amazing denninger rant (be sure to click on link):
market-ticker.denninger.net
Sorry folks, you get politics today, not markets.
The markets are simple - we're screwed. I've been doing a lot of detail-level writing on that account of late.
But why are we screwed, and why can't we stop it?
Actually, we can stop it. We just (collectively) refuse to stop it, because stopping it means we must take responsibility for not only our own actions but those of our nation.
Let me share with you a quote off the thread from yesterday's Ticker:
Allclear Wrote:
There is no forum whatsoever to ask the hard questions, and demand factual truthful answers. In the past, we relied upon the media to ask the hard questions and uncover the coverups. Not any more...it is now part of the government, and you will never see any such thing again.
In response I said:
Yes there is.
Get off your ass.
Which elicited the following as a reply:
yeah yeah yeah. What do you suggest that might change things in the short term to benefit the nation as a whole?
If you told me we were going to have a major protest to disrupt normal activity in Washington DC with hundreds of thousands of people...I would be there in an instant. Because these scumbags might begin to think twice when they have to face an angry mob
Translation: "You do the work and take the risk of sticking your neck out and I'll show up to eat the popcorn and drink the beer as long as I can be part of an anomymous, amorphous angry mob."
Is this any different from any of the other popcorn-eating contests over the last 30 years?
Well, in fact, no.
Let me put out some inconvenient facts that you may or may not know about, but which happen to tie into the upcoming theatrical release of I.O.U.S.A, a movie featuring Warren Buffett, and former Comptroller General Dave Walker (who resigned in disgust).
America's GDP, or the total of all goods and services produced in this nation in a given year, is about $14 trillion dollars.
America the nation currently has an outstanding debt of about $10 trillion dollars, and has more than doubled in the last ten years. But this number is not the real total, because it does not count all the "promises" (read: entitlements) that people have been told they will have. Those "promises" are Social Security, Medicare and Medicaid, in the main. They total, approximately $90 trillion dollars in current liability.
What's worse, about 1/3rd of that was added with the "Medicare Part D" drug benefit, even though Congress was at the time fully aware that there was already $60 trillion or so sitting out there in unfunded liabilities. They did not care because the AARP, and you, screamed and demanded that Congress "do something."
Oh they did something all right. They did the very same thing that you think you have a right to do - that is, spend more than you make.
That's right. You have a right as an American to have a 4,000 square foot house on an acre, even if you only cut hair for a living. If you can't get that loan honestly, you simply will make up an income and use some sort of "exotic" mortgage product to get it.
Your car broke down? Its beneath you to buy a used one, right? Just hit the home equity line and buy a new Suburban. $40,000. Cool. Oh, and charge the gas too.
Your kid comes home from school complaining that one of his friends has an iPOD. To shut him up, you go buy him one - even though you don't have the $200 it costs. You just pull out the plastic and charge it. It will all be ok.
Your grandmother is taken deathly ill and whisked to the hospital. She's 85, and has cancer. She has had a good life, but now it is drawing to a close. When you get there, the doctors ask what you, as her closest kin want, as she's unconscious at the time. You tell them that they should preserve her life at all costs. Of course you don't have any money to pay for the $500,000 in medical bills. Its ok; she was in a nursing home and didn't have anything anyway, so there's no estate for the bill to eat into; Medicare will pick it up. After all, she's entitled to the best medical care money can buy as an American.
You love the $3/quart strawberries at the local WalMart. You won't pay $3.50. As a consequence, the grower has fired all of his United States citizens as pickers and is employing illegal Mexicans. You don't care, as you've got a good job - you answer the phones for Joe's PCs and help people with their computer problems. Unfortunately Joe's customers want to pay $50 less for that PC, so he fires you and outsources your job to India for $2/day. Oops.
Folks, what is going on in this country is exactly like what happened yesterday on the forum. Each and every day.
You drive around your neighborhood and see the "For Sale" and "Foreclosure" signs and the boarded-up businesses. You whine about $4 gasoline, $5 cheese and Ice Cream that is both more expensive and now is in a 1.5 quart instead of a 1/2 gallon container.
Your employer cuts medical benefits or expects you to pay more. You grumble or, if you're unionized, you might actually strike. You end up capitulating anyway, then your job gets shipped to China.
We all feel the squeeze, but will we accept that we are part of the problem? That we have a spending deficit (that is, we spend more than we make), we have a savings deficit (we don't save anything, on balance), we have a balance-of-trade deficit (we demand $30 DVD players from China, therefore, all the people who made them here are fired and they are manufactured there where workers are paid 25 cents/hour) and we have a common sense deficit (that is, we think we can continue to do this until the cows come home and there will be no consequence.)
Well, now we've got the beginning of the consequences, and what America is doing, for the most part, is sticking its fingers in its ears and going "LA LA LA LA LA LA LA LA" - because actually removing the fingers from your ears requires that you admit that you are likely part of the problem as you're in debt up to your eyeballs and are unwilling to live within your earnings capacity!
Would you like to know the rest of the consequences that are coming for you, your children and grandchildren if you don't remove the fingers and stop chanting? Do you even know what they are? Let me lay a few out for you:
*
As noted in previous Tickers, I believe China threatened Paulson and thus our government if they didn't insert the Fannie and Freddie "rescue" provisions into the Housing Bill - $800 billion, potentially, worth of liability out of your pocket. Do you like the idea of foreign governments dictating to our government what we must do as a nation and how high our taxes must be?
*
China and Japan could get upset with our profligate spending, discerning that we can't possibly pay back what we owe them (see, they buy a lot of our debt.) They could express this opinion either by refusing to buy more, or actively dumping what they own. The alternative? They tell us what we can and can't spend - and how much Granny can have in her last year of life. Again - are you willing to have foreign governments dictate your standard of living and what the government can and can't spend on?
*
What happens when you can't get a loan? Of any sort. Oh, and you kinda need one. Guess you'll have to do without that (whatever it is), right? What if its gasoline or food? Could you survive six months without any of your credit cards?
*
Think your job is safe? How sure are you? Can it be shipped to China? If not, will what it pays if your job is NOT outsourced to China keep food on your table? Are you sure? What if you're wrong?
*
How do you unwind close to $3 trillion in bad debt, and who eats the loss? If its "the taxpayer", are you willing to pay 30-50% more for everything - forever? Oh, your wages won't go up either. If your purchasing power deteriorates by another 30-50%, will you be able to feed, clothe and keep your family and yourself warm this winter?
You think this is all about finances? No. How many of you voted Democrat last Congressional election? Did you do so based on a promise to bring "the boys" home from Iraq? Did it happen? Did Ms. Pelosi and Mr. Reid introduce a bill to de-fund the war or refuse to approve the spending, as they said they would?
No.
Did you sit behind your computer or TV, or did you show up in Washington DC and shut the city down along with 10 million of your fellow Americans? I don't recall any mass protests, and 20 "Code Pink" ladies don't count folks.
Who's fault is it, if you really believe we should not be in Iraq, that we still are?
Yours.
Folks, we have choices in this country. One of them is to sit on our butt and whine and complain or stick our fingers in our ears. Another is to demand that someone - anyone - bail us out.
The third, and the most appropriate choice, is for us to take responsibility for ourselves and for our nation. We simply must recognize that:
* We cannot spend more than we make.
* We cannot send trillions of dollars overseas to buy cheap imported goods while denying our citizens good jobs at the same time, then expect to have a high standard of living. If we do that our standard of living goes down and theirs (China's) goes up. The poor farmer going from living in a stick hut to a bunkhouse in a factory gets quite a (relative) boost in his standard of living. How far down does your standard of living have to go to meet parity with him?
* We cannot demand that the government provide "things", whether that be retirement, medical care, or anything else, that cannot be fully funded from today's tax revenues. This, unfortunately, means that in their present form Social Security and Medicare cannot be allowed to continue to exist. This is a fact whether you wish to admit it or not. Playing partisan politics and calling names will not fix this. The original design of these programs was defective - intentionally so. Use your heads and face the math.
* We cannot own a house if we are unable to put 20% down, finance it for 30 years on a fixed mortgage, and pay no more than 36% of our pretax income for all debt, including our mortgage payment. This is a mathematical fact; those who are levered beyond this are at high risk of default and should default so prices can correct to sustainable levels. Do you want to be able to afford a home, or claim to own one that you'll never actually have clear title to? We must stop lying to both ourselves and our neighbors.
* A home is a place to live. The laws of common business balance prohibit it from rising in value faster than prevailing wages over extended periods of time. Unfortunately, prices in the general economy tend to rise at the same rate as wages, and houses come with costs (maintenance, property taxes and utilities) which means that on average, they make poor investments - but are great places to live. If you want to invest in housing and not go broke, you must buy it when cheap and sell it when expensive, just like a stock - whether you like living in the place or not.
* We cannot buy a car if we do not have a 20% down payment or need to finance it for more than the duration of the warranty if new, two years if used. If that makes the car too expensive, we need to buy a cheaper (or used) one.
* We cannot use credit on an ever-expanding basis, nor can we tap phantom "equity" to pay it off. Revolving credit used for true emergency purposes is reasonable. Carrying ever-expanding balances and then taking out a HELOC to pay it off is not. Down this road you will lose your house - eventually. Just ask those people who have or are. And oh by the way, its not credit - its DEBT. Don't forget that.
* $30,000 a year to attend a university is unconscionable. A person graduating with a Bachelors carrying $100,000 or more in debt is outrageous and that we allow the university system to exploit our children like this is even more so. Never mind the debt merchants at the student registration table handing out credit card applications to young people with no income, no job, and no assets! Bankrupting our children starting at 18 must end now, and it will only happen when we as adults say no f*ing way is my kid going to spend that kind of money he or she doesn't have to go to your school. Cut that crap out or go out of business. Why are you permitting your children to be violated by these clowns?
* Our retirement security is our problem. It is not our children's bill nor is the government's issue to solve. If you are not saving and investing 10% of your gross income you are going to be in trouble when you retire. As an example, if you make $100,000 and save 10% of it in a retirement account that earns 9% in yield (entirely possible using a simple timing signal I have discussed in The Ticker before), start at 21 and retire at 65, in a 401k with a predicted inflation rate of 4% you will have $88,000 annually to live on. The bad news is that if you wait until you're 30 to start you'll only have $53,000 a year (!), and if inflation is 6% instead of 4% as well you will have just $30,000 in today's purchasing power. That's a hell of a haircut from your $100,000 salary! Still think you can get by saving less? If you don't act prudently now, you'll be working well into your 70s, and it won't be by choice. So much for those MaiTais on the cruise ship.
We MUST frame the political debate in this nation around these principles. We MUST teach these facts to our children. We MUST stop demanding that the government give us that which as a nation we cannot afford, and WE MUST shout down those in the public space who continue to insist on unsupportable, unsustainable spending both by individuals and by the government.
It is no accident that the bankers, Universities, Realtors and credit merchants want you to spend more than you make. They love the money you give them and they do not care if you go broke or wind up eating dogfood in your retirement.
That's a fact.
Now what are you going to do with the information above, and if you have sons or daughters, does it change your answer?
This was my answer as recently as July 31st. You don't have to show me 100,000 people in a park before I'll travel 900 miles to wave a sign, hand out flyers and press palms. I'll do it whether the other 99,999 people show up or not, because its the right thing to do.
What choice are you going to make America?
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