Sunday, December 21, 2008

The lesser of two weevils

In an apocalyptic - but carefully-reasoned - post, Karl Denninger says that when the deficit expansion stops, US government spending will have to be cut by 50 - 60%, unless there is to be a "general default" on debts.

I have no idea what a general default would look like, but in a closely-interwoven and distant-from-nature modern industrial society I can only fear it might prove utterly destructive. So we're back to contemplating the lesser, but still vast disaster.

I also have no idea how much worse it might be in the UK.

Someone else please read this unberobed OT prophet and tell me where he's wrong.



While the Obama Administration cannot take a 'weak dollar' policy it is the only practical way to correct the imbalances brought about by the last 20 years of systemic manipulation. It is either that, or the selective default on sovereign debt, most likely through conflict, a hot or cold war.


sobers said...

Steins law applies to most of the problems we face - namely 'if something cannot continue for ever, it stops'. Thus we cannot indefinitely inflate our economies with printed money, or spend our way out of recession by ever increasing debt. At some point the bubble has to burst. And the longer we go on attempting to keep the bubble going, the worse it will be in the end.

If politicians will not do the honourable thing and explain the situation to the population at large, and take steps to refound our economies on firmer foundations, we as individuals must assume the worst case scenarios, and plan accordingly.

I have a plan to ensure that by the end of 2009 (and hopefully sooner) I can be independent of the National Grid for heat and light. Also to have some of my savings available without having bank access, and to have a significant stockpile of consumables in case of emergency. Also to have an independent source of food if neccessary. Sounds all rather apocalyptic, but the cost of doing it is not huge - the cost of being wrong is potentially massive, in personal terms as well as financial.

Sackerson said...

Sobering indeed, Sobers. Can you reveal your method for energy independence?

sobers said...

Energy independence is achieved (for me) by having a log stove that I can cook on, and heats my house and water. And an electric generator with a good supply of fuel. I'm lucky I live in the countryside and have access to plentiful wood supplies, and have a large stockpile. My theory is not to be able to survive indefinitely 'off grid' but to be able to do so for perhaps 6 months to a year in the event of 'disruptions' to normal supplies of life's essentials. Plus its cheaper burning my own logs than Putin's gas!

Ryan said...

Didn't check the Denninger post, but I had come to a similar conclusion. If the government has run up a total amount of debt close to £800billion (when PFI is included) over 7 years then that works out at £114billion of over-spending per annum. The UK tax take amounts to £500bn per annum, so in percentage terms the government overspend including PFI is 23%. Clearly, just to stand still we would need to cut current spending by 23%. In fact we need to cut by more than that right now as government revenues have already fallen by 5%. So if we were to try and repay this debt over say a 20 year period then we would need to cut public spending by over 30% (or raise taxes by a similar amount - almost certainly not sustainable as it will merely push the problems onto the private sector, or a combination of the two). A 30% cut in public spending would result in 3million jobs being lost, on top of any public sector job losses and the 1.8million people out of work now plus the 2.7million on incapacity benefit.