Monday, October 21, 2013

It's Official: The US Goes Full-on George Costanza

The Seinfeld fans out there will remember the episode where George Costanza decided to just give up. Rather than watch his weight or care about his appearance, he decided to wear sweat pants all the time and skip other necessary hygienic activities. Well the US has just decided to stop shaving, bathing, and has purchased the largest pair of sweatpants the world has ever seen.

While we're all celebrating the end of the government shutdown, there is one bit of information that I haven't seen reported anywhere in the news. A provision (named the Default Prevention Act of 2013) is buried within the Continuing Appropriations Act of 2014 that gives the President the ability to unilaterally waive the debt ceiling limit.  Although Congress can override the President's move to lift the debt ceiling entirely, it would take a 2/3 majority in both Houses of Congress to block the action.  That just would not be possible for all practical purposes. Whether you are a Republican or Democrat (or, like me, have little use for either), this provision has chilling implications.

When I first saw the news that a deal had been reached, I spent time scouring the Internet to see if I could find out the new debt ceiling limit - i.e. how much more deficit spending could occur between now and February 7, the next drop-dead date.  I could not find any numbers.  Now I know why.

It looks to me, based on reading the Bill, that the Senate slipped the provision into the legislation at a late stage in the game, when they realized that the Republicans had caved in and the world was begging the government to avoid default.  I would bet a lot of money that most if not 90% of the Congressmen who voted "yes" on the Bill didn't even know that the provision was in there. 

In addition to this, there is no specified limitation on the amount of debt that can be issued between now and February 7th, when supposedly Congress reconvenes to vote on extending the debt ceiling limit.  But now it appears as if February 7th is a meaningless date. So now we have legislatively officially entered the realm of unlimited debt, unlimited QE, and interest rate and dollar instability.

In essence, while most people feel a sense of relief over the passage of the Bill enabling to government to pile on even more debt, the cold reality is that the legislation is a ticking time bomb for the U.S. dollar and it sets up the next stage of systemic collapse (or reset, choose your poison).

The truth is, the U.S. political and economic system is now akin to a runaway freight train in which the brakes have failed and it's headed toward a gorge where the bridge has collapsed. At this point, It would take a 30%-40% contraction in GDP to restore the annual budget to balance. Five years ago it would have taken a 20% GDP contraction. At the end of 1999, it would have required a 10% GDP contraction. As time goes on, we are accelerating more rapidly from a point where we could have fixed this problem with a minimum of pain. Our leaders have simply decided that it is better to just give up on fixing the problem and are hoping the charade lasts until they're retired and gone.


  1. Where's Kramer when we need him...
    Holy shit, the country is in the hands of imbeciles. When we go down, we'll take the rest of the world with us...if that's any consolation. So there will be no place to run and "hide."
    Box Canyon Mark

  2. It took a minute or two to load this website's homepage, even though I have a fast internet connection, and am having no problem loading other webpages in 3 seconds. Are other readers having the same problem? I hope this comment is useful.

    1. It may have been the big masthead photo. I changed the picture and it seems to load faster now.

  3. With the global economy the question almost seems disingenuous, but....any suggestions for where to run to? Last summer I met a former academician who was enjoying the low rent and fresh fruit available in the highlands (1,550 ft) above the canal in Panama. Also noted the positive reviews of La Libertad, Ecuador on Yahoo a few weeks ago. I plan to spend next summer checking out Montreal and Quebec, but I'm a cold wuss and need a warm wintering spot.

    1. What to do to protect yourself and your family is probably more important than where to go. Ironically, the US is probably a better "where" than other countries. The problem with going expat is that you are living in a country as a non-citizen. When social or financial challenges hit, any country will first help its own citizens before those non-citizens living in the country. In a worst case scenario, the non-citizens will face one form of dicrimination or another. In addition, for all of our faults, the culture of freedom and government practiced in the US is better than just about anywhere else (and I've looked hard at living/retiring in places such as Canada, Mexico, New Zealand, Australia). If you are not a debt slave to the banks and live somewhere you can be somewhat self-sufficient, are surrounded by good, dependable neighbors, and can enjoy life, then you are in about the best position you can be in for any financial or social turmoil. People living in this way have survived most problems throughout history.