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2018-12-07 07:35 by Karl Denninger
in Federal Government , 318 references Ignore this thread
'I Won't Be Here When It Blows'
[Comments enabled]

So-cited the Daily Beast (which demands I let it run crazy-scam ads to view, so no linkey will be provided.)

The reference is to the debt at the federal level; Trump has been led to believe and has bought into the idea that "growth" can fix the problem.

He's not only wrong those telling him this are lying.  You need only look at the last fiscal year -- he got his "growth" but federal debt expanded at 6.2% of the economy, far beyond any rational target for GDP and also roughly double the actual realized GDP expansion.

Two exponentially-growing (that is, "x% per year" growth) things, where one exponent is larger than the other, will always blow up with the larger running away in a hockey-stick fashion.  This is trivially provable if you don't believe it in seconds using Excel or Google's Sheets.

It always happens -- exactly how quickly depends on the parameters, but that you will never get away with this is mathematical fact.

Sadly there is another fact in play, which is that the markets never let you actually hit the wall.  1929 was not the actual wall.  Neither was 2007.  Nor was 2000.  All three of these events occurred long before the actual mathematical wall was reached.  They happened because the market sussed out that all the game-playing was not going to be voluntarily curtailed, ever, and that the frauds embedded in that game-playing would continue forevermore.

In other words the inevitability of the outcome became apparent to the markets and it was that determination which, I remind you, is a purely psychological matter, that resulted in the crash.

If you remember the CEO of Citibank infamously said that while he knew the music would stop while it's playing you have to get up and dance.  The firm was nearly destroyed by doing this and many other banks were destroyed including Bear Stearns, Lehman, IndyMac, Washington Mutual, Wachovia and more.  General Motors only survived as a result of a massive, unfunded bailout by the US Government.  The market didn't go down "a bit" it lost roughly 2/3rds of it's value, a plunge only arrested when Congress literally threatened to legislate fraud and force it upon FASB, convincing them to allow fraud in accounting (specifically, asset "values") on a forward, permanent basis.

Absolutely nothing got actually fixed.  Nobody went to prison for said frauds.  The people who got reamed were the shareholders and, in some cases, bondholders.  They lost everything as a direct consequence of said frauds and there was no compensation for them.

There is a known, hard date out there of 2024.  I remind you from my previous article that by 2024 Medicare, which currently spends about $1,100 billion a year yet only takes in about $250 billion, will run out of Treasuries it can redeem with the US Treasury (and by doing so force the Treasury to issue same into the public market, since the US Treasury has no money and operates on a perpetual deficit.)  That this is going to happen, and when it does that Medicare will be short some 75% of what it is asked to pay, is a known fact.  That said event will occur approximately six years from now is also a known fact.  While the actual end date might move a year either direction or two that doesn't matter because once again the market never lets you actually hit the wall.

This specific problem is especially severe because unlike the housing market which was a few percent of the economy (and houses were not being sold at four times their value), and unlike the tech crash which was powered by a few dozen crazy stock market plays that had no real profit prospects this sector is 20% of the economy and the people over 65 really are spending the Medicare funds in hospitals, doctor offices and pharmacies.

It's not "loosey goosey" numbers on a screen as was the case in 1929 and 2000, and it's several times the size of the real economic impact from the housing mess.

There is no escaping this outcome -- a complete detonation of the federal budget and asset markets -- other than a dramatic and immediate reduction in the cost of health services and products.  Not "bending the curve", not tiny incremental changes worth a billion over 10 years or so (e.g. $100 million a year) but rather an across-the-board, immediate reduction in cost for everyone whether government or not in the health care space by about 80%!

In other words health care must be reset to be approximately 4% of the economy instead of the nearly-20% it is now and you cannot wait until the actual collapse in funding comes or you are going to kill at least ten million Americans when the checks bounce.

There are answers.  This sort of reduction in cost is not impossible and it doesn't mean throwing Granny down the stairs -- or in the hole.  However, it cannot happen if the collusive, monopolist practices now rampant are allowed to continue and are not met with proper sanction that has always existed under 100+ year old anti-trust law but that governments at the federal, state and local levels all refuse to enforce.

President Trump will not be "gone" before this all comes apart and destroys the economy and asset markets if he wins a second term.  He might manage to escape before it all goes to Hell should he be defeated in 2020 but even that is uncertain.  The problem with exponential explosions of this general sort is that very small changes in economic outcomes can accelerate the timeline dramatically because these timelines are always predicated on things continuing as they are -- that is, no recessions, no serious disruptions in the global economic environment and, quite-importantly, no wars that cut off resources or otherwise constrain commodities (like oil.)  For instance were we to have a recession in 2020 the odds of that causing an immediate acceleration such that Medicare blows up one or two years hence instead of four would be extremely high.  In turn the odds of the market deciding to not wait the two years to react would go to near-100% and what would otherwise be an ordinary market downturn and recession would likely turn into economic and market destruction worse than the 1930s.

No, Mr. President, you won't "not be here" when this happens.....

smiley

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Bodhi
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Georgia
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Medicare blows a gaping hole in the US economy by 2024 and the likes of Bernie Sanders and Occasional-Cortex want to extend this ticking nuclear bomb to all Americans. The cost to implement this "freebie" is an estimated $32 trillion over 10 years, an average of $3.2 trillion per year. US tax receipts for 2018 are an estimated $3.4 trillion. So basically tax receipts need to instantly double to pay for Medicare For All. To call this plan a pile of rainbow-colored unicorn **** would be the mother of all understatements.

We are SO screwed.
Themortgagedude
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saint louis
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I will add to this. There are a lot of people who can do math. And a whole lot of these same people hate DJT. Seems he should be smart enough to realize he's the fall guy.

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Aquapura
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Quote:
I will add to this. There are a lot of people who can do math. And a whole lot of these same people hate DJT. Seems he should be smart enough to realize he's the fall guy.


I've heard that theory more than a few times. Have also heard more than a few Dem's mention how the Great Depression set up their party for a good long run of domination. I think the shortsightedness is thinking that the next depression is going to be like the last one and we'll come out the other side all fine and well. Maybe a few men will die in war but America will be ready again for prosperity. Ha! Yes...I have met people that seriously think this, among other things like "the deficit could be erased if we just taxed the rich more."

Personally I think this is the last hurrah and the nation does not survive - therefore who cares what party is in power when it hits the proverbial fan. When the economy implodes quibbling over **** like the Muller investigation or Medicare for all will truly be first world problems. Important things will be finding your next meal.
Tickerguy
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The odds of this kicking off a no-bull**** civil war are extraordinarily high.

The bad news is that it will be a dirty civil war; not a stand-up fight. Joe will go to the mailbox and get dropped from 500yds. Then Jack, Joe's brother, will shoot the guy who he THINKS dropped Joe -- he might be right or not, but he'll shoot anyway. The cops will disappear in an afternoon; many of them are rah-rah types but when there's a body on the street they will understand well that going to work might mean their KID or WIFE gets what Joe got, and there are plenty of people who don't like Mr. Cop whether for good reason or not.

It won't take a lot for the "just in time" stuff to stop, and once it does then things REALLY get dicey. Big cities much worse than exurbs and rural areas, simply because concentration leads people to get more nervous much faster.

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Winding it down.
Whitehat
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when i read DUmp's quote in the previous ticker's comments, could not believe it.

when something like this slips someone's tongue, you know that it is cold blooded callousness. some of my business contacts worked for his interests and always passed the meme that agree or not he is a very nice person. now we know that is BS, especially since he is schooled enough to know and is advised how bad and how soon.

no leader who cares about his country and its people is so cavalier.

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There are two ways to be rich: One is by acquiring much, and the other is by desiring little.
snow, seasons, distance and dirt roads: SSDD
"Be not deceived; God is not mocked; for whatsoever a man soweth, that shall he also reap" (Gal. 6:7)
Themortgagedude
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saint louis
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Well - he's no Teddy Roosevelt.

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I think its time we ask ourselves if we still know the freedoms that our founding fathers intended for us. Ronald Reagan 1964
Gauntlet33
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Hopefully I don't get flamed for this (as it's slightly off topic), but I had a recent thought the other day that people seem to get what they ask for.

Now I don't mean that you get "exactly" what you ask for, but in a general sense, you get it, or at least part of it. Example: many wanted "free" healthcare in France, America, etc., so they got healthcare, but they were too ignorant to realize that nothing is free and that it's being taxed out from the other end.

People also want easy, fun jobs. Well, they got their easy jobs but their salaries match...i.e., McJobs, Starbucks, and other retail where the tasks are as simple as stocking and scanning purchased items (no real skills involved). For now, they're lucky they have that because in a few years, their lives may get even "easier" when they don't have any jobs and they're homeless.

In general, most Americans also don't want the worries of social, political and economic issues, so they got that too...a life free of these worries but at the cost that the nation is a mess in all these areas.

Of course, these issues can and should be fixed now as Karl has repeatedly stated, but the American psychology today is very pacified and very tolerant so I think it might only be changed after we hit the wall (mass starvations, mass murders, mass economic collapse, etc.). Unfortunately, most people are lemmings and will not act now, so we'll continue to spiral downwards until we drown in this mess.

And what changes would we need? Accountability at all levels. Prohibiting and punishing lobbying (so a poor man's vote can be equal to the rich man's/corporation's vote). Enforcement of existing laws and clearing the books of old/stale laws that society doesn't want enforced. Smaller, decentralized government. Just some ideas. Will things be fixed after the fallout? If the fallout is big enough, and if the "1%" are guillotined as they were in the French Revolution, then maybe. But if the 1% are safely locked away from the bombs in their fallout shelters in New Zealand, then I think they may come back even stronger with even tighter restrictions on guns and other First Amendment freedoms.
Mtdm
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NH
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Universal suffrage has been a disaster from the get-go. What good is a bicameral legislature if they are chosen by the same people using essentially the same process.

I disagree with you, Gauntlet. If this goes like the French revolution, then things will not be fixed, they will be far, far worse. That is a sure recipe for socialism.
Jal
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What will be the negative consequence for the expats?
Tickerguy
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Death

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Winding it down.
Kochevnik
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The whole NZ thing aint going to work for the Billionaires :

https://www.cnbc.com/2018/07/11/survival....

They have ZERO skills and they will literally be kicked out of their own place within days of a crash to die in the gutter.

And never mind the Chinese taking NZ and Australia first chance they get.



Kochevnik
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One of the 'funniest' parts about all this is the recent total insanity of women, everywhere, right before we move into a Hard Crash.

The whole 'Men are Trash meme is going to die in seconds when the electricity goes out or the Walmart empties out. All those single Sex and the City grrrlllzzz are going to die by the millions.

That will solve feminism for the next century or so.

I think Karl has it pegged as usual - this is going to be neighbor on neighbor until the population is a lot lower than it is now - basically I think it will end when people just get tired of killing.

And this isn't going to be a US only thing either - you can see the signs everywhere - Europe certainly, South America of course and China - which will fall a lot faster than it rose. Maybe Russia does ok as long as nukes stay in their silos.

Karl warned everybody for more than a decade and people did jack and ****.

You cannot underestimate how very bad this is going to get IMO.

2021/2022. There's your deadline (at best).
Gauntlet33
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I'll add this...If you have a corrupt system, which we have here in the US (and likely throughout all/most of the westernized countries, minus the scandinavian countries which I've HEARD are governed more by the people), then you are virtually GUARANTEED to get corrupt results. So voting out the representative you don't like doesn't change matters much because the system corrupts 99% of the politicians who enter office. When you have a system that allows lobbying, then you are guaranteed that the person with the deepest pockets gets his way unless the other 99% rise up and say "hell no". We have to restart with a clean slate, and until that happens, the ruling class will always vote in the ones they want who they can twist to meet their objectives.
Quik49
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Dont forget the invaders from down south... the ones already here are sure to get a bit aggressive... Big and border cities are going to be hot in that regard.

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Long Vaseline....

Orionrising
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can find it now, but some years ago I read a study on a British trucker strike, that calculated how close their economy came to the point at which they could not restart trade. It was not many days, and this was like 15 year ago the strike occurred with much less of a just in time economy.


There is a finite number of days of folks not going to work before enough parts have failed, food run out and fuel exhausted where a civilization cannot recover. How much food it actually stored in your city if its outside the grain belt? How many folks with cinderblocks on overpasses would it take before the food trucks stop? How many days of natural gas pipeline shutdown by a couple guys with wrenches or construction equipment before the northern cities freeze?

Franco
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Maybe Trump does not intend to run for re-election, and that is why he is calculating that he will not be around when it blows.
Tickerguy
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smiley

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Winding it down.
Redjack
Posts: 110
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Iowa
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Onion.

Less than 2 weeks. In a large city, less than a week.

Depends somewhat on the area. Snow belt areas have a little bit extra, but tax and accounting practices do not allow much in the way of extra supplies
Quik49
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Narcissists don't take responsibility for jack...think they are above the law and always run for re-election because they are so wonderful....just ask them (him)

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Long Vaseline....

R79kpryfma2rw
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Table II.B1. on page 11 (17 of 260) of https://www.cms.gov/Research-Statistics-.... summarizes the income and expenses of the various Medicare Funds.
Line 7, which is for "General revenue" shows a total of $291.8 million.

The next page has this line, "For SMI, transfers from the general fund of the Treasury represent the largest source of income and covered about 70 percent of program costs in 2017."

To me that sounds like the general fund is already paying almost $300 billion a year of Medicare costs. Or in other words, when the trust fund runs dry, the hit to the budget won't be a sudden huge jolt because the budget is already paying for a large portion of Medicare costs.

Table II.E1. on page 25 (31 of 260) shows how the trust fund balance declines in future years. The last few years of its life, it will be redeemed at a rate of about $50 billion per year. This appears to me to be the amount of additional support needed from the general fund to cover the deficit, a pretty modest increase from the current $300 billion per year already being spent.

Tickerguy
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smiley

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Winding it down.
Emupaul
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Assuming it's all going to crash and we get Great Depression II, we are not going back the happy days of the Fifties.

Because Nukes.
Because the country is full of Mexicans (mostly Indian blood) on welfare and not white farmer boys.
Because of welfare.
Because of feminism. Yeah, add on #metoo and "racist!!!" too.

But hey, after it all goes to hell, maybe being an Evil White Man will be a good thing.

The whole Evil White Man thing is sort of funny... until you look around and notice Africa is a *hit hole after the whites leave. See: Rhodesia.

The Chinese invented what? Pasta, silk, and firecrackers?

Anyone else? Malaysia? India? Aztecs and the Maya and Incas?

Who invented running water? Sewer systems? Christianity?(as a culture). The Magna Carta? The printing press? Steam power? Electricity?? And a lot of other stuff like light bulbs, vacuum tubes, radio, the transistor, TV, etc etc etc and all the way to "hey, I'm cold or I'm hot, let's fiddle with this thing on the wall and turn on the central air".

Looks to me like all the good stuff was created by white men in Europe. And a lot in Northern Europe places like Germany and England and France. And America.

We live like kings. Richer in creature comforts than Henry VIII and all the way to Victoria.

We're soft. It's going to be a hard crash.

Oh. I saw a thing of FB the other day say white men killed off 100 million Indians while conquering the continent. Really? 100 million mostly nomadic people? Just in North America? What about South America? When I was a kid the US population was about 210 million. So, the 100 million number seems to be hyperbole to me.

One thing I thought of a few years ago. The English (mostly) and Germans settled the US. And bred with each other. The Spanish and Portuguese had South America and bred with the natives. Yeah, the same folks that didn't have the wheel and were into ripping beating hearts out to make it rain.



Gauntlet33
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Karl: based on our "just in time" economy as Onion pointed out, and for various other reasons, I hope you never end this blog as I have a very strong gut feeling that your blog will be more important than ever after the SHTF than it is now...

Now, many of us are essentially being psychologically prepared for the downfall, but later, I think we'll need more practical guidance on how to live day by day.
Nevertoolate
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San Antonio de Bexar de runover with illegals, Texas
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Have to send tickers via smoke signal.

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Democracy is a conversation between 2 wolves & a sheep discussing what's for dinner. A Constitutional Republic is found when the sheep pulls out a gun & makes clear that his 2nd Amendment Right will be exercised should the wolves attempt to hold such a "vote."-KD 9-29-15
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