Beyond the Cusp

December 20, 2013

The Looming Economic Time Bomb

There is a theory that has been the backbone of President Obama and his economic administers that the government can stimulate and generally manage the economy. This is known as Keynesian Stimulus Theory. The basis of Keynesian economics is that government stimulus will give greater returns in tax revenues over time as the local multiplier effect produces many times the velocity of money in a local economy where government funding has been injected thus raising the general economic activity which will presumably return more tax revenue to government covering the cost of the stimulus and everybody gains. This interventionist economic theory was proposed during the Great Depression by economist John Maynard Keynes and was implemented in various forms and schemes by the Roosevelt administration. Many history studies on economics credit the use of the theories and principles from John Maynard Keynes for the recovery that pulled the United States out of the Great Depression. These studies were mostly written by economists and others who supported and believed that the Keynesian theories were the greatest thing since the invention of coinage which ended the barter system and made modern economic theory possible. The one small fact overlooked by most of these erudite studies was the difference of the effects of the Great Depressions in the United States where Keynesian theories were widely applied and Europe where they were not. Where in the United States it is remembered as the Great Depression, in Europe it was a hard but brief recession simply due to the fact that their governments could not agree on what should be done so their governments ended up doing nothing and the economic cycle continued normally and the bust was followed by the inevitable boom.

 

The argument often put forward to those who prefer the Laissez-faire Economic Principles has been to point out that even though most of Europe did recover more readily from the 1930s recessions there was still Germany which remained in economic collapse which led to World War II. That argument is not entirely honest as the main problems faced by Germany were not due to their economic practices as they were endemic results from the punitive strangling economic restrictions place upon Germany in the Versailles Treaty at the end of World War I. Some others attempt to deride those who prefer that the economy be permitted to naturally go through the peaks and valleys alternately which is the natural procession of any economic system by claiming that this system is the property solely of the Republican Party and that it favors the rich and big business as that is what the Republicans are known to do. Whether the Republicans are any more favorable to big business and the wealthy than the Democrats is a debatable subject and totally outside this discussion other than the attempt to paint those who disagree with government stimulated economic growth as troglodytic Republicans attempting to return everybody to the days of the Robber Baron Industrialists. This is a powerful argument due to one quote from President Ronald Reagan where he said “Government is not a solution to our problem, government is the problem.” As long as we are quoting President Reagan I will throw in an additional just because I like this one myself and it does pertain to government’s treatment of the economy which goes, “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

 

Another economic truth which has been lost in all the noise was that there was no Federal Reserve and there were economic ups and downs all without government meddling and without a great depression. There must have been something added to the air and water in 1913 in the United States as this was the year that the Federal Reserve was established and also Amendment XVI and XVII which established the income tax and made the Senators directly elected taking away the representation of the individual States in the Federal Government. Maybe if we were to simply undo everything that American History Professors teach as the most enlightened year in all of America’s history, 1913, then many of the problems America faces today would begin to resolve themselves. Meanwhile, the administration of President Obama is completely committed to Keynesian Economic Theory and have been pumping stimulus monies into the economy mostly through having the Federal Reserve but Treasury Bonds using the cash made electronically which results in basically doing the same as if they simply printed up thousands of hundred dollar bills and made a present of them to the Federal Reserve assisting them to buy the Treasury Notes. This can be simply described by calling it what it is, America is buying its own debt as they are no longer able to find another nation willing to buy Treasury Notes to finance the growing national debt. What makes this even more suspect is that the Treasury Notes are kept in some of the leading banks and used to qualify for loans which is how they buy the next release of Treasury Notes by the Federal Reserve which is a private agency and not actually part of the government. The Federal Reserve is, at best, a quasi-government agency made up of the Presidents and major holders of interest in some of the largest banks in the United States and the World. That is the makeup of the group which has been assisting President Obama and advising the bailouts for the banks, insurance and mortgage industries, the very same industries from which the Federal Reserve gets their membership.

 

So, what is the result of this scheme where the Federal Reserve uses its holdings of Treasury Notes as the collateral for their next purchase of Treasury Notes each and every month? This operation has greatly increased the amount of dollars theoretically in circulation by a multiple of anywhere from estimates of quadruple to as high as ten-fold. As long as these cash reserves remain stagnant in the banks then all will be well. Should the economy pick up and the banks find they can make larger profits by loaning these reserves they will give the money what economists call velocity and thus pump all the reserve extra dollars into the economy. Such an influx of money into the economy can only have one result, inflation. When the economy realizes that instead of one to two trillion dollars in circulation it has six or twelve trillion dollars in circulation prices will begin to rise to balance with the larger cash flowing through the economy. Once inflation sets in there will be pressure to slow the inflation by raising the interest rates. Once the interests start to rise a problem which will need to be faced will rear up and threaten to destroy the entirety of the American economy. As it stands now the interest payment on the debt is relatively affordable with interest rates remaining steady for the past decade under four percent. For the last few years the interest rate on the national debt has remained comfortably below three percent. What will happen once the interest rates rise to six or eight percent and higher? The Congressional Budget Office projects that once interest rates go up, the combination of rising debt and rising interest rates is projected to cause net interest payments to balloon to nearly $800 billion, or 3.4 percent of GDP, by 2020 and approach one fourth to one third of the Federal budget. The real question becomes what if interest rates rise higher which they very likely might? There will come a point where the interest payments on servicing the debt will impinge on all other spending. What will happen should the interest rates cause the servicing payment on the debt squeeze government allocations to everything else and the government can no longer finance the nation’s military and it is forced to downsize to an extent similar to the Europeans. What if the government is forced to end payments on Social Security, Medicare, and Medicaid and threatens the national healthcare system in whatever form the Affordable Care Act resembles in another decade. The increased national debt and the resultant service payment on the interest supersedes any reasonably affordable portion of the budget. Where will the government find the necessary funds, raise taxes to over fifty percent and even approaching ninety percent on higher income levels? Will services be cut to the point that many programs no longer serve sufficiently the peoples they are intended to help and government has cut every program to the point of being next to useless? And what will be the effect on the economy, will it likely crush economic growth and even cause a downturn that will only make the situation more dire? The rising of interest rates is the time-bomb sitting waiting to ambush the American economy and people sometime in the near future. Perhaps somebody will present a vision that will rescue though what such a vision might be escapes this mere mortal. May the future find a kinder path than what some have predicted.

 

Beyond the Cusp

 

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July 24, 2013

What is the Real Story Behind Detroit?

If anything about Detroit is true, it was no surprise and everybody has watched this train wreck coming down the tracks for at least a decade or two if not longer. Detroit is not the first city to declare bankruptcy nor is it the first major city to go broke, but it may be the first major city to die from severe bankruptcy. One of the first cities of the modern era in the United States to dance around bankruptcy was Flint, Michigan which reinvented itself and made a comeback. There have been a number of the old steel mill cities which have found it necessary to reinvent themselves and come close to destitution. New York City is the largest of American cities to experience the threat of bankruptcy and received some assistance from the Federal Government in order to redirect the way the city was managed and adjusted the manner that the city government acted and its direction and New York City made a successful comeback. But Detroit is the first major city to not only go financially bankrupt but has also fallen to a level of collapse in the areas of population, functioning infrastructure, employment opportunities, functional education system, or anything which is considered as a basic service or property any modern city would possess. Detroit has few remaining operative emergency vehicles, the police take close to an hour to respond to an emergency situation, the majority of the citizenry are functionally illiterate, and it has an unfunded mandate in the form of retirement funds owed that would bankrupt most cities which have functioning systems. Detroit has slipped beyond the cusp and may very well never make a comeback. We may only have one choice concerning Detroit, plow it under and see if it can be transformed into a productive piece of farmland.

 

But enough about Detroit as there is a larger problem which has been made all the more evident by the calamity that has struck Detroit, and that is the financial disaster that is the National Government which is very close to bankrupt. We have been observing the Federal Government slowly circling the whirlpool of unfunded liabilities which is being enlarged through deficit spending that has risen beyond anything even imaginable just a few decades ago. We have heard for as long as can be remembered about how Social Security is almost broke, how Medicare costs are spiraling beyond the Government’s ability to fund, Government employee retirement benefit payments are ballooning out of control, and among other items, just the interest payment on the national debt is taking an ever larger chunk percentage wise from the national budget despite the inflated amount being spent. There is one thing which is allowing the United States to avoid the imminent financial doom that the payments of only the interest of the debt should have and that is the low interest rates. This is much of the reasoning at the Federal Reserve which is twisting and contorting monetary policy to near the breaking point in order to keep the interest rates at a level which allows payment of the interest on the debt to remain manageable. The government has even found it necessary to manipulate the definition of inflation in such a way as to hide the real rate of inflation which would require interest rates to be increased. What other reason can one give for omitting the cost of fuel, electricity, and food from the cost of living for the determination of the inflation rate? This has been done in order to cherry pick what items are used to measure inflation rates so as to minimize the official measure of inflation rates thus allowing the Federal Reserve to claim there is no measurable inflation that requires an increase in the interest rates allowing the Federal Government to make the payments on the debt.

 

Eventually the interest rates will have to be adjusted higher when the Federal Reserve finally reaches the point where they can no longer keep the lie that inflation rate is minimal if not negligible and they have to take steps to prevent inflation from hitting runaway rates. The Federal Reserve will find that necessity will require a fairly healthy rise in interest rates simply because the inflation resulting from the printing of money required under the Quantitative Easing, of which there have been three separate injections of which the third is one that has been spread over many months for as long as it was deemed necessary and is still being implemented each month. When the interest rates take off they will toll the knell of reckoning because should the interest double, the payments on the debt would double, if they triple the debt payments will triple, and should they grow by more the debt payments will rise accordingly. There have been pessimistic estimates that because of the games being implemented pretending to be a financial strategy that when the interest rates increase and the piper must be paid, the interest rates could rise by a multiple of five or more, that would mean at least a fivefold increase in the interest rates taking them from one and a half percent to seven and a half percent. There is no possible way the Federal Government will be able to operate should the interest rates have any sizeable increase and such an increase appears each day to be more and more inevitable. One has to worry of what happens when the United States follows the model of Detroit and hangs the sign on the doors reading, “Gone Out of Business.”

 

Beyond the Cusp

 

March 17, 2013

A War the United States Will Not be Able to Run From

Filed under: 9/11,Absolutism,Administration,al-Qaeda,al-Qaeda,Arab Spring,Arab Winter,Arab World,Armed Services,Asia,Austerity Measures,Ayatollah Khamenei,Bashir al-Assad,Biological Weapons,Blue Water Navy,Boko Haram,Boko Haram,Calaphate,Caliphate,Chemical Weapons,China,Christians,Civil Disobedience,Civil War,Civilization,Clan,Consequences,Cost of Living,Debt,Debt Ceiling,Demonstrations,Dictator,Drone Strikes,Economic Fascism,Economic Growth,Economy,Egypt,Elections,EMP Attack,Euro,Euro Zone,Europe,European Governments,European Union,Financial Crisis,Foreign Policy,Foreign Trade,French Military,Funding,Government,Government Control,Higher Prices,History,Homeland Security,Hyper-Inflation,Increased Spending,Inflated Spending,Inflation,Iran,Iranian Revolutionary Guards Corps,Iraq,IRGC,Islam,Islam,Islamists,Leftist Propaganda,Libya,Main Stream Media,Mainstream Media,Mali,Media,Military,Military Advisors,Military Base,Military Intervention,Military Option,Multiculturalism,Muslim,Muslim Brotherhood,Muslim World,National Debt,Nigeria,Nonjudicial Assassination,Nouri al-Maliki,Nuclear Program,Nuclear Weapons,Nuclear Weapons,Panic Policies,Politics,President Obama,Prime Minister,Protests,QE1,QE2,QE3,Quantitative Easing,Religion,Reserve Currency,Revolutions,Riots,Sequestration,Socialism,Society,Special Forces,Spending Cuts,Supreme Leader,Syria,Syrian Military,Taqiyya,Taxes,Terror,Theocracy,Threat of War,Tribe,Under Employment,Unemployment,United Nations,United States,Unrest,Upgraded Military Capabilities,Uprising,US Air Force,US Army,US Marines,US Navy,Vote,War,Wealth Redistribution,Weapons of Mass Destruction,WMD,World Without Zionism or America,Yemen — qwertster @ 4:42 AM
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The media, our representatives in the Federal Government, the President with the full backing of his Cabinet and the vast majority of Americans all believe that the battles for Afghanistan and Iraq have been won; and now that the troops are finishing up any untied strings and heading home for good. Nothing could be further from the truth and there is only one place to pin the blame, President Obama and Congress. They will likely claim that they are simply responding to the wishes and desires of the American people, and that holds a fair amount of validity. The problem is that Congress and the President are elected to serve the people, defend the Constitution from all threats foreign and domestic, to act as the adults in their relationship with the citizenry and to treat the people with respect by telling them the truth along with advise as to what choices are available along with a predicted result for each and after educating the citizenry the country can, as a whole, come to an educated consensus. Thus far none of these discussions have taken place and it is as much the blame of the mainstream media as it is the President, his administration and the members of Congress. The impression that has been put forth is a picture of Iraq and of Afghanistan each with a steady government that the United States have greatly aided and who is indebted to the United States and its military and will be one of the closest allies which the United States can rely upon in the future. If only that was even ten percent of the truth.

 

Let us begin with Iraq and open up some eyes to what is coming. The Iraqi Shiites can hardly wait for the last American to exit their country. They have already demanded and forced the United States military to sequester their personnel onto one of two main base locations, one in Baghdad in what was called the Green Zone where the government offices and the sprawling complex which is the United States Embassy and the rest isolated out at Camp Liberty in the middle of the desert miles from any town or other habitation. The American forces have to clear any operational moves or simple troop movements with their Iraqi advisors, though I am tempted to refer to these advisors as overlords as their decisions are usually final. Iraq has already aligned with Iran and is allowing Iran to supply Bashir Assad in Syria overland crossing central Iraq thus aiding Assad in his slaughtering of his own people as well as jihadists who have joined the battle against Assad in the name of al-Qaeda and/or the Muslim Brotherhood. Despite what the public back in the United States has been fed about Iraqi Prime Minister Nouri al-Maliki, he was the most ardent of the Shiite candidates and was all but hand-picked by the true leader of Iran, Ayatollah Ali Khamenei.

 

Even as the troops from the United States and their allies were pulling out from their station points in Iraq in preparation to return home, the Shiite leadership of the government began a cleansing of the Sunni influences within the government wherever they were able. This has caused great amounts of friction and building animosity which is what has led to the drastic increases in terror attacks mostly in central Iraq. These ambushes will only increase and there is a possibility that the Sunni Muslims in Iraq will ally with the Kurds in the north and either begin an endless struggle for dominance against the Shiite loyalists in the south or possibly declare their independence. Whichever direction they should decide to move, once all the foreign forces have left or dwindled to the point of inability to influence or prevent fighting, then a war of some degree will break out and continue with no end in sight. This could become a winner take all take no prisoners blood feud and will not be pretty.

 

The last item about Iraq is that the leadership of the United States has misplayed their hand so pathetically by abandoning the only real friends they had won in Iraq, the Sunni and many of the Kurds, simply in order to get out as fast as possible and damn the consequences. Thus the result was a power vacuum which left a shaky balance between the three sects within Iraq with the Kurds relatively safely entrenched in the north and the Shiite in control in the center and south with the Sunni mostly in the center and at the mercy of the Shiite except in a few towns and cities closest to the Kurdish provinces. The result was a purge of the Sunni by the Shiite with Iranian backing followed by the Shiites seeking vindictive reprisals over the years of suffering they had suffered under the Sunni rule of Saddam Hussein. This is what will lead to a vicious civil war and possible bloodbath. The Sunni in Iraq, if any should survive, will never forgive the United States, who they trusted and joined making the surge a success, for abandoning them leaving them at the mercy of their historic rivals. The result is that every sector of Iraqi society now despises the United States because each one perceives that the United States deceived them and treated them poorly. We are leaving Iraq feeling greater animosity towards the United States than when the United States arrived or any time since. Iraq has resulted in a failure.

 

In Afghanistan we have played the political game poorly and what makes matters worse, we got caught at the game. Afghani President Hamid Karzai was an ally of the Americans who now feels betrayed after he became aware that the government of the United States had opened up negotiations with the Taliban without consulting or informing Karzai. He immediately opened his own dialogue with them and soon the situation became exactly what one would expect, the Taliban began playing the American and Karzai off of one another. This only served to deepen the rift that was forming between the two countries. Then there were a number of accidents and the beginning of the drone war operations all of which resulted in injured and murdered Afghani civilians. The United States admitted to a few civilian casualties and held the position that the greater majority of those killed were al-Qaeda and other jihadists and terrorists. Karzai saw the picture far differently and his protests only grew angrier and louder as the bodies piled up and the United States appeared not to care and refused to change their method of engagement. This eventually came to a head and President Karzai forced a curtailment of the drone war and a rewriting of the Rules of Engagement (ROE) for United States and allied troops which served to make these troops operations extremely difficult and eventually resulted in numerous additional casualties and deaths as troops were often denied air or artillery support under the new ROE. Another change was the demand that the United States and allied troops not carry their arms when within the wire back at major camps and bases. This is what has allowed for what is known as Green on Blue attacks. Green on Blue attacks are where Afghani police or military, who are trained by the United States and their allies, shoot often killing their American or allied counterparts. These shootings usually happen within the compounds of the major bases where the American and allied troops are disarmed by regulations and are unable to defend themselves. There has been no explanation provided by the Afghan government and seemingly no investigations or steps have been taken to address these disastrous and often fatal attacks. Needless to point out that these attacks are but a symptom of the animosity felt towards the United States and allied presence in Afghanistan. Afghanistan will return to the tribal and fractional confrontations and hostilities as soon as the United States and allied troops depart. There is a distinct possibility, maybe even inevitability, that the Taliban will once again rise to power and the terror training bases reopen returning to business as usual which spawned 9/11. Needless to point out but Afghanistan will end up being a complete disaster.

 

Then there is the Arab Spring, or as we here at BTC have called it since very early on, the Arab Winter. As was pointed out here, the people being supported by the United States fall into three categories, the Muslim Brotherhood, al-Qaeda aligned terrorists, other terrorists who possibly are aligned with Iran. President Obama may make grand speeches about the democracy revolutions and the youth with the use of social media bringing a change to these Muslim countries such as Tunisia, Egypt, Libya, Yemen, and possibly Syria, but that is a pipe dream. Yes, there were many youth who demonstrated for hope and change and they received change without any hope. The beneficiaries of the revolutions spreading across the Arab world thus far have been the Muslim Brotherhood with a definitive victory in Egypt where they now control the Presidency, are on their way to control of both houses of the Parliament, have taken over the majority of the courts, and have replaced almost all of the higher officers in the military. The sole grand accomplishment in Egypt was to replace a military backed dictatorship where regular election frauds were held with a Muslim Brotherhood military backed dictatorship where regular election frauds will be held in the future. In Tunisia the Islamists have gained the majority of the Parliament but have been blunted to some extent and who will win out has yet to be decided. Libya has dissolved into a fractional state where different tribes now control their own parts of the country and terrorist groups roam freely and are carrying their revolution into the neighboring countries. The most closely covered has been in Mali where French forces are assisting the Mali government forces in containing the terrorists in the north of the country. Nigeria is another front which has had numerous assaults by Islamist terrorists, mostly from the Boko Haram terror group. The Boko Haram terrorist fighters have bombed and burned numerous churches in the north and into the center of the country often during services killing and maiming numerous Christians as well as torching neighborhoods and stores owned by Christians. The situation threatens to devolve into a civil war in Nigeria as the violence builds just as it has already become in Mali.

 

The final front is Iran and their aligned forces which include Bashir Assad in Syria, Hezballah which rules Lebanon by overt military threat, Hamas in Gaza, the IRGC and affiliated terror units which operate worldwide including a large base in the tri-state area of South America on the borders of Brazil, Paraguay and Argentina shared borders meet. Iran also has made allies with Venezuela and Nicaragua while also wooing additional South and Central American countries including Brazil, Peru, Argentina and others. Iran is also suspected of working towards attaining nuclear weapons. Iran has apparently made an agreement with North Korea under which the two countries share rocket and nuclear research and design information. Many believe the two have been working to perfect a special type of nuclear weaponry which is quite different than the normally perceived nuclear ballistic weapons which are largely destructive due to their explosive properties. The kind of weapon Iran and North Korea are researching is a low yield high Gama burst device which has an explosive component of only one to twelve kilotons but discharges an enormous Gama ray burst which causes a massive EMP pulse which can be destructive to unshielded electronic devices and networks such as power grids and communications systems which would include television, radio, phone, internet, and electronic generation systems. Such a devise, it has been suggested, could theoretically be so destructive that one warhead detonated over the Kansas City to St Louis areas would take out almost all electronic equipment and power from the East Coast to the Rocky Mountains and possibly all the way to the Sierra Nevada Mountains. The other advantage of such a weapon is it does not require any hardened heat shield as it does not need to reenter very far into the atmosphere before being detonated and thus is far lighter allowing for a more powerful device to be placed atop a launch vehicle.

 

The truth is that between the economic time bomb which is the European Union and the budgetary and debt problems plaguing the United States when combined with the problems spreading through the Middle East and North Africa and throwing in the axis being built between North Korea and the areas of Iranian influence there are more than sufficient potentials for serious problems and likely scenarios which result in confrontations which could easily explode with little or no notice that one might believe that governments have not been exactly truthful as they peddle the idea that all is going to be just fine. President Obama has on many an occasion claimed that the United States does not have a spending problem. If President Obama means that the United States has no problem spending, then he has been truthful; otherwise he has been misleading the American public. The claims that the Arab Spring will result in Western style liberal democracies throughout the Arab world is wishful dreaming at best and foolish lies which can only end poorly at worst. The claims that Europe and the United States are experiencing an economic recovery and the end of their financial woes is just around the corner are simply a misrepresentation of reality. The stock market is showing gains simply in proportion to the rate of increase in the money supply from the three sets of Quantitative Easing with a simple delay built in as the stock market is almost always a lagging indicator of such forms of stimulus. The actual value of the majority of stocks has not changed very much but is only representing the soon to be realized inflation which will balance the stock gains out through higher prices across the board. Behind almost every rosy picture the media and politicians are attempting to sell is a large amount of fertilizer. We live in what the Chinese might call interesting times, and to them interesting times is a form of curse. Perhaps that is the one piece of truth, we are in interesting times and China just launched their first aircraft carrier on their way to having a blue water navy comparable to that of the United States, and President Obama’s cuts to the military, the Navy in particular, is making their task all the easier.

 

Beyond the Cusp

 

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