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Why Our Medical System is Going to Destroy Our Economy and Way of Life (Please Help)

23 Jan

This is a short letter I would like everyone to send to President Trump once a day (https://www.whitehouse.gov/contact).  I’ll explain why below.


 

Dear President Trump,

Please follow through with your promises on healthcare so our medical system does not bankrupt our nation (this is about far, far more than Obamacare).  All of this can be done by enforcing existing anti-laws.  From your campaign website:

“5. Require price transparency from all healthcare providers, especially doctors and healthcare organizations like clinics and hospitals. Individuals should be able to shop to find the best prices for procedures, exams or any other medical-related procedure.

  1. Remove barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products. Congress will need the courage to step away from the special interests and do what is right for America. Though the pharmaceutical industry is in the private sector, drug companies provide a public service. Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.”

 

Why is this important?  Right now, a 37% of the federal budget is going to just to Medicare and Medicaid (https://market-ticker.org/akcs-www?post=231561, for full spreadsheet see https://www.fiscal.treasury.gov/fsreports/rpt/mthTreasStmt/mts0916.pdf and look on page 31 for everything under “Centers for Medicare and Medicaid Services”).  Beyond that, health care in total for the country is nearing 20% of GDP.

That is a huge portion of the economy and it is continuing to grow at an alarming rate (against both the federal budget and total GDP) every year.  At the federal level, last year we saw the good news being “hospital benefit payments” up only 8.4% (https://market-ticker.org/akcs-www?post=231763).  Medicare Part D was up 26%.   Needless to say, that 37% of the budget will look small in no time at all.

While prices are rising like this, the medical industry has been allowed to act as basically exempt from anti-trust laws.  It is very hard to compare prices.  Meanwhile, the industry charges in ways to maximize what they get from each customer (different prices depending on which insurance company is used, whether you are paying yourself, etc).   Try charging vastly different rates for people based on payment method in other industries and you’d go to jail.

Beyond just meaning we have more and more money going just to a single industry, these facts also mean it is literally impossible to deal with the federal budget deficit or total debt in general in this country (which continues to rise every single year for a long time now).

The federal government has the advantage of having the world’s reserve currency to use, but don’t confuse the fact they can run large deficits now with an argument they can forever.  With big enough debt, all it takes is a small scare to force up the interest rates on government debt.  If they cannot stop that can kind of scare immediately, then the government is forced to borrow more (to pay the added interest on the debt), which likely only intensifies the scare and moves interest up further.  Very shortly afterward, you are in a chain reaction that utterly and completely destroys the government’s ability to borrow (this is not a new type of event; we see it throughout history).

Unfortunately, right now, neither Republican nor Democrat plans do anything to address this as their plans do very little to encourage lower prices throughout the medical industry (they do far more cost shifting).  Fixing this problem means accepting that doctors, hospitals, pharmaceutical companies, etc all end up with less money and means accepting a big contraction in GDP for a year or two (as the medical industry would shrink considerably).

President Trump actually did have the right idea in some of his campaign literature, but as president he seems to have dropped those and taken up more standard Republican positions.  Sadly, we need real change here and we can no longer afford to wait long.  Enforcing anti-trust laws in medicine is the only remaining feasible way we are going to address this issue in time for it to do any good.  That is why I am asking you to send the above letter.  My hope it is that if we can get enough people to do it, it will get Trump’s attention, and we at least stand a chance. Every other alternative is extremely bleak.

Thank you for your time.

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Generational Dyanmics: Predicting the Future and Seeing Today

3 Mar

Do you look at generations other than your own and see differences beyond just growing up with more technology?  There is a theory called generational dynamics that suggests that each generation grows up in the shadow of the one before it and thus we see very big differences between generations.  Since all generations die off, we tend to repeat these cycles every 70-100 years or so and knowing where a country/culture is at in a generational cycle provides a tremendous amount of insight into events. While it is not something I use exclusively, it’s the best theory I’ve found to put a framework around events ranging from politics to economics to large societal issues, etc going on all around the world.  The blog/website Generational Dynamics by John J. Xenakls has become a daily read for me and has helped me filter out a lot of the nonsense you get from much of the media and politicians from both sides.  There is a free book on the site explaining the ideas in more depth, but here is an overview.

Limits of the Theory  I think generational dynamics is the best large scale societal theory I’ve seen anywhere (including any of my college political science classes) and have come to have a great amount of respect for its ability to project future pushes.  That said, it’s impossible for any large societal theory to completely cover all of reality, and I believe generational dynamics is best looked at as a very good guideline to events rather than something absolute.

Basic Idea Individuals vary tremendously and it’s impossible to come up with a theory to explain how any one person is going to end up.  While that’s true, generations as a whole grow up with shared experiences and those experiences are very different from their parents.  Because of these shared experiences, we see traits/results that follow along generational lines.  If we follow these patterns through enough generations, we start to see patterns. Once we see the patterns we can better understand events around the world and make better guesses of future directions.

The Cycle Our starting point in looking at generations are crisis events.  There are usually both financial and military aspects to this.  A crisis war is not just any war (which can break out at any time).  Crisis wars see the larger societal needs very much trump individual wants/needs and the war becomes seen as a struggle for the very survival of the wider society/culture.  With these events, nationalism rises to its highest points and, by the end, victory is vastly more important than individual human lives. Our last crisis war for America was World War II.  Before that was the Civil War and before that the Revolutionary War.  In these events, we see a tremendous amount of national unity  (with people either rallying around the union or the Confederacy/Britain).  We also saw wars where human loss of life was accepted on scales it wouldn’t have been at other times.  By the end of the Civil War, the north was burning down Atlanta and everything in its path (unthinkable at the start of the war).  In World War II, we see Dresden, Germany virtually destroyed by fire bombs, huge forces thrown into possible complete destruction in Normandy, and nuclear weapons against Japanese cities.

The crisis event also has a financial component.  Often there are big bubbles/over speculation leading to large financial busts.  These events in fact are before the crisis war and help bring it about. After the crisis event, according to generational dynamics, we go through a cycle until the next crisis event.  Usually this is 4 generations, but if a crisis is forced early it can occasionally be earlier and sometimes we muddle through an extra generation or two.  The standard format though is to go through the following 4 generations: hero, artist, prophet, nomad.

If we start with World War II, we see The Greatest Generation (hero generation) become adults during the Great Depression and be the ones who fought in World War II.  Collectively they never want to see any of this happen again.  Laws are put in place to stop the over-leverage we saw that allowed for the depression (while at an individual level, many are not trusting of banks and remember to avoid wasting anything).  Meanwhile, there will not be another mistake like “peace in our time.”  Appeasing Hitler helped lead to the most destructive war in human history.  America would be much firmer with the Soviet Union and would respond to threats to global stability.

The next generation is the artist generation.  They grow up during a crisis era, but mostly become adults afterward (I think of this generation being the shortest time frame generation although it’s really not put as such).  This generation is somewhat traumatized by what they grew up with and is much more risk averse and indecisive as a result.  This indecisiveness helps them to be able to paper over differences later in life (looking for compromise), but also leads to very costly outcomes. Those who grew up during World War II are sometimes called the Silent Generation.

The world the baby boomers (prophet generation) grow up in is very different from their parents.  They grow up in post-war prosperity and come of age during a national awakening.  They do not directly remember WWII and its costs, but know it as a story.  The overwhelming need for strong nationalism isn’t as great for them and having not lived through the depression, they aren’t as frugal.  This is a very sharp contrast to their parents and the result is that there is a very big opening for some of this generation to be at strong odds with their parents.  We see this strong rebellion with the hippie movement and the strong anti-war movement that was so big on college campuses (and comparing the Vietnam protests to Iraq protests, you see big generational differences).

The next generation is the nomad generation.  Mostly recently for us, that is Generation X.  They grow up in the shadow of the big generational divide of the awakening.  The result is more anger and through American history, this is the generation (nomad generations; not specifically Generation X) with the highest crime rate.  This can include vastly increased amounts of fraud (recently think the housing bubble, lack of corporate responsibility to customers/shareholders, etc).   They come of age during the unraveling era as many of the post-crisis war actions are undone.  They continue a trend of becoming more and more individualist rather than nationalistic with the larger society becoming less important.

By this point, you see most of the last hero generation having retired or passed away and with them, most the direct memories of the last crisis.  This leads to a great reduction in the “outdated” rules.  For us in the past 2 decades, we have seen financial laws, like those separating investment and commercial banks and laws limiting leverage, reduced, eliminated, or often just plain ignored.  Meanwhile, the thought of another war like in the past are not thought of as seriously possible.  All of this helps lead the nation into a new crisis era and repeat the cycle again with another crisis war (although it should be remembered, sometimes you can get an extra generation or so).

What’s the Point of this? Looking at where a people are at (this does not have to strictly follow national borders, but can be on a tribal/ethnic level) tells us a lot about responses.  First let’s go back and look at the Vietnam War.  At that point, Vietnam was in in a crisis era (long removed from its last crisis war).  This meant that you would see fighting among Vietnamese until there was near total victory or defeat for one side.  The US however was in a generational awakening era which meant the war was  a political war that would go on only so long as the politicians were willing to let it.  The end result of that was the US underestimated how much fighting would be involved and then left before the fighting was over.

Now let’s look at Iraq.  According to generational dynamics, it’s in the Awakening Era.  The last crisis war was the Iran/Iraq War which was a major full scale war between both countries.  This does not mean that wars in Iraq are impossible, but a full civil war where both sides are strongly mobilized and citizens committed to complete victory is highly unlikely. That’s also exactly what we have seen.  Al Queda in Iraq relied mostly on foreign soldier for suicide bombers and was never able to create the massive war it wanted.

If we look at ISIS now, we can be tempted to dismiss the theory as this looks like a major civil war.  If we look closer, we see things really still fit with the theory however.  The Iraqi army greatly outnumbered and outgunned ISIS at Mosul, but what happened?  The Iraqi army was unwilling to risk their lives and retreated.  Even now with plans working on retaking the city, there is strong doubt at the Pentagon that a Shiite army is going to risk their lives to retake a mostly Sunni city.  All of this is something you’d expect in an Awakening era much more so than a crisis era.  In an Awakening era (like the US during the Vietnam War) individual deaths are treated much more tragically and it’s much harder for a society to be fully behind a war.  It also needs to be noted ISIS is strong partly because a great number of foreign fighters.

If we look at Afghanistan, we see the opposite.  Ten years ago, while the media was focusing very much on civil war in Iraq, Afghanistan was largely forgotten. John J. Xenakls from generational dynamics predicted that the civil war in Iraq at the time would peter out, while Afghanistan would intensify.  Afghanistan was in generational crisis era, long removed from their last crisis war, and this meant it was ripe for things to get worse.  That’s pretty much as things played out with things in Iraq cooling down until the rise of ISIS and things in Afghanistan continued to get worse.

 

This Points to a Bad Future, Why Use It?

Going by these cycles, it’s pretty easy to see that predictions for the next 30 or so years are pretty bleak.  Most of the major countries are long past their last crisis event (especially in much of eastern Europe where the last one was World War I).  With that in mind, why should it be a theory we look to?

My answer to that is that we see the patterns discussed in it regularly repeated through modern history.  If we stand any chance of altering it, we need to understand it first.  Is it possible that changes in technology (including nuclear weapons) and global connectiveness has altered the cycle already?  Yes, it is possible, but at the same time, that’s exactly what could have been argued a century ago when technology seemed to be progressing faster than ever and global trade was at an all time high.

In the meantime, we are still seeing many results expected in generational dynamics panning out.  The price/earning (p/e) ratio of stocks is quite a bit higher than the average historic level which has set us up for an enormous stock market crash even if we just return closer to the norm (and for something to be the norm, we actually have to fall below it as well).  Meanwhile, we see increasing aggressiveness from countries with China taking control of territory traditionally belonging to a great number of other countries and with  Russia expansion in Eastern Europe (Georgia, Ukraine).  They have assumed the West won’t do anything and for now they are right, but the danger is the West eventually decides it has to act and they still assume it will back down.

My personal projection is that we are probably going to have a major war in the next few decades.  It will be one everyone is stunned by, but in history books it’s looked at as something that was easy to see.  The future is not written  in stone though and can be altered.  It can only be altered if we are willing to take a hard look at our own reality though and that’s what generational dynamics helps us do.

 

What’s going on in the Middle East (Iraq/Syria/Iran, Sunni vs. Shia)

13 Jun

(Many thanks to the Generational Dynamics website which is linked to a few times here as having very much helped me keep up and make sense of the Middle East happenings).

What’s going on in the Middle East is important, but I think if you are just listening to the news, you are missing a lot of key elements.  I’m not expert on the situation, but here is my attempt to explain it and its implications going forward.  Comments are appreciated if anyone has anything to add.

Sunni and Shia Islam

First you have to understand the Sunni/Shia dynamic here because it is very important (far more important than any Catholic/Protestant/Orthodox divide is today).  Sunni Islam is the larger branch world wide, but Shia Islam is big in several countries in the Middle East.  Of particular importance, Shia Islam is the religion of Iran, a majority in Iraq, and the government (but not the majority) in Syria.

Conflicts between the groups have been widespread throughout history and increasing lately.  Al Qaeda is a Sunni group, Hezbollah is the Iranian backed Shiite group operating out of Lebanon.  While the media often lumps these together as Islamic terrorist groups, the distinction is very important.  You currently have conflict in several countries with violence occurring along Sunni/Shia lines.

Shia-Sunni percentages

Above map found at: http://war-in-middle-east.blogspot.com/2012/04/sunni-shia-split-in-middle-east.html

Syria

President Bashar al-Assad is part of the  Alawite ethnic group which is mostly Shia.   Al-Assad is determined to remain in power in Syria and has used chemical weapons against the population to preserve his position.  There are both moderate rebel groups and the extremist Islamic Sunni group, The Islamic State in Iraq and Syria (a couple different translations for this I’ve seen, but we’ll stick to this one, or ISIS for short), which was an off shoot of Al Qaeda, but has since broken off.  With the failure of the moderate groups, the extreme ISIS is increasingly becoming the central rebellion group and the lines of the civil war follow largely along the Alawites vs. the majority Sunni  population.

From outside the region, Russia has aided President Bashar al-Assad considerably which is a big reason he is in power still.  The West meanwhile has been reluctant to get heavily involved (the refusal to help the moderates, is the reason Robert Ford, the American ambassador to Syria, recently resigned).

The situation has spiraled out from this unfortunately.  Syria has become a magnet for recruiting Sunni jihadist with many coming from Europe and even a few from America as well as from the Middle East (more on this below).

This has prompted a direct response from Iran, which has directed it’s Lebanon based terrorist group Hezbollah (Shia led) to support the Syrian government (and given their dependence on Iran financial support, no was not an option).  Within Lebanon we have actually seen what had been secure Hezbollah areas attacked by Sunni led terrorist in turn as a result of this.

Iraq

Iraq, while a majority Shia, was led for years by Saddam Hussein, a Sunni.  It had a brutal war with Iran in the 80s (in general dynamic terms, it’s last crisis war) in addition to all its smaller wars with the West and the general population is not one that is exited or wants any part of another big war.  When confronting Americans, Al Queda had to import suicide bombers as even among supporters, they weren’t getting volunteers among the native population.

If you remember a few years back, there was “The Surge” by the US.  This was directed at Al Qaeda backed groups and was actually quite successful.  The reason for that success largely that it was able to get the support of the Sunni population which was happy to be rid of the terrorist group made up of large number of foreigners causing problems for them.  That was several years ago though and since then, Iraq’s current government has been very anti-Sunni and this has led to a reversal.  Many of the same people who were happy to see the Al Qaeda linked groups pushed out before are now on the side of ISIS (which has broken off from Al Qaeda and considered by many to be more extreme) .

With support in a region going through much of Syria and Iraq and with large number of jihadists coming into the region, ISIS’s power has grown considerably.  They have taken Mosul (Iraq’s 2nd biggest city) and Tikrit (Saddam Hussein’s home town).  Much of the Iraqi army does not seem to want to be risking their lives and we’ve seen mass abandonment in those areas despite actually outnumbering and out gunning the ISIS.  In some ways that will only get worse as the ISIS has now been able to take over some left behind American equipment with the fall of Mosul and secured a great deal of financing from the city.

Where things will go from here is an open question, but we’ve already seen responses from both Iran and the Kurds in the north.  Iran has sent parts of the Revolutionary Guard to defend Baghdad.  While I heard radio broadcasters somewhat confused by this earlier, it makes within the framework of the widening strife between Sunni/Shia players.  Iran does not want Iraq to fall to Sunni extremist group as that will put the group right on their border.  The ISIS is also the exact group they are supporting the Syrian government against.

Meanwhile in the north, the Kurds, who have long had a desire for independence (or at least greater autonomy) have taken over most the areas from the Iraqi military largely leaving the entire northern part of the country without an Iraqi government presence.

Going Forward

Where things will go from here is a very open question, but even if it can’t hold what it’s taken, the ISIS has a clear area of strong influence through Syria and Iraq.  Further, the rising and escalating violence between Sunnis and Shiites is worrying to say the least.  We’ve now seen separate, country specific issues spiral out to become larger regional issues.  These are spread even beyond the confines of this post and countries like Saudi Arabia have shown they are very concerned with Iran.

Beyond the long term geopolitical concerns though are also the Western domestic concerns.  Large numbers of migrants have made their way to Europe (and to a lesser degree the United States) over the past few decades.  In this conflict in Syria, a great many have traveled to to help fight Bashar al-Assad and have been fighting through the ISIS.  Given the extreme radicalism of the group, several western countries are very concerned with those coming back.  They won’t have the language/customs barriers of many previous terrorists, but will have spent a great deal of time in a group that actively sponsors terrorism.

 

(Judicial Review) What Authority?: More Important than how Good or Bad an Issue is

14 Feb

Imagine tomorrow that President Obama declared that all laws that recognized same sex marriage any differently than heterosexual marriage were being rescinded and being re-written to include same sex marriage.  Imagine the public reaction, the news, and the public debates.  Now imagine 10 years ago if President Bush had declared any state law recognizing same sex marriage illegal in the country.

What scares me most about that reaction to either would be many people would be cheering.  The reason that concerns me so much is that the president would have zero authority to do that in either case, but a decent portion of the population wouldn’t care.

The problem is that we, as a society, very often are looking at issues in only the simplest light.  If we see a side of an issue to be good, we cheer for things pushing us that direction.  If we see it as bad, we do the opposite.  This doesn’t mean there is necessarily anything wrong with seeing an issue as black and white, but we can only do that to the extent that we can recognize other issues that emerge and one big one relates to the power of authority.

Now I don’t think President Obama would come out with that tomorrow (not that the power of the presidency doesn’t continue to get stretched way too much), but the same thing is happening with the courts.

Who Makes the Decisions

We live in democrat republic with the Constitution as the supreme law of the land.  What this means is that there are prescribed ways for laws to come about with very specific roles for different bodies.  That is something that most people acknowledge and celebrate, but what must always be remembered is that we only have a democratic republic so long as we hold the government responsible for following it. The more we accept other ways of changing the law, the less we really live in a constitutional republic.

The Courts and the lack of Democracy

While there are many areas we have seen the federal government exercising power that it does not have, no place is this more an issue than it has been with the courts.  A few key points must be remembered about the courts:

1.  They are the least democratically accountable.  There are elections in some states, but this isn’t true at the federal level.  Judges/justices are not easily removed and appointments to the Supreme Court are for a lifetime.

2.  They are supposed to interpret the law (written in legislatures) and apply it to actual cases.  This does not mean make the law.

3.  By using the word “unconstitutional” a judge can invalidate a state law and it only takes 5 votes from the Supreme Court to overturn laws in all 50 states and something that might have taken delicate compromise in the US Congress.

Take these points together and one thing becomes clear.  If we truly want to live in a democratic republic, it means that the judges can not be making rulings based on their own morality.  What they want the law to mean must be irreverent.  If we accept anything less than that then we are accepting that a non-democratic accountable branch of government is better at making laws than the democratic aspects of it.

The problem is that by accepting “A Living Constitution” the courts have been able to push whatever moral direction they feel is right.

Same Sex Marriage

The most recent example is all the court rulings overturning traditional/heterosexual marriage laws.  The direction the country is going in on that issue is clear (younger generations are overwhelming for equal status between the two), but that does not change two fairly simple facts:

1.  The laws against recognizing same sex marriage passed state legislatures/ballot initiatives in quite democratic ways.

2.  Almost no one who wrote/voted on any of the Constitutional amendments would have said it required equal protection for same sex marriage if asked (seriously, imagine asking Madison if the Bill of Rights would have required equal status).

I will fully grant that applying the Constitution is not always an easy thing, but this issue is pretty cut and dry on those two points.  Marriage law is not a new field and the fact that it has not been an issue until the past few years suggests that modern sentiments are the only things pushing a change.

None of this means that laws should not change, but the celebrations over rulings over-turning these laws are worse than bad.  We are literally celebrating because a branch of government that has no right to make laws is making a law we happen to like.  If we want change, the place to do it is through the legislatures, not through the courts.

It should be remembered that if the courts have the power to make laws we like, they also have the power to make laws we don’t.  Dred Scott was bad law too, but because of the Supreme Courts decision, slavery was instantly allowed in every United States territory.

Cyprus Today and America Tomorrow

22 Mar

I’d suggest everyone follow what’s going on in Cyprus very closely, because it’s very likely going to be playing out across the globe including in America in the next couple of years.  Timing is difficult to ever say, but I’d be surprised if Obama isn’t still the president when we get to this stage.  This post makes use of several parts from Karl’s Denninger’s Ticker Now It’s Getting Real in Cyprus.

Banks in America

Let’s think about how banks work to start with.  The banks get money in a few ways.  Everyone thinks about people depositing money, but that’s not the only place money comes from.  They also have people who buy stock from them.  Those people gain an ownership stake in the company and possibly part of the profits in exchange for their money.  The bank also has bondholders.  Bondholders for companies, like for the government, are basically giving loans of their own.  They loan out money and at the end of the term, they are paid back more than they started with.

Once a bank has money, it can loan it out.  The way they make money is they get paid back with interest. They know there is a certain amounts of risk in loans and that’s supposed to be reflected in the interest rates.

What happens if they make a lot of bad loans though?  By law in America, once the banks assets are less than what it owes (its liabilities) it is supposed to be taken over by the FDIC (government program).  By assets, it’s meant the value of what it owns.  Say for instance the bank is realistically going to get paid back only 50% on one set of bad loans.  Well, then the asset is only worth 50% of what the bank was supposed to be paid back.  It legally can’t claim its worth more than that if no one else would be willing to buy those loans from them at that rate.

This law was enacted during the 1930s Great Depression for very good reasons.  As long as the bank is taken over as soon as liabilities are greater than its assets, then the size of the problem is small.  Someone still has to lose money then though.  The order of loss goes like this:

  1. Equity (stock) holders
  2. Unsecured bondholders
  3. Senior bondholders
  4. ——————————-(FDIC protection)
  5. Depositors

So if there is a loss, the stockholders are the first to lose out.  They know this going in.  If a bank fails they probably aren’t getting their money back.  As a consequence, they also have the highest possible rewards when things go right.  If the stock going to zero isn’t enough to cover the banks shortcomings, then the unsecured bondholders, the ones who were getting higher returns in return for less security lose first.  If all of their value still isn’t enough, then the senior bondholders lose out.  If all of the money from those 3 groups still doesn’t cover the losses then the only group left that has money there are the depositors.  The government through the FDIC though is supposed to protect accounts up to $250,000 and will cover the loss on those accounts.

Those latter stages are all academic if the law is followed and banks are taken over as soon as their assets are less than their liabilities.  As long as they are, you rarely have to go very far down the list and certainly not all the way to depositors.

The law hasn’t been followed, not here, not in most the world (with their own versions).  The result was that we had big banks making short term huge profits on very risky investments.  As soon as the risk made it evident the banks owed more than they were worth, they should have been taken over and sold off (with smaller better run banks rising up to take their place).  They weren’t.  The short term profits continued which just pushed more to do the same thing.

This has led us to a point where banks have massively larger liabilities than assets.  In the US, rather than accept this finally a few years ago and put many into receivership, the federal government did a number of direct and indirect bailouts of the banks.  There was TARP which was the most direct.  There was taking over AIG.  AIG sold an extremely large number of credit default swaps to banks. The banks treated these as insurance and used them as a way to lend out a lot more than they would otherwise be allowed to.  Both AIG and most the banks had to know they could never get repaid for these though as there was no actual money kept to pay back.  Rather than let the current big banks fail though, the government took over AIG and the taxpayers paid out those credit default swaps.  The government also simply ignores the fact that what many banks have claimed loans/properties/etc are worth are not what they’d actually get on the free market.

Cyprus Today

The problem isn’t over though and Cyprus is showing what likely coming.  Their banks are currently closed.  They are so far under that they do not have the money to cover depositors and its gotten bad enough to make even normal day to day operating impossible.  Now that info is out as well, which just makes things worse as depositors want their money out before their lose money.

So the Cyprus government closed the banks and proposed a “one time tax” of 9.9% on all deposits over €100,000 and 6.75% for the rest.  They said, it was impossible to exclude  the smaller ones as they were too much of the total.

Let’s think about this proposal.  That money is in saving accounts and checking accounts, it’s retirement money, college fund money, bussiness accounts which are needed for payroll, etc.  The money was already taxed when it was earned.  At what point do we stop calling it a tax and simply call it theft?

Regardless of what you call it though, the situation is desperate and the only choices left are terribly bad ones.  The Cyprus Parliament rejected the tax and the new move is to push for much higher “tax” rates on the Russian accounts in exchange for a lot of concessions to the Russian government.

That happened because the Cyprus people and government let the banks violate the law and amass huge amounts of debt.

It will happen here because the American people let many big banks and government break the law.  Maybe the bailouts have been enough to plug the holes (doubtful, but let’s pretend).  It’s still coming because that trillion plus a year in debt the federal government issues is never going to be paid back.  When that happens, we will be facing the same tough choices at the same time that our economy is collapsing.  Best thing to do is to demand strict following the law now and that the federal government balance its budget regardless of the cuts.  That won’t happen though.

The Right to Bear Arms: Why This Gun Control is a Very Bad Push and has little to do with Safety

10 Jan

I certainly didn’t plan on my 2nd post being about guns, but given the attention the issue has received lately, I think this is a fundamental enough issue to talk about.  I’d suggest everyone read, one Karl Denninger’s Ticker’s (blog) which very explains a lot of the flaws in reasoning better than I do here (and this is just one of many posts on the subject).

Let’s think about the things we allow or there is a push to allow that result in large number of deaths.    According to the CDC 80, 374 people die on average every year from alcohol related deaths (note:  this data is a little old and given population changes is probably actually little low).  Also according to the CDC, there are on average 11,493 deaths from firearm related homicides.  (note:  other numbers people use do include suicides, most of which I don’t think are that relevant here as people would find other ways to do those).  Think about those numbers for a minute.  There is zero push to make alcohol illegal in this day and age.  On the flip side, there is strong support to start legalizing drugs which also contribute to a large number of deaths.  If stronger gun control is to be considered, it should be considered more than for the generality of saving lives.  Obviously saving lives should be at the foundation of further laws if they come, but there must be some explanation for why they can be implemented here and not with alcohol (and potentially other drugs).

Why Is the 2nd Amendment there?

Before we try to judge the benefits vs. drawback of gun control, the first question we must ask ourselves is why are gun rights so high that they are listed as the 2nd Amendment in the Constitution?  The specific wording of the amendment often distracts people from its reason for being there.  “A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.”

Simply reading the amendment, many think of military service and the right to arms being tied to that.  Consider the following though: a)  Militias formed up by citizens and opposed English rule (the absolute political authority in the colonies) only years before the Constitution.  b) Why would it be necessary for the government to list in its founding document that it’s military would have the right to be armed? c) Many Europeans were prohibited from owning firearms. d) James Madison, the man who wrote the amendment had this to say while writing in favor of the Constitution’s ratification (Federalist #46):

“Besides the advantage of being armed, which the Americans possess over the people of almost every other nation, the existence of subordinate governments,to which the people are attached, forms a barrier against the enterprises of ambition, more insurmountable than any which a simple government of any form can admit of. Notwithstanding the military establishments in the several kingdoms of Europe, which are carried as far as the public resources will bear, the governments are afraid to trust the people with arms.”

Other similar quotes by Madison and Hamilton can be seen at various spots in the Federalist Papers.  There is mention both of people being armed being a form of check and balance against either the state or federal government (more important than ever given the state checks on the federal government are far less than they once were) and, in the event of an unjust government, “The citizens must rush tumultuously to arms, without concert, without system, without resource;” (Federalist #28).

Let’s ignore the legal aspect of the 2nd Amendment for this post (the things that would get many gun control laws struck down by courts) and stick strictly to reasons a well armed society is good/bad.

Value of Wide-Scale Legal Ownership of Firearms

As the Founders layed out, the value of a well armed society is that it is a check on the government.  If a politician is going to use a crisis to push themselves too far, they do so with the knowledge that there are millions of armed Americans.  If the government is going to heavily push against a minority group of some kind, it also will do so knowing it can potentially arm itself.  Our nation’s history can often give us a false sense of political security, but when we consider how many countries have had terrible rulers, civil wars, mass genocides, etc over the past 100 years, it is a tremendous leap of faith to simply say we are safe.

Many before of us have thought their countries were safe or nothing terrible could really happen only to discover they were wrong.  Consider a) both Russia and China went from traditional governments and societies of mostly small farmers to industrialized Communist dictatorships which severely limited their people’s rights in short spans of time (the death tolls in both were very large and I’d argue Stalin was even worse for his people than Hitler), b) Germany at the turn of the 20th century was probably one of the last ones you’d guess something like the Holocaust could occur with most of the Jews being well integrated into German life/culture, c) the Soviet Union, one of the two superpowers in the 2nd half of the century collapsed almost overnight and what would come out of that was very unknown at the time.

That list of things in the 20th century could go on, but the point is that even over our short life times, a lot changes in the political climate and the unthinkable quickly becomes reality.  If we expand beyond our lifetimes, the possibilities of cruel governments goes from definitely there to 100%.  It should also be noted, that prior to acts of genocide/repression, it has very often been the case that rules on guns (registration/ownership) have been greatly expanded in attempts to get them out of the system years beforehand, including relatively recently (historically) in Rwanada.  Rather than curtailing violence, these acts instead made it more difficult for people to defend themselves against larger armed groups (including the government).

Individual Rights and Actual Benefits of Gun Control

Beyond the direct benefits of a well armed society, we must consider individual rights and the actual benefits of greater laws on firearm ownership.  Let’s consider the latter first.

There is a lot of talk about limiting firearm ownership, but that’s already been tried directly in cities and in the past in this nation.  Chicago and Washington had about the toughest gun rules in the nation and the rate of violence in both cities was very high relative to others.   If we look at other acts of prohibition we see limited effects on the American people.  Alcohol was eliminated during the Progressive era only to prove a disaster that did little to limit drinking, but a lot to limit the respect of the law.  Many drugs remain illegal, but all the “War on Drugs” has accomplished is help Mexican gangs become very powerful and bring them increasingly to this side of the border (and not just in border states), resulting in a lot of deaths.

This isn’t not to say greater rules on gun ownership wouldn’t have some effect.  They would, but that effect would be limited.   The ones most apt to obey the new laws would be people who are less likely to use them irresponsibly in the first place.  Those who are planning on major crimes (including gangs or drug cartels which already have no issue violating the law and are responsible for a lot of firearm issues) aren’t going to be deterred and while some might find they now can’t get a gun that number will be neutralized somewhat by the people who can no longer defend themselves with firearms.

Beyond the collective gains and loses, the big issue is an individual rights issue.  Taking away someone’s right to property which does not directly infringe on anyone else’s rights must be done only with overwhelming society need.  That need is not there.

Why we are in Deep Trouble

16 Nov

Welcome to The Debate Over Angels.  If you haven’t read the about section, the name comes from the debates that are said to have been conducted by the Byzantine Senate in the time just before the fall of Constantinople to the Ottoman Turks.  The Byzantine Empire was originally the eastern half of the Roman Empire.   Gradually the eastern section became the more affluent section and even as Rome fell, the eastern half survived for 1000 more years.  In 1453 though, the Empire was about to fall forever. In the last days, it is said the Senate had lengthy discussions over whether angels where male or female.  Our political discussions today are little more relevant to our fate than those debates.

I decided to have this first post talk debt in our country in general and why it’s going to throw us over a cliff.  It’s not the limit of our issues and in talking about solutions, we have to talk about energy and medical care, but for this first post, let’s just keep it to debt in general.

The following graph is from Karl Denninger at the Market Ticker blog.

Looking closely at this graph reveals a lot about the “growth” we’ve had for the past 3 decades.  The red represents total debt in the country (both private and public).  The green represents GDP.  With the lone exception of a correction we started to get in 2008 (and was stopped by rapidly rising federal spending), you can see that dept is increasing faster than GDP growth every single year since 1980.  That’s almost 30 straight years where our country has added more debt than GDP (similar graphs could be shown around the world).

Let’s think about what debt is. It is using money now with the promise to pay it back and more later.  Since debt growth has surpassed GDP growth every year, if we fulfill that promise the growth of the last 30 years has been an illusion as it all must be paid back far more than full.  In 2008, it was clear that the private sector had reached its limit on its ability to continue debt growth and we started with a correction (and with it, a very nasty economic downturn).  This did not last long though as federal spending rapidly started rising and took the place of declining private spending.

For all the talks about what to do or not to do with the federal deficit here in the United States, we unfortunately are getting very little in actual solutions even talked about from either major political party.  Unfortunately the math, both here and abroad is looking increasingly grim and if we don’t embark on solutions of our own in the near future, we are going to be forced by the market into a situation far worse than most can imagine regarding our national (and world) economic choices.

In 2012, the federal government will likely collect $2.469 trillion in taxes, while it spends  $3.796 trillion.  That’s a deficit of $1.327 trillion dollars.  Put another way, the federal government is spending 53% more than it is bringing in via tax revenue.  Since GDP includes government spending more than 9% of GDP is from borrowed government money.

Let’s take a step back now and think about how this actually works.  If the federal government wants to spend more than it brings in, it has to raise that money somehow.  The way this works is the Treasury Department issues bonds, both short and long term.  The idea is that you or a company or another country can buy them now and the government will pay you back later with a little more than you paid initially.  Since this has traditionally been a safe investment, the interest levels on them have been low.  You were never going to make a fortune on them, just a small increase.

Let’s imagine you are thinking about buying now though.  With $16 trillion in total federal debt and with the government adding a trillion every year, would you hesitate a little longer before buying any longer term bonds?  Would you worry just a little that maybe, just maybe, the government might decide it’s not going to pay you off, at least not in full?

If you were worried about that, you’d probably need a little bit more incentive to buy, so maybe those bonds have to pay you just a little more (higher yield).  If that happens on a large scale with a lot of people/companies/countries, then the government is going to have to have higher interest rates on the bonds to still attract people.  Since people can now make more on the bonds, of course they are easier to sell.

Raising the interest rates on the bonds though causes a few issues though.  The biggest being that the government has to pay for that extra interest on all that money it’s borrowing.  Paying for that interest, means that it has to issue even more bonds.  Well borrowing even more than it already is, isn’t going help people feel more confident the government is going to repay them.  If they see the deficit rise even higher to pay for that added interest people/companies/countries are going to get more nervous.  That in turn means the government has to offer even higher interest rates to keep them, which again increases the deficit, which again means people fear being paid back.

This isn’t just some theoretical eventual possibility.  It happened in Iceland in 2008.  It has started in Greece with interest rates quickly going from middle single digits to over 100%.  Only European bailouts have kept them from defaulting and that is likely still coming (similar problems exist in Spain, Italy, Ireland, and Portugal with the rest of the EU only good by comparison).  It’s also happened historically.

A fair question at this point, is why do we still see low rates on government debt today then?  If this is all true, shouldn’t $16 trillion have been enough to start the chain reaction?   There are a few answers for this.

1.  Treasuries have traditionally been considered safe investments.  With stocks and other investments seeming risky of late, people have put a lot of their money into treasuries, indirectly helping to keep the system afloat.

2.  The set-up for selling bonds in the US is unique.  We have a group of banks called primary dealers who, in return for other privileges, are required to bid on bonds.  The biggest reason though is…

3.  The Federal Reserve has bought a tremendous number of treasuries itself.  For all the talk we hear about China owning all our debt, the Chinese have quietly sold off parts of it and aren’t increasing anymore.  The Federal Reserve is now the single biggest holder of Treasury bonds.  This added buying does allow for Congress to continue to spend well outside our nation’s means for now.

This will not keep though.  The Federal Reserve buying large amount of debt that it does not intent to sell is extremely inflationary.  Since we are in a major recession/depression, we see many things selling pretty cheap, but look closer at the things you need, especially if they are coming from overseas.  Food is one example.  Gas is probably the best example.  In spite of demand being less in a weakened economy the prices have risen a lot in the past few years.  Fed Reserve Chairman Ben Bernanke is a lot of things (and I would argue should be in jail), but he isn’t stupid and knows there is a definite limit to how far he can take things without completely destroying our currency.

That’s the ultimate choice we face though if we continue down this path (and it’s frankly shocking to me we haven’t hit the wall yet).  The government either loses the ability to borrow money thanks to run away interest rates and thus is forced to instantly balance the budget (which thanks to large amounts of wealth disappearing with government default on bonds and all that money disappearing from government recipients/employers/contractors/etc will be a lot larger than even the $1.3 trillion listed above) or the Fed absorbs the loses and we get hyper-inflation.  Either way, we choose to deal with the issues right now, or we accept those outcomes.