Tag: spending crisis

MLLG

Watch For The Minsky Moment

George Noga

Watch For The Minsky Moment

Has the great American spending crisis already begun?

GEORGE NOGA

Feb 4, 2024

I have been writing frequently about the spending crisis because it is inevitable and fundamentally will transform these United States in ways difficult to imagine. It will be like the Great Depression in that Americans will forever date everything from before or after the crisis. This post addresses whether or not the crisis has begun.

concrete statues near wall

The crisis could begin suddenly when the market for Treasury securities evaporates and buyers no longer are willing to buy government debt under acceptable terms. It could be triggered by an unexpected downgrade of US government debt by one of the rating agencies. Or it may be triggered by a seemingly innocuous event such as a Bloomberg article that goes viral and results in panic selling of Treasury bonds.

Alternatively, the crisis could begin slowly and gradually. Although there would be abundant signs, they would be ignored or lost in mountains of data. Inevitably, there also would be conflicting signs. No bell will ring when the crisis begins.

The Minsky Moment

The Minsky Moment, named for economist Hyman Minsky, is that precise tipping point when unsustainable activity results in a sudden decline in market sentiment and leads to panic selling and to a rapid and unpreventable market collapse. It is an abrupt bursting of a bubble. It is an unmistakable demarcation such that nothing is the same after the Minsky Moment as it was before. A recent example of a Minsky Moment is the 2008 bankruptcy of Lehman Brothers which burst the housing bubble.

Whether the spending crisis begins suddenly or gradually, there will come a Minsky Moment. Once it occurs, it will be too late to protect your assets.

Has the Spending Crisis Begun?

Although the Minsky Moment for the spending crisis has not yet occurred, that does not mean the crisis has not begun. As noted supra, the crisis could begin gradually, with the Minsky Moment coming later. Following are some indicia that suggest the crisis already may have started.

  • Moody’s, a major credit rating agency, recently put US Treasury securities on “negative credit watch”, which means a downgrade may be imminent. Recall that Treasury debt already has been downgraded once before.
  • Demand at recent auctions of Treasury debt has been tepid; in November, the Treasury was unable to sell all the bonds it offered due to insufficient demand.
  • A recent headline in the WSJ blared “Foreigners Lose Interest in Buying US Treasury Debt”. Foreign ownership of Treasuries is down 35% in recent years.
  • Demand for longer-dated Treasuries (the most risky) has been so weak that Treasury was forced to shift to offering more shorter-duration debt instead.
  • Interest on the debt last FY was 16% of revenue; this FY it will balloon to 22% of revenue on its way to oblivion. What happens when 25%, 33% or 50% of all government revenue must be used to pay interest on the debt?
  • There has been a geometric increase in the number of news reports about the debt spiral in recent months. Search “Minsky Moment” online.

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What is the Key Takeaway?

The key takeaway from all this is that the time will come (sooner rather than later) when America will be forced to cut spending by at least $1 trillion in today’s dollars. If we don’t drastically cut spending voluntarily, the market will do it for us. The most likely scenario is as follows:

  • The US will continue present spending levels. There will be occasional sops to cut spending but they will be inconsequential political window dressing.
  • Both the debt ratio and the share of revenue required to service debt will continue to skyrocket, reaching obscene levels.
  • The Minsky Moment likely will come when either: (1) the market for government debt implodes; (2) Treasuries are downgraded to near junk levels; or (3) some highly credible person or organization says the jig is up.
  • At first, the Fed will print money to sustain the obscene spending, but that will result in hyperinflation.
  • With absolutely no other choices remaining, spending will be slashed, including cuts of 30% to Social Security, Medicare, Medicaid and all other government programs. Also new taxes such as a VAT and/or carbon tax will be enacted.
  • America will be forever transformed and we will experience a lost generation.

Who will be the last person on Earth to buy US government debt? Watch for the Minsky Moment and remember that if something cannot go on forever, it won’t!

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© 2024 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Eighty Years and Counting – Lessons learned over a lifetime

George Noga

Eighty Years and Counting
Lessons learned over a lifetime
GEORGE NOGA JULY 23, 2023

 

As I begin my ninth decade on this orb, I am taking the liberty to share what I have learned about human nature and, more particularly, the relationship of man to the state. Following are the top ten lessons I have learned.

We The people text
Photo by Anthony Garand on Unsplash

  1. The US Constitution is the best document ever to define the relationship between man and the state and it may be the finest document ever crafted by the hand of man. It embodies a fundamentally correct understanding of human nature by imposing an ingenious system of checks, balances and separation of powers. Our Constitution is 236 years old; half of all constitutions fail within 20 years.
  2. Government is inherently evil as our founders well understood; however, limited government is necessary to prevent an even greater evil, i.e. anarchy. Because government is evil, we want as little as possible – mainly for security from foreign and domestic violence. Since the evil is inherent, government can’t be reformed. The only way to reduce the evil is to reduce the funding; nothing else works.
  3. Government fails because it is unalterably opposed to human nature. Its incentives are diametrically misaligned with the public interest. Government is top-down, highly coercive, ignores consumer preferences and artificially creates winners and losers; it does not attract talented, hard-working people. It is rife with waste, fraud, abuse and corruption. Business succeeds because it is the opposite of every one of the above described characteristics of government.
  4. The science of public sector economics explains why government is predestined to fail. The goals and incentives of public officials are horribly misaligned with the public good. That explains why taxes are opaque, borrowing is always preferable to taxes, spending is out of control and failed programs never end.
  5. All forms of collectivism are doomed to fail for all the reasons cited above; however, socialism deviates far more egregiously from human nature. It inevitably results in starvation amidst plenty. Colonists in Jamestown and Plymouth chose death over socialism. Once they had private property rights however, these very same people became inventive, industrious and prosperous.
  6. People are incapable of sacrifice absent a serious danger that directly and immediately affects their lives. We refuse to act even in face of a clear and inevitable disaster. The best example of this is the coming spending crisis.
  7. The success of capitalism sows the seeds of its own destruction. This was first posed as a question by economist Joseph Schumpeter; we have resoundingly answered his question in the affirmative. America has become so affluent its citizens have lost the connection with what created their prosperity in the first place. As Steinbeck wrote: “Americans can stand anything nature throws at us save only plenty. If I wanted to destroy a nation, I would give it too much.”
  8. Universal school choice – where the money always follows the child – is the only way to improve education. Absolutely nothing else will work due to government failure and public sector economics explained supra. Parents always have the best interest of their children at heart; teachers and education bureaucrats don’t.
  9. Most of our formerly trusted American institutions have become hopelessly woke and corrupted; they include: entertainment, media, corporations, military, sports, fact-checkers, education, government, science, criminal justice, immigration, universities, academia, social media and even religion.
  10. The Gods of the Copybook Headings¹, with terror and slaughter, will return. Americans have not only ignored the wisdom carefully learned and handed down throughout the ages, they have flaunted it. Instead, we worship the false gods of wokeness, debt and deficits, climate madness, political correctness and identity politics. Throughout human experience, whenever people worship false gods, the Gods of the Copybook Headings, always return – with terror and slaughter!
1

Taken from the poem of the same name by Rudyard Kipling. In Kipling’s time, children learned to write using a copybook. Each page of the copybook had a heading which embodied some proverb or kernel of wisdom such as “All that glitters is not gold” and “A stitch in time saves nine”. The children would then copy the headings into their copybook to perfect their handwriting.

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Decade Horribilis: The 2030s

George Noga

The next decade will be the perfect storm for America
GEORGE NOGA
JUN 11, 2023

On January 1, 2022 I distributed a post entitled Annus Horribilis in which I wrote that the coming year would contain a phantasmagoria of horrors. My predictions included:

  • Russia invades Ukraine; China and Russia form an entente
  • Iran races toward nuclear weapons and North Korea resumes missile testing
  • The US has double-digit inflation, uncontrolled spending and huge deficits
  • Biden is non compos mentis; his administration, chosen solely on identity, would open the borders, cripple US energy production and promote lawlessness.
Russia and China form an entente

The only major prediction I muffed was that China did not invade Taiwan. Read this post for yourself on our website: www.mllg.us. My 1/1/22 post was the only time in 15 years of blogging I made any such predictions. That I was prescient is not attributable to any special insight or clairvoyance; the predicates were in plain view and many of the dots already were connected. And so it is again for the next decade.

The 2030s will be a perfect storm for America

I derive no pleasure whatsoever from these predictions and hope, against hope, that somehow I am wrong. But again, all the predicates are hiding in plain sight and all the dots are starting to connect – just as they did for 2022.

  • The debt (spending) crisis reaches critical mass and goes thermonuclear. Government no longer can borrow money because it is incandescently obvious to all there will be no repayment. Initially, the Fed will print money, but it will lead to runaway inflation and $100 trillion banknotes. The ensuing Great Debt Crisis will be on a par with the Great Depression and last for a (lost) generation.
  • Social Security and Medicare go bust. This is a no-brainer; even the trustees for these programs warn the funds will run out in the early 2030s. The government will use general revenues to prop up current benefit payments while making significant reductions – mostly applicable to future beneficiaries.
  • Geopolitical risks abound. China, which will have taken Taiwan long before 2030, will be the undisputed hegemon in the Asia-Pacific theater and will replace the US for global leadership. While the US is mired in the throes of its Great Debt Crisis, North Korea may invade South Korea and a nuclear-armed Iran will become the hegemon in the Middle East and threaten Israel. Nuclear proliferation will spread to Japan, South Korea, Saudi Arabia and others.
  • Because of the Great Debt Crisis, the ability to defend the homeland and our allies is severely compromised. America’s greatest strength is a strong economy and ours will be in critical condition. We will be lucky to avoid a major war.
  • The US dollar no longer will be the world’s reserve currency. This greatly exacerbates the Great Debt Crisis and forces Americans to pay more (much more) for most of the products they buy – especially energy.

America in the 2030s

Imagine a world with the USA mired in the 20-year Great Debt Crisis with the loss of social cohesion, breakdown of law and order, bankrupt Social Security and Medicare, the Yuan as the world’s reserve currency and facing multiple geopolitical threats with a greatly depleted defense. What if China, Russia, North Korea and Iran formed a compact and threatened us simultaneously in several different places?

Americans chose to worship false gods

How did America get to such a desperate place? We refused, and continue to refuse, to control our spending; we kicked the can down the road until there is no road left. But, most damning of all, we ignored The Gods of the Copybook Headings¹, i.e. the collective wisdom humans acquired since they first came down from the trees.

We chose instead to listen to the false gods of wokeness, climate madness, identity politics and lawlessness. They (politicians) promised us it would be different this time; they promised us the moon was Stilton. They promised us the real problem was white supremacy. They promised us we could spend without restraint, worship on the altar of climate madness and wokeness and let criminals go free.

Throughout the ages, whenever men have worshipped false gods, inevitably the Gods of the Copybook Headings, with terror and slaughter, return!

1        Poem: The Gods of the Copybook Headings by Rudyard Kipling, October 1919.

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Cabbages, Kings, VATs and IRAs

George Noga

Uncle Sam is coming for your IRA

GEORGE NOGA – MAY 7, 2023

My last post (April 30) about the spending crisis showed the government would need $900B in 2023 to stabilize the Debt/GDP ratio at around 100%. The national debt held by the public is $25T, soon to be $30T. Not uncoincidentally, US retirement assets including IRAs, 401(k)s and pensions total $30T – more about this infra.

When the spending crisis attains critical mass in a few years, the government, facing the mother of all crises, will desperately seek honeypots; after all, why let a ginormous crisis go to waste? After racking my brain, I can identify only three honeypots big enough to matter; these are retirement assets, a carbon tax and a VAT.

Raising Tax Rates and Cutting Costs Won’t Work

First, we must eliminate the two most obvious honeypots – higher marginal income tax rates and less spending; neither is big enough . The income tax is organically incapable of raising more revenue because of Hauser’s Law, which states that income tax revenue, regardless of tax rates, always is 18% of GDP – marginally higher or lower during booms and busts. Whether tax rates are 92% as they were in the 1950s, or 28% as they were under President Reagan, the government collects the same 18% of GDP. Note: Hauser’s Law works because people adjust their behavior as tax rates change.

It is possible to cut spending, but not near enough to come close to freezing the debt ratio. Reductions of $900B are needed and the only way to get there by cutting costs is to savage Social Security, Medicare and most other government programs. To realize savings of $900B would require 30% across-the-board cuts in all programs including Social Security and Medicare, excepting only defense and interest on the debt.

Value Added Tax (VAT)

For a VAT to raise $900B, the rate would have to be around 20% and would cost $7,000 per year per household. Since lower-income households likely would be exempt, the effective cost would exceed $10,000 per year per affected household. Politicians have proposed VATs before. Paul Ryan’s Roadmap contained a VAT as did Herman Cain’s 9-9-9 plan; one of those nines was a VAT – and those were putatively conservative Republicans. If you think a VAT is farfetched, think again. Politicians like VATs because they are stealth taxes, embedded in everything we buy.

Carbon Tax

A carbon tax, part of a cap and trade scheme, comes with political advantages. It also is a stealth tax, passed on to consumers by utility companies. It can be touted as a way to combat global warming and it can be targeted at higher income cohorts for class warfare. A carbon tax can start out small and easily be ramped up.

IRAs, 401(k)s and Pensions

The biggest (by far) honeypot is pension assets. The Secure Act got the camel’s nose under the tent by requiring annuities be offered in all retirement plans – a precursor to mandatory annuitization, whereby government seizes IRAs in exchange for a government annuity. Think this is farfetched? Poland, Hungary, Ireland, Bulgaria and France, through one artifice or another, have seized money from pension assets. In the end, Uncle Sam, like Willy Sutton, must go where the money is; that’s your IRA.

Putting it All Together

As the nation is rent amidst the chaos and anarchy of the spending crisis, Americans will be of a mindset to go along with any government actions offering hope. Likely there will be a combination of actions such as listed below. Remember, it must amount to at least $7,000 for every household, every year with no ending point.

  • Enact a VAT at a modest teaser rate and then rapidly jack up the rate
  • Attack pension assets, such as requiring a portion be invested in government bonds, capping the size of accounts and forced annuitization
  • Pass a (cap and trade) carbon tax that will cause power bills to skyrocket
  • Make small, mostly cosmetic and back-end loaded, spending cuts
  • Raise Social Security age to 70, convert Medicare to a premium support model

Sadly, it won’t be enough; at best, it buys us a few more years. Even if we find the $900B to freeze the ratio, we have not solved the problem; we have merely stopped it from getting worse. Moreover, the added taxes will gravely harm economic growth; we will be caught up in a vicious circle. America will become a no-growth European-style welfare state; our country will be forever changed and our children and children’s children will be relegated to lives of quiet desperation.

 

Thanks for reading More Liberty – Less Government!

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Spending Crisis Truths

George Noga

                                                                   

The crisis is not economic; it is moral

Spending Crisis Truths

GEORGE NOGA – APR 30, 2023

Much has been written about America’s debt crisis, including by me. I prefer to call it a spending crisis because, absent runaway spending, the deficits and debt would disappear. This post strips away all the superfluous background noise and distills all you need to know about the spending crisis into a few unassailable truths.

Truth #1: America Passed the Point of No Return

When Titanic first hit the iceberg, passengers barely noticed. The ship remained afloat for 4 more hours, but its fate was sealed; there was no way to unhit the iceberg. So it is with the spending crisis. America hit the Debt/GDP iceberg sometime during the past few years when the ratio neared 100% on its way to the moon. As with Titanic, life may appear normal for a while, perhaps even for years; but our fate is sealed. During the thousands of years governments have borrowed money, none with a debt ratio above 100% have recovered without calamity and a lost generation.

Truth #2: Few Understand the Seriousness of the Problem

Only an infinitesimal segment of Americans know what is coming. The spending crisis will not hit home until it affects their daily lives. We are far past possible bromides such as a balanced budget amendment or debt ceiling limitation.

Some economists suggest freezing the Debt/GDP ratio at its current level; however, they have not done the math. To freeze the ratio means debt cannot increase faster than GDP, which is forecast to grow at 2%. That means debt could increase only 2%, or no more than $500B. The CBO estimates the 2023 deficit at $1.4 trillion; meaning spending would have to be slashed $900B to limit the debt increase to $500B, i.e. to freeze the ratio. The entire budget for non-defense discretionary spending is $900B, meaning such spending would have to be cut 100%, and that is merely to freeze the ratio, not to lower it. Raising taxes could plug part of the gap, but that would hurt the economy and slow GDP growth, meaning the spending cuts then would have to be even more that $900B – a vicious circle.

Truth #3: Great Pain Inevitable

No matter what comes, the crisis is existential – to invoke a vastly overworked term. As shown supra, freezing the ratio would mean $900B in cuts (or tax increases) now. If we wait until the US no longer can borrow to finance the deficit, it will be worse by an order of magnitude. The ensuing crisis will have dire geopolitical consequences as well as likely social unrest as Social Security, Medicare and countless other government programs are scaled back or eliminated. There would be no borrowing capacity in event of a natural disaster or war. Even a debt default would not provide much relief as future spending still would have to be brought into balance.

Truth #4: Debt Limit Determined by Markets Not Congress

In the end, Congress is irrelevant. The real US debt limit is determined by markets. When there are no buyers for government debt, the jig is up. It is possible markets already have begun to speak. Foreign governments are now net sellers of US debt and high interest rates may, in part, be attributable to an added default risk premium.

Truth #5: If Something Can’t go on Forever, It Won’t

The spending crisis is a poster child for the above quote from economist Herb Stein. As shown supra, it is impossible even to freeze the ratio. That means it is destined to get worse each year until it goes into a death spiral.

Truth #6: Crisis is Moral – Not Economic

I call it a spending crisis, but at its heart it is a moral crisis. Americans chose – whether consciously or unconsciously matters not – to take from our children and our grandchildren rather than to control our spending. We refused to make tough choices, falsely believing we could buy social peace. We elected politicians who promised us the moon was made of Stilton and whose favorite exercise is kicking cans down the road. We chose – and are continuing to choose – to condemn our progeny to a dystopian Clockwork Orange future.

Worst of all, we stole from future generations, not to save America from natural disaster, world war or Armageddon, but to pay for a perpetual party, which continues unabated today even as Americans whistle past the graveyard.

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Continuing Coverage of the Spending Crisis . . . The Spending Crisis May Already Have Begun

George Noga

To control inflation, the interest rate must be higher than the inflation rate.

Continuing Coverage of the Spending Crisis . . .

The Spending Crisis May Already Have Begun

By: George Noga – May 15, 2022

For 15 years I have warned of a crisis of spending, debt and deficits, which I call the spending crisis because its root cause is spending. At first, I cautioned about a possible crisis and in recent years, a likely crisis. Once the debt ratio blew past 90%, it became an inevitable crisis. The only remaining questions are when will the crisis begin and how will it unfold. We know the crisis will not be transient and will result in a lost generation. It will end only when all excess debt is purged and taxes and spending are brought into balance, a lengthy and tortuous process that will transform America.

I often wrote that the crisis is likely to start suddenly and unexpectedly. I have used the example of a seemingly innocuous posting on Bloomberg going viral and, by the end of the day, the market for US government debt evaporates. That may still happen, but there is another – perhaps more likely – scenario. The crisis could begin stealthily and only in hindsight will we recognize it was the beginning of the crisis. There is, in fact, a very solid basis to believe that the spending crisis may already have started.

In chaos theory, complex systems like the US economy are inherently unpredictable. Small and seemingly insignificant events can lead to profound and non-linear impacts over time. In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a system results in large differences in later states, i.e. a small change in initial conditions cascades to a cataclysmic event. Thus, the present inflation could cascade into a life-altering crisis.

The true cause of the present inflation may not be monetary policy, but fiscal policy, i.e. spending, debt and deficits. When government debt exceeds what people expect can or will be repaid, they spend in the belief everything will be more expensive in the future. This drives up the price of all goods and services. If our present inflation is indeed being driven by fiscal policy – either entirely or in significant part – it can only be fixed via fiscal policy, i.e. higher taxes and/or draconian spending cuts. Further, that means that our present inflation is indeed signaling the start of the spending crisis

There are two, and only two, possibilities. The first is for the Fed to let inflation go unchecked, either intentionally or (more likely) by taking half-measures, i.e. to raise rates too little and/or too slowly. This will result in long term inflation which is the cruelest tax of all – and leads to social unrest and political extremism. This possibility will bring about the spending crisis. Of course, 100% inflation over say 10 years would cut the deficit in half. However, even halving the deficit would not end the crisis; the US still would be running a humongous fiscal deficit and would be back at square one.

The second possibility is for the Fed to jack up interest rates to counter inflation. To get inflation under control, interest rates must exceed the inflation rate. The last time the US had high inflation, the Federal Reserve had to raise rates to 20% to control 14% inflation. Imagine what would happen now if the Fed raised rates to say 15% to control our present inflation of 10%. That would cause a severe recession that adds many trillions to the debt. Moreover, it would not prevent the spending crisis.

Let’s recap. If the present inflation continues long term, social and political cohesion will disintegrate just as it has in other countries – the Weimar Republic comes to mind. If the Fed takes drastic action to halt inflation, that leads to a crisis as shown supra. Also, remember that if inflation is being caused by fiscal policy – it can only be fixed via fiscal policy. There is no way out of this situation. Either way, it is checkmate.

Following are the Five Main Takeaways

  1. If something cannot go on forever, it won’t.
  2. To tame inflation, the interest rate must exceed the inflation rate.
  3. The crisis ends only after excess debt is purged and the budget is in balance.
  4. If inflation is caused by fiscal policy, it can be ended only via fiscal policy.
  5. At its heart, it really is a moral crisis; rather than control our spending, we chose to borrow from future generations – and for all the wrong reasons.

There is a solid basis to believe the spending crisis has begun, but we will know for certain only in hindsight. No bells will toll to announce the start of the crisis.

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Next on May 22nd: The political outlook for 2022 and 2024.
More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us
MLLG

Spending Crisis Locomotive Nearing the Abyss

George Noga

“God loves fools, drunks and the United States of America.” (Otto von Bismarck)

Spending Crisis Locomotive Nearing the Abyss

By: George Noga – February 13, 2022

The spending crisis is one of MLLG’s signature issues – along with climate change and school choice. Our last update was in our post of 2/7/21 and it is time for another. First however, we take a look back to our prior projections about the spending crisis.

Over 10 years ago I wrote a 24-page report entitled “The Crisis of Spending, Debt and Deficits“; it was printed and mailed (USPS) to our readers – which were much fewer in number back then. It is not on our website. I had not given this report any attention in many years and had nearly forgotten about it until one of our longtime readers asked for a copy. I reread the report and was flabbergasted to see how accurate it was!

Nearly 12 years ago, I projected that in 2021 GDP would be $21 trillion, public debt $26 trillion and the ratio 124%. The best data available for year-end 2021 are GDP of $23 trillion and debt of $25 trillion for a ratio of 109%. For reference, back in 2010 GDP stood at $15 trillion, debt at $9 trillion and the ratio at 60%. No one – absolutely no economists anywhere – and most certainly not the CBO – were projecting anything even remotely close to the data published by MLLG. Note: I actually published three projections; the one cited herein is the middle (or most realistic) case.

My projection was not a lucky guess. I spent hundreds of hours during the summer of 2010 while in Montana constructing a computer model of the US economy. I used that model to generate the data in the published report. I did not merely project a ratio, I built the data from the ground up. My projection was accurate because I made realistic assumptions about, inter alia, recessions, spending and taxation. Readers may decide for themselves, but my past accuracy should confer a strong presumption of present credibility about the spending crisis. As a reminder, I call it the spending crisis rather than the debt crisis because the crisis ultimately results from uncontrolled spending.

At its heart, it is not really a spending crisis – it is a moral crisis.

I again have spent many hours updating projections. Surprisingly, the 2021 (debt/GDP) ratio was better than projected in 2020 because of the stronger than expected economic recovery from the pandemic. Future debt ratios depend primarily on: (1) economic growth; (2) tax rates and collections; (3) interest rates; (4) timing, length and depth of recessions; (5) inflation; and (6) any spending blowouts such as BBB. There are many variables and uncertainties such as possible natural disasters and military conflicts.

I have run numerous projections with various combinations of economic growth, taxes, inflation, spending, interest rates and recessions. The best I now can project is that the ratio will be near 150% in 5 years and over 200% in 10 years – on its way to the moon. In later years the ratio would hit 500% and even 1,000%, but that is moot because the locomotive would go over the cliff long before the ratio reached such numbers. God may love fools, drunks and the USA, but nothing can save us from a ratio of 500%.

I call it a spending crisis, but at its heart it is not really a spending crisis; it is not really a debt crisis; it is not really a deficit crisis; it is a moral crisis! We chose – whether consciously or unconsciously matters not – to take from our children and grandchildren rather than to control our own spending. We refused to make tough choices, falsely thinking we could buy social peace. We elected politicians who promised the moon was made of Stilton. We chose, and are continuing to choose, to condemn our progeny to a lost generation in a Clockwork Orange world filled with existential threats.

Even worse, we stole from future generations – not to save America from some manmade or natural calamity – but to pay for a perpetual New Years Eve party.

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Next on February 20th – the origin and nature of government.

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MLLG Special: The Camouflaged Nexus Of . . . Climate Change, Critical Race Theory and the Spending Crisis

George Noga

There is a hidden connection among climate change, race and the spending crisis.

MLLG Special: The Camouflaged Nexus Of . . .

Climate Change, Critical Race Theory and the Spending Crisis

By: George Noga – July 18, 2021

Three mega-issues changing America are linked in ways not well understood. Climate change is regarded, including by President Biden, as an existential issue in the literal sense and not the philosophical sense of mankind’s search for meaning. The spending crisis will change America forever and Critical Race Theory has become an accepted part of pedagogy in schools, universities and workplaces throughout America.

The common denominator of these three issues is socialism along with its misanthropic stepchildren: communism, progressivism, and liberalism. In each case, unreconstructed socialists are the driving force behind the cause. They are working in tandem toward the same goal – whether or not they coordinate their efforts. They receive financing and succor from a coterie of camp followers and useful idiots including progressive groups, academia, public sector labor unions, teachers, media, government bureaucrats, NGOs, entertainment, organized religion, social media – and even sports and business.

Climate Change and Socialism

After the fall of the Berlin Wall and the collapse of communism, die-hard Marxists were homeless. They decided to pursue their goals via a back door by taking over the environmental (and later, climate change) movement. They simply cloaked their anti-capitalist agenda in green language and became watermelon environmentalists, i.e. green on the outside but red on the inside. Patrick Moore, a founder of Greenpeace, said, “Following the collapse of communism, Marxists hijacked the (climate change) movement. Their far left agenda is about socialism, not ecology or (climate).”

Critical Race Theory (“CRT”) and Socialism

Marxism is based on class conflict and the belief that workers would seize the means of production and create a utopian socialist society. However, socialist-style regimes proved dismal failures, murdering over 100 million of their own people. The human carnage and economic toll were so great even die-hard Marxists couldn’t hide from it. Moreover, Marxists came to understand workers in the USA, Western Europe, Japan and many other places never would buy into the notion of class struggle.

Just as Marxists knew they needed a back door (environmentalism and climate change) to achieve their goal, they also recognized they needed an alternative to class struggle. They decided to substitute race (and ethnic) struggle for class struggle and BINGO, Critical Race Theory was created. Masters of maskirovka, commies decided on the euphemism “equity” as their mantra. By equity they mean an end to private property and redistribution of everything according to race. There would be no individual rights, only group rights. At its core, Critical Race Theory is virulent socialism.

Spending Crisis, Modern Monetary Theory (“MMT”) and Socialism

Most groups pushing for MMT and massive spending, debt and deficits are socialist. Once again, they are seeking a back door to socialism. Progressives understand Americans will not accept socialism under normal circumstances; therefore, they must create an emergency serious enough to beguile Americans into accepting the hitherto unacceptable. Thus, we have a spending crisis that will result in horrors so frightening people will accept anything – especially if they are promised it is only temporary. The spending crisis is yet another back door to a socialist United States of America.

# # # # # # # # # # # # # # # # #

There you have it – the nexus of climate change, CRT and spending; they all represent back doors to socialism. The leaders of these movements know full well what they are doing but are few in number. They must rely on camp followers and useful idiots, i.e. clueless liberals besotted with feel-good progressive bromides and good intentions.

We must stand up to these assaults on our liberty and way of life. That requires the courage to speak the truth and to withstand the slings and arrows directed at you by elitist mobs. But courage begets courage and a majority is one person with courage.

Next on July 25th – The school choice movement in America.
More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

Continuing Coverage of the Spending Crisis . . . Debt Ratio Above 100% – Attains Critical Mass

George Noga

The debt ratio will be 175% by the time of the US semiquincentennial in 2026

Continuing Coverage of the Spending Crisis . . .

Debt Ratio Above 100% – Attains Critical Mass

By: George Noga – February 7, 2021

The two issues we have written about for the longest time and also the most frequently are manmade climate change and the spending crisis. Ironically, the issue that is real (spending) and is certain to result in disaster is not taken seriously by progressives and the media. Concomitantly, these same groups regard the issue that is phony (climate) as an existential threat to humanity. They have it completely bass ackward.

We last wrote about the spending crisis on May 3, 10 and 17, 2020 and in a four-part series beginning April 8, 2019. These are available on our website (www.mllg.us). Our headline uses the term critical mass in its scientific sense. There is now enough fuel (debt) to trigger a chain reaction which becomes self-sustaining. That is illustrated by the numbers shown on the lines below. But instead of trying to slow the chain reaction, politicians (with full-throated media support) are adding more and more fuel.

The debt ratio is 101%; it will hit 175% by 2026 and 250% by 2031.

The crisis explodes long before we hit 500% in 2038 or 1,000% in 2044.

We updated the numbers based on all data extant. The public debt to GDP ratio is now 101%. The ratio will hit 175% in 2026 and 250% in 2031 on its way to 500%, 1,000% and oblivion. Before 2040, annual interest on the debt will exceed GDP; the timing depends on interest rates. Our forecasts, on which the above ratios are based, have proven far more accurate than those made by government or private economists.

The debt ratios speak for themselves and don’t require sophisticated economic analysis to understand. The Titanic has hit the iceberg and there is no way to unhit it. The key question now is how much time remains until Titanic sinks. No reasonable person can look at the data and conclude there are more than five or ten years left.

Progressives tout Modern Monetary Theory as a panacea. Our 5/3/20 post, devoted entirely to MMT, provides a primer. MMT explains certain economic phenomena better than mainstream economics. Proponents of MMT assert governments can borrow more, much more, in the short term than previously thought possible without raising interest rates; however, no economists assert the borrowing can be unlimited.

Following are some of our conclusions about which we are highly confident.

– Debt crisis is moral, not economic: As a nation we chose the easy path to avoid making difficult decisions and to seek social peace with massive borrowing.

– Crisis arrives within 10 years: It is impossible to discern any viable path forward with a ratio of 250% in 2031 and heading, via self-sustaining chain reaction, for 1,000%. However, the crisis could materialize sooner – much sooner – than ten years.

– MMT buys time: MMT permits more borrowing than previously thought possible but the amounts are limited. MMT can defer the day of reckoning, but can’t prevent it.

– Crisis hits suddenly: There will be no time to react. One morning everything will seem fairly normal but by the end of the day no one will buy US government debt.

– Government will print money: Initially, government will create monopoly money. Interest rates likely will soar and inflation will take off. Pension assets are at risk.

– No end until excess debt is purged: Once begun, the crisis will persist until all excess debt is purged. This will require one generation (lost generation) and America will be a far different and much poorer country when the crisis finally abates.

Americans know better; but we chose – and continue to choose – to believe progressive politicians and talking heads who promised us the moon was Stilton, wishes were horses and pigs had wings. They promised social peace by avoiding confrontations inherent in making difficult choices. How is that working out for America?

Next on February 14th – The implosion of the population bomb.

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More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

The Spending Crisis: Monopoly Money

George Noga

Americans are not accustomed to thinking about currency risk; this needs to change.

 

The Spending Crisis: Monopoly Money

By: George Noga – May 17, 2020

       My last post on May 10, 2020 established new all-time MLLG records for forwards and reader feedback. If you missed it, go to www.mllg.us to understand what all the hullabaloo is about. It was one of the most consequential posts in my 13 years of blogging – until this post. This post may be even more consequential!

           I now can see clearly how the spending crisis plays out and, as a corollary, how better to prepare for it. Due to an unforeseen confluence of events, the end game came into focus. More time at home due to coronavirus restrictions allowed for discernment. Second, mountains of new pandemic-related debt made the crisis imminent. Third, as shown in my May 10th post, we have passed the point-of-no-return and are nearing critical mass. Fourth, I read excerpts from a new, unpublished book by Ray Dalio, arguably the most astute investor of our era, that crystallized my thinking.

Possible Government Responses to the Spending Crisis

         There are five main ways government can respond to the crisis: (1) cut spending; (2) raise taxes; (3) default and/or restructure; (4) seize pension assets; and (5) print money. The first two options clearly are untenable. Spending cuts would need to be so deep and tax increases so huge the social cost would be unacceptable. Moreover, such actions would need to be sustained for decades – an impossibility. Default would be too painful as the defaulted debt represents someone’s assets. Seizure of pension assets (by converting them into government pensions) would be a hard sell. That leaves option five – print monopoly money. BINGO!  (See our 5/12/19 post for more on this.)

        Government will print money because it is expedient, poorly understood by most people and results in the least (apparent) pain. Printing money and inflating (basically the same thing) historically has been the go-to choice for governments with their backs against the wall. It is likely there also will be token spending cuts, tax increases and other actions, but they will be more symbolic than consequential. Congresswoman Rashida Tlaib’s proposal to issue trillion dollar coins may not be that far fetched.

        A few words about timing. The analysis in my May 10th post shows the debt ratio at 169% in 2025 and 264% in 2030. That makes the onset of the crisis no more than 5 to 10 years away – perhaps less. Ray Dalio has stated the US is in the seventh inning of its debt crisis – that means he believes we are 78% of the way to Gotterdammerung!

Preparing for the Crisis – Protecting Your Family and Your Assets

         Readers always ask what measures can be taken to prepare for the crisis and I am frequently asked what I am doing to prepare for the inevitable. At this juncture, I am taking the most obvious, commonsensical and lowest-risk actions described below. Note: My posts of 10/14/18 and 10/21/18 (on website) discuss these issues in depth.

1. Firearms: Although I strongly support the second amendment, I do not presently own firearms. The debt crisis will be accompanied by a high probability of civil unrest, breakdowns of law and order, interruptions of public services and financial chaos. Therefore, I am reevaluating and likely will acquire guns and ammo.

2. Gold: I will begin investing in gold, precious metals and hard assets. Initially, this will be 5% of my portfolio – perhaps increasing to 10% over time. It also is wise to keep a supply of small denomination gold and silver coins at home for use in a crisis.

3. Currency: Americans are not accustomed to thinking about currency risk. This needs to change. Per Ray Dalio, Americans need to think about currencies in the same way they think about holding any other asset. I am diversifying my currency risk with a foreign bank account denominated in a foreign currency and by buying bond funds that focus on highly rated bonds in currencies of countries with low debt ratios.

4. TIPS/Long Bonds: The hardest hit asset when the monopoly money starts flying off the printing presses will be long-dated bonds. I am divesting such assets. I also will take a position (5% to begin – more later) in TIPS to protect against hyperinflation.

       The above measures are only initial responses; there will be more to come. It  appears my analysis and writing about the spending crisis soon will be validated. I derive no pleasure whatsoever from this and wish I was wrong. I do take some small consolation however, if I am able to help readers better prepare for the inevitable.

Next Sunday: A memorable posting about school choice and the LGBTQ issue.
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us