The Dumbest, Richest Investor Around

Zero Hedge

The US Taxpayer has long been the dumbest, richest investor around.  You know the kind – a little overweight, with cheery disposition, not understanding how he’s been “over-served” when in slurred speech he thanks the bar tender for the sales receipt on which he signs his name – plus adding a generous gratuity – for his “new good friends”.

The “diffuse interests” of the US taxpayer suggests that for all practical purposes, a very few ruling elite (elected and appointed officials) operate with little interference in controlling capital flows, selecting somewhat arbitrary “winner” and “loser” business sectors (and now individual “winner/loser” companies), and micro-manage industries in which the authorities have never worked and fundamentally do not understand.  It’s an unrealistic assumption that the “average” person with a job, a family, and a “real” life is able to defend himself from the full-time professionals that have extensive resources and full-time attention that are intent upon betraying the public trust.

It wasn’t supposed to be this way:  The US Government never before had this type of authority.  The citizens never granted government these types of powers.  The three branches were to serve as checks-and-balances on each other to protect the defenseless – the smallest minority — the individual citizen. 

We need not seek blame on conspiracies, nor sociopaths, nor narcissistic control freaks (though people conspire every day, and many individuals in power are shown to have impressive character flaws).  Rather, never underestimate the impact of bad management; of clueless “leaders”; and of stupid people in large groups (in reference to economists and the US Congress).

The idea itself is ludicrous that the USA’s regulatory structure and budget can be trusted to 535 politicians in Congress (strike one), most of which are lawyers (strike two), and all of which are beholding to populist noise and their own image in the mirror (strike three).  These people don’t understand the world and how it works.  Sadly, the same can be said for most economists, who never saw the economic crisis coming, and afterwards assure us it’s not a big deal, because their prior blindness should be entirely understandable. 

“Drinks for everyone” he’s happy to announce.  (“If I get enough overtime next week, I’ll be able to cover this before the bill comes due next month,” he thinks to himself.) 

Usurpation of power is fun, which is why it is practiced by all three branches of the US government.  Who doesn’t love to spend other people’s money for charitable largess in his own name?  What court doesn’t want to project its personal bias, laws be damned?  What politician doesn’t want to promise the most things to the most people, even if it means exceeding his authority and the laws of math and physics?  Don’t we all “deserve” a new car and dinner in a really nice restaurant?

Like celebrities that are never told “no”, this ruling class is comprised of teenagers who continue to stay out past curfew, performing increasingly outrageous neighborhood pranks, in search of true boundaries.  Sadly, no authority is making efforts to establish boundaries, and the absence of consequences for decades has taken us far beyond the point-of-no-return.

Every country in the world has promised its citizens future services for which some unspecified third party will pay.  Those services will never come.

He’s a happy drunk, and for much of the evening, quite amusing.  “The life of the party” he reminds himself, as the rest of the room watches the painful display with amusement, and sometimes with cheers, and periodically with uncomfortable glances.

The US Government is bankrupt.  Other large nations in Europe and Asia are even more bankrupt.  The entire world banking system is bankrupt.  Though everyone knows this, it is in no one’s best interest to say so.  Thus, we all look away.

The fundamental problem is the illegal governmental accounting that pretends “cash flow” is the same thing as addressing liabilities.  In reality, reserves are never created against liabilities.  As long as we keep filling out credit card applications each month, we’ll be fine.  For any business, or any individual, or any institution in the world (except for government), these practices would land you in jail.

Like “geologic time”, we now operate on a scale that is so big that the human brain was not designed to comprehend it.  The implications are so unthinkable, that politicians and central banks all over the world continue to pretend to come up with “plans” to “fix” some ill-defined symptom with a non-specific target.

While simpletons may privately hope while publically deny their current plan to inflate our debts away, the world cannot borrow itself prosperity.  It cannot drink itself sober.  Alternatively, welfare states the world over have betrayed their populace with the promise of future services – pensions, medical care, and food stamps – which will never be fulfilled.

The math and demographics make it impossible, and inflation does nothing to provide these services (in fact, that sinister tax makes matters worse).

As the evening wears on and the novelty wears off, increasing moments of awkward silence do not go unnoticed.  Even through his stupor he notices the abatement, and so gropes with ever more outrageous dance and gestures to revel yet again in former celebrity.

“We thought Social Security was bankrupt decades ago” the people reassure themselves, as if that alone is justification that it can continue a few decades more.  No, it will not.

The jig is up.  We only await the accountants, who apparently spent the evening in the toilet.  We expect them back any time now, for the waiter has brought the check, and everyone is politely pretending to reach for their wallets, knowing they are empty, with the expectation (and hope) that someone else will grab the check first to pick up the tab.

There is no “someone” to pick up the tab.

Not an academic discussion, this final accounting is not ten years away.  It will be addressed now, by the current generation.  All debt that cannot be repaid will default, and these private and national debts cannot be repaid.

As 2009 closes with the commencement of “phase two” for the default cycle initiated in 2007, we will only see acceleration of this destruction.  Curiously, people are not interested in hearing that the destruction actually occurred long ago – at present, we are only talking about correcting past accounting that was made in error.  The loss was created when the document was originally signed.  On the day of signing, the document was never worth the net-present-value that was claimed through bad math and even worse assumptions.

The evening wears down, and the others fetch their coats while giving wide berth to the slobbering man in the middle of the floor.  While any of them could have called for him a cab, instead the night ends with the crowd filing out, one-by-one, pretending they don’t see him even as they step over the sprawling figure on their way to the door. Sadly, in his half-conscious state, he doesn’t even see them go.

 

He is to be pitied, really.

Not long from now people will wake up and ask the (terribly stupid) question, “Who could have known?”  This will be followed with the even more stupid question, “Where did the money go?”  Rather, like Madoff’s classic ponzi, everyone knew it was fraud because they were all in on the game; and the money is not to be found because it never existed.  Sadly, those two points are so painful and difficult for people to hear, that they still don’t believe them long after the bubble burst.

None of this matters, because the system is coming down.  It’s not ending because it is unjust, or because we don’t like it.  Its termination is through the one thing politicians cannot control:  math.  We are at the end of an exponential progression that even now, the US Government officials and even most economists don’t understand and cannot repair.

The details exist to see and understand, but for the most part, politicians and the general populace don’t care enough to know them, and most economists hold a world view that makes them blind.

Perhaps the next system will be more respectful of individual rights and freedoms, which are ultimately based in property rights, for that defines limits on what an authority may usurp.

It is possible the drunk hit bottom that night, and returned to a life of moderation.  It’s possible he’s so ingrained with his routine that you will see him back at that bar tonight, a bit worse for wear, leading the inevitable path to a failed liver, a shortened life, and a perpetual lethargy that denies him so many of life’s other joys.

Individual States will fail, and the US Federal Government will default.  We will be in good company with nations around the world similarly defaulting.  Baby boomers everywhere will come to understand the most elemental aspect of exponential progressions, and of misplaced faith in these frail institutions among men.  Instead, people will increasingly look to their neighbors, because like Katrina, there’s no government not so bold as to arrive late with a great plan to make the problem worse and ensure more people suffer than any before previously thought possible.  We are at least fortunate that we didn’t get as much government as we paid for.

“We want a solution that promises us no consequences!” all the people cry out, and the politicians are only too happy to oblige in a way that tortures the people all the more, fruitlessly attempting to hand off reckoning and liabilities to any non-voting demographic, and finally to the not-yet-born.

It is absolutely astounding that humans put up with this, but sadly, this is nothing new in terms of human history.  Only the scale makes it more impressive.

“Mercy” is what we receive when we do not get what we deserve.  Let none of us get what we deserve.

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