Truth hurts - but it remains the truth

I've written before about the economic mess in which the US finds itself. The causes are many and varied, but basically can be traced back to the people voting into office politicians who will pass laws to distribute 'free' largesse - which, of course, isn't free at all. It's been funded by taxation, and increasingly by borrowing, and now it's reached a point where the gravy train is unsustainable.

The inimitable Karl Denninger put up this article on his blog today. It's so important that I'd like to share it with you at some length.

Our Educational System's Primary Failure

. . .

... in the midst of our mind-numbing and creativity-destroying "education system" ... we ignore, for the most part, the single most-important concept that our children must learn in order to be citizens.

I speak of the function shown in this graph:




This is our friend the lowly (and so-often forgotten) exponent.

It is not that we do not teach our children about this basic function of mathematics - we do. Ask your kid in sixth or seventh grade if he or she understands exponents, square's, etc - they do.

No, it is that we fail to teach the fact that any time two or more exponents are in play, one of them always "runs away" from the other.

Always.




We fail to teach the fundamental truth that you can never let this happen.

Anywhere.

Because if you do, it is simply a matter of time before wherever you let that happen with comes to ruin.

And yet these functions are literally everywhere. Think about it.

They govern population growth.

They govern energy consumption.

They govern monetary growth and inflation.

They govern economic growth.

They govern growth in the production of food.

They govern growth in housing.

They govern growth in earnings by corporations.

Literally everything around us in our daily lives has a compound function associated with it.

Everything.

And yet wherever two or more inter-related compound functions are in play, if one of them has a larger exponent than the other, it is inevitable that they will "run away" from one another and lead to a ruinous crash of some sort, whether it be by overpopulation, by inability to produce that which is necessary to sustain the other, or in the form of an economic depression.

In each and every case where this interrelationship exists if you allow this situation to develop you create a circumstance where something dies - either economically or literally.

We can argue over when such a calamity will occur, but not if it will, because under the laws of mathematics, IT MUST.

We do not teach our children this. We do not drill this as the essence of what they must understand. We do not make clear that the above must never be allowed to occur and continue, and that in each and every case where it is detected, it must be stopped immediately.

Jimmy Carter lost his job because he went on national television and spoke the truth above. That red line represents a 7% compound growth rate. It was what he was speaking of in his famous address in which he said that if we continue to grow our energy consumption by 7% annually in ten years we will consume more than has been consumed in the entire history of the United States.

"The world has not prepared for the future. During the 1950s, people used twice as much oil as during the 1940s. During the 1960s, we used twice as much as during the 1950s. And in each of those decades, more oil was consumed than in all of mankind's previous history." - President Carter

He was right, by the way.

The American People fired him for uttering a fundamental mathematical truth.

Our school boards, administrators and teachers, including math teachers, willingly and knowingly put together school budgets, including salaries, that have "percentage growth rates" in them. Those salary growth rates exceed both GDP growth and the growth of incomes in their district.

They willingly and knowingly pass and support the above double-exponent graph - a graph that they know (at least the math teachers do) will lead to ruin.

They do it anyway.

These same people do not teach our children that such a pattern in the growth of government, in the growth of money, in the growth of energy consumption, in the growth of population - all will eventually lead to the same ruin and for the same reason.

Why do they fail in this regard?

I'll tell you why.

Because if they didn't our teens - our high school graduates - might literally be rioting in the streets, burning those school board offices and government buildings to the ground.

They might do so because our young people would have the tools to recognize that these very same teachers, administrators and government officials have intentionally and with full knowledge of the consequences destroyed their futures.

That it is mathematically impossible for them to receive Social Security and Medicare as promised.

That Medicare Part "D" was passed by their parents and grandparents howling even though it would inevitably lead to the destruction of The Federal Budget and their future.

That "health insurance" premiums growing at 10% or more annually while economic output grows at 4% will inevitably collapse the economy, and that providing "free all you can eat" care to both illegal alien invaders and senior citizens (including those retired teachers) is mathematically impossible over the long run.

That it is mathematically impossible for us to continue to grow energy consumption at 3, 4, 5, 7% annually while we grow production at effective zero due to refusing to build nuclear plants and exploiting the energy resources we have in this nation. Indeed, our schools teach that growth in the production of energy is evil.

That it is mathematically impossible to grow earnings, production or both at 4, 5, 6, 7, 10% annually while the population consuming your output grows 1%, and thus the stock markets must eventually crash to bring earnings and production into accord with population. We simply argue over when that will occur, not if.

That it is mathematically impossible to grow credit - that is, debt - at 8% annually (and we have on average since the 1950s) while GDP grows at 5% annually and population at 1%. Pursuing such a policy, which our leaders have and our educators espouse as "healthy" and "their goal", inevitably leads to either a massive debt-default episode (e.g. a deflationary depression ala the 1930s) or collapse of the currency. Not coincidentally, that's close to the above graph - and is why our "economic problems" are not over.

That it is impossible to grow population forever at any compound rate since the rock we live on is fixed in size and resources. Since one must inevitably have more people to consume more "stuff" (e.g. GDP) over a sufficiently long period of time all compound growth fantasies have a "use by" date at which they must end. Again, we argue only when, not if.

Our youth would recognize that none of what has happened - our energy dependence, our abuse of the land by "big farming", the abusive and outrageous conduct of Wall Street, the bogus and fraudulent promises made, and ridiculous growth in spending beyond our means by our Local, State and Federal Governments - is an accident.

Rather, all of it has been by design and intent and the consequences of that design and intent will fall on THEM.

They would be pissed that "we the people" - their parents, their teachers, their school administrators, their governments from the city council on up to Congress and The President - have intentionally and willfully screwed the world in which they must live for their own puerile fantasies, and that they have done so with both knowledge and malice aforethought as to what the inevitable consequences would be - consequences those very same youth will have to pay.

They would raise hell, and in doing so would be both justified and appropriate in their actions.

. . .

Let's cut the crap America.

The above is the central understanding that every citizen must have in order for any society to have a chance at stable, long-term prosperity rather than a bogus and fraudulent existence predicated on one bubble after another, intentionally blown for the purpose of stepping on the people's necks through the stripping of their prosperity in all of its forms.

Wake up while there is still coffee to smell.

There's more at the link. Bold print is Mr. Denninger's emphasis. Vitally important reading.

Friends, I can't emphasize too strongly that what you've just read IS THE TRUTH. It accurately describes the financial catastrophe that this country - and the entire world - is now facing. The only way to stop that catastrophe is to acknowledge that we're on an unsustainable path, stop in our tracks, and reverse direction . . . AND NONE OF OUR POLITICIANS ARE WILLING TO SAY THAT, LET ALONE DO IT. They know they'd be so unpopular for pointing out the truth (and their own past contributions to the mess we're in) that they'd be voted out of office . . . so they do nothing.

The US population is now dependent on the Federal Government as never before in the history of this country - and that same Government is mortgaging the future of our nation to pay for a purely short-term dependency. Consider this report today in the Washington Times.

While wages and other job-related income fell by a record $206 billion last year to $7.84 trillion, transfer payments from the government such as unemployment checks and Social Security burgeoned by $231 billion to $2.1 trillion. Meanwhile, the amount of taxes that individual Americans paid plummeted by $325 billion to $2.1 trillion as a result of middle-class tax cuts and because nearly 6 million people were thrown out of work and are no longer paying payroll taxes.

Commerce economists said last year's unprecedented drop of $256 billion in private wages — the mainstay of consumers in ordinary times — was particularly dramatic, and was more than 40 times larger than the drop in wages during the entire 2001 recession.

Equally dramatic, a measure of income that closely tracks the ravages of the recession also plummeted by an unprecedented $384 billion. That measure excludes transfer payments and adjusts for inflation. It has stabilized at $9.1 trillion since the middle of last year, in a sign that the worst of the job and income losses are over.

While most of the government benefits — including Social Security, welfare, Medicaid, food stamps and regular unemployment benefits — are sent automatically to those who qualify, Congress is debating an extension of some benefits enacted as part of the stimulus package last year. Those include jobless benefits and health insurance subsidies for the unemployed.

. . .

"Millions of Americans are now relying on unemployment benefits as their only source of income other than food stamps," said Ross Eisenbrey, vice president of the Economic Policy Institute. "They are unable to find work because there are more than six job seekers for every opening. There is literally nothing that most of these workers can do to get a job today. Unemployment benefits are often the only way they can make ends meet for their families and keep a roof over their heads."

. . .

The massive shift into dependence on the government, while essential in promoting an economic revival last year, has postponed a reckoning for many consumers who went too far into debt to maintain their lifestyles during the boom years, Mr. Bandholz said.

While the government was lavishing aid, banks were cutting credit to consumers by a record $250 billion, nearly as much as the amount consumers gained from government transfer payments.

"This shift only postpones a solution to the problem" by substituting government debt for consumer debt, Mr. Bandholz said. "These elevated debt loads will at least result in sluggish growth rates for the time being — and if the problem is not tackled with determination, it might very well lead to another crisis."

. . .

Jobless benefits and other welfare spending for the unemployed will start to decline when job growth returns. Many economists predict that employment will increase this spring or summer in the next stage of the recovery. Because of bleak job prospects during the recession, some people were forced to go more permanently on the government dole.

In particular, many workers who were nearing retirement age and got laid off started drawing Social Security benefits. The number of retirees taking Social Security at age 62 grew by a record 19 percent in the past year, helping to push up Social Security outlays by $100 billion. Analysts expect those spending levels to stay high and continue to increase as more baby boomers retire.

There's more at the link.

Consider those numbers, friends. The US Government is now paying out in benefits and entitlements as much as it receives in Federal personal income tax. There's not one single penny left of that $2.1 trillion to pay for defense, or education, or any other budget category - it's all being spent on benefits to citizens.

THIS CANNOT BE SUSTAINED.

IT'S MATHEMATICALLY IMPOSSIBLE.

The indispensable Al Fin summed it up in a blog post today.

The clumsy and cracking megalith calling itself the US government is just a well-placed hammer blow or two away from outright fracture and dismemberment. The massive bureaucracy is too top-heavy, too complex, too labyrinthine, too lazy, incompetent and self-serving.

. . .

Obama's unprecedented deficits will only grow larger in the near to mid-term future. Built-in entitlements alone assure a massive snowballing of debt. With the addition of the huge new entitlements Obama and Pelosi are pushing through Congress, the death knells could begin to toll much sooner than anyone expects.

Worse yet, Obama and Pelosi have done everything possible to shut down the development of reliable new energy sources for the US -- guaranteeing the continued stagnation of US industry and commerce. Massive new debt plus the choking off of new economic activity. A recipe for disaster in the making.

. . .

Americans were once self-governed. They took responsibility for their own governance. But over time a massive corps of professional politicians and bureaucrats moved to Washington DC to take over the task from average Americans. Then, the army of bureaucrats became massive, unionised, and strong enough to perpetuate the rule of sympathetic elected legislators and executives. These legislators and executives put sympathetic judges in place to complete the self-perpetuating triumvirate of monolithic government. It's all a bit tipsy now, but the monolith has become the default position the moment the American public takes its eye off the ball, and stops participating in its own governance.

That monolith is chipped, cracked, peeling, and subject to catastrophic separation if not re-sculpted to a smaller and more workable size. But that won't happen because too many Americans are dependent upon the monolith being the way it is.

What is true for the US government is also true for other governments around the world, which lack the built-in resilience which the US Constitution has provided up until now. Catastrophic failure. Debt, demographic implosion, dysgenics . . . the dynamite is ready to blow . . . just light a fuse.

Again, there's more at the link.

Friends, we're nowhere near out of the recession yet. All those who tell you that things are improving, economically speaking, are lying to you, because no measures have yet been taken - or even suggested! - to address the plain, simple, mathematical realities of the situation.

This is incontrovertible and undeniable to anyone with a basic grasp of numbers and what they mean.

We're in for a long, difficult and very painful haul. Mathematics ensures this. Reality can only be denied for so long . . . and time's just about up.

Plan accordingly.

Peter