The economic rot sets in

Thursday's report that one in three US counties are 'dying off' is yet more evidence of the slow-motion economic collapse that's happening all around us.  As I observed yesterday, the recent crisis in Cyprus is just the latest manifestation of the same crisis, which is happening around the world and will eventually affect all economies.  It's largely the result of unsustainable entitlement and 'handout' programs by governments throughout the First World (and much of the rest of the world as well), almost all of which have been funded by debt, and are unsustainable through actual revenues.

Karl Denninger is, as usual, pithy and trenchant in his analysis.

The economic reality is that debt accumulation eventually strangles growth.  Debt requires servicing, which consumes funds you would otherwise spend on investment and consumption.  As that service rises as a percentage of your income your ability to drive economic expansion dwindles until it reaches the point that additional debt actually makes the economy worse rather than better.

We're there folks.  We crossed over.

. . .

Our government and our people have become addicts.  We are denying reality and have been for quite some time.  Our cities and towns are dying and nobody in our government -- not Congress, not The Administration -- nobody -- will tell the truth.  They will not risk the backlash today even knowing that the ultimate outcome will be far worse than dealing with it now.

We're very close to being quite literally done as a nation folks, and with The Fed and government playing "wide-open monetary blast" there's no margin left to try to counteract a downturn.

And that downturn is already baked in the cake.

There's more at the link.

Furthermore, this has geopolitical implications.  It's affecting the role of the USA in world affairs.  We can no longer dominate or influence events to the same extent as before, and this decline will continue for the foreseeable future.  You see, dominance begins at home.  There's a famous Latin idiom, 'Mens sana in corpore sano'.  It means 'A sound mind in a healthy body', and implies that one can't have the former without the latter.  We no longer have a healthy body, or nation, economically speaking;  therefore, our influence is based on an illusion of economic 'health' that is rapidly dissipating.

In analyzing the USA's declining influence throughout the world and its imperative need to rethink its 'grand strategy', William C. Martel recently pointed out:

A fundamental source of American influence in the world derives directly from the free-market economic underpinnings of U.S. national power.

. . .

If we consider the work conducted from the 1930s to the 1960s, the United States built a model for national success. Consider what America accomplished during those decades: a world-class infrastructure of roads, bridges, electric power grids, communications, and so forth. The result was to modernize the nation, build first-class industries, and create a more promising future for all Americans.

Meanwhile, the nation developed a world-class public education system, which gave the American people the skills to be competitive and productive members of society. Armed with these tools, the United States for decades was an uncontested economic superpower. America used to produce a higher percentage of college graduates than anywhere in the world. Now, America ranks much lower. To put it succinctly, the “American dream” looks much different than it used to.

Today, the United States has an extraordinary and long-neglected need to rebuild our economic and social infrastructure. In truth, America's once robust system of roads, bridges, electric power grids, and mass transit systems are falling apart. To travel in the Northeast is to see a transportation infrastructure in utter disrepair. In 2012, the World Economic Forum ranked the United States’ infrastructure 25th in the world – hardly superpower status.

To implement American grand strategy, policymakers must rebuild more than the infrastructure and educational foundations of national power. Just as important is fixing the health care and retirement systems that provide a social safety net and help to ensure broad opportunities for all Americans.

Currently, annual expenditures for Social Security and Medicare exceed $1 trillion. Ominously, there are 4.6 persons for every retiree, while within 25 years, this ratio could drop to 2.7. The system, which as currently structured is not sustainable, requires immediate attention from policymakers if future generations are to be productive knowing that they will share in the benefits from economic prosperity.

The nation, furthermore, cannot afford to lose power, heat, and electricity for weeks in some of its major cities after every hurricane and snowstorm. But this is precisely what happens. When Hurricane Sandy grazed the state of New Hampshire in 2012, it left approximately 15 percent of its residents without electric power. While some consequences of natural disasters are inevitable, America’s declining infrastructure and technological capabilities must be reversed.

Another item critical to American power is advanced communications and internet systems. Just as a national telephone grid was critical to building American power in the 20th century, so too is national broadband essential to reinforcing U.S. power and influence.

Before seeking to implement principles of grand strategy that guide America’s foreign engagements, Americans need to understand that rebuilding the national foundations of power will allow the U.S. to take a much stronger international leadership role.

Again, more at the link.  Sadly, unless and until the fundamentals of US government expenditure, revenue and debt are addressed and resolved, all Mr. Martel's suggestions are doomed to failure.

The thing that makes me angriest of all is that, as Karl Denninger points out, our politicians know all about the reality of the situation, but they are almost unanimously refusing to do anything about it.  They know that if they cut the USA's coat according to its cloth, and restrict government expenditure to what its revenues and moderate borrowing can sustain, they'll be thrown out of office at the next election.  They've promised endless entitlements to the voters, and made millions of people dependent on government handouts - all of them paid for by ever-increasing debt.  However, whether they and the electorate like it or not, those handouts will have to come to an end soon, because there'll be no more money to pay for them.

At least one of three things is likely to happen in the foreseeable future - perhaps more than one of them:

• The US will default on its debt because it can no longer afford to repay it, thereby trashing the 'full faith and credit' of this nation;  and/or -
• The Federal Reserve will deliberately encourage inflation as a way to make the nation's debt affordable once again, repaying old, expensive dollars with new, almost worthless ones;  and/or -
• The US government will come to its senses, stop spending money it doesn't have, rein in entitlement programs, and restore fiscal sanity to our national politics.

If you believe in that last possibility, there's a bridge in Brooklyn, NYC I'd like to sell you . . .  Sadly, another option I foresee as relatively likely is a government 'raid' on private savings, and also on retirement savings (e.g. IRA's, 401[k] plans, etc.).  The former's just happened to savers in Cyprus, and the latter a few years ago in Argentina (and elsewhere).  Why should either or both not happen here?  As Zero Hedge observed this morning:

Politics aside, the bottom line is that the Rubicon has been crossed, and deposits have now been forcefully confiscated in what Europe promises to be a standalone case. What is certain, is that nobody will wait to find out how long it takes before Europe's class of increasingly more desperate and ill-meaning despots is found to be have lied once more (as it has about everything else since the start of the European crisis). And while the mainstream media will be focused primarily on Europe in the coming days, as BCG and we have warned, the topic of "wealth taxation" is now front and center, and it stars not only Europe, but the US as well.

. . .

Will Congress do this? Obviously, nobody can answer that question now. However, it was "absolutely certain" as recently as 48 hours ago that Cyprus too would see no depositor "bail in" either. Then things changed rapidly. What is known, is that ... the necessary debt-reduction needed in the US to reach a sustainable debt level, was over $8.2 trillion using debt numbers as of 2009...

... Since then consolidated US debt has risen by over $5 trillion.

Which means that if, indeed, the US proceeds with its own wealth tax, then deposits may well be one "wealth class" that gets impaired.

. . .

Why?

Because it's only fair, as the second coming of the glorious global socialist revolution has made it all too clear.

And remember this: there are no longer any rules, and any assets, any "wealth" saved, stored, and hidden is now fair game in the global forced wealth reallocation "game".

More at the link.  Essential reading.

Whether you're a Christian or not, under the circumstances, I can only refer you to Matthew 11:15 - and you'd better believe that verse!  For myself, I'm going to be withdrawing a fair chunk of my (relatively meager) savings from the bank, and keeping it in cash.  Given the minuscule interest rate I'm receiving, I won't lose anything by doing so - and I can't help but note that residents of Cyprus who did the same thing have just had the equivalent of a substantial interest payment, as their funds weren't in a bank where their thieving government could get its hands on them!

Peter