The Dog that Did Not Bark

Debt bombIn one of Heinlein’s stories (I forget which one, and the search engines haven’t helped on this odd query) a character awakes after having been in suspended animation for many years and catches up on what he’s missed by spending a few hours reading a history book, then remarks on how much time he would have wasted had he read a newspaper every day for all that time, reading about matters too ephemeral to make the history books.

If you do follow the news (I try to spend as little time as possible doing so), keep in mind that the most important thing may be what’s not in the daily news.  Many of the things that end up in the history books were complete surprises to those embedded in the “news cycle” and to the “experts” who feed it.  For example, check the newspapers for early October 1929, November 1941, October 1989, the latter half of 1990, or August 2001: you’ll find little or nothing about the imminent stock market crash, Pearl Harbor, fall of the Berlin Wall, collapse of the Soviet Union, or terrorist attacks in the U.S.  And yet, in retrospect, the circumstances which led to these “surprises” were in plain sight.  Thus, I’m always interested in the big story that none of the chattering classes are chattering about.  Which brings me to…

There have now been more than eight elapsed hours of “debates” among the Democrat contenders for the U.S. presidency and, in recent months, as many hours of mass rallies by the incumbent president.  I have listened to many of these, as I often put them on as background noise whilst plowing through the tedious system administration and clerical tasks which occupy much of my time these days.  And, you know what?—unless I’ve missed something (which is certainly possible), I haven’t heard a single mention of budget deficits, which are now forecast (according to the U.S. Fiscal Year 2020 budget [PDF], p. 25) to top US$1 trillion for Fiscal Year (FY) 2019, and continue above that level for FY 2020–2022.

Nor has there been any mention of federal debt (same reference, p. 131), currently in excess of US$ 21 trillion, and forecast to increase to US$ 26.5 trillion by the end of FY 2022, at which time it will stand at 107% of GDP, having spent a decade, starting in FY 2012, above the “red line” of 100%.  Based upon International Monetary Fund calculations, the U.S. ranks 14th in the world by this measure, with countries carrying a larger debt load including Lebanon, Yemen, Eritrea, Cape Verde, Sudan, Gambia, and the Republic of the Congo.  The only developed countries with higher debt to GDP are Singapore (111%), Portugal (126%), Italy (131%), Greece (182%), and Japan (236%).  (Japan has long been an outlier, but its very high domestic savings rate means a larger fraction of this debt is held by those within the country, giving it a different character than countries like the U.S. whose creditors are largely overseas.)

The solons in the imperial capital are aware of this situation, and they have sprung into action.  On August 1st, 2019, the U.S. Senate passed a bill, 68–28, earlier approved in the House by 284 to 149, which suspends entirely the statutory limit on the public debt until July 2021.  President Trump, who tweeted “Budget Deal is phenomenal for our Great Military, our Vets, and Jobs, Jobs, Jobs!  Two year deal gets us past the Election.  Go for it Republicans, there is always time to CUT!”, signed the bill (H.R. 3877) yesterday, 2019-08-02.  (Representative Thomas Massie introduced an amendment to change the title of the bill to “A bill to kick the can down the road and for other purposes”.   His amendment was defeated 384–47.)

“[A]lways time to CUT!”  Well, maybe….  Ever since the 2008 financial crisis, interest rates have been artificially suppressed, picking the pockets of savers and putting pension plans in peril to benefit debtors, including the federal government.  But holding down interest rates is like welding shut the safety valve on a boiler: you can get away with it for a while (often longer than anybody expects), but the pressure continues to rise and sooner or later it’s going to blow.  The Federal Reserve, which slashed its benchmark Federal funds rate to 0.25% in December 2008 and left it there until December 2015, has been moving it up incrementally, 0.25% at a time, since then, reaching 2.5% in December 2018.  Last week, on 2019-07-31, the Fed announced the first cut, from 2.5% to 2.25%, since October 2008.  This seems to indicate a belief that the economy is slowing and is need of stimulus.  If, in fact, the economy moves into recession (and I as noted in my Gnome-o-Gram of 2019-06-24, “Inverted Yield Curve”, the current economic expansion is getting, by historical standards, very long in the tooth and, in July 2019, broke the record for the longest economic expansion ever) tax receipts will fall, government expenditures will grow, and deficits will balloon well beyond those forecast in the budget.

All of this is to say that the dog that didn’t bark may be a debt and financial crisis erupting some time between now and the 2020 U.S. presidential election.  While at the moment, the news seems full of how many tens of trillions this contender or that wants to spend on trying to change the weather, “forgiving” debts run up to bogus institutions of “higher learning” for garbage credentials, “reparations” paid by people who never owned a slave to people who never were slaves, “free” “education” for “undocumented immigrants”, and “free” abortions for trans-women, and so on, an impending financial collapse can concentrate the mind wonderfully.

Just because the dog doesn’t bark doesn’t mean it won’t bite.

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Author: John Walker

Founder of Ratburger.org, Autodesk, Inc., and Marinchip Systems. Author of The Hacker's Diet. Creator of www.fourmilab.ch.

20 thoughts on “The Dog that Did Not Bark”

  1. Two things: first, I think continually of how little we know about The Past, by which I mean, inter alia, what were people’s day to day concerns.

    second, and I know you will consider this abysmally dumb, but : isn’t the planet’s monetary system a giant confidence game?  Wealth and prosperity aren’t tethered to gold, or any other actual material commodity, are they? And in terms of monetary wealth, it can be created, can’t it, by anyone who builds a better mou—no,sorry , Ratty, I won’t go there…  anyway, it’s kinda like the Kula trade in Melanesia, passing around jewelry made of cowrie shells, which is extremely valued even though those shells litter the beaches…

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  2. Hypatia:
    [I]sn’t the planet’s monetary system a giant confidence game?

    Yes.

    Wealth and prosperity aren’t tethered to gold, or any other actual material commodity, are they?

    No.

    And in terms of monetary wealth, it can be created, can’t it, by anyone who builds a better mou—no,sorry…

    Working on that….

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  3. This past week, Christian talk radio have been quoting Libertarians.   That is highly unusual for them.   The thing that concerned them was the bill to kick the debt ceiling down the road.   I hope they don’t lose interest, but start pressuring Republican candidates in safe Republican districts to work to reduce spending.

    At this point, we need for Team Trump to underrun their budgets.

    President Trump should have a November rally at which he brings forward the two Cabinet officers who underran their budgets by the most as a percentage and the most in dollars.   There should be high praise for working to keep a lid on spending, even if the debt ceiling issue has been politically postponed for a while.

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  4. The world often looks like it will continue along until it does not.

    The World before WWI still had an Ottoman Empire. I never could see how we made it past the USSR and USA nuking each other.

    We have shaken out the effects of WWII. We are due, maybe overdue, a major shift.

    Winter is coming. It will be followed by spring.

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  5. Hypatia:
    Two things: first, I think continually of how little we know about The Past, by which I mean, inter alia, what were people’s day to day concerns.

    second, and I know you will consider this abysmally dumb, but : isn’t the planet’s monetary system a giant confidence game?  Wealth and prosperity aren’t tethered to gold, or any other actual material commodity, are they? And in terms of monetary wealth, it can be created, can’t it, by anyone who builds a better mou—no,sorry , Ratty, I won’t go there…  anyway, it’s kinda like the Kula trade in Melanesia, passing around jewelry made of cowrie shells, which is extremely valued even though those shells litter the beaches…

    I have always thought that productivity is the key element to generate wealth and a monetary system is a means of conducting wealth exchange. The hard currency approach is a mechanism to skirt the effects of the ever pervasive giant confidence game and the fiat currency system plays into the confidence game. But I’m old and senile.

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  6. MJBubba:
    President Trump should have a November rally at which he brings forward the two Cabinet officers who underran their budgets by the most as a percentage and the most in dollars.   There should be high praise for working to keep a lid on spending, even if the debt ceiling issue has been politically postponed for a while.

    During the Coolidge administration, President Coolidge and his budget director, Herbert Lord, would preside over yearly budget meetings held in a large hall where each agency would present its case and fight it out with the others, against a pre-set total federal budget.  These were open to the press and well-covered.  The last budget meeting in his administration, in January 1929, was broadcast on radio to a nationwide audience.

    Lord also created a Two-Percent club, in which federal entities (with resolution down to the level of individual post offices), which managed to cut their spending by 2% or more over the previous year’s were publicly identified to much acclaim and promoted to the press.

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  7. So, societies created their own systems of monetary value.  But now we cant control the  way  they  interact?  Like an economic Singularity?  Is it because we invented the concept of “money” instead of measuring wealth in land, flocks, or tangible precious substances?

    But  monetary wealth is egalitarian, right, because an infinite amount of it can be created?  Whereas there’s a finite quantity of gold, land, gems: if A has a lot, B necessarily has less.  Wealth measured in money ought to be a great equalizer.  Come to think of it, I guess that’s the American Dream.  Is that why we aren’t allowed to call ourselves the Land of Opportunity any more?

    But now I think of it, “land reform” can make sense, at least in a situation like 19-early 20 century Ireland .  OTOH it was a disaster in Venezuela.

    So, dear  JW,  is there any way to control and tame this Leviathan?

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  8. Bryan G. Stephens:
    Winter is coming. It will be followed by spring.

    Not only is winter coming; it is imminent. Spring will follow eventually, in the same sense that the Renaissance followed the Middle Ages or the Iron Age followed the Bronze Age collapse. The only trouble is that the corpses were piled high in the meantime.

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  9. No one is going to get elected by taking away goodies. Furthermore, there’s never much appetite for being told about an imminent market crash, terrorist attack, or earthquake. Such lectures fall on deaf ears and the smarter pundits and politicians know this. It’s not that the “experts” are stupid (though they usually are), it’s that they’ve figured out that most folks change the channel when such talk begins. The market for doom is limited.

    One reason that the public is deaf to tales of doom and woe is that so many of them have turned out to be bogus. Killer bees and the Y2K panic come to mind. It seems that when the pundits do decide to dip their toes into the gloom-and-doom pool, they get it wrong.

    As for the news cycle, Ben Hecht’s observation comes to mind:

    Trying to determine what is going on in the world by reading newspapers is like trying to tell the time by watching the second hand of a clock.

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  10. Hypatia:
    So, dear  JW,  is there any way to control and tame this Leviathan?

    I believe there is, but whether it it possible in the present political and intellectual environment is highly uncertain.  Money is a very simple concept which has been increasingly abstracted by theoreticians and those seeking to loot and control working together over an extended period of time.  Originally, and up to World War I, money was an intermediate means of exchange to render trade more efficient than barter.  Money had intrinsic value, which is its value, not decreed by some authority, but rather, like any other commodity, set by the free market based upon what people were willing to exchange for it.  If there were multiple monies in circulation (for example, gold, silver, and copper coins), the exchange rate of one for another would fluctuate over time.

    It is only when governments stepped in and arbitrarily fixed the value of things (for example, as the U.S. government did, fixing the ratio of gold and silver in the 19th century) that things began to get out of whack, and they progressed even further into fantasy land when citizens were forbidden to own gold, or to exchange paper dollars for gold (1933), abolished the exchange of paper dollars for silver in 1968, and completely decoupled the dollar from gold in 1971.  Predictably, this issued in the inflation of the 1970s, depreciation of the dollar, and was a trigger for the oil shocks, as petroleum producers saw they were being paid for valuable, irreplaceable assets in rapidly depreciating paper money.

    All that is needed to fix this is for governments to do…nothing.  More precisely, to stop doing a few destructive things they do now, such as enforce legal tender laws or apply capital gains taxes to exchanges among different currencies.  This will enable a free market in currencies, with parties to a transaction free to use dollars, euros, gold, silver, bitcoin, certificates representing barrels of oil, or anything they wish as a means of exchange and store of value.  Spot and futures markets in the widely used monies, as already exist in most of these commodities, will reduce transaction costs to a low level, and electronic payment systems will make it as easy and seamless to use whatever currency you wish to buy in whatever currency the merchant prices as it is now to pay for something in dollars with a credit card billed to a euro account.  With a free market for currencies, people will gravitate to those currencies which fulfill the requirements for money (stable value, liquid market, low transaction costs, no government interference with transactions) and inferior currencies will fall by the wayside, just like inferior products in any other market.

    Powerful evidence for the degree to which central banking and government-controlled fiat money is a racket is how fiercely they defend their monopoly whenever any competitor (for example, Bitcoin and other cryptocurrencies) pops up.

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  11. drlorentz:
    No one is going to get elected by taking away goodies. Furthermore, there’s never much appetite for being told about an imminent market crash, terrorist attack, or earthquake. Such lectures fall on deaf ears and the smarter pundits and politicians know this. It’s not that the “experts” are stupid (though they usually are), it’s that they’ve figured out that most folks change the channel when such talk begins. The market for doom is limited.

    I’ve believed this for a long time, but current events may force me to revise my prior.  I just listened to two nights of “debates” in which almost every person on stage was competing with one another to shriek increasingly dire prophecies of doom about climate, and they they’re explicitly advocating taking away goodies including airplanes, internal combustion powered vehicles, reliable electricity, and cows.  Next to this, budget restraint (simply stopping the increase in debt to allow economic growth to eventually retire it) seems a pretty mild tonic to avoid the kind of smash-up of which (unlike climate Armageddon, which is completely theoretical) there are many historical and contemporary examples.

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  12. John Walker:
    In one of Heinlein’s stories (I forget which one, and the search engines haven’t helped on this odd query) a character awakes after having been in suspended animation for many years and catches up on what he’s missed by spending a few hours reading a history book, then remarks on how much time he would have wasted had he read a newspaper every day for all that time, reading about matters too ephemeral to make the history books.

    Could that be  either The Door into Summer or For Us,  the Living?

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  13. Damocles:
    Could that be  either The Door into Summer or For Us,  the Living?

    I suspect it’s one of them, as those are the only ones I recall with a sleeper awaking, but I didn’t have copies of either at hand when I wrote this piece and couldn’t find any reference with a search engine.

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  14. Opened another box of books looking for the Heinlein JW was speaking of, didn’t find it in that box.  First two out of the box was Jean Bolen, M.D. “Crones Don’t Whine” and the other was “Lysistrata.”  Did find Heinilein’s “Stranger In A Strange Land.” Wonder if someone is trying to send me a message.

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  15. I have never fixed a company in debt trouble by cutting costs. It is the ticket to insolvency. Cutting costs are for profit improvement, not stemming the cash flow loss.

    Several macro trends have been driving our economy out of kilter-

    Globalization where a group of corporations have colluded with foreign powers to strip the USA of manufacturing and value adding, reduce it’s middle classes productivity by swapping it for cheaper middle classes in the foreign competitors. The USA as a value adding and asset growing concern has been in a downward spiral for decades.

    The destruction of our public education systems where we are destroying large chunks of our human capital.

    Foreign wars with no return on investment or asset base adding.

    Creation of a rapidly growing welfare class with negative value adding by importing millions of economic refugees.

    When I see these issues and then someone tugs on my sleeve about the debt, I nod and stop listening.

    First we win the economic war of asset genocide being waged on us which we are badly losing, then we put on the green eyeshades.

    To salvage  a business circling the drain, you must increase revenue and productivity. Productivity without revenue is futile.

    People who think the debt is the first priority problem are ignoring the larger issues which swamp it.

    Our debt problem now is we invest it in lousy rates of return. If the USA increased it’s debt to go whole hog in asteroid mining , would you think it a bad idea?

    Either shrink the debt or grow GDP so the debt percentage of GDP drops substantially. Change the game so we add more value in the USA.

    Or you can wait for a political system where people cut entitlements with extreme political courage.

    Give me a government that wants to grow private sector assets, both human and machine.

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  16. John Walker:
    Damocles: Could that be  either The Door into Summer or For Us,  the Living? I suspect it’s one of them, as those are the only ones I recall with a sleeper awaking, but I didn’t have copies of either at hand when I wrote this piece and couldn’t find any reference with a search engine.

    I was thinking it was A Door Into Summer, but I reread the waking up in the future scene and I couldn’t find it.

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  17. I have a great many of Heinlein’s books but not all. I’ve had them for so long have forgotten what they are about. Started re-reading “The Number of The Beast” last night, published in 1980.

    I think TKC 1101 ideas are right on, also think President Trump is trying to get most of these ideas in place.

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  18. TKC 1101:
    I have never fixed a company in debt trouble by cutting costs. It is the ticket to insolvency. Cutting costs are for profit improvement, not stemming the cash flow loss.

    I agree with every one of your macro trends, and that the only realistic way out of a debt crisis is to grow out of it.

    But (you knew that was coming, didn’t you?) here’s the thing.  If I were called in to turn around a company and I observed:

    • The company is carrying debt equal to more than 100% of its gross revenue.
    • It is spending 6% of its revenue on debt service.  This is an effective debt service cost of around 1.7% (393 billion interest on 22.8 trillion debt).  This is at a time of historically low interest rates, and the average term to maturity is less than six years.
    • The company is adding new debt at a rate of approximately 5% per year.  The company has not experienced year-on-year growth in revenues of 5% since 1984, 35 years ago.
    • Little or none of the spending financed by the debt being added yearly are investments which can be expected to yield revenue in the future; most are current consumption.

    then wouldn’t reducing the amount of new debt added every year be a priority?  In what scenario can you grow out of a debt when you’re adding to it faster than your growth in revenues, and spending the money raised from the new debt on consumption, not investment?  Is it plausible that over the short term (which I define here as “before the next interest rate spike, for whatever reason”) growth could be increased to a number greater than the rate at which debt is currently being added?

    Our debt problem now is we invest it in lousy rates of return. If the USA increased its debt to go whole hog in asteroid mining, would you think it a bad idea?

    This is actually an excellent example, in that you could finance a programme of asteroid mining or, for example, research, development, and prototype deployment of solar power satellites, spending about as much as would be useful at their current technology readiness level, without adding a penny to the debt, simply by stopping the spending on stupid things entirely within the NASA budget such as the Space Launch System and Orion capsule, which together have chewed through more than US$ 33 billion over thirteen years and still do not have a firm date for the first unmanned test launch.  And that’s without looking at other, vastly greater, stupid things all over the rest of the budget (Head Start [US$ 8.1 billion/year], anybody?).

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  19. John Walker:

    drlorentz:
    No one is going to get elected by taking away goodies. Furthermore, there’s never much appetite for being told about an imminent market crash, terrorist attack, or earthquake. Such lectures fall on deaf ears and the smarter pundits and politicians know this. It’s not that the “experts” are stupid (though they usually are), it’s that they’ve figured out that most folks change the channel when such talk begins. The market for doom is limited.

    I’ve believed this for a long time, but current events may force me to revise my prior.  I just listened to two nights of “debates” in which almost every person on stage was competing with one another to shriek increasingly dire prophecies of doom about climate, and they they’re explicitly advocating taking away goodies including airplanes, internal combustion powered vehicles, reliable electricity, and cows.  Next to this, budget restraint (simply stopping the increase in debt to allow economic growth to eventually retire it) seems a pretty mild tonic to avoid the kind of smash-up of which (unlike climate Armageddon, which is completely theoretical) there are many historical and contemporary examples.

    The key thing to notice is that the goodies are never actually taken away. There’s a lot of talk about it but little action.Bear in mind that the Left controlled all the levers of power during parts of the previous administration and yet, somehow, failed to pass any climate change nonsense. Also consider what happens when they try: gilets jaunes. The moment the power grid gets a bit dodgy, heads will roll. Banning plastic straws is one thing; “I’m hot because I can’t turn on the air conditioning” is a whole ‘nother smoke.

    Never confuse the virtue signaling on display in the Democratic debates with action. Complying with recycling, plastic bag bans, etc. are, themselves, forms of virtue signaling. Doom and gloom sell during the campaign because fear persuades. Whenever these idiots actually gain power, that talk stops unless it’s time for a new war* because fear-talk makes incumbents look bad. It’s slacktivism all the way down.

    *Warmongering is a special exception to the general rule because it serves other important purposes for the power elite.

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  20. John Walker:
    then wouldn’t reducing the amount of new debt added every year be a priority?

    Yes, if I had an owner who could make that call. Right now, we have management who is getting personally wealthy off the stupid spending.

    The only way we could take the path of cutting real waste and redirecting investment would be to give a President the House and Senate with a huge majority and the key players in the entrenched swamp arrested or unelected.

    I hope that happens. With the loss of the house and even when the house was GOP, it was run by swamp creatures, there is no way spending can be cut. Growth is the only way available right now. After the next election? Maybe. if we are lucky.

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