Saturday, December 19, 2009

Executive Summary

• Carbon reduction and economic growth are mutually exclusive goals.
• Alternative energy sources and technologies are decades away from making a significant contribution.
• The core problem lies with our monetary system itself.
• Politicians are in a real bind.
• If we were really serious…
• The way forward.

Preamble: I normally avoid writing on Global Warming/Climate Change as a topic for discussion because it tends to be a heated topic for many people on both sides, which can work against collaborative solutions. This article is not about global warming and/or the science behind it, and it is not my intention to discuss those ideas here.

Copenhagen & Economic Growth – You Can’t Have Both

I want to point out that a massive discrepancy exists between the official pronouncements emerging from Copenhagen on carbon emissions and recent government actions to spur economic growth.

Before and during Copenhagen (and after, too, we can be sure), politicians and central bankers across the globe have worked tirelessly to return the global economy to a path of growth.  We need more jobs, we are told; we need economic growth, we need more people consuming more things.  Growth is the ever-constant word on politicians’ lips.  Official actions amounting to tens of trillions of dollars speak to the fact that this is, in fact, our number-one global priority.

But the consensus coming out of Copenhagen is that carbon emissions have to be reduced by a vast amount over the next few decades. 

These two ideas are mutually exclusive.  You can’t have both.

Monday, November 30, 2009

Executive Summary 

• US government borrowing has tilted heavily to short-term, adjustable-rate issues.
• The very same people who missed the housing crisis have largely ignored or overlooked the current US predicament.
• The US government lacks any sort of fiscal restraint.  And there’s never a good time to cut back.
• It has been operating like a subprime, cash-poor borrower, electing to borrow more and more.
• The short-term debt used to finance the Treasury Department must be “rolled over” when it comes due, imposing whatever the new interest rate happens to be at that time. 
• This will trigger a debt spiral, which will cause the US government to go from insolvency (its current predicament) to bankruptcy (its future condition).
• A bankrupt nation has few options, little hope, and a lot of regrets. 
• To protect against the fallout, buy gold, silver, and productive assets that generate the things people need.

This is no way to run a nation.

The US government is operating no differently than a 2005 subprime borrower buying far more house than made sense, and is living beyond its means, happily racking up ever-larger debts by taking advantage of a teaser rate set by Bernanke and his fellow board members.

In early 2004, I was warning people as loudly as I could about a future housing crisis.  No, I am neither an economist nor an all-knowing seer of the future.  I am simply able to spot when something does not make sense and trust that things have a way of working themselves out over time.

It did not make sense to me that a hair stylist in Las Vegas should be able to amass a portfolio of 19 homes that were all being rented for less than their mortgage payments, if they were even being rented at all (this is a true anecdote).

Why was this an obviously broken story that had to end in tears?  Because it simply did not make any economic sense.  It even defied common sense.  After all, if it were possible for everyone to get rich through the miracle of rising asset prices with no value creation, then clever people in the Roman Empire would have figured it out 1500 years ago, and your native tongue would be Latin.

The economic mistake for the hairstylist was in overlooking the fact that cash flows in have to exceed cash flows out, or eventually bankruptcy results.  Clearly, things are a bit different for a government with a printing press over the short haul, but over the long haul, the story is the same.  It’s not possible to continually live beyond one’s means forever.

Sunday, November 22, 2009

Executive Summary

• State and federal laws and regulations are increasing.  At what cost?
• State and federal governments are already too large to be sustainably supported.
• Government employees now outnumber manufacturing employees 2:1. 
• Public servant average total compensation is twice as high as the average for civilian employees.
• Government must shrink.  It will benefit from seeking savings, capping new rules, eliminating old rules, and reducing revenue consumption.
• We are looking at a massive funding crisis.  Can we head it off?

Becca and I just went through the process of buying the house that we have been renting for the past few years.  The experience has given me another distasteful brush with state laws and regulations.  Over the years, new laws have only been added, never subtracted, making this house purchase entirely different from the one I conducted only ten years ago.

Yesterday, a backhoe came into the yard to completely expose the septic tank covers (three of them), along with an element of the leach field, which took a lot of digging to find.  Why?  Because the state now requires an inspector to peer into these contraptions to assure that they are working, as part of something called “Title V” regulations.  Once everything was dug up, it took only a quick glance from the inspector, who had to sign off on a piece of paper before the sale could go through.

On the surface, how can one argue that having an inspected and functioning septic system is a bad thing?  However, the way the law is written, it only has to pass inspection at the time of sale.  Every sale.  If we decide to sell the house a week after we buy it, the whole process would have to be repeated.

This entire septic system was professionally designed and installed six years ago.  It has been pumped every year, with full documentation of every step.  But no matter.  The law requires the state inspector to be able to peer into the septic system’s innards every time the house changes hands.  No exceptions.  So heavy machinery was brought in and the yard torn up.

We could live here for 25 more years, and we wouldn’t have to go through this process again.  Or we could sell it in a week and have to do it all over again.  Never mind the fact that if a septic system is not functioning properly, the homeowners will undoubtedly be highly motivated to get it fixed.  And never mind that there are non-invasive ways to tell if a system is functioning properly.  Those factors are apparently irrelevant in the eyes of the law.

This tale is just a small, state-level story in one person’s life.  But it is being replicated a thousandfold in a 2,200-page health care bill, a 1000-page Disability Act bill, a 340-page Patriot Act, and numerous other documents combining into more than 72,000 pages of rules and regulations to go along with more than 60,000 pages of tax code (up 44% in nine years). 

And that’s just at the federal level.

I will be out for the weekend leading the Rowe seminar with my lovely wife Becca.  We will be entirely out of range the whole time, so I will not be around the site until Sunday afternoon.

Our house closing went flawlessly.  For those who are interested, I intend to chronicle every step I take as we increase the resilience of this property.  I plan to set up a separate place here on the inside for those discussions, so as not to co-mingle economic and lifestyle discussions.