never quite real to me. I just can't imagine ever getting back any of the money they've taken from me for this program per se.

Of course, any money I might collect in the future isn't really my money coming back to me. Social Social Security, starting taxation in 1937, has been called one enormous pyramid-scheme, taking money from many and giving it back to a few. Today, about 16 people pay SS taxes for the benefits for 1 retired person. By the time the last Baby Boomer retires, the projected ration will be 2 people paying to support 1 retired Baby Boomer! All government BS aside, that means that SS taxes will have to either to increase by many times, benefits will be reduced or put off to further advanced ages, or money will be paid to retirees that will be so inflated as to be virtually worthless. Keep in mind that retirees are promised a certain amount of dollars per month, not what those dollars will actually buy! Therein lies the government's hole card.

The most likely result will in the future will be more of the same, to an extent. Benefits will be delayed and taxes will slowly rise. However, will future generations sacrifice 80-90% of their paychecks to support Baby Boomers?  If they're voters, I think not. The short fall will come from more money printing until the dollar becomes virtually worthless. Current deficit projections that include financial commitments the US Govt. has made to Baby Boomers and others reveal an astronomical figure of $100 Trillion dollars! That works out to $300,000 owed by each of the 325 million Americans today!

A Baby Boomer will get his $2500 monthly check, and buy one or two days worth of food with it. It's the only solution. The government keeps it word, and the younger taxpayers don't throw them out of office for impoverishing them. Every pyramid scheme has it's balloon popping moment. Bernie Madoff had the Great Recession starting in 2008, and America will have the Baby Boomers to burst the bubble of lying promises that our government has made.

I believe the America of 2050 will have fewer benefits or social programs available. Clearly our debt cannot continue to climb forever. Sooner or later a default, or more likely dollar creation will push us into Hyperinflation as it famously did for Weimar Germany, Austria, Hungary, Argentina, Iceland, and numerous other countries. People will work until death or sickness overcomes them, they will move in with their children, and the standard of living will be more meager than today.

The America of 2050 will undoubtedly still have a tiny amount of very wealthy living high in their guarded castles. But the destruction of the dollar, and the other social programs propping up a middle and the lower classes, will have been severely curtailed - taking the stabilizing influence of middle class working stiffs with it.


America 2050. What Will We Build? Part 1.

I am an historian, not a psychic. America in 2050 is just a nice round date. I believe that our destiny lies reliably in the past. If you want to know where we're going, we have to look at where we (and Western Europe) have been.

Normalcy Bias

Many people reading my articles and watching my Youtube videos at rickpyle1 sometimes email me or leave comments expressing their exasperation with their friends and family. They want to know how they can't see the economic disasters looming and the dramatic changes in American lives that will most certainly be a reality in 2050. The answer is the normalcy bias held by many of our fellow citizens.

The normalcy bias is an irrational and illogical belief which states that since in the lifetime of the individual nothing catastrophic or devastating has ever occured, then nothing profoundly negative will ever occur in the remainder of their life.

The prosperity enjoyed by post WWII America has been a time of prosperity unparalleled in the history of humanity. We have had recessions, foreign wars, and some political turmoil. However, millions have not been executed without trial in purges, our money has not become abruptly worthless, wars have not devastated our homeland, millions have not been held in concentration camps or died of hunger lying in street. Many other countries including Germany, Japan, Russia, and China cannot make such claims.

America 2050 will have no "get out of jail free card" from the horrors described above. Like all investor prospectus point out, "the past performance of a stock is no guarantee of future results".