Sunday, July 21, 2013

As goes Detroit, so goes the US economy


The news of Detroit's bankruptcy should have surprised no-one.  Even the attempt by corrupt local politicians, unions and interest groups to derail it by obtaining injunctions against it in a state court (whereas the bankruptcy proceedings are in a federal court) was only to be expected.  They've stripped Detroit like hungry locusts, and they don't want to see their gravy train run out of juice.  Note, too, the expectation in certain quarters that President Obama will somehow 'bail out' Detroit, in the same way that he did the auto workers when GM and Chrysler teetered on the brink.  I'm sure he'd love to . . . but if he does, there are many more cities on the brink of bankruptcy that will expect and demand precisely the same concessions.  He can't afford that.

Mark Steyn points out:

To any American time-transported from the mid 20th century, the city’s implosion would be literally incredible: Were he to compare photographs of today’s Hiroshima with today’s Detroit, he would assume Japan won the Second World War after nuking Michigan. Detroit was the industrial powerhouse of America, the “arsenal of democracy,” and in 1960 the city with the highest per capita income in the land. Half a century on, Detroit’s population has fallen by two-thirds, and in terms of “per capita income,” many of the shrunken pool of capita have no income at all beyond EBT cards. The recent HBO series Hung recorded the adventures of a financially struggling Detroit school basketball coach forced to moonlight as a gigolo. It would be heartening to think the rest of the bloated public-sector work force, whose unsustainable pensions and benefits have brought Detroit to its present sorry state (and account for $9 billion of its $11 billion in unsecured loans), could be persuaded to follow its protagonist and branch out into the private sector, but this would probably be more gigolos than the market could bear, even allowing for an uptick in tourism from Windsor.

. . .

With bankruptcy temporarily struck down, we’re told that “innovation hubs” and “enterprise zones” are the answer. Seriously? In my book After America, I observe that the physical decay of Detroit — the vacant and derelict lots for block after block after block — is as nothing compared to the decay of the city’s human capital. Forty-seven percent of adults are functionally illiterate, which is about the same rate as the Central African Republic, which at least has the excuse that it was ruled throughout the Seventies by a cannibal emperor. Why would any genuine innovator open a business in a Detroit “innovation hub”? Whom would you employ? The illiterates include a recent president of the school board, Otis Mathis, which doesn’t bode well for the potential work force a decade hence.

Given their respective starting points, one has to conclude that Detroit’s Democratic party makes a far more comprehensive wrecking crew than Emperor Bokassa ever did. No bombs, no invasions, no civil war, just “liberal” “progressive” politics day in, day out. Americans sigh and say, “Oh, well, Detroit’s an ‘outlier.’” It’s an outlier only in the sense that it happened here first. The same malign alliance between a corrupt political class, rapacious public-sector unions, and an ever more swollen army of welfare dependents has been adopted in the formally Golden State of California, and in large part by the Obama administration, whose priorities — “health” “care” “reform,” “immigration” “reform” — are determined by the same elite/union/dependency axis. As one droll tweeter put it, “If Obama had a city, it would look like Detroit.”

There's more at the link.

If you think Mr. Steyn is being unduly pessimistic about Detroit, consider '25 Facts About The Fall Of Detroit That Will Leave You Shaking Your Head'.  They include:

2) Detroit is facing $20 billion in debt and unfunded liabilities.  That breaks down to more than $25,000 per resident.

4) In 1950, there were about 296,000 manufacturing jobs in Detroit.  Today, there are less than 27,000.

7) At this point, there are approximately 78,000 abandoned homes in the city.

14) There are 70 "Superfund" hazardous waste sites in Detroit.

20) When you call the police in Detroit, it takes them an average of 58 minutes to respond.

. . .

It is easy to point fingers and mock Detroit, but the truth is that the rest of America is going down the exact same path that Detroit has gone down.

Detroit just got there first.

Again, more at the link.  Bold, underlined text is my emphasis.

What far too many Americans don't realize is that the national economy isn't doing much better than Detroit's local economy right now.  All the optimistic headlines you read in the mainstream media are built upon foundations of sand . . . and the sand is shifting as we speak.  The reckoning cannot be long delayed.

Here are four video reports that I urge you to make time to watch in their entirety.  I endorse the warnings provided by these gentlemen, and believe that it's only a matter of time until they come to pass.  How long we have is a matter of opinion;  but I believe we're poised on a knife-edge.  Any major crisis that erupts somewhere in the world, locally or abroad, might be the trigger to spark a panic situation - and when people panic, it's 'Katie bar the door' and devil take the hindmost.

First, Karl Denninger predicts we're on the brink of a financial collapse worse than 1929.





Next, Peter Schiff believes that the Federal Reserve's policies are about to cause a massive financial collapse.





Marc Faber points out that the Fed's policies have created a series of bubbles, and right now the latest bubble is on the point of bursting.





Finally, David Stockman claims that the USA is fiscally, morally and intellectually bankrupt.





Note that all these commentators have been validated by events.  Their predictions are reinforced by their track records.  I take no pleasure in saying that I believe them.

I don't think there's much we can do to prepare for what's coming, other than make sure we have our own fiscal houses in as much order as possible.  Try to have what cash reserves on hand you can afford;  stock up on additional food and essential supplies, so that in the event of short-term disruptions you can cope for a few weeks or months;  and build local support networks, so that if we aren't able to obtain (or afford) the services of tradesmen or small businesses, we can help each other out.

It's coming, friends.  I don't see any way in which we can avoid it.  As Ann Barnhardt pointed out the other day, quoting a commenter at Karl Denninger's blog:

If we call the economy of the U.S. $15 Trillion, and the Obama regime and Federal Reserve dilute the currency by $1 Trillion per year (which they are at minimum), this results in a 6.66% reduction in purchasing power annually (1 divided by 15). Thus, personal income AND spending must increase at 6.66% annually in order for the economy to merely tread water at the consumer level. Any "growth" rate LESS than the dilution rate is therefore ECONOMIC CONTRACTION.

It's simple mathematics, folks.  Maths is a science, not some touchy-feely hand-wavium panacea.  That's what's been happening EVERY YEAR since the Fed began its massive quantitative easing programs.  They've diluted our economy by at least 25%-30% since 2008.

Those chickens are about to come home to roost for all of us.  In Detroit, they already have.

Peter

4 comments:

Anonymous said...

There are no "accidents" in politics. All of this is intentional.

Will the United States survive this?

Did the Roman empire survive a similar situation? No.

That sadly gives us a clue to the probability of the nation surviving.

However, this does not mean we should not pray. A lot.

Pastor Glenn

lotta joy said...

Obama has no intention, or any ability, to "save" Detroit. Everyone is missing the point. He WANTS Detroit to spread. He WANTS gun violence to escalate. Then he can blame the whites (somehow, and if any of us are left), repeal gun laws, and turn this country into HIS country. Then, we'll become like Honduras and Mexico.

Old NFO said...

Have no fear, it's George Bush's fault and BO will save...er... Not so much. /snark off

You are exactly right, and when the bubble DOES burst, standby for rioting like has not been seen in generations if ever!!!

audeojude said...

I have recently read an interesting book on monetary policy called the Seven Deadly Innocent frauds. It is based on the the economics of Modern Monetary Theory. It explains a lot of what I have wondered about with how our federal government gets away with spending with the limited impact compared to what we have seen so far. If you read between the lines it is absolutely frightening in how it shows government views it's citizens. At its basis I perceive it as government control of citizens through economic policy to drive the economy and create a reason for the existence of the government.

http://www.amazon.com/gp/product/B00BGWOXEK/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B00BGWOXEK&linkCode=as2&tag=httpwwwsco093-20

Here is about a hour and a half video debate between Mosler who wrote the book and an Austrian School of economics professor on economic theory. The Austrian School would be probably closest to a free market libertarian philosophy. Since being exposed to this I feel like I finally understand some of the true workings of our current system and it isn't anything like what I thought it was. According to Mosler, most of the Fed, Treasury and congress have no idea what they are doing with fiscal policy because they don't truly understand how the system actually works either.

I would be interested in hearing your opinion on this if you get a chance to follow up on it.

ps.. Loved the second book :)

Scott Carle