Wednesday, August 11, 2010

A Deeper Look at the Market Moves Today

Stocks are dropping rather badly so far today, with the Dow down almost 200 points.

Who knows if they’ll stay down – the U.S. markets seem amazingly optimistic once again, despite a total lack of positive changes to any of our problems – but right now, investors are apparently panicking at something they should have already known:

The United States is broke.

People are only taking note of this rather obvious fact because of the Fed’s remarks that the recovery “has slowed in recent months.” Even more noteworthy, the organization is putting its money where its mouth is, announcing yesterday that it will start buying government bonds in order to cut interest rates further.

That isn’t something healthy economies normally worry about.

The Nasty Truth

So why are we broke?

I touched on a few examples back on Tuesday, August 3rd, but today’s headlines offer a few more examples that I think are important to note. In fact, I would strongly recommend you read the entirety of Laurence Kotlikoff’s Bloomberg article, “U.S. is Bankrupt and We Don’t Even Know It.” It gets rather technical a few times, but it’s well worth wading through the financial know-how to reach the main point.

Let me quote a little bit right here though, for those of you who honestly just don’t have the time:

“How can the fiscal gap be so enormous?

“Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

“This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

“Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

“And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.”

Why Do We Support The United Nations?

I wholeheartedly agree that services such as Social Security were always a bad idea and seem to be just about ready to really bite us… and bite us hard. But I’d also like to point out another expense that we stupidly persist in maintaining:

The United Nations.

The spendthrift (For those English language buffs who know the word has a dual meaning, consider it a negative term this time.) organization is considering the benefits of eating bugs over more “traditional” meat. By switching western diets in that way, it claims, greenhouse emissions would be cut significantly.

No, that’s sadly not a joke. And yet we give them money – lots and lots of money – to fund such ridiculous research. That expenditure is almost as gross as the thought of eating grubs, and not nearly as healthy.

Unfortunately, I have a very bad feeling that our overall debt will taste much, much worse in the end.

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