by
Adam Taggart
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Economy
Economy
by
Adam Taggart
by
Chris Martenson
Executive Summary
- Why the insolvency hole the U.S. is in may be much deeper than appreciated.
- Current 'best case' assumptions show us doubling the size of our economy TWICE over the next 75 years. Why that's just not achievable.
- Why the above assumptions get even worse when the energy story is taken into account.
- Why action at the individual level is your best bet now.
If you have not yet read Part I: "Endless Growth" Is the Plan & There's No Plan B available free to all readers, please click here to read it first.
A Big Hole
When the Treasury Department estimates that the U.S. has a ~$65 trillion NPV (Net Present Value) shortfall in its main accounts, it's saying that using its assumptions, the U.S. government would need to have $65 trillion – today – in an account, earning a stated rate of interest, in order to be solvent.
Since the U.S. government don't have that have that kind of scratch, it's insolvent.
But the real picture is likely worse. The Fed calculates the NPV shortfall to be closer to $100 trillion. And if you believe Lawrence Kotlikoff's math, the figure is closer to $200 trillion. Either way – $65 trillion, $100 trillion, or $200 trillion – the sum cannot be paid.
So it won't be.
And the real trouble is that all of these numbers make the same implicit assumption: The future will more or less resemble the past. That is, some form of future growth – exponential future growth – of the economy is at the heart of every single calculation.
But we might question that, because somewhere between here and there, economic growth will have to come to an end. Or at least a pronounced deceleration. Why? Quite simply, because the earth is finite.
Now, we might comfort ourselves with the belief that our future date with hard limits is lifetimes away. But when we do, we shortchange ourselves (if we're wrong) and our progeny (if we're right). After all, the time to make an adjustment is when the resources and energy exist to make that change.
And that's now. Or, really, decades ago…
Why Your Own Plan Better Be Different
PREVIEW by Chris MartensonExecutive Summary
- Why the insolvency hole the U.S. is in may be much deeper than appreciated.
- Current 'best case' assumptions show us doubling the size of our economy TWICE over the next 75 years. Why that's just not achievable.
- Why the above assumptions get even worse when the energy story is taken into account.
- Why action at the individual level is your best bet now.
If you have not yet read Part I: "Endless Growth" Is the Plan & There's No Plan B available free to all readers, please click here to read it first.
A Big Hole
When the Treasury Department estimates that the U.S. has a ~$65 trillion NPV (Net Present Value) shortfall in its main accounts, it's saying that using its assumptions, the U.S. government would need to have $65 trillion – today – in an account, earning a stated rate of interest, in order to be solvent.
Since the U.S. government don't have that have that kind of scratch, it's insolvent.
But the real picture is likely worse. The Fed calculates the NPV shortfall to be closer to $100 trillion. And if you believe Lawrence Kotlikoff's math, the figure is closer to $200 trillion. Either way – $65 trillion, $100 trillion, or $200 trillion – the sum cannot be paid.
So it won't be.
And the real trouble is that all of these numbers make the same implicit assumption: The future will more or less resemble the past. That is, some form of future growth – exponential future growth – of the economy is at the heart of every single calculation.
But we might question that, because somewhere between here and there, economic growth will have to come to an end. Or at least a pronounced deceleration. Why? Quite simply, because the earth is finite.
Now, we might comfort ourselves with the belief that our future date with hard limits is lifetimes away. But when we do, we shortchange ourselves (if we're wrong) and our progeny (if we're right). After all, the time to make an adjustment is when the resources and energy exist to make that change.
And that's now. Or, really, decades ago…
by
Adam Taggart
by
JW
by
Adam Taggart
by
charleshughsmith
Executive Summary
- Will profit-chasing bring corporate capital back to the U.S.?
- China's dwindling T-bill leverage
- The decline of dependence on Mid-East oil
- Autarky may be the best investment for the U.S. (and similar nations)
If you have not yet read Part I: What If Nations Were Less Dependent on Another? available free to all readers, please click here to read it first.
In Part I, we sketched out a framework for evaluating the trade-offs implicit in autarky; i.e., national self-sufficiency. In Part II, we’ll explore a few potential ramifications of America’s declining consumption of energy and increasing ability to replace foreign-supplied capital, resources, energy, and expertise with domestic sources.
The core issue of autarky boils down to: What are the risks and costs of exposing the nation to the vulnerabilities of dependence for the convenience and profitability of remaining dependent on foreign providers?
Of the potential consequences, let’s focus on several high-visibility possibilities:
- China’s ownership of U.S. Treasury bonds possibly giving it leverage that amounts to blackmail-type veto power over U.S. policies.
- The dependence of U.S. corporations on foreign sales and the weak dollar for profits
- The decline of oil imports changing the calculation of U.S. interests in the Middle East and other oil-exporting regions
Profits as Priority
As I have often noted, the stupendous profitability of U.S.-based corporations is largely the result of non-U.S. sales and the profits reaped from a weak U.S. dollar. When the euro was at parity to the dollar a decade ago (1 euro = $1), U.S. corporations reaped $1 of profit on every euro of profit gained from sales in the European Union. Now the same one euro in profit generates an additional 35% in dollar-denominated profits due to the exchange rate.
I have also noted that the enormous importation of goods made in China has generated remarkable profit margins for U.S. corporations such as Apple, while the Chinese suppliers are eking out net profits in the 1% to 2% range for the privilege of manufacturing goods that generate gross margins of 50% to 60% for U.S. corporations.
In other words, the Chinese did not impose this trade on U.S. companies – the U.S.-based corporations extracted maximum yield on capital invested by moving production to China, not just in terms of lowering manufacturing costs but also in the enhanced proximity to the world’s great consumer-profit opportunities in developing Asian nations.
In other words, while other nations may focus on self-sufficiency, the American priority is profitability and maximizing return on capital invested. If and when profitability is threatened, capital pulls up stakes and relocates to whatever locale makes the best financial sense.
That the locale that makes the best financial sense is the U.S. is a new thought for many…
The Consequences of American Autarky
PREVIEW by charleshughsmithExecutive Summary
- Will profit-chasing bring corporate capital back to the U.S.?
- China's dwindling T-bill leverage
- The decline of dependence on Mid-East oil
- Autarky may be the best investment for the U.S. (and similar nations)
If you have not yet read Part I: What If Nations Were Less Dependent on Another? available free to all readers, please click here to read it first.
In Part I, we sketched out a framework for evaluating the trade-offs implicit in autarky; i.e., national self-sufficiency. In Part II, we’ll explore a few potential ramifications of America’s declining consumption of energy and increasing ability to replace foreign-supplied capital, resources, energy, and expertise with domestic sources.
The core issue of autarky boils down to: What are the risks and costs of exposing the nation to the vulnerabilities of dependence for the convenience and profitability of remaining dependent on foreign providers?
Of the potential consequences, let’s focus on several high-visibility possibilities:
- China’s ownership of U.S. Treasury bonds possibly giving it leverage that amounts to blackmail-type veto power over U.S. policies.
- The dependence of U.S. corporations on foreign sales and the weak dollar for profits
- The decline of oil imports changing the calculation of U.S. interests in the Middle East and other oil-exporting regions
Profits as Priority
As I have often noted, the stupendous profitability of U.S.-based corporations is largely the result of non-U.S. sales and the profits reaped from a weak U.S. dollar. When the euro was at parity to the dollar a decade ago (1 euro = $1), U.S. corporations reaped $1 of profit on every euro of profit gained from sales in the European Union. Now the same one euro in profit generates an additional 35% in dollar-denominated profits due to the exchange rate.
I have also noted that the enormous importation of goods made in China has generated remarkable profit margins for U.S. corporations such as Apple, while the Chinese suppliers are eking out net profits in the 1% to 2% range for the privilege of manufacturing goods that generate gross margins of 50% to 60% for U.S. corporations.
In other words, the Chinese did not impose this trade on U.S. companies – the U.S.-based corporations extracted maximum yield on capital invested by moving production to China, not just in terms of lowering manufacturing costs but also in the enhanced proximity to the world’s great consumer-profit opportunities in developing Asian nations.
In other words, while other nations may focus on self-sufficiency, the American priority is profitability and maximizing return on capital invested. If and when profitability is threatened, capital pulls up stakes and relocates to whatever locale makes the best financial sense.
That the locale that makes the best financial sense is the U.S. is a new thought for many…
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