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Sunday, December 20, 2009

America’s Really, Really Big Debt Problem

This isn’t the first time I’ve written about the absolutely hopeless debt situation that the US faces. Perhaps you think I am exaggerating. World’s largest economy! High bond rating! Frontier spirit! Yes indeed, these and other sterling qualities of the US and its people will pull the fat out of the fire. Just in time, as in a Hollywood movie.

But even sterling qualities cannot prevail over insurmountable odds. On that note, I turn your attention to a quite shocking article over at Forbes, “Trillions Of Troubles Ahead: A crushing burden of debt threatens to sap America’s growth for years to come.” Sap America’s growth? You have got to be kidding. Just check out some of these desperate, impossible figures.

According to the article, adding up public, household, and corporate debt comes to a whopping 557% of GDP. And then it goes on to say, “Add the unfunded portion of entitlement programs and we’re at 840% of GDP.” Allow to remind you to breathe here.

Even the writer of the article recognizes that America’s situation is worse than Japan’s, when you start adding up all the numbers. So when finance/business gurus or politicians tell us that somehow, everything will turn out all right, we can safely conclude that (1) they are self-deluded, or (2) they are lying through their teeth.

For more fun facts, read the whole article. And get ready for the defaults.

State of Hawaii on the Ropes

Things are hard everywhere. But in some places, they’re harder. Unless there is a dramatic turnaround, things could get really ugly in Hawaii. “Hawaii dimmed by severe cuts” gives us a snapshot of how the island paradise is falling apart. Food sanitation, homelessness, education cutbacks, and what have you — Hawaii is the poster child of down-at-heel states. Hawaii’s situation is particularly serious because of its isolation. If food and energy imports were curtailed, deterioration would proceed more quickly than a in state with more ready resources at hand. So here’s another canary in the coal mine. When it falls off its perch is anyone’s guess, but although it might be the first, it certainly won’t be the last.

Friday, December 18, 2009

Paved Roads Revert to Gravel

An AP news story tells how insufficient infrastructure funding is pushing local governments to return some stretches of paved road to gravel road. First street lamps, then paved roads. What next?

Pavement, of course, is a hallmark of civilization. In previous ages, people used stones and bricks. Now we have asphalt and concrete. People have considered it a sign of progress to a higher state of existence when a gravel road is paved. So it is in these new times — the latter days of the Empire — that pavement returning to gravel signifies a transition to a new state. Whether one considers it a “higher state” or not will be hotly debated. Nevertheless, it is happening, just like reducing bus and subway services, and downsizing cities.

Keep watching for these and other signs of the times.

Thursday, December 17, 2009

Sovereign Debt and Austerity Budgets

Governments are digging themselves deeper and deeper into debt, beating a dead horse in a bid to ramp up the economy and bring back the good times. Now even Germany has decided to embark on record borrowing to stave off the worst. National and local governments are slashing expenditures and introducing austerity budgets.

The second linked article notes, “By the end of 2009, global sovereign debt will hit almost $50 trillion.”

$50 trillion! And who will pay that back? Any realistic person knows the answer to that: nobody. Of course some of it will be paid back, but there’s a disaster in the making. So what if the EU bails out Greece? That wouldn’t make the debt go away. So far the US has been bailed out by China and Japan, but there are limits. Japan itself is in very dire straits (world’s second-highest debt-to-GDP ratio), and it’s anybody’s guess when the Chinese bubble pops. Same thing within the US: Even if the federal government bails out states, it doesn’t solve any problems in the long run. The Day of Reckoning will surely arrive.

Since the only two ways to deal with debt are paying it off or defaulting, and because paying off $50 trillion is clearly impossible, some big fish will be going belly-up.