Posted On: Saturday - February 4th 2017 4:40PM MST
In Topics:   Global Financial Stupidity
(Continued from here.)
The first 5 parts of this series of posts have focused only on the huge US Feral Gov't Debt to try to explain the financial crisis/pain coming. This is a BIG PROBLEM, but only a small-size chunk of the BIGGER PROBLEM. Now, we need to delve into both a) other kinds of debt that are out of hand, and b) debt in other parts of the world.
The bigger problem looming with regard to debt does not really involve actual paper "instruments", as the financial green-eyeshade, white-shoe boys (what the hell does that even mean? ;=} call them. I am writing about promises, that may be in the form of contracts, benefits summaries, or just the jaw-jawing over 50 years by the political class to American citizens about what they've got coming to them. To be more specific, there are gov't pensions (at all levels of government), private pension plans, social security (topic for a whole nother post - working title: "Hey, you fucked up; you trusted us!"), medicare, private health plans, etc. This type of debt can not be easily be counted. On Zerohedge, the number bandied about is 200 Trillion dollars worth of these obligations. I would just take this number as just an order of magnitude estimate - some of the obligations may be counted more easily than others.
People were told by big organizations, either companies, or more so, governments of various sorts, in writing, that this is what you have coming. However, the money coming for all these types of arrangements is not accumulated and sitting nicely in a fireproof safe somewhere - we should all know that by now. The problem is that the money also doesn't just sit as digits in the computers of the banks even. It has to go somewhere, so it is used to buy bonds (of all sorts) or goes into the stock market, or is invested in something or other. Even more importantly, the money put in, if there is any, by the supposed beneficiary of all these cool deals mostly is not even close to what's promised. This is where the creative accounting comes in to show that your pension is solvent, or social security, hahahaaaaa, is, hahaaaaa, cough, spit, aaaahhh, sorry, is solvent, and you get the money shown on that statement that comes each year working for you to add to a nice payment for you some time, in the, hahahaaa, future.* Of course, your money will be compounded each year by a bunch of interest, which, for almost a decade running is pretty close to 0. The math hasn't been working out very well for these private financial obligations, and the government ones, especially the Fed ones, are very close to Ponzi schemes.
The numbers don't work unless the money can "work for us". Were interest rates to go up to normal, customer-accepted time-value-of-money, levels, not controlled by the Fed Reserve, some of the non-government plans and even some conservative state/city plans may be solvent. They say to this day that calculations are based on interest rates of 7-8% or so. If interest went back up to the our US Fed-Gov't budget would have to account for 1/4 to 1/2 of its expenditures just for interest (take 7-8% of $20,000,000,000,000. that's on loan, vs. a $4,000,000,000,000 budget. They cannot let interest rates rise, or that blows the budget, causing more need to borrow! It's like the coffin corner in high-speed aerodynamics, or in non-aerodynamicist's terms "being between a rock and a hard place".
What the interest rate problem does is force even normally-conservative managers of money to put the money into risky markets to get the high levels of return that are built into the math that makes these plans sound solvent. That's what goes on today, which is why even though we should have to care about the Dow Jones average if we're not invested, if it takes a plunge, all these financial obligations take a plunge with it.
The crux of the matter here is that money and these monetary instruments that hold our supposed future support (financial and medical) are fungible, or are like commodities. They are spread out all over and can't be separated back out by which ones were more conservative and which beneficiaries are more deserving. It's like this: this trucking company's pension funds may be partly in municipal bonds of the city of Anaheim, CA, which is in debt, the debt of which is held partially by a mutual fund - people's IRA or 401K money. The mortgages of 100,000 deadbeat home"owners" or the student loan obligations of 2,000,000 womyn's studies, art history, and grievance-studies majors from all over the Ivy league and the Pac-10 may be held by the pension fund of the state of New Hampshire or some even bigger suckers over in Denmark.
This way, it can all crash together at the same time, so, your know, there's that, at least.
Part 7 will discuss the huge amount of consumer debt, focusing still on this country. Part 8 will discuss international aspects of the Global Financial Stupidity upcoming crises. Stay tuned, but no posts on Sunday.
* Keep in mind, I am speaking in real dollar terms when I write that this money will not be there. In nominal US dollars, after some years of high inflation, yeah, you may even get the $1800/month after you're 65 y/o, as you have been promised - it's just that your rent may be $5,000/ month for your studio apartment and the S&S cafeteria costs about $85 a meal, and that's only during the EARLY BIRD SPECIAL!