Tuesday, September 24, 2013

Economic Observations - Part One

I know that the hot topic of blogging has been about the slow economic collapse that is currently happening. I'll go ahead and throw my two cents in the ante pot as well. While I'm no economic expert, I have followed politics and economics like people follow their favorite sports team. I find that my hobby has a greater impact on my personal life than watching sports.

First I'd like to lay out a few facts:

  • The US current has a "official" debt of nearly 17,000,000,000,000.00. Source from Treasury Direct. I say official because it hasn't really changed since 5/31.
  • China has been open about not wanting to use the US dollar as the currency for trade by making its own bilateral trade agreements that bypass the greenback.
  • China has recently entered one of these agreements with Venezuela. I suspect that China's true end game is to bypass the US dollar for oil payments. The petrodollar has been  a major force behind the foreign policy of the United States since leaving the gold standard. 
  • China is already a superpower that wants to replace the US as the world leader, and they have been economically destroying the US without having to fire one bullet.
  • The Fed used to have some control over the US economy through rate increases and declines to cool or heat the economy. The housing collapse in 2008 destroyed a lot of the Fed's ability to control rates because of the mortgages in default. To revive the housing market, and the bank's balance sheet, cheap money had to be available for qualified buyers. This leaves the Fed with only one option, the printing of more money to buy its own bonds, since China is no longer interested in buying America's bonds. It's purely a pragmatic move on their part.
  • The Fed cannot stop printing money. If interest rates rise, then people will once again start defaulting on personal debt, and that will be the real start of the world economy collapsing. Eventually, China's population will replace America as the economic driver for the world's economy, but I suspect that China's leaders want to make sure that the US is no longer a threat before that happens. Sun Tzu 101
  • I also have a theory that immigration has largely been politically ignored to increase the demand for the housing market. and cheap labor.
  • The QE∞ will cause inflation that will continue to cripple the middle and lower wage earners. Prices go up, and wages stay stagnant while lowering the quality of life for most everyone.
  • Everyone remembers Cyprus and the "bail in"? Well, it has quietly expanded into Poland that plans on moving private pension funds into the control of the state for debt reduction. Government has never been a good steward of the citizen's money. Ever.

In part two, I'll lay out a strategy to combat the coming collapse. It will require discipline and frugality, but I'd rather do these things on my own terms than being forced into them. As preppers, the most probable SHTF scenario is going to be economic.

Comments are welcomed and encouraged. Keep Prepping - K


  1. I believe there is more to immigration than meets the eye. While everyone wants to blame the corporations and cheap labor I honestly believe our government is the major cause for open borders. Their only hope for social security is in fact immigrants since they have robbed the chest of all it's funds. It is their only hope really to bring in all these workers.

    As for the Fed and Pumping I believe the bottom line there is really Pensions. The side effects that are killing the middle class can't be helped but are much more preferable than leaving all those government pensions even more underfunded. Yes the pumping benefits other areas but it benefits the pensions more than anything else.

    1. I agreed about the immigrants and the open border.

      The main problem with the Fed is that they have run out of the most effective tools in controlling the economy, and are currently in uncharted waters. While I hadn't really concerned myself with the pensions, will they be able to buy anything when they cash their check?

      What we are seeing, IMHO, is too much leverage in the form of cash/debt/derivatives creating bubbles, and thinking that it can be controlled.

      Keep the masses in line like the Romans with a bread and circus economy

    2. The question isn't whether they devalue the dollar, they know they are of course but devaluation is much preferable to defaulting on any payments. This way they monetize the debt and only slowly rob the pensioners of their money.

    3. Another issue that may drive the immigration/open border politics relates to a slide I saw in an Army HR/recruiting briefing in the late 1980's (and that has haunted me since). It showed a significant decrease in the 18 to 24 year old population that was to start in about 1989 and get worse through 2000. The projections stopped then because the focus was recruiting strategies for the 1990's. The drop in this 'cheap labor' force that also populated the lower ranks of the Army was the lag time between legalized birth control (approx 1968) and then Roe vs Wade (Jan 1973) and the resulting decline in birth rates. Lots of those jobs have moved overseas, but lots haven't. Competition for the remaining labor pool was high until 2008. The missing wage earners also left a big gap in the SS payer pool. My suspicion is that it is a big enough gap for politicians to want to legalize their replacements for both the revenue and the votes. No one comes right out and says it because they don't really want a public debate over the millions of 'missing' Americans. Most Americans, and often economists, don't think in the longer term or look for unintended consequences with such long lag times.

    4. Oh plenty of people have mentioned it (I have plenty of times on my blog) and you are correct it is a huge factor in the mess we find ourselves in. So much of America's strength has found itself on the abortion clinic floor. Yet the Women voters of this country will not stand for any hint of someone mentioning the dark aspects of abortion.

      I take it from your name you must be one of those refreshing exceptions to the rule.

  2. PS: interesting paper: http://www.eppc.org/publications/the-socioeconomic-costs-of-roe-v-wade/

    reading it 13 years after published and in the context of our current national predicament is even more interesting.

  3. That seems logical to me. You and Pioneer Preppy have similar thoughts and I've seen other blogs that touch on single aspects of the issue, if not as comprehensively as you do. The thing is, no one knows what to do about it, myself included.

    1. Most preppers already think for themselves, which gives them a huge advantage over the masses and "being ready" is about the best that an individual can do.

      We sure know that the government isn't going to solve the problem, they are the problem.