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Monday, October 26, 2009

Reality check

Where are we? Our health care costs are highest in the world. As is our military budget.

Our monetary system is in tatters and dependent on the largesse of foreigners who now own over half our debt. To finance its trade deficit, every day some $2 billion must flow into the U.S. from outside its borders. To finance our government's deficit--which will this year hit $1.4 trillion--our government needs to borrow $4 billion daily. Present borrowings will come from our future, with interest in what could be the greatest liability ever passed from one generation to the next.

There are only three ways our government can pay its debts. It can either print money, cut spending, or increase taxes.

The financial stability of many is in peril. When (not if) inflation hits, savers will get punished by others' excessive borrowing. The states cannot continue to run huge deficits or print up money like the federal system. Spending in schools is shrinking. For linked facts and info on the financial situation, see this blog post by Carl Herman, LA County Nonpartisan Examiner.

Who can say they're not worried? We already see enough elderly asking "paper or plastic?" Yeah, I know you think it won't happen to you, but who can say they're not thinking about their old age? So many millions will come of age--the Social Security and Medicare liabilities are so massive, in the tens of trillions. I've seen some vigorous debate over the fiscal solvency of the Social Security Trust Fund; put it this way: we ain't got barely enough to cover our future liabilities.

With a monetary train wreck lying ahead, will the Boomers even be able to retire? Social security benefits aren't likely to cover rising costs of living, especially as the overall fiscal solvency of our government, based largely on its ability to borrow, drops as debt loads grow to an untenable size. Rabid consumerism still rules the day--"gotta have it now." We've founded our economy on the unsustainable notion we can borrow our way to prosperity.

There may yet be hope, but it could come through correction, in the form of financial ruin and devastation. Talk to anyone who lived through the Depression and you'll soon discover that they value saving. As a matter of fact, they're very cautious about losing their investments. Move ahead a few generations, and Americans have lost all sense of frugality. Perhaps only through scarcity will we come to appreciate the value of accumulating hard-earned money.

The recent financial shenanigans show just how eager our government is to keep the financial system afloat, even though the entire premise is based on debt, as pointed out in Grignon's Money as Debt. To sustain "growth," we don't create anything, we borrow.

Fearful that the economy would stagnate, the government saw to keeping zombie banks afloat. Yet the banks still cling to trillions in derivatives and other assets of questionable value. They're hardly lending, despite the vast sums offered them through the Federal Reserve ($2 trillion +) and TARP ($700 billion.)

Due to their unstable balance sheets, banks can't lend. Foreclosures are zooming, made worse by the loss of over 7 million jobs this year. Things are so bad that Elizabeth Warren recently said the housing market might be in worse condition today then a year ago. As the Obama-appointed chair of the Congressional Oversight Panel, Warren is in a position to know.

Millions were depending on their home values to fund their retirement. Now, many can't sell their homes in such a soft market. And if the banks begin to liquidate foreclosed homes at bargain basement prices, it will further depress home values. So we enter a phase where saving face become more important to keep the American real investment scheme from collapsing outright.

A similar situation occurred in Japan during its lost decade of the Nineties. Banks had trillions of Yen in bad loans, much of it in corporate real estate, they refused to write off. In time, the financial system experienced a slow motion train crash characterized by zero growth and ongoing bankruptcies.

According to Mish's Global Economic Trend Analysis, the lesson from Japan was "no matter how much money you throw around, economies cannot recover until noncollectable debts are written off. That is why you have 'zero interest rates and still nothing’s happening.'" [link]

Banks have continued to fail here in the US. The equivalent of bad loans--mortgage-backed securities--remain on the books, adding up to more than the sum total of deposits.

And like Japan, oversight over the American banking system is plagued by favoritism and sweetheart deals--look no further than Goldman "we got our people in the White House no matter what" Sachs.

The close ties between regulators and the industry they oversee has actually become a hot field of study in economics, even earning its own term, "regulatory capture," a term The Economist magazine attributes to Richard Posner from the University of Chicago:
"regulation is not about the public interest at all, but is a process, by which interest groups seek to promote their private interest ... Over time, regulatory agencies come to be dominated by the industries regulated.”[source]

So acute has the perception gap become that Bernanke referenced TBTF (too big to fail) in a speech October 23rd:
"...to promote financial stability and to address the extremely serious problem posed by firms perceived as "too big to fail," legislative action is needed to create new mechanisms for oversight of the financial system as a whole..."

Bernanke goes on to explain the myriad of changes that need to be made, in conjunction with his delineation of the causes of last year's crisis. All nonsensical stuff, but if changes aren't implemented, it's hard to believe our financial system is anywhere near being fixed.

It's worth noting that Bernanke seems to be preoccupied more with public perception than with the financial standing of TBTF firms. Passing the buck to Congress is a way to avoid incriminating the Federal Reserve for its role in causing the crisis, which appears mostly limited to making huge sums of capital available, as well as granting investment companies "bank holding company" status at the height of the crisis, a move that has suspiciously brought billions in disaster capitalism profits to politically connected Goldman Sachs. Moreover, pushing for great regulation thrusts scrutiny back towards Congress' failure to preserve Glass-Steagall and its undermining of regulatory enforcement through interventions on behalf of companies like Countrywide, who was making millions largely from mortgage fraud (although of course the mass media frames the mortgage crisis as one dominated by irresponsible subprime borrowers, which only compromise 2% or so of the pool of at-risk assets.) Senators Dodd and Conrad received mortgages on favorable terms through Friends of Angelo, an organization tied to the company's CEO.

The idea that some entities would never be closed undermined confidence in the system, and that the problem was largely one based in perception...in other words, too obvious. Bernanke's focus on perception management echoes the prevailing Washington consensus: that problems are only problems if the people are aware of them. The Too BIg To Fail problem is real, not because a bigger failure imperils the entire system as Bernanke says but because the public's reaction might make loaning more public funds to a TBTF harder, and expose the secret arrangements between the Fed, Treasury and Wall Street insiders. As long as the public believes the banks are solvent, lending through the Federal Reserve can continue to bring massive profits to those financial entities with the most political influence.

At some point, the zombie bank will have to be cut-off, like Bear Sterns or Lehman Brothers. See Matt Taibbi's "Wall Street's Naked Swindle" at Rolling Stone. See Robert Creamer's take on the bloated and parasitic financial industry here.

Bonus Essay: Boomered out

How did we get here? I blame the generational gap for many of our woes. The plunging fiscal position of our government may make Boomer health care expenses and pensions impossible to finance. Few American Boomers have saved anywhere near enough for their retirements. Perhaps harsh economic times are a method of reacquainting Americans with the importance of saving and self-sufficiency.

It's time to re-evaluate where the values of the Baby Boom generation have taken us. Boomers had to have it now: credit became a way of life. Material gratification was elevated to the highest attainment in American society.

Moral relativism rules the Boomer generation's values. "If it feels good, it can't be so bad" goes the Sheryl Crow song. Drug use skyrocketed, along with divorce rates and premarital sex, teenage pregnancies, etc.. Compared to the generation before them, the Boomers have slipped on morals. Ideals concerning class and respect for one another have disappeared along with any sense of shame, replaced by "me first."

The Baby Boomers can't be blamed for where we are today, but one of their chief overriding values--greed--does frame the economic situation we're now in. Without Kenneth Lay' and other Boomers' desire to be rich beyond their dreams, the motivation to commit massive economic crimes simply wouldn't be there. Of course every generation has it villains, but we may see before it passes on one of history's greatest intergenerational thefts.

Of course there are redeeming characteristics to the Boomer generation. Our standard of living has expanded remarkably since the 70s. We have things. Many things.

American attitudes towards race shows how societal norms change between Generations. Boomers were raised in a far more racially intolerant environment. Boomers themselves grew up in a mostly homogenized America in the 50s through the 70s. Their first exposure to injustice was probably the struggle for Civil Rights, with Vietnam of course their defining moment. That war was an example of how society can reject the values of their parents--TImothy Leary's dropping out.

There are plenty of exceptions but it would seem that Americans born after the Boomers are far less sensitive to race, and many are in fact color blind--most don't really notice anothers' race, at least beyond recognizing the superficial differences, and filing them in the subconscious.

Children tend to inherit many of their parent's values so one way to judge the Boomers' values is through their children. Making a study of Boomer children--or Boomerspawn, as I'm prone to think of them--harder is the trend for children to gravitate away from their parents' values. Just like the Greatest Generation before them, the Boomers grew up to be quite the opposite, forgetting perhaps the value of shared sacrifices like those made by their parents through World War 2 and the Great Depression. By this standard, we can reverse-engineer Boomer values--if the young are lazy, the Boomers are hard-working, the young giving, their parents selfish, etc..

Making inter-generational comparisons can be useful. Boomers worked hard, Xers less so. As a small business owner, I tried to model my own work ethic on Boomers and failed. I realized that reaching my goals would close many of life's other interests, ending things I'd always wanted to do. It was a sacrifice I wasn't able to make. I'm probably deluding myself by assuming my business could have been profitable enough anyway.

Working hard is a perfect Boomer behaviors to model, but the present day work ethic is not so much about working for work's sake, but working to own more, to have more, to get more pleasure. With real wages flat for so many working stiffs, it's simply impossible to work enough hours to enjoy life. At least in places around here, it's very hard to get a factory job anymore. America economy is declining. Our social mobility is now less than Europe's. In other words, an American born today is less likely to enjoy a standard of living higher than his parents.

Working hard should deliver to X'ers what the Boomers got: prosperity and a rising standard of living. Then again, if those are the values that made Boomers happy, it's no surprised that the next generation might reject those things. But X'ers may not be victimized not so much by laziness but by devolution of the American economy, at least for the working classes. The capitalist system can be and is often labelled as the culprit. The Kondratieff cycle claims that that corrections every 70 years are inevitable in a system such as ours. Seventy years ago we were in the Great Depression-are we in one now?

Putting work above all other things--exempting perhaps God and family--comes at a price. The more Americans are consumed by their labors, the less free time they have. It's as if Americans are in a perpetual state of "Destination Disease," a condition where happiness must always be deferred.

Having a better standard of life doesn't mean having no free time, or no fun. Even if sacrificing all one's time now might mean even more pleasure later, perhaps much later, or too late.

Americans suffer from the ominous plague of always wanting to be happy, according to Victor Frankl's Man's Search for Meaning. We're even unhappier than we should be because we expect to be happy and can't settle for less. Without accepting the idea that it's all right to be unhappy, Americans seem cursed to always want more. Rather than look at unhappiness as a symptom that something's wrong and needs to be changed, Americans tend to think they can just work harder and everything will get better. Look at the "get'r'done" perception so common among supporters of our Mideast adventures. Don't complain, just work harder and we'll win. The mechanics of how to win, and the nitty gritty can be glazed over by the idea that all we need to be successful is more work.

Demographics have now turned against the notion that work will set us free. Many now have two or more jobs, and don't have the benefits necessary to avert disaster in the event of medical or some other calamity. If work were the panacea, how is it that so many Americans, who work the most of any people in the world, have little to show for it? Like mice on treadmills, Americans no longer seem aware that they're not getting anywhere the faster they run.

Unfortunately, the next generation will be the first that has a lower living standard than their parents, the Boomers. They'll live in an America which won't have enough to go around. As the ranks of the unemployed grow, working harder won't be a way out--many won't be able to work at all.

Depressed yet? Well, I guess if you've made it this far, you understand that understanding the truth is more important than how you feel. Our emotions, happiness and the fear of being unhappy, need to be sacrificed for the goal of learning what we need to know about our world. The ignorance that so many of us know wear so proudly, placated by knowing less despite the danger, comes at a price far worse than the temporary emotional burden associated with "depressing" news.

The time has come for Americans to grow up. We need to shed the ostrich-like preoccupation with pleasure. As we're about to learn, the pursuit of pleasure alone yields very little of substance. We can fill our TVs with endless doses of entertainment lacking any substance. It's like eating an endless diet of bland soup: it may diminish our hunger but we're never truly sated.

We've become easily manipulated, branded targets for mass advertizers, who convert wants into urgent, pressing needs. The pleasure-seeking comes at the price of ignorance, we cannot afford to question why we need the things we do. We just consume. To grant ourselves the pleasures, we must work. We exchange time for pleasure but how much is lasting. At least we accumulate an attic full of things.

Hyper-capitalism and the endless pursuit of things has decimated the planet. The American lifestyle, if emulated worldwide, will bring the planet to an end. The American way of life is simply unsustainable and we must change. To get there, we'll need create new ideals, which are the opposite of self-gratification with its over-emphasis on me, what I need. What American society is not more me, but more us. Too often, we see any effort which doesn't enrich us, or our families, is not worth it. However, we're also generous, giving more to charity per capita than virtually anyone else. So there is hope, hope that we will change. The political system alone can't guarantee change. As I've blogged, we need to make change happen, together, not just for Planet but four ourselves. For our young, so they don't end up rich in things but weak on character.

Americans shy away from political differences, so implementing change will be a challenge and a collective one as well. If we can't agree to disagree, we really won't be able to advance goals that make the American lifestyle about more than accumulating capital, and things.

What of the future we leave behind for our young?

First off, I don't see a coherent set of values being delivered from the Boomers (this would be the latter half of the Boomers, people about 45-55.) The youth of America seem to lack any core defining set of values. In this respect I see one one the greatest dangers we face as the failure to transmit distinctly American values from generations, especially considering the detour they've been on, transiting the long strange trip through the Boomer years.

Boomers' children are now on the scene--I'm surrounded by college students where I live. I observe their behavior every day and I see some troubling trends. Criticizing the youth is probably a common predilection of people moving into middle age like myself. We're grumpy and tend to see the young as incompetent, and confuse youthful inexperience with foolishness, however much the two might overlap.

Judging from fraternities around here--not exactly an archetypical group for study--we've become something of a mob. Sure we can display our feathers on national holidays, and revel in all the abundance that our consumption-oriented lifestyle has given us, but younger people don't seem to have anything that binds them together. For us, the X generation, we had respect for one another's individual identity. That was our model. This may be passed on to the Y generation to the point everyone is trying too hard to be different.

Lacking any way to incalculate value, Americans who come after the Boomers will not know what they've missed. The Greatest Generation--the Boomers' parents--is dying off and few young people will know what our society was like during that period. The shared values and perseverance that saved the world from fascism have been lost, perhaps forever. American society has become about me, a truth we seldom admit.

I've heard that modeling is the most effective method for teaching values, and providing a leadership example. The changing role of the Presidency in American society offers a window on the lack of character at the top, a place where we need it the most and the absence of character is most obvious.

Sadly, younger Americans have known Bush as their model of character. Enough has been said about our recently departed leader. Before him, Clinton, a man who lied publicly to hide a sexual relationship. Another beef against Clinton was his raiding the Social Security Trust Fund to balance the budget.

The idea that we are either with him or against him has taken hold. Partisan divisions have grown to the point the President's ability to lead our nation has been limited. The partisan divide expanded during Bush the Younger's reign. In an about-face, opposition to Bush morphed into support for Obama, which appears to be plagued by town hall screamers, birthers, and other extremists. Now as Obama waffles on domestic surveillance, torture, and other issues vital to advocates of less intrusive government, he appears to be creating a new divide.

Can we blame the dilapidated state of leadership purely on the President? No. At a certain point we need to concede the fact that maybe these Boomer Presidents have all screwed our country up. Like both his predecessors, Obama is a Boomer, though a young one.

In this media age, we've elevated the President into some kind of all-powerful Emperor the media coverage a sort of Truman Show covering every aspect of the Great Leader's life, no matter how mundane. Obama's very much a product of the media age, one where managing perception in the media has been elevated to an art form. elevated rhetoric way over reality. Say one thing to one crowd one day, another the next. Promise the world when it pleases the audience, regardless of the ability to deliver on the promise. Typical cheesy politician stuff. Obama's just elevated it to a new level of sleaze, disappointing so many who had faith in him.

The President is supposed to be a role model. From these examples, and the way, how can the young know what honor is? Who is it that will teach them? They will learn from whom, their parents?

TV plays a big role in changing societal attitudes. Perhaps TV has become a surrogate parent, except instead of Sesame Street we have South Park. Many episodes carry a positive theme--tolerance, sustainability, honesty, etc.. But the way the show delivers its message is very crude, appealing not to the merits of behaving well but rather turning misbehavior into a carnival of oddities and laughter, the best relief.

Crude homosexual themes run through South Park, exposing South Park children to adult lifestyles in a way previous generations would consider unwholesome. I guess the stigma and prejudices that prevail in our society towards BGL&T people will fall, if enough young people grow indifferent to what is done. In its distinct way, South Park blends humor with the taboo details, then smacks the viewer with the openness of its depictions of the gay lifestyle. Perversely, South Park spews a constant flow of flagrant cussing, including every manner of discrimination used in the adult world, one which they will inevitably enter. When today's young grow up, I guess we'll be better able to judge tolerance for sexual orientation. (Scarily, I just realized that South Park kids have grown up, and that the example for many of them has been no one other than George W. Bush!)

Though not made for children, I think many Americans wouldn't be troubled by their older children watching the show. Younger kids tend to prefer less adult shows, with subject matter far easier to grasp, so in many respects little has changed except the amount of TV viewing and the raw volume of data/content/input/choices from the days of Sesame Street, ABC's After School Special, and Saturday morning (only) cartoons.

DNA Reality Check

I'll admit this is a topic on which I know next to nothing, so this is pure speculation based on wild conjecture.

Interesting indeed it would be if our DNA reprograms itself between generations, reflecting adjustments in attitudes in society over time. Parents fight for the right--of blacks to equality, for instance--and their children end up embracing a world far more tolerant of racial differences a generation later. Are the Boomers more color-blind than their parents? Yes. But Americans of my generation, the Xers, have made race immaterial to the point electing an African-American president isn't a big deal, despite what it says about how race issues have advanced.

Well, I guess if my generation were to stomp endlessly for something like Womens' Rights, /Bi-/Gay/Lesbian/Transgender Rights, get them, it might be a whole 'nother generation before those advancements reflect in the way Americans treat each other. Whatever the science, it's clear societal values do change more slowly than the laws, but they do change.

The study of genomics has been making headlines recently. Apparently if a parent abused their bodies in some way, the DNA inherited by descendants might be damaged. Fascinating concept: a sort of cross-generational curse passed on parent to child, the body's revenge for its abuse. I guess this is how DNA changes itself, possibly to protect the next generation from likely over-indulgences or some such thing. I've heard that Jews have the lowest rate of alcoholism of any peoples, and it's true alcohol has been a prominent feature in Jewish society since its earliest traceable origins. On the contrary, Scots and Irish weren't exposed to alcohol until much later, suggesting that we're more likely to abuse it (having not been hardwired like Jews.)

Maybe if your parent was a heroin addict, your DNA may make your body is much more likely to reject it, perhaps making you convulse upon ingestion. Or perhaps it's the other way--heroin addiction makes you more prone to addiction. (Of course there'd be some statistical bias being that former addicts are more likely to expose their children to similar underlying conditions that are know to increase the risk of addiction.) Or perhaps not in one generation but many, the tolerance for heroin might go up to the point the drug just doesn't satisfy.


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