Checkmate?

Turbo Tax Timmy keeps saying if the debt ceiling isn't raised we will default. The first reaction is WTF is he smoking. However, when you think about it, He doesn't just need to rollover the debt; he also needs to borrow the money to pay the interest. That is the first clue that we are screwed, when we have to borrow to pay interest expense things have gone seriously wrong. On the other hand, we are in the middle of the fiscal year so it can be argued that we are only in this position because the tax revenue has already been spent on stimulus and the solution is to balance the budget. However, if we kill the stimulus and make the cuts necessary to balance the budget our tax base collapses putting us right back where we started, but with more misery and more have-nots.

 

Keep in mind this is not an either or but more of a continuum where we can pick any spot along the curve we want and have a combination of both. What we can't do however is break out of this trap without either raising taxes, growing our economy, defaulting or some combination of the three. While some taxes certainly need to be raised as part of rebalancing our economy; others, especially taxes that tend to discourage productive employment need to be reduced and we are not going to gain very much, if any, revenue that way. If we attempt to fill the gap with a tax increase, it's going to slow down the economy triggering increases in unemployment payments, food stamps, an increase in bankruptcies that ultimately hit the FDIC, stock market declines some of which gets foisted onto the PBGC, etc. again offsetting the gain and probably dragging it into net loss territory. Growing our economy at this point is also a non starter. Ultimately every job is dependent on someone selling something; otherwise while it may be beneficial to you, it is not paid work. The public is deep in debt with dwindling opportunity for employment and sales. The only way we get people to spend, raising demand, is for them to either pay down their debts or default; so they have the money to spend. So at the moment we are caught in a trap where there isn't enough demand to raise employment nor enough employment to raise demand; ultimately it will be resolved via defaults but that doesn't help the national government. Those defaults will fall squarely on the FDIC and PBGC raising government expenses. Thus we are left with borrowing that ensures an eventual default in order to stave off default today.

 

Once you accept that there is no alternative to seemingly insane borrowing save immediate default, where do we borrow the 1.6 trillion dollars? M3 is no longer tracked but various sources all put it at around 10 trillion, that is so much money in relation to the total dollars in existence that it would ramp up interest rates economy wide regardless of the health of the borrower. There just aren't enough people willing to hold t-bills at zero interest to support that. Since e^X is a slower route to default than e^2X either the fed monetizes the debt or interest rates explode taking out the economy and bringing about an accelerated path to default. It would seem that they have had their financial engineers optimize the whole damn thing with respect to time; except, at this stage price inflation is hitting essential commodities such as food and fuel increasing defaults as people can't keep up with both essentials and their debts. To borrow a phrase from Thomas Jefferson "It is like holding a wolf by the ears. We can neither afford to let go nor continue to hold on."

T shaped house First Draft

T Shaped House 1st Draft
First Draft

Since planning is cheap and cement is permanent I reckon I will draw as many drafts as necessary before I start to work this spring, and probably lay it out with sticks and twine then walk through it a few times.

Notes:
The room in the front is a front porch and a screened porch in the back. I don’t know how draw do a deck yet. Upstairs in the back it’s a screened sleeping porch.
I still need to optimize room sizes based on classical mathematical ratios so they will look and feel right.
All rooms have six facades yet even more important than the facades is the size and proportion; a room based on the golden ratio will feel right, a cube will not. Although, a foursquare style cube will provide the most SQFT for any given area of exterior wall (insulated), and the interior can be walled off into more pleasing rectangle shapes.
The basement will be built unfinished and insulated against the house and exterior but not the ground, since ground-temp is a constant 62°F at 6’ it should be a cool retreat for the dog days of summer.
The Living, Kitchen, Study, Stair shaft, and all bedrooms should have fully functional transom windows to help passively control the flow of heat.
The stairwell & third floor tower are to act as a cooling tower funneling the heat out of the house in summer; in the winter the transom windows and tower windows will be shut.
The roof angle will be the same as the latitude for optimal solar collection on solar hot water and power, need to c compute slope and check if this is feasible.
Kitchen should have varying counter heights for different tasks.

Anything I’m missing?

Was the soviet union necessary to the American middle class?

In 1917 the US was rapidly industrializing; the rich were getting richer, the poor, poorer and the middle class of tradesmen were being decimated trying to compete with no skill labor in a situation that has much in common with today. However, half a world away the October revolution was on, and a scant seventeen years later the power elite in the US suddenly cared about the starving elderly and restoring the middle class.

Prior to the industrial revolution, the middle class’s position was assured because it took skilled labor to make goods; however, that is no longer the case. Until recently all it took was a handful of skilled technicians to set up and maintain the machines and all the work was done by unskilled low wage labor. However, the factory workers were well paid even though third world peasants could do it for nothing, why? Did the soviets hammering away about how they will bury us, and strangle the last capitalist with rope he sold them have anything to do with it? Personally, I have never felt compelled to purchase insurance to protect against things I don’t think possible. Prior to the 80’s a soviet takeover leading to the near instant executions of all our elites seemed possible though improbable.

Was the Soviet Union a necessary condition for the existence of the middle class as we know it today? If so we will probably have a revolution because the restraints against rapine are gone and today, with plant automation we can even dispense with the unskilled labor, all it takes is a handful of stilled technicians to make unlimited amounts of product.

The crisis in Europe

From The Brussels journal:

"The irony of the situation is that Portugal is expected to contribute about €2bn of the €120bn in bilateral loans to Greece, and Spain some €8bn. Italy and Ireland, who are also burdened with debts, are to contribute some €12bn and over €1bn respectively. In other words: The insolvent are expected to bail out the bankrupt. "

Absolute insanity!

Peak oil

From the LA Times:

"Oil companies look at permanent refinery cutbacks"

Repo 105

Lehman was using a new transaction called Repo 105 to cook its books when it blew up. Repo 105 is like a regular repurchase agreement except… the assets you sell and agree to repurchase at a later date are valued at 105% of the sales price so you get to record it as a sale instead of as the collateralized loan it is.

The question is, if one wanted to appear to reduce their exposure to losses by reducing their balance sheet and was willing to put up collateral valued at 105%of the loan to hide it, why not just sell the assets at the same discount? The answer is obvious; no one would buy them outright at that price because they weren't worth it.

Another fraud! Surprise, surprise.

Pressure is building…

Greece:



England:


Italy:

Vampire Squid