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alstry (35.28)

9.09...Why It's Time

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July 18, 2009 – Comments (39)

The reason is simple:

For 60 years, private industry drove profits to government.  For most of those years, private industry grew based on increased production.  In the last ten years, a significant amount of profits in America was simply based on leveraged transactions.  People and Businesses borrowing money and buying and selling things back and forth to each other at a profit. 

The BIGGEST beneficiary of this behavior was GOVERNMENT with huge tax revenues flowing in.  Federal, State, and Local Spending grew from about $3 Trillion to OVER $6 Trillion dollars.  Even though government was continuing to spend more than it was bringing in, all was fine because it was spending NOT MUCH MORE (just a few hundred billion per year) AND RECEIPTS WERE GROWING. 

As a result, since we were buying stuff, foreigners were more than happy to finance this relatively small deficit and this wonderful relationship flourished as economies around the world boomed.

All was fine until we borrowed so much that we could no longer service the debt.  Debts started defaulting, banks stopped lending, and prices crashed.  Anyone with a pulse could see this was coming.

So here we are today, millions of jobs that were created simply because of the credit bubble have been lost, tens of millions more suffered massive wage losses while costs have increased AND THE DEBT REMAINS.  Servicing debt is suffocating our economy and destroying profits.  Earnings for American corporations are a fraction of what they were just a couple years ago.  Same with earnings for many individuals and families.

FOR THE FIRST TIME IN AMERICAN HISTORY, TAX REVENUES TO GOVERNMENT ARE EVAPORATING!  THIS IS THE KEY AND WHY THERE HAS NEVER BEEN ANY PERIOD LIKE THIS IN THE PAST.

In The Great Depression, the Government was very small and ran a surplus...it did not play a significant role in our economy.  Today, if you factor total spend, INCLUDING ENTITLEMENTS, the government is practically the entire economy once you consider direct and derivitive payments.

It was one thing to ask the world economy to finance a few hundred billion dollar deficit against a backdrop of growing tax receipts and flourishing trade relationship.........BUT SOMETHING VERY DIFFERENT....when trade is down over 25% in just a year, the deficit is now collectively over $2 TRILLION per government estimates, and tax receipts evaporating as fewer and fewer Americans can afford to pay taxes.

If Obama tries to apply a new stimulous package, and receipts keep contracting at the current rate, our total government deficit WILL double again to $4 trillion dollars factoring the current rate of declining tax receipts.

$4 TRILLION DOLLARS IS CHINA'S TOTAL GDP AND OVER 4X MORE THAN THE TOTAL AMOUNT OF TREASURIES CHINA HAS ACCUMULATED SINCE IT STARTED MAKING POTTERY.

You rarely hear commentary on the shrinking revenues to our government.....you also rarely hear how important government spend has become so important to keeping our economy going. 

Tens of millions of Americans depend on Social Security, tens of millions more on Medicaid and Medicare, tens of millions more on Welfare and Food Stamps, THERE ARE OVER 20,000,000 GOVERNMENT EMPLOYEES....and millions depend on unemployment checks.   Hundreds of billions of dollars of sales to our private companies result from these payments that in effect were paid for primarily by American taxpayers and supplemented by a little borrowing each year.

All was good when the America's private sector could generate enough tax revenues to support our government.  And in turn, our government supported us.  However, much of our profits and tax revenues in the last ten years came simply from borrowing and buying.

Without government continuing to spend, we really do not have much of an economy today......and now that our government needs so much, there is no one in the world that can provide anything close to the required amount....especially if you consider that tax receipts are so low and getting lower.

It is one thing to borrow when you have a strong income and your outlook is good....it is quite another when your income evaporates.  Today, our government requires $6.5 Trillion and tax receipts are not even close anymore and getting lower.

Yes it is a mess...and monetizing this amout of deficit without any hope of generating revenues would destroy our nations economy in an instant.  Everyone would liquidate their dollars and interest would skyrocket into triple digits.

Many CAPS players are dependent on the government for income...we are all dependent on government to provide for our safety.....now that our government is running out of money, we must as citizens prepare for a unprecedented restructuring of our economy.

Let's hope it's done in a fair and equitable manner.

 

 

39 Comments – Post Your Own

#1) On July 18, 2009 at 11:37 AM, RonChapmanJr (93.30) wrote:

The time for theoretical preparation is over.  Now real preparation is necessary. 

Hope for the best and prepare for the worst.

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#2) On July 18, 2009 at 11:43 AM, VintageCat (< 20) wrote:

Let's hope it's done in a fair and equitable manner.

If it's anything like the previous bailouts it won't be anywhere near fair or equitable.   

 

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#3) On July 18, 2009 at 12:06 PM, usmilitiadude (31.66) wrote:

How much money will the government need to borrow for the fourth quarter? If it is significantly more than previous quarters, it could get ugly.

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#4) On July 18, 2009 at 12:13 PM, alstry (35.28) wrote:

The issue we are dealing with is unlike any issue before......the insolvency of a government that has morphed into the largest economy in the world overseeing a private economy that is wholely dependent on its solvency.

It is the bailout of the U.S. Government and the World economy....and all or our net worths are dependent on how this resolves.

Everybody is scrambling to figure out what is value....farmland, gold, weapons.....

In this environment all is on the table...the rule of law gets thrown out the window and any outcome is possible...ANY!!!

Right now, we are simply running out of money....tax receipts are evaporating and conditions are getting much worse...

We must restructure soon or social breakdown is inevitable.  How long do you think people will put up with bankers' million dollar bonuses while they are getting kicked out of their homes?

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#5) On July 18, 2009 at 12:13 PM, ocsurf (< 20) wrote:

Anyone know what 9.09 means? Is it September 9th 2009 or just September 2009?

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#6) On July 18, 2009 at 12:14 PM, alstry (35.28) wrote:

Sorry for the double post....

US:

It does get much worse....and it grows parabolically each sequential quarter, especially if interest rates rise.

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#7) On July 18, 2009 at 12:16 PM, ocsurf (< 20) wrote:

Good post Alstry. I can get on board with information like this.

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#8) On July 18, 2009 at 12:19 PM, alstry (35.28) wrote:

oc,

#6...from my perspective, does it really matter one way or the other in the grand scheme of things;)

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#9) On July 18, 2009 at 12:24 PM, ocsurf (< 20) wrote:

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#10) On July 18, 2009 at 12:38 PM, alstry (35.28) wrote:

oc,

I place an edited version of this blog here:  http://alstry.blogspot.com/

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#11) On July 18, 2009 at 12:45 PM, robstuck (< 20) wrote:

The BIGGEST beneficiary of this behavior was GOVERNMENT with huge tax revenues flowing in.  Federal, State, and Local Spending grew from about $3 Trillion to OVER $6 Trillion dollars. 

 

 

over what time period. i would appreciate it if you would be less vague with you statistics and facts. 

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#12) On July 18, 2009 at 12:53 PM, alstry (35.28) wrote:

Rob, 

If you read the preceeding paragraph, in the last ten years....primarily during the Bush/Pelosi era.

The coincidence is the greatest government expansion occurs during Republican presidencies which seems to coincide with growing economies.....do you see the irony for a party that prides itself on fiscal responsibility and small government?

 

 

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#13) On July 18, 2009 at 1:01 PM, robstuck (< 20) wrote:

The president of the United States has no control over local and state government spending. Also, you said it was over the last ten years meaning that much of that spending can be attributed to Clinton. President Bush's tax cuts gave way to a deficit of $458 Billion in the last year. A fraction of the current presidents spending. However, there was a time period in which the deficit was less extremely low under President Bush. Not to mention that he was fighting two wars. 

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#14) On July 18, 2009 at 1:29 PM, alstry (35.28) wrote:

The deficit under Bush was relatively small because so tax receipts were so high due to a Ponzi Scheme like credit bubble....

Let me give you an extreme example:

If I loaned a mentally impaired homeless person (we could also exchange a private equity fund who got 10% commissions on purchases) $1 Billion to purchase a large office building from a speculator who owned it at a $200 million dollar cost basis....think of the profit and taxes due from this transaction. 

Now mulitply it by the millions of transactions that occured during the credit bubble era during Bush's presidency.  Adding in just rising property values and exploding property taxes......the money was gushing in under Bush and he still wasn't able to balance the budget?

Why do you think government is so big now???  In fairness, it is not just Bush....Congress and state and local government officials are equally culpable.

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#15) On July 18, 2009 at 2:18 PM, robstuck (< 20) wrote:

that is true, however, i don't think its fair to put a heavier portion of the blame on republicans. Someone said in a blog yesterday that from 1974-2006 GDP increased from 2-11 Trillion dollars. In the same period our national debt increased from 4-28 Trillion dollars. That is a factor a 13. This means that in 1974 every dollar in GDP required .50 cents. By 2006, every dollar of GDP required 2 dollars of debt. Incredible!! 

Currently, the president is spending money like a madman and is trying to nationalize the whole economy while blaming it all on Bush. Ignorant joe schmoes think that the U.S. has an unlimited supply of money that it can print. I am so sick of hearing the word bailout you have no idea. It iS having reprocutions. Somewhere, someone tried to get rid of the dollars in the form of kennedy bonds on the swiss/italian border.. WHY DID THE MEDIA NOT COVER THAT??? possibly the most interesting story of the year. The Obama administration needs to focus on trying to protect what little this country has left. That being the dollar as the world reserve currency. Spending money that we do not have is not the way to do it...

 

rob 

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#16) On July 18, 2009 at 2:20 PM, robstuck (< 20) wrote:

here it is.. 

 

We see that while GDP nearly tripled from over $4 trillion to over $11 trillion between 1974 and 2006, total debt outstanding increased by a factor of 13, from just over $2 trillion to over $28 trillion. In other words, in 1974 $0.50 of new debt was needed to fund $1 of GDP, but by 2006 about $2 of debt was required to fund $1 of GDP.  

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#17) On July 18, 2009 at 2:22 PM, finabuddy (96.32) wrote:

do you even know what a private equity fund is? 10% commissions? its called 2/20. I would stick to the vauge stuff. Making up details is harder to do, because of reality and stuff.

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#18) On July 18, 2009 at 2:23 PM, robstuck (< 20) wrote:

ALSTRY, 

 

What solution do you propose to fix the current economic problems that we face? What would you have done differently? I hear so many people talking about what others are doing wrong (myself included) but it takes someone with much more intelligence to solve a problem and propose reasonable and effective solutions...

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#19) On July 18, 2009 at 2:31 PM, alstry (35.28) wrote:

fina,

That is a hedge fund....many of the private equity funds were structured to get paid on the buy as well.

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#20) On July 18, 2009 at 2:38 PM, alstry (35.28) wrote:

Rob,

The only solution is the purge the debt and restructure the nation to a sustainable system.  Purging the debt is key....and doing it in a equitable fashion will be necessary to prevent anarchy.

We cannot as a country or an economy depend on our government paying out $6.5 Trillion in entitlements, defense and other government spending when we are producing privately so little.

The process will not be fun, but at least after we go through it, we will create a foundation to enter a new age of prosperity.

 

WHAT I FIND AMAZING, YOU HEAR NONE OF THE COMMENTATORS OR SO CALLED EXPERTS DISCUSSING THIS ISSUE....my guess is Buffett things about it 24/7.

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#21) On July 18, 2009 at 2:58 PM, SolarisKing (21.47) wrote:

robstuck (< 20) wrote:The president of the United States has no control over local and state government spending.

Should i argue that point? If the Feds commit 'matching funds' to some pork project, it makes it nearly essential that the neighbor must now have a similar project/museum/stadium/whatever to compete with the advantage of free money. 

I could go on, but if you didn't catch that, perhaps i'm not smart enough to figure it out.

-solaris

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#22) On July 18, 2009 at 3:10 PM, robstuck (< 20) wrote:

solaris, 

congress not the president passes "pork" bills and determines what goes in them. Often these are block grants which do not require matching by the recipient. Also, these bills which make up a small portion of state and county budgets. However, this point is null due to the fact that in the end IT IS UP TO THE STATE/ COUNTY.

 

solarisking,

your sarcasm is illogical and attitude uncalled for. perhaps you should spend your saturday afternoons somewhere else rather than interupting fellow caps members discussions with ignorant blog postings. 

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#23) On July 18, 2009 at 3:30 PM, alstry (35.28) wrote:

FWIW,

This is not a political issue. Both side are culpable.  Whether you are the perp or a conspirator to the crime, the punishment is the same.  Both sides have played both sides of the fence with equal culpbility in my opinion.

What ever President that walked in the door this past year, he would have inherited a government with a $6.5 Trillion dollar collective spend and evaporating revenues coming in as the credit bubble unwinds.

If Obama doesn't figure out a way how to finance the current spend requirements, we are screwed.  If he dramatically lowers spend, we go into a deflationary depression.  If he tries to print his way out, we sprial into an inflationary depression.

None of the choices are easy.....the situation is not really his fault, save maybe his failure to address the issue as a member of Congress.

We are married to a government that spends $6.5 trillion dollars, we as a nation have to figure out a way how to deal with it.

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#24) On July 18, 2009 at 3:46 PM, SolarisKing (21.47) wrote:

robstuck (< 20) wrote:

solarisking,

your sarcasm is illogical and attitude uncalled for. perhaps you should spend your saturday afternoons somewhere else rather than interupting fellow caps members discussions with ignorant blog postings.

 MY sarcasm? Glad to hear you're not guilty of that.
    YOU may think that the congress doesn't need to listen to the president, but Roosevelt thought differently. If the congress doesn't have to listen to the president, how come so much money gets spent as soon as Obama takes office?
   If i was running a business (which i am) and my competitor had a small advantage (say 5-10%) i would be devastated financially. If you have competed very much than you will know that it only takes one point to win a game. If you are playing poker, and you cheat once, your opponents don't think 'oh, well, it was only a small portion of an cheating'. Things are either equal (fair) or not. 

Listen, robstuck, pal. Just because you are smarter than me, and just because i don't find the perfect way to imply that i know that your smarter than me, doesn't mean that you should talk to me that way.
   If you read my post carefully (a lot of smart people are very busy and sometimes read very fast and make tiny little mistakes), you will see that i started by questioning if i should argue a point, Typed ONE sentence, and then stated "i might not be smart enough".

   There are plenty of fools here who would appreciate an all out flame war, if you'd like i can give you some names. I really am much to emotionally sensitive to endure it (ask anybody) so please be nice to me.

-solaris

 

 

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#25) On July 18, 2009 at 5:22 PM, anchak (99.84) wrote:

Is it me - or really some of alstry's blog actually make sense now....and what horrendous time- markets on a tear.

Good post man!

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#26) On July 18, 2009 at 5:52 PM, abitare (39.81) wrote:

Good post. Aligned.

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#27) On July 18, 2009 at 6:07 PM, Rebkong1 (< 20) wrote:

great post alstry

 

 

i know you think i am an alarmist to this being "the end of times" and while i truly believe it is the start..who knows how long that plays out..4 years? 100 years?  who knows..i sure don't.. 

 

but this post has very well summed up what is currently happening with our financial and governmental systems today 

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#28) On July 18, 2009 at 7:39 PM, devoish (98.37) wrote:

All was good when the America's private sector could generate enough tax revenues to support our government.

That was when the top tax bracket was 70%, right?

That was when unions were strong enough to matter.

That was from 1935 until 1980.

Then someone thought of a better idea.

Not collecting taxes.

Not collecting tarriffs.

Borrow and spend.

Sheeple.

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#29) On July 18, 2009 at 7:42 PM, FreundInvesting (29.38) wrote:

Good post. I hope 9/09 is right. I'm sick of waiting, because the longer off the correction is, the much more brutal it will be. I think the government is not too stupid to see this; rather I think they know exactly what's coming, and that was their plan all along.

And when I say government, I don't mean just politicians, I mean the banks that own them as well. No way Goldman doesn't see the train coming. They just need a little bit longer to prepare for it.

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#30) On July 18, 2009 at 7:53 PM, IIcx (< 20) wrote:

rec +1 - you managed to post without a billion punctuation symbols ;)

This post actually has some merit - you're right we are going to get taxed more to preserve the system that supports fellow citizens who are out of work and to cover the bill for municipal and state projects.

The part you're not seeing is that unnecessary municipal, state, and federal projects will not be supported and if they are passed every single politician will be replaced in the next 2 elections.

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#31) On July 18, 2009 at 8:13 PM, IIcx (< 20) wrote:

why 9.09 alstry?

Is there something significant about the date or are you just into numerology?

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#32) On July 18, 2009 at 8:45 PM, Judochop172 (26.72) wrote:

Ever realize 9-9-9 inverted is 6-6-6? Spooky.

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#33) On July 18, 2009 at 9:03 PM, IIcx (< 20) wrote:

lol - if you're going to round the March low it's 667 not 666. 999 is no more significant than any other random number unless you are Mayan and the probability of that is an absolute.

999 adds the foolish factor to these posts that in many cases are actually grounded in interesting facts.

Just my humble opinion, IIcx 

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#34) On July 18, 2009 at 10:27 PM, dickseacup (66.91) wrote:

I was going to post this as an entry in my own blog, alstry, but you get more readers. I don't care so much for the source, but he does pull together some wide-ranging quotes on the subject of a September catastrophe:

 

http://www.henrymakow.com/perhaps_we_should_prepare_for.html

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#35) On July 18, 2009 at 10:29 PM, Varchild2008 (85.30) wrote:

The only solution is for the Federal Government to cut spending so dramatically that the tax revenues coming in actually do offset the deficit.  Unfortunately, the current deficit + current economic conditions if they continue on for the next decade or so won't be enough to erase the deficit during my entire lifetime.

Add in the fact that the Federal Government IS NOT reducing spending, but is increasing spending on a rapid pace, and you have a big gigantic problem.  States are cutting back spending which is good....but that is getting dramatically offset 100 fold by a Federal Government Spending Orgy.

CIT GROUP would have been bailed out by the Federal Government if it weren't for the fact that the current level of spending by the FEDs is enormously in dangerous territory.

A lot of public institutions are going to go BROKE... It will be America's universities that will eventually be the last shoe to drop.  Only then will the Federal Government declare "Bankruptcy" and there won't be a single country willing to bail out America even if they could.

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#36) On July 18, 2009 at 10:33 PM, Varchild2008 (85.30) wrote:

Therein lies ALSTRY's  MATRIX.... In Lamens terms...

"Leaving the Matrix" means that we enter into an era  of complete anarchy in which there's no Governmental Support Mechanism in place.

In this era.... It will take private individuals and private industry to devise one big gigantic "reset button" to build a brand new currency around something of value... and basically declare everyone's debt as "Forgiven" and move on to re-building the country.

Ron Paul asking for the Dollar to be based on "GOLD" may not be naieve afterall... Cause in the era of Anarchy in which every Governmental Institution is Completely Broke and Incapable of functioning.....in that environment.... America's Currency can no longer exist based on Market Value.... But instead based on something tangible like GOLD that actually carries a true value.

Job creation won't start until America's Currency and entire economic system are transformed through a mind blowing era of absolute Anarchy.

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#37) On July 18, 2009 at 10:43 PM, topsecret09 (36.35) wrote:

http://www.youtube.com/watch?v=5I196e-Nnc0&feature=related

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#38) On July 18, 2009 at 10:43 PM, Varchild2008 (85.30) wrote:

P.S.  In order for everyone to lose all of their money in a blink of an eye.... Unlike Alstry's assertion that the "Federal Government will do a 100% tax on everyone," the reality is that our Currency must be redcued to ZERO VALUE.  Exactly like the Iraqi currency was reduced to ZERO VALUE after America removed Saddam from power.

America's currency needs to be ZEROED OUT... the DEBT forgiven... Before we can create a brand new America free from the Errors of Socialism and Overspending and the Credit Economy.

Just recently I almost spent beyond my means back in June...
An honest mistake that I quickly averted but it's easy to have "Ficticious" money... Which is money spent that doesn't exist.

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#39) On July 19, 2009 at 1:51 PM, MarkOsmos (< 20) wrote:

The title alone of one of Susan Jacoby's recent books says much, The Age of American Unreason.

A major reason for The U.S.A.'s huge national debt is the pervasive lack of cerebral rigor among the citizens of this country.  As an aspirant to hyper-intellect, I am in constant shock how very few people I encounter make an effort to think.  Instead, most rely on instinct, conditioning, apathy, and the comfort of whatever one's current views happen to be.

Year after year, decade after decade, the two most popular political parties increase the national debt.  And the electorate continues to re-elect them, many by the default of not voting.  Most would not re-hire a personal money manager that handled their finances in this manner, but most repeatedly do so at election time.  

People of reason tell the political parties that they will vote for alternatives (instead of falsely claiming there are no "real" alternatives) as long as the national debt increases.  This is why I do not vote Republican or Democrat.  I also have some guilt, as I voted for these parties in the distant past, and at times have personal debt issues. 

For many years I have seen politicians like our Senator Patty Murray on the front page of local newspapers bragging about bringing extra federal $$ to our state, including, but not limited to, increasing federal funding for WA State ferries as touted on the front page of The Seattle Times 15 July, 2009.

I asked WA State Representative Norm Dicks in person why he repeatedly votes for red ink national budgets.  He told me it is Ronald Reagan's fault (R.R. was President when I asked), because he is the one submiting red ink budgets to Congress. While Rep. Dicks's answer is a red herring as to why the Representative himself votes for red ink budgets, guess who now not only has a government building named after him in Bremerton, WA, but is also still on the federal payroll as a Representative? 

When Ronald Reagan was running for President against Carter, he looked straight into the camera and said that if elected he will balance the budget by the end of his 1st term.  He did the opposite, and we re-elected him to a 2nd term.

Instead of blaming politicians, the reality is that a major way for voters to re-elect you and your party is to show them all you have done for them in terms of federal dollars you brought to their district. And with a President and 535 congresspersons, that's a lot of hands dipping into the cash register to tickle voters' ears.

I applaud Susan Jacoby and her publisher for their diplomatic restraint in titling her book.  The 2008 U.S.A. election resulted in only 1.4% of voters choosing presidential alternatives other than the two political parties that have given us this $11.6 trillion national debt (plus tens of trillions more in unfunded future liabilities).  This means those who chose not to vote plus 98.6% of voters chose to re-hire candidates from these same grossly irresponsible money managers called Democrats and Republicans.  So you tell me who is to blame for the national debt?  Such numbers are only one indicator that this is, indeed, The Age of American Unreason.

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