Preparations and moderation

Via Insty, a CNBC report on consumer spending rising as consumer savings go down.

I would speculate that part of that is to pay off debt and another part is the longer term unemployed drawing on savings to make ends meet.  Reducing debt becomes a primary concern during an economic downturn, and Americans have been doing so while the US government has gone on a spending spree like there is no tomorrow.  Making ends meet is also necessary and prudent withdrawals from savings of various sorts helps to extend a family's ability to stay fed, sheltered and clothed.

A third category is one that I fit in, and that is getting the necessary tools so as to build basic skills to make it through a period of bad times.  Additionally there is storing food, purchasing firearms and ammo, plus generally getting prepared for whatever is to come by whatever looks to be necessary.

The first two are done by those still with debt burdens or who lack active, full-time employment, and that is the majority of the population.  That third category are the people who recognize that the skills and tools they have now are not satisfactory to get through a major economic downturn.  We, as a Nation and as part of a global phenomena, are coming to the end of an era of high debt government that has had an ideology that government can provide for the poor and serve as a 'social safety net'.  Government is, by far, the highest overhead, least efficient way to do this and the cost of doing this is one that has long-term insolvency due to demographics. 

In America Alone, Mark Steyn posits that demographics is destiny, and the demographics in the West, Far East (including China), and Russia suck like an Electrolux, save more quietly.  One of the constants of demographic change in America I looked at in Insurance, Assurance and Prosperity, and that even such a simple known demographic change as the rise in life expectancy (not rise in absolute life span of the human body but how long you can be expected to live within a given absolute life span) means that in a system where the retirement age is not raised to keep up with the average age of mortality (so that half the people in a given cohort have already died by that age) there is a growing number of individuals who live past the old 'retirement age' for more than years but decades.  Add to that Medicare, Medicaid and any other program 'designed' to help the elderly, and what you get is a growing proportion of those living past the old average life expectancy and fewer active individuals in the workforce to support them.

The SSA system was changed under the Johnson Administration so that receipts from SSA were given IOUs by the Treasury and the money went into the general funds for government.  There is no 'lock box' for SSA, and what you have are promissory notes by the government that it will really, and for true, have future funds to put back into SSA.  Cross their heart and fingers on that.  That means that at some future point the general fund would need to provide funds for SSA.

That point was last year.

All of the entitlements are unsustainable, which you would think that the Left wanting 'sustainable' everything else would want to get rid of this unsustainable part of government.  Unfortunately this is used as a political football to allow politicians to show how 'nice' they are in running a Ponzi Scheme to help the retired and poor.  Ponzi Schemes are thwarted by demographics when the first layer or two of 'investors' get paid out via incoming cash from new entrants in the system, but as the pyramid grows for pay-outs, the income from new 'investors' hits a flat-line or even diminishes.  This problem actually was pointed out in the 1930's by the opponents of SSA, but was over-ruled by the Progressive nature of American politics that believes that government would be the solution to all of man's ills.

On the plus side for the US is that we currently have a good internal age demographic and replacement rate for our population that allows for marginal growth for the mid- to long-term future so long as we don't screw up the present.  Our Nation basically has more babies born, living longer, and staying fit longer as adults to the point where our population still grows even as the median age rises due to the Baby Boomers.  This is not true in most of the West at this point in time, with many Nations falling below that replacement rate, meaning fewer younger people coming in to replace older people who have retired onto the social safety net.  In the West this includes: Greece, Italy, Spain, Norway, Sweden, Germany, France... basically all of the old Western Europe.

Notice what happens when the bottom falls out of an economy with too many people on the dole and not enough to pay into the system?  Europe's Ponzi Scheme is a few years ahead of ours as we were more moderate in picking them up, didn't expand them as fast as Western Europe did and did not follow the scare-mongering of Ehrlich and his lot that the Earth would be over-run with humans by the 1990's.  The sub-replacement rate for places like Greece means that an American is more likely to have a Big, Fat Greek wedding than someone in Greece is, with large families and all now on the severe decline there.  Also in this boat from the old Eastern Bloc is Russia, which was suffering this sort of problem going into the 1980's, which may account for the sudden decline in popularity of Communism there... although authoritarian rule has been more the rule than the exception in Russia and is making a comeback.

Who else is in this demographic downtrend?  Japan.  With the over utilization of capital for government public spending since the 1990's and with a society now below the replacement rate demographically for nearly 3 decades, Japan now has more public buildings than can be used... most of them newly built!  To a degree this is true of most of the Far East, but the old 'Asian Tiger' economies never got into public works spending as a way to get their economies going like Japan did.  Sort of like what the Left in the US has wet dreams about with sleek bullet trains, mass transit, crowded cities and public works now crowding out normal buildings in some towns.  Japan will be positively geriatric in two decades while most of Western Europe will just be elderly.

The other fun place with a major demographic problem is: China.  Consider the 'One Child Policy' (which wasn't that well enforced but still had an impact) and that it went on from the early 1970's to 2008 or so.  Just a bit over 30 years of one child families in the urban areas and smaller families in the rural areas, and even with the horrific living conditions, pollution and people dying at factories they live at, life expectancy is still up versus where it was in the 1960's.  If you were born, say, in 1973 in China you are now 38, which would be in the prime of having a family in the US.  In China it means that you are now in a situation where men outnumber women, that you have scant savings, and that you make $6/day (on average) of which $4/day is spent on food.  Looking at your parent's generation you see men and women in their mid-50's on up, and slowly becoming less productive in the workforce.  Plus as the older generation dies out, there are fewer replacement workers and fewer families around.

In a previous article I look at the Directivity of China, just on the financial/economics realm and how the crony capitalist system there is causing rapid accumulation of Non-Performing Loans both to the government and outside investors.  China financed its economic boom in the mid-1990's with capital investment from outside of China, mostly in the West, and put that debt into debt vehicles that run through 5 years.  The first major roll-over of that debt was circa 2000, and a second roll-over was circa 2005.  In 2010 China started to get worried as some of its creditors were not accepting a roll-over and wanted their debt vehicles cashed out and China is using some of its assets to pay those off, while trying to get agreements on yet another roll-over. 

Inside China, the banking system has gotten used to handing out loans faster than you can say Fannie and Freddie.  The Chinese looked at the Western system in Europe and the US for doing such things as running home mortgage systems and particularly liked some aspects of how the government can funnel money to preferred customers.  In other words, they liked the corrupt system of banking that was bubbling in the West.  So they repeated that in residential, commercial and industrial real estate.  There is trouble brewing in China on over-built cities and subdivisions with few people living in them.  In this regard China is also doing some post-bubble Japan work to build infrastructure... with a declining population base ...

Finally China has a dustbowl going on in its agricultural sector, with clouds of dust going over major cities (adding to the pollution there) and then seen on satellite images over Korea.  Dust from the central part of China has been scraped off of buildings in the western coast of the US and analyzed... and while it isn't much, given how much likely gets into the Pacific Ocean, the fact that microgram amounts can be found in San Francisco just about anywhere is an indication of the scope of the problem in China.  And if you live on a farm in China you are probably older than average with your children having gone to the cities to get work, thus the agricultural sector of China is ageing out faster than the other sectors of the country and are still under crushing poverty.

So when elites are saying 'China is the future' you can ask them: the future of what?

Remember all of that points to a demographic decline in China, with not enough people to work the farms and with less arable land, plus a nasty pollution problem.  Anyone familiar with the ecological disasters from the old USSR in Russia will be able to clearly identify similar in China.  The frantic pace of spending within China is not normal to any economy, ever, on any sort of 'sustainable' basis.  What happens when the able-bodied older generation ages out is anyone's guess, but it won't be pretty inside China.

The other place with positive demographics?  Parts of the Arab Middle East and Africa.  What do they lack?  Skills, infrastructure, education, good jobs, a reliable financial system.... you know, the basics.  Plus most of the political systems aren't set up for anything but authoritarian or dictatorial regimes.

America has huge problems!

We have a housing sector gamed by politicians for decades.  Ditto that on the financial sector that they now wish to game more from last year's lovely laws passed in the dead of night, over weekends or holidays, or buried under a Friday avalanche of documents.  The problem with more government 'regulation' in financial, industrial, commercial and residential markets is obvious: less efficiency, build up of long-term debt, and the creation of an unsustainable crony capitalist system that erodes trust in the laws.  Not to speak of what it does to the fabric of society.  America, however, has countervailing influences not seen in most of the rest of the world.

First up, we don't go to the streets during tough times, but tighten our belts and vow to get through the tough times.  Politicians, academics and ideologues have been trying to destroy this for decades, and yet the US remains one of the most civil societies on the planet.  Notice how 'gun control' laws stopped rioting in Greece, the UK, France?  Oh, that's right, they didn't.  So sorry, perhaps trusting one's fellow man to look to his own safety is better than letting the government do it for him.  Letting each man control his destiny, for good and ill, is the basis for a strong civil society, while top-down mandates on what society MUST be from government never do seem to work out all that well.

Second, America looks to frontiers.  Why all the Alaska programs?  It is the last of the terrestrial frontiers for the US.  It has all the positive draws of hardship, untamed wilderness, natural resources and people who know how to take care of themselves.  If you screw up in a harsh environment you don't get a ticket, a citation to appear in court, or expect 'help' to arrive soon: you either take care of yourself via preparation or you are dead.  Americans love the harshness and cutting nature of a true frontier that is boundless.  Of all the insane things this Administration has done, the one sane thing was to neuter the NASA manned space program, and leave that up to private enterprise.  Already the first commercial test flights are happening and the paying ones start late this year or early next.  The freedom of a frontier to thumb your nose at government and do as you wish is strong and Americans will flock to that like nothing ever seen before on this planet.  That is two decades off to get into full swing if we survive our current circumstances and get a sane financial system put down.

Third is DIYism.  'If you want something done right, do it yourself' is the cliche.  This is not, exactly, true as not everyone can have all the skills at the highest level to do things.  It more properly comes out as: If you want something done that you can be satisfied with, do it yourself.  In doing something yourself you get to see the level of your own abilities (or lack thereof) first hand and that has a positive feedback like you wouldn't believe.  One of the things I've lacked is having my own workshop, what with my prior active working life and then becoming disabled to a high degree, it just hasn't been in the cards.  Yet now I accumulate the tools, hardware and raw materials to start up with some help from cheap tool places, and picking up the Gingery books on the DIY machine shop at low cost.  Also books on basic woodworking and gunsmithing with hand tools are now in my hands.  In America we expect home owners to take care of their homes, on their own if necessary, and the times look to be heading that way.

Fourth is the cussed streak of liberty that can be traced back to the early settlers of America.  These are the people who will NOT part with what they believe and would PREFER that society left them alone, but when society through government feels it must tell one what to do, think, act and believe, then the answer is to leave the society and government.  This is part and parcel of 'get off my damned lawn'.  Americans expect what they own to be honored by their neighbors and not coveted by government... and we tend to back that up as individuals and our society must respect that.

Fifth is that thing that Jefferson wanted: a revolution every 20 years.  Instead we have the Constitution and notice that the things government must do (organize and pay for a military, keep a post road system, ensure equal enforcement of the  laws of the land, protect the Nation from invaders, regularize immigration and naturalization, keep a Mint going as well as US Patent and Trademarks system, pay off our National debt, support our Embassies overseas as well as a court system) are minimal.  Plus nowhere does it say that any Congress must continue on with the laws, regulations, etc. of past Congresses, so long as the government adheres to the Constitution everything is up for grabs every 2 years.  This is known as 'clean sheet' government when take to its maximal, little carry-over state: all but the basics are wiped off the board and the Congress restarts with what it thinks is necessary.  When we didn't have much government, there wasn't much need for this capability, but now that we have an over-sized, costly, over-burdened, Ponzi Scheme running bureaucracy trying to rule our lives, the 'clean sheet' option starts to look very nice, indeed.  Even 'entitlements' are not debt obligation systems, but systems you pay into, now, with a promise of being paid back later, in smaller amounts.  You don't hold a bond or other negotiable vehicle, but a promise of payment.  This is known as a contract.  Our government can wipe those out without batting an eyelash for that is what sovereign governments are able to do.  Fun, no?

While I do have grave concerns over the current state of our government and society, the countervailing parts of the system have been gathering steam for over a decade and more like two decades, now.  The problems of government trying to decide what a 'minimum wage' is, what you are 'entitled' to and how much you should pay for 'health insurance' has now gotten to the point where the countervailing forces are now applying their pressure.  To right this ship and stop it from taking on water requires getting rid of the overburden (cutting the excess supercargo of goodies off the deck), closing hte hatches and running the pumps to get the water out of the hold.  Americans are leading the way to thrift, preparation and paying down debt and will now expect our government to follow suit and get out of the damned way.

If that isn't started now, then 2012 will start to shape up as a 'clean sheet' revival.

Keeping what we have is not an option.

Getting the ship of state upright and the water pumped out of it is a necessity.

Americans grit their teeth and do the necessary things during a disaster... and this is a disaster, make no mistake about it.

Americans are preparing, now, for the long haul.

Our government?

Either get with the program or get the boot, the era of 'nice' government is coming to an end and the bare essentials era is coming your way.  Prepare now... your fellow Americans already are.  We will pay our debts, as a Nation, but we can stop incurring them in a heartbeat... and the great effects of withdrawal from government addiction is that you get richer and freer, both, and begin to wonder just why you ever thought letting government run your life was a good idea.

Painful?  Yes, but the pain soon stops once you realize you actually can pursue your happiness for good or ill, and care for your fellow man.  That will take a few years to sort itself out.  Painful years.

Far better than the degrading situation we are now in and will get if we don't do what is necessary.

Who else is going to do the necessary things to keep this Nation going?

I'm not counting on the Jihadi's to do it, that's for damned sure.