December 13, 2009

Signs & Portents

I'm kind of bummed that Dmitry Orlov has indicated he won't write satirical pieces anymore on his blog because it's become "bad taste." By which he means, his predictions of American collapse are now on such solid footing that they are no longer controversial - indeed, it's a matter of looking out the window to verify his prescience. So, he goes on to say, in essence, satirizing America is like "cracking jokes at a wake." Reading James Joyce, however, I get the idea this is exactly what the Irish in fact do at a wake. What else are you going to do? Besides guzzle Jameson's, I mean.

I note with fatalistic alarm that the state of California is putting a whole bunch of office buildings on the market, including the whole Franchise Tax board "campus." Isn't there a little bit of irony there? Taxes themselves are insufficient, so let's sell the damn building itself. That is what you might call late-stage desperation. The idea is that the state could raise as much as $660 million by selling all this real estate. The Controller (John Chiang) is ecstatic at the prospect, and he needs things to elevate his moods, I bet. Let's say that the net/net haul on selling this stuff won't be "optimal" in this particular commercial real estate market, even though Chiang is gung-ho because the new owner gets a "Class A" tenant along with the building. I'm a man who loves a good contradiction in terms. A Class A tenant? Isn't that the very bankrupt state who was just forced to sell the place?

Anyway, let's say that Kal-ee-for-nee-yuh actually raises $500 million. Makes the math easier, and as you'll see, it doesn't make any difference. The state's budget deficit is $20 billion. Thus I can calculate (even though I was educated in California public schools) that this magnificent windfall will take care of 2-1/2% of the deficit. For one year. Now we have to figure out how to take care of the other 97.5%. Or, to round up, the other 100%, because the actual budget deficit is worse than $20 billion. That's just the number Chiang is using to keep from dousing himself with gasoline in a public square and striking a match.

Fortunately, there's a "recovery" underway. So once we retire 2.5% of the deficit this year, everything will be fine next year with our booming economy and everything, and there's no chance of an unlawful detainer action to oust the state from all those buildings it used to own but now leases. I mean, it would be humiliating for the Franchise Tax Board to get evicted and have to resort to collecting taxes from local high school gymnasiums.

One fellow on the Zero Hedge blog, who strikes me as particularly perspicacious (I think the word was on the verbal SAT), commented that he doubted the states were going to have to "secede" or "rebel" or any of that nonsense. The breakup of the USA would occur quietly, almost as a matter of course. It would happen this way: the U.S. Government is going to default on its debt. If you look over there to the right at the National Debt Clock, you'll see a number whirring by. Here's the curious thing: the National Debt Limit is $12.104 trillion. How's this one work? Oh, Geithner & Crew have ways. Anyway, they just don't care anymore. It's gotten to be too much. There's a lot of talk about "replacing" Geithner. You know, as if they'll find someone else anxious to hold auctions every frigging day in a sweat-soaked effort to keep raising all this dough. The estimate is that the U.S.A. will need to "roll" about $5 trillion next year on the public part of the debt, which will soon hit close to $8 trillion. More than half of the debt is in notes with durations of under one year, so it must constantly be rolled over to keep the game going.

Where's the money going to come from? The auctions are already beginning to look a little wobbly - the Treasury is paying more in interest on longer term bonds than it wants to pay, and the action ("bid-to-cover") is falling off. China and Japan have problems of their own, and their export market (the U.S. consumer, in other words) is not that reliably insatiable pack rat he used to be. China buys more cars and refrigerators now than we do.

In short, just as Greece, Latvia and Dubai suddenly imploded, the U.S. could have a full-fledged funding crisis on its hands in the blink of an eye, brought on by one failed auction. That's all it would take for panic to set in. At that point, the states (such as West Austria, where I live), which are already in a hopeless financial condition, are going to wonder whether it makes a lot of sense to keep pouring money into the fiscal black hole known as the U.S. Treasury. Anyway, that's the Zero Hedge guy's theory. Americans will devolve by dissolving into a piecemeal map of independent regions.

One thing has become obvious from watching Congress attempt to deal with anything: they are simply not capable of practical solutions to real problems. On this national debt thing, they plan to attach a rider to the defense spending bill increasing the debt limit to $14 trillion so the Republicans will have to vote "against the troops" to avoid increasing the debt. Pretty clever, huh? And blatantly dishonest, but they don't care about that anymore. D.C. is simply an enclave, a walled and gated community where they take care of themselves and broadcast propaganda to keep the natives calm.

For how much longer?

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