Public

I was
recently asked how it was that I knew to sell my house prior to the bursting of
the housing bubble, why I sold out all my stock holdings in favor of gold and
silver long before that was an obviously sensible move, and why I am convinced
now that the recent actions by the Fed and the Treasury Department are likely
to fail.

But most
of all, how did I get it right, when so many others missed it entirely?

While I do
root around in masses of complicated data, the answer to these questions is
surprisingly simple: I trusted myself.

From yesterday’s blog, jrf29 writes:

Chris, I’m not sure I understand this. How could baby boomers
outnumber the generation behind them? Total fertility rate for the
baby boomers is projected to settle around 2.1 (approximately equal to,
or just slightly below, the replacement rate).

The fact of the matter is that there’s a "hole" in the demographic profile right behind the boomers.

The chart below is not a "rate chart". The length of the bars corresponds to the numbers of people broken out into 5 year age increments. The longer the bar, the more people it represents.

We can state, unequivocally that there are more boomers than there are people in the cohort behind them.

See that pink box (below)? That represents the boomers. There are more of them than there are people in the next set of three bars.

If I was ever given just one chart, just one piece of data, to make the case that we were on an unsustainable path that had a date with a long period of contraction and economic hardship, it would be this one.

Figure 1: This chart compares total debt (or “credit”) in the U.S. to GDP (or Gross Domestic Product) on a percentage basis. Current total credit-market debt stands at more than 340 percent of total GDP.

As we can see on this chart, the last time debts got even remotely close to current levels was back in the early 1930s, and that bears a bit of explanation. The debt-to-GDP ratio back then didn’t start to climb until after 1929 (blue arrow), because debts remained relatively fixed in size, while it was the GDP that fell away from under the debts. With the exception of the Great Depression anomaly, our country always held less than 200 percent of our GDP in debt (green circle). In 1985 we violated that barrier and have never looked back.

In the magazine The Economist, they recently reported this interesting bit of news:

One of my chief concerns is that our leaders in DC do not really understand the nature of this crisis and are therefore going to either perform ineffective actions or, worse, harmful ones.

I have been silently crossing my fingers beneath the table, hoping that Obama’s team would figure out that this crisis is unique and will require some non-status-quo solutions.

Although I titled this "Analyzing the Obama Plan," this is neither a partisan nor political posting, and not even as much a critique of Obama himself as it is an examination of how the DC machinery currently operates.  No one person controls much more than a sliver of the overall process and results that emanate from DC.

Now that there’s finally some meat on the plan which we can react to, let’s parse the numbers.