The Ugly Truth Within the Fiscal Commission Report (Cont)

Debt is already to basically 100% of GDP if you count transfers out of the Social Security and Medicare programs. And if you don't, you're being dishonest so long as those programs exist.

Federal debt this high is unsustainable. It will drive up interest rates for all borrowers businesses and individuals and curtail economic growth by crowding out private investment. By making it more expensive for entrepreneurs and businesses to raise capital, innovate, and create jobs, rising debt could reduce per-capita GDP, each Americans share of the nations economy, by as much as 15 percent by 2035.

A 20% reduction in GDP in real terms, no matter what is done nominally, is unavoidable as we sit right now.

If we don't do it soon we're going to face a 40% collapse in GDP, as two more years of this garbage will put us in a position where that becomes unavoidable. Attempting to "print" our way out of the mess with monetization through QE-whatever doesn't change this -- you can change the nominal numbers but not the real impact on citizens' finances.

Unfortunately the commission continues to smoke bone. Specifically:


Don't disrupt the fragile economic recovery. [Emphasis theirs.] We need a comprehensive plan now to reduce the debt over the long term. But budget cuts should start gradually so they dont interfere with the ongoing economic recovery. Growth is essential to restoring fiscal strength and balance.

There is -- and has been -- no recovery. Printing and borrowing money is not "recovery." Back out the deficit spending beyond economic growth and you see that we're down 10% for the second year in a row -- the definition of Depression.

We cannot avoid reality and the longer we keep this crap up the worse the adjustment will be as these distortions must come back out at some point, and the longer we keep accumulating that damage the worse the adjustment will be.

Don't make promises we can't keep. [Emphasis theirs.] Our country has tough choices to make. We need to be willing to tell Americans the truth: We cannot afford to continue spending more than we take in, and we cannot continue to make promises we know full well we cannot keep.

You just lied. See above.

Nobody wants to stop putting today on the credit card and promising to pay tomorrow, but that's exactly what has to happen.

More to the point, it is what is going to happen. We still have the ability to choose how and when, but that option and ability will not exist for much longer. These choices will be made for us if we refuse to make them ourselves.

The general plan put forward is good. But the hopium has to stop being smoked, and that includes in the commission.

Sadly, the evidence for that is absent.

Link -
http://seekingalpha.com/article/239520-the-ugly-truth-within-the-fiscal-commissi...
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As Jeff Goldblum said, in Independence Day, "Times up"!

Ex Dame Pansi wrote on Dec 4^th, 2010 at 8:01am:



The unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported today. Temporary help services and health care continued to add jobs over the month, while employment fell in retail trade. Employment in most major industries changed little in November.

Link -
http://www.bls.gov/news.release/empsit.nr0.htm
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Yes, I see the official figures bounced back to 9.8%.

However, the shadowstats figures, run by John Williams is the US now show a rate over 23%, the full Un & Under Employment!http://www.shadowstats.com/alternate_data/unemployment-charts

Growth can't continue forever in finite world

The op-ed piece by University of the Pacific economics Professor Bill Herrin published Oct. 23 in The Record, "Sleep well tonight; the future is probably bright," contains misconceptions about population growth, and his reliance on facts and evidence is selective.

It is true that the rate of population increase is in decline, but he failed to mention that population growth is still high, with 77 million added to the planet annually.

That increase will result in 2 billion people being added over the next few decades before population can be stabilized.

Since we already have 2 billion living on $2 a day or less, 1 billion going hungry every day, millions in refugee camps and millions unemployed, it would seem insane to add to an already stressed population.

Herrin failed to mention global climate change that will result in 9 billion people living on a planet far different from the one I grew up on in the 1940s. This new planet will have higher ocean levels, devastating to coastal areas such as New Jersey, Florida and Bangladesh.

However, there is no indication that humans are willing to do anything about rising greenhouse gas emissions. It's likely it's already too late to avoid climate disruption and flooding. People remain in denial.

Herrin also failed to mention peak oil production. Our oil-dependent, industrial food production uses yesterday's photosynthesis stored as coal, gas and oil. Since 1859, we have used up a trillion barrels of oil. An estimated trillion remain, but it is much more difficult to extract than the first trillion. This fossil energy accumulated over 400 million years. To grow enough biomass to replace current oil use of 80 million barrels per day and meet other demands for food and fiber would require 30 to 40 additional planets' worth of farmland.

How dependent are we? The bioenergetics are not good. In nature, if an animal expends more energy to capture food than the food contains, starvation is the eventual outcome. Our contrived food chain uses 10 calories of fossil energy to put one calorie of food on the table. When energy production declines, we can expect food production to decline also. Here is a recent headline from the British newspaper The Guardian: "US military warns oil output may dip causing massive shortages by 2015." See, you don't need to worry until at least 2015!

Thomas Malthus was also an economist, and his prediction about population outpacing food supply has been wrong for the past 200 years due to human cleverness at increasing food supply. The result has been an overshoot of carrying capacity. Some scientists think the population will crash to a lower carrying capacity of about 1 billion or less. Most geological epochs have rounding errors of 10,000 years or more, which is the time frame of our human civilization. Our moment in the sun will be a short run by geological reckoning.

Herrin puts faith in knowledge and our rising per capita incomes, but wages are stagnating in America. As for knowledge ,we seem to lack even common sense in finance and other endeavors.

Economists talk only of growth when what we need is stability and a reversal of growth on an overpopulated, finite planet.

Perhaps economist Ken Boulding said it best: "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."

Economics is a subset of ecology and nature, not the other way around.

It is a biological and geological world, and we need to come to terms with its finiteness no matter how self-congratulatory we are at globalization and at being clever.

Lee Miller has a bachelor's degree in biology from Elizabethtown College in Pennsylvania and an master's degree in biological sciences from the University of Delaware. He retired after working 37 years with the state Department of Fish and Game, mostly on fish problems in the Delta. He is a member of the Sierra Club's Committee for Sustainable World Population.

Link -
http://www.recordnet.com/apps/pbcs.dll/article?AID=/20101204/A_OPINION03/1204031...
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Malthus is correct, as is Professor Albert Bartlett, it is simply not possible to have Exponential Growth of anything, in a Finite world.

We are now living thru a period, which will prove that statement to be fact, not just a theory!

Kuwait weighs nuclear future

Kuwait has launched a feasibility study into nuclear power development with the aim of having one or two atomic plants in operation by 2020.

The study, undertaken by the French government's Agency France Nuclear International and the US nuclear consultant and fuel developer Lightbridge, will assess potential project sites in southern Kuwait, where water from the Gulf could be used to cool reactors.

The size of the potential power plants has not been determined but each would have a capacity of at least 1 gigawatt, the Middle East business intelligence publication MEED reported, citing Suhaila Marafi, the director of studies and research at Kuwait's ministry of electricity and water.

In September, Ahmad Bishara, the secretary general of Kuwait's national nuclear energy committee, said the emirate planned to build four nuclear reactors by 2022. "Kuwait has enough sovereign funds to take up the expenses," he said.

Currently, Kuwait meets about 75 per cent of its power demand by burning oil and the remaining 25 per cent from gas-fired plants. UAE power generation is about 30 per cent oil and 70 per cent gas, while more than half Saudi Arabia's electricity generation is oil-fuelled.

Link -
http://www.thenational.ae/business/energy/kuwait-weighs-nuclear-future
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Kuwait is the home of the Burgan Oil Fields.

The Burgan field is also one of the older  (discovered in 1938) & larger fields (2nd largest Globally, by reserves) still in production and there is an obvious reason why the Kuwaiti's would be looking at Nuclear power.

Kuwait's Oil Production is about to go into steep decline!

Chart of the Day: U.S. Taxes

This chart should be ingrained in the mind of anybody who cares about fiscal policy. The main things to note:

•Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem. If the taxes reverted to somewhere near their historical mean, the problem would be solved at a stroke.
•Income taxes, in particular, both personal and corporate, are low and falling. That trend is not sustainable.
•Employment taxes, by contrast — the regressive bit of the fiscal structure — are bearing a large and increasing share of the brunt. Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart. Income taxes are just one part of the pie, and everybody with a job pays employment taxes.
•There aren’t any wealth taxes, but the closest thing we’ve got — estate and gift taxes — have shrunk to zero, after contributing a non-negligible amount to the public fisc in earlier decades.
If you were structuring a tax code from scratch, it would look nothing like this. But the problem is that tax hikes seem to be politically impossible no matter which party is in power. And since any revamp of the tax code would involve tax hikes somewhere, I fear we’re fiscally doomed.

Link -
http://seekingalpha.com/article/240261-chart-of-the-day-u-s-taxes?source=email_t...
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1) If anyone has seen a similar chart of Australian Tax, could they please post it, here.

2) It seems that Individual & Company taxes are certainly too low & are part of the problem.
It also seems that these taxes took  a big dip in the later part of the 1990's & the early part of this decade, at a time I would have expected a big increase in taxes due to the bouyant condition of the Global Economy.

Pimco Raises U.S. Economic Growth Forecast on Stimulus

Dec. 9 (Bloomberg) -- Pacific Investment Management Co., which manages the world’s biggest bond fund, is raising its forecast for U.S. growth next year as policy makers pump a “massive amount” of stimulus into the economy, Chief Executive Officer Mohamed El-Erian said.

Pimco sees the economy growing 3 percent to 3.5 percent in the fourth quarter of next year from the same period of this year. That compares with its previous estimate for 2 percent to 2.5 percent growth and the 2.2 percent gain forecast for this year by the International Monetary Fund.

“The U.S. is using fiscal and monetary policy to try to attain escape velocity for the economy,” El-Erian said in a telephone interview today from his office in Newport Beach, California. “What we don’t know yet is whether that will be enough not just to change the economy’s trajectory for one year but to place it on a medium-term sustainable path.”

Pimco began using the term “new normal” almost two years ago to describe the changed state of the world economy after the worst recession since the Great Depression. Under the new normal, the U.S. is seen as being saddled with sluggish growth and high unemployment for years as it struggles to overcome the fallout from the crisis.

U.S. policy makers are reacting to the new normal by pursuing “increasingly unconventional” strategies to aid the economy, El-Erian said. The Federal Reserve intends to purchase $600 billion of longer-term U.S. Treasury securities by the middle of 2011 to help spur growth. President Barack Obama has reached agreement with Republican lawmakers on a budget package that includes a $120 billion payroll-tax cut.

“The new normal is still here,” El-Erian, 52, said. “What the policy makers are doing is kicking the can down the road in response to the symptoms of the new normal, but they’re not yet changing the medium-term dynamics.”

Link -
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aF8caDYQKRS0&pos=1
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What Politicians & Central Bankers, in the US & elsewhere, have done is thrown Trillions of $'s at the Economy, in order to save the existing order, the status quo, the Establishment.

Any small pick up in GDP, relates to the temporary & massive stimulus being applied, not to a permanent revival in Consumer Demand!  

In fact, due to a number of macro Economic factors (Demographics, Peak Oil, Climate Change & Debt), there will not be any permanent Consumer Demand driven Economic rebound.

Therefore, the current massive stimulus revival efforts will not work, they are actually exacerbating the problems!  

I should also add that the Aus-terity efforts of some countries, notably European, will make matters worse, for quite some time and Consumer Demand will still decline, due to the above mentioned macro Economic factors!

End of Consummerism

It's not the end of the world, just the end of consumerism. We are about to wave goodbye to the dream of endless economic growth.

A change is about to be forced on society because energy consumption pretty much is the economy. And we are about to run short of the cheap energy which has been driving the past century of unchecked economic expansion.

Graph the world's energy consumption against its gross domestic product (GDP) and the two lines track.

However, a reckoning is coming. The ecological limits on growth have come into view. Climate change and over- population. But peak oil most immediately.

Anyone who can remember the last oil crisis of 1979 - President Jimmy Carter warning of national catastrophe in the United States - will also remember how swiftly the world moved on again.

The Club of Rome's The Limits to Growth, a study based on an alarming set of computer predictions, was briefly a fashionable read; it fell out of fashion, along with flared pants.

In truth, several factors underpin economic growth.

The availability of capital is one - a free flow of credit to build factories and launch businesses. Population is another. More people means more production. And technology. That goes without saying. We would like to think human inventiveness is the biggest single reason for continually rising living standards.

However, "biophysical economists" like Charles Hall, a professor at State University of New York, argue that the modern era is predominantly the story of how we have turned the energy so conveniently locked up in buried fossil fuels into an ever-expanding array of consumer goods and services.

It even accounts for empires. Great Britain arose because it had the ready supply of coal to turn iron into ships and cannons. The US became a world power because it had the sweet light oil fields of Pennsylvania and Texas.

Hall says it is obvious energy is needed to make things. Or even grow them. When the tractors, fertilisers and all the other energy inputs are totted up, it takes about four litres of oil to put the food on our plates each day.

But Hall says what really matters is the gap between the price we pay for energy and how much value we can then extract from it - the energy returned on the energy invested (EROEI). This is the profit margin which makes the difference between us feeling rich or poor as nations.

For a century, oil and coal have seemed so cheap that economically they have barely been a talking point. It has only cost about a barrel of oil for every 20 barrels extracted. So petroleum has been inexpensive to deliver. The EROEI story for coal-mining has been very similar. Then, because economic activity is energy consumption by another name, this has created plenty of head- room in the economy as a whole.

Hall's analyses show that in the 1990s and into the 2000s, the energy bill to run the US was less than 10 per cent of its GDP. Which, after all the necessary costs of life, like infrastructure, health and education, were taken into account, still left a quarter of the entire economy for discretionary spending.

But, he asks, what if the price of oil were to double - as it did in the 2008 spike that preceded, and may have even provoked, the financial meltdown? Or quadruple as it did in the 1970s, and some are suggesting might happen again if oil supplies become constrained?

Hall says energy could suddenly become 20 per cent of society's running costs, or even more than a third. And the cuts to balance the books would have to come off the discretionary spending. So that sense of easy wealth would fast be wiped out. A quarter could shrink to next to nothing fairly rapidly.
But broadly it can be seen we rely on a world where our energy sources are not just plentiful but also dirt cheap. A profit margin has to be built in to rig the national GDP game. And when that era ends, we had better have a plan B ready, Hall says.

The focus is on petroleum because oil and natural gas are still overwhelmingly the prime fuel sources for the world.

According to the annual BP statistical review of world energy, oil makes up 35 per cent of the global energy budget, while natural gas is another 24 per cent. Coal is then 29 per cent, while nuclear is just 5 per cent and renewables, like hydro and wind, answer for the remaining 7 per cent.

The peak oil argument is that the Earth's supply of petroleum is limited and we have burnt through a trillion barrels of crude oil now. Our appetite has been exponential - each year always more. We have also quite naturally been pumping the cheap and easy-to-get-at oil first, the large reservoirs found in places like Alaska and the Middle East.

So eventually, we will be left with only a diminishing supply of the dirty and hard-to-recover oil. The deep sea wells that blew up in the Gulf of Mexico, the tar sands that will have to be open-cast mined in Canada, the scattering of smaller fields that might remain spotted around the world.

Which is when Hall's EROEI and the law of diminishing returns kicks in. Steadily the cost of producing oil will rise and its in- built profit margin will begin to shrivel.

http://www.stuff.co.nz/the-press/lifestyle/mainlander/4448279/End-of-consumerism
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Guess what is already happening to discretionary spending, at both Personal & Government levels?