What's Going to Happen?

Monday night on the Daily Show, Jon Stewart described the collapse in the stock market investment in favor of U.S. Treasury bonds as akin to a guy torching your house and then asking if he can store his cash in your basement. 

There’s also something of Heisenberg’s Uncertainty Principle to these days’ events. The more closely that people around the world watch the rise and fall of the Dow Jones and listen to the reports on the situations in Europe, the more unpredictable the situation becomes.


While the recent Standard & Poor’s downgrading of the U.S. might have triggered this new financial plunge, the real crisis for the moment is the wide-snaking chain of dominoes falling in Europe.

But is it really true that people should be worrying about the banks of France? Or that a country like Italy’s ability to pay back its debt should be in doubt? In many cases it’s hard to say, as fearful lenders are themselves destabilizing state banks by increasing the rates of interests they must pay on their debts. Europe is in trouble more and more literally because we fear it is in trouble.

“Panic”, as one might guess, derives from the Greek god Pan, who beyond a gallon of a nice chianti enjoyed nothing more than whipping crowds into frenzies. Emphasis on crowds: it is no coincidence that lemmings leap to their deaths in groups.  The pack mentality obscures reason so easily.

Which is why, in our own situation what is needed more than anything is the discipline to step back from the urgency of the herd and catch our breath. Panic spurs only miserly, myopic self-protectiveness. And yet all fall if everyone continues to go it alone. “Blessed the one who is gracious and lends to those in need,” went the psalm response Wednesday. If there were ever a need for Wall Street and the banks of the world to hear those words, it is now.  

Jim McDermott, S.J.

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ed gleason
7 years 5 months ago
John, Feel no sorrow for me.. I'm sitting pretty as they say.
I feel sorry for you and JR after I saw all your GOP candidates immediately reject 10 cuts for just one tax increase compromise. They will try to campaign on paying off the debt with just cuts. And all of them advocate getting rid of capital gains taxes = 15% to zero.. the real rich, not middle class wannabes pay taxes only on capital gains. The real rich are not wage slaves who pay at 35 or 39%. They, the super rich,  will love paying no taxes.. they may even donate to charity... no wait... since no deductions are needed they will not donate anything.. Give up wishing the trickle down will ever get to you.
I'm for non-violent class war.. recruiting stations will be set up soon.  
7 years 5 months ago
Father, it's really simple: the mathematics of exponentials holds that if X (debt) is growing at a faster rate than Y (actual income, cash flow to pay off debt), eventually X will surpass Y and go parabolic and Y will never be able to catch up.

So for example, the USA's GDP is $14 trillion. That is, 14 trillion dollars worth of wealth is created each year by our nation.

Our nation's net assets are worth $55 trillion.

But our local, state and federal governments tax about $4 trillion from the economy and borrow another $3 trillion ($1.5 trillion for federal deficit spending and $1.5 trillion for state and local bonds). So about half our entire GDP is annually consummed by governments.

These governments have actual debt (Federal government: $14 trillion to which is added $1.5 trillion each year...) and unfunded liabilities (federal, state, municipal and local public pensions plus Social Security etc.) which easily run in the range of $77 trillion over the next 50 years.

When you owe more than you make per year and over time will owe more than your entire net worth denominated in dollars will become.... we have a problem and it's not that there isn't enough banks to loan us more money, it's that there isn't enough wealth period to be 'redistributed'.

In other words, our various governments have made promises that they cannot keep. Can you say "Jubalee"?

Economic depressions and recessions ordinarily result in the collapse of lenders and the forgiveness of debtors who simply cannot maintain the cash flow payments on their debt. But once the dust settles, economies and individuals pick up the pieces relatively quickly.

What's happened recently is that governments didn't allow this re-set to occur and papered over the debt so as to prevent the banks from collapsing (and their buddies from losing their investments) but it also kept debtors from being liberated.

So now instead of a smaller reset, we're facing an ever increasingly greater one. And when it comes, it won't be because of tea parties or conservatives being greedy or stingey, it'll be because the exponents show that we collectively owe more than we can possibly pay back and ALOT of IOUs will never be collected.

So again, if your ideological world view (democrat, progressive) consists in redistributing wealth from the 'rich' to the poor with yourself as the benevolent middleman.... you are facing an event horizon. If you are one of the utterly dependent poor whose entire life and lifestyle is dependent on these wealth transfers... you are doomed. And no amount of violence or hatred of "the rich" is going to return things to the good old days because they existed on the premise that growth was faster than debt.

So the charitable, Catholic thing to do is to preach de-leveraging (paying off debts) and saving, creating wealth (like growing food!) and giving up the myth that the government or banks will save us with more printing or lending or wealth transfers.

When there are 10 people and only 5 chairs and the music stops.... unless you quickly create 5 more chairs.... or 5 dancers are 'removed'... a good number of people are simply going to be left standing.

Now raging and blame gaming won't solve anything. Only writing off debts and creating wealth and weaning people off dependence will have a prayer of a chance for a good ending.
ed gleason
7 years 5 months ago
The clowns at S&P motivated by the GOP/TP caused 2 trillion in stock value  to evaporate from the worth of corporate America. People with 401ks will take note.
GOP's hope to privatize SS is a dead dodo. Tax increases on the upper 3% are a cinch in 2013. 
7 years 5 months ago
I;ve gotta say I love a guy who says"father it's simple" and then goes on and on about his own opinion
ed gleason
7 years 5 months ago
John and Tom...Italy has a GDP of 2 trillion and  a debt of 2.5 trillion
US stock market lost 2 trillion in the last 8 days... get a grip.
Stanley Kopacz
7 years 5 months ago
There are 10 people and five chairs.  Who stole the other five chairs and why aren't they in jail? No cutbacks in benefits to the American people until financial reregulation, elimination of subsidies to big business, reduction of military budget by 50-75%. And election finance reform.  We do not presently have a representative government capable of making these decisions fairly.
Tom Maher
7 years 5 months ago
Thanks you John Lyons for for once again steering the discussion toward the l  essentials of the current serious world economic events.  The basic problem is indeed artihmetic.  Many nations have allowed Too much national debt to accumulate over the last half century disproportionate to all means of paying for these hugh national debts. 

It is so hard for many people to understand that even great nations can run up more  debt than they can handle and go bankrupt just the way a person or business can.

Nations going bankrupt however are a major long-term shock to the world economies and fiancial systems.  Let's not kid ourselves national defaults are world changing events in magnitude.  The stock markets and economic leaders investors and everyone has very real and great concrens over any country that may default on their national debt.

Former chairmen of the Federal Reserve Alan Greenspan on Sunday August 6, 2011 "Meet the Press" news program said the six percent interest on Italy's debt is unsustainable yet any bailing out Italy from its debt was as not likely due to the size of the debt.   Italy's debt problems in the last two months are now part of the "European debt crisis" that continures to spread and worsen,  But this is not rumor or speculation these nations do have debt as large or larger than their GDP.

Greece, Ireland, Portugal, Italy, Spain and other European nations have a real risk of sooner or later defaulting on their national debt.  No long term debt solution exists or in some cases, such as for larger debts like Italy, possible.  Thei European debts so far  have proven to be too large for other countries  to bail them out permanently.
Tom Maher
7 years 5 months ago
Ed Gleason (#6)

What is your point? 

The size of a national economy is not essential.  Greece even though it has a relatively small economy will cause a major worldwide shock to the world financial markets and the world economy.  If a bigger economy defaults so much the worse.

My point is contrary to this article this is a real serious economic problem that will impact eveyone severely inside and outside any country that defaults on ist debt.  These European countires fundementally are headed for default.  And that is a real big problem. 

And the United States debt is dangerously high according to the IMF.  This is not Tea party saying that its the IMF and now Standard and Poor's.   This impacts the 1930s  social welfare role of the state very negatively.  States can run out of money and go bankrupt.
7 years 5 months ago
Ed I feel sorry for you. This isn't sarcasm. It's genuine. You really think S&P had a choice but to downgrade? I suppose you scream at umpires and referees too when your team loses. But if you have a rating company with public criteria they use to score the sustainability of any financial situation and their criteria has been tripped by actual events to downgrade someone.... how are they supposed to keep their company going if they start to fudge?

Or do you think we're on a perfectly safe and sustainable financial course with $1.7 trillion deficits this year and next and the most optimistic CBO scores of "only $1 trillion in deficit spending per year for the next 10 years".... with all current plans on the table talking about cutting $1 trillion OVER TEN YEARS ($100 BILLION PER YEAR) which not only doesn't pay down the debt, it only reduces - theoretically - the rate of growth in the debt!?

You think the cash flow to pay a growing national debt in an otherwise tight federal budget whereby nothing can be actually cut but only the rate of growth reduced slightly is not going to run away from us? Really?

Or are you thinking that we can just mint and print our way out by debasing our currency and air dropping everyone $100,000? I'm sure the poor will love a loaf of bread costing $455 and a gallon of gas costing $345 while their social security check is still $1200 per month and the below cost to the doctor payments from Medicare and medicaid and obamacare result in "everyone being covered" *(theoretically) but there not actually being ENOUGH DOCTORS AND MEDICAL SERVICES to be had because they've been priced out of existence.

Ooh, Mr. Lyons uses long paragraphs....Ohh mr. Lyons is disagreeing. Must.not.engage.the.arguements. must.think.of.some.snarky.comeback..... ?

The mathematics are real, the situation dire, and all your side has is bluster and arm waving and calls for taxing the rich (who don't have the money to make us good) or open rebellion (which will only hurt the poor).

When, not if, the federal budget is actually cut because we can no longer put everything on the national credit card because we can no longer pay even the interest on the debt.... whose world view is going to be 'hardest hit'? If I disliked you or 'hated you' I'd be quiet and let you hit the brick wall at 100 mph. But because I'm a Catholic and care..... I've got to yell "look out ahead!"
7 years 5 months ago
I know JR. It's frustrating when people simply ignore data from the government and the fed that is available to the public because they'd rather live in the dream world where "the other side" is to blame and saying so magically repairs the damage.

It's akin to the belief that the departure of Bush from the WH would automatically make the 'world love us again' and all the nasty things would cease. Pure magical thinking.

Look beyond public debt to private debt (and the cost sucked out of disposable income and profits to service these debts....) Virtually every homeowner in the country has seen their imputed value of their property drop in the past 3-4 years. A huge number are 'underwater' and millions have lost their homes and other assets to foreclosure and bankruptcy. How are those 10 million folk going to be made better without a rocket shot boom in an industry that creates millions of white collar jobs?

And what might that industry be? Not housing or construction! And not defense contracting, ship building, aerospace or NASA either. The auto companies were making 17 million cars per year.... and now they're making 12 million. Wages are stagnant but cost of gas is up - what's going to replace the difference to us?

Had the law been allowed to function (by BOTH PARTIES) WE'D HAVE HAD A DEPRESSION, those who made foolish loans would have been roasted, those who took debt they couldn't pay back would have been kicked out of their homes (but also allowed to escape their debt) and we'd be on the track to a re-balance by now.

Instead, we've papered over the difference between cash flow to service debts and cash income by means of the Government borrowing and 'transfering' money. Nothing is solved, the ponzi and ensuing collapse is just made bigger.

So I urge people - prepare to do without income for 3-6 months. Prepare to help your desperate family and neighbors. If I'm wrong, then when all's clear I'll just have a lot of food to donate to the local soup kitchen. If I'm right.... how about you?
7 years 5 months ago
Best case scenario is an Argentina style wipe out of the middle class and a generation of poverty with wild swings in the political mood from revolution to repression. Perhaps at the same time.

Worst case scenario is a global economic collapse and world war.

But what's not going to happen is a return to the 2005 of 4% unemployment and home equity values doubling every year.

Everyone on the Left seems to believe theres' a pot of gold sitting somewhere that can be poured into the market, taxed, and then used to pay off $20 trillion in debt and take care of the unfunded liabilities we "owe" ourselves in the form of SS and Medicare, medicaid, obamacare.

What would happen if I sold you a $1 million insurance policy for health care but then took the money and spent it and in place of the account wrote myself an IOU? I'd go to jail and you'd be out of luck when you came to collect to pay your bills.

This is what's happening with the Social Security fund and with Medicare/aid,Obamacare AND local, state, and federal pension plans: people are being promised a certain cash outcome which the government CANNOT make good when the time comes because they CANNOT finance their CURRENT budget with taxes as it is, much less put aside what they'd need to to fund all these programs.

Now what happens when the boomers retire and there's no money or the currency is devalued due to inflation such that your SS check doesn't cover more than a day or two of your monthly expenses?

If you don't get federal, state, and local tax payer funded "wealth transfers" what is going to happen to you and your family? You think you'll be able to just go loot the local gated community and make it all good?

7 years 5 months ago
A couple comments

First, I blame the Tea Party for the downgrade.  The should have held out for more and only got 2 trillion when what was really needed was 8 trillion.  They should learn to play hard ball.  Maybe we have to add a lot more caffeine to the Tea. 

Second, there is an email going around the internet which puts everything in perspective

It says that the typical person has a hard time with a lot of zeros so it is best to cut some of these zeros off and put it into a household concept.  Here is the transformation

This year's

U.S. income: $2,170,000,000,000   
Federal budget: $3,820,000,000,000
New debt: $ 1,650,000,000,000
National debt: $14,271,000,000,000
Recent budget cut for this year: $ 38,500,000,000 (about 1 percent of the budget)  
And now for a homeowner after taking 8 zeros off the federal amounts
Total annual income for the Jones family: $21,700
Amount of money the Jones family spent: $38,200
Amount of new debt added to the credit card: $16,500
Outstanding balance on the credit card and other loans: $142,710
Amount cut from the budget: $385
7 years 5 months ago

My comment about the Tea Party was tongue in cheek.  I consider myself one of them and have been to a couple of rallies.   Without the Tea Party there would not have been any concessions.

The debt ceiling confrontation was made for TV planned event by the Democrats.  They knew that there would be a debt ceiling call in late Spring, about April and while they still had the House and 59 Senators last year they decided not to get it then knowing that they could create a crisis such as the government shutdown crisis in 1995-1996 and make the Republicans look bad.  So with plenty of votes in both houses in the lame duck session they decided not to raise the debt ceiling and instead seek out a confrontation for PR purposes and we saw the results in the last 3 months.  

Also the August 2nd date  was chosen not because it was a magic time when money would run out.  That was nonsense.  It was the start of the annual month long Congressional vacation. It had nothing to do with money not being available that day to pay the bills as Geitner kept delaying the time till it got it moved to the vacation schedule.  My guess that was the strategy from the start.  It was all a grand charade and the sad thing is that the people in the country bought it and didn't know they were had.  What was that line about ''All the people some of the time.''  This was one of those instances.

There never was going to be any default.  There were lots of procedures available even if there was no agreement by whatever magic day they chose.  But it sure got a lot of people heated up and worried.  

But the European situation is more grave than here as the end of the Welfare State may be on the horizon and in full view.  And they do not have any lot of children or military to take up much of their spending and they are still in trouble.  If their banks fail, so will ours.  They are all tied together and the money that some so gratuitously want to spend or lend doesn't exist.  They think there are some Scrooge McDucks out there fingering their gold and we could only just get our hands on it.  What you have instead is deposits by pension funds into banks that were invested in places like Spain, Italy and Greece and which will go down the chute when they default.  So it will end up hurting the little guy in the end but not in the way they think.  The Left is pretty good at finding way to screw the poor.  They never stop hurting those they think they  are defending.


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