Tuesday, December 13, 2011

SDS Daily Update for Tuesday, December 13, 2011

"Stop Complaining and Panel Up."

Someone posted this Facebook comment in response to the article that came out a day or so go regarding the dramatic increase in electricity rates over the last few years.  A number of people were blaming Obama and/or Bush for the issue.  One astute lady commented that she had put 3.6 kW solar panels on her house and was selling power back to the utility company as a way to offset her energy bills.  She concluded her post by poignantly saying, "Stop complaining and panel up."

That could very well be the mantra of the Suburban Dad Survivalist Nation.  Queen Elizabeth is often fond of telling her grandsons "Never complain, never explain."  That stiff British upper lip may be a turn off to many, but it explains a lot about the mental toughness of those Britons who endured the Battle of London not so long ago.  We should take a lesson from these two ladies.  Complaining about Obama or Bush or Europe's mess won't help us going forward.  On the other hand, when we "panel up" - both literally and figuratively - we begin to take more control of our own destiny.

When Arithmetic Trumps Economics

These days, this Suburban Dad spends a fair amount of time on the treadmill.  Because he is fat.  And because he likes eating sweet things.  During my time on the treadmill in my younger and single days, I might pass much of that time checking out the talent on the Stairmaster.  Now that I am older, my head is usually down, with earbuds pumping Stone Temple Pilots or Billy Idol into my brain, flipping through a financial newsletter, a devotional or gun magazine.  (And yes, that is what my demographic is into).

Tonight's reading assignment was to continue reading this month's Financial Intelligence Report.  Monthly columnist James Dale Davidson writes this month on the Euro crisis, he rhetorically asks (and then answers) his readers:

But why did the establishment financial operators, normally compliant with even the most fantastic
“fairyland” accounting, suddenly revert to using arithmetic to do their sums [in determining the financial health of Italy and the EU]? I suspect for many, the reason is they know something you don’t — that the gag is up. Think of rats deserting a sinking ship.

As I  have discussed before on this blog, set all economic theory aside for a moment.  Set aside any proclivities you might have for class warfare or blaming Obama or Bush or Ben Bernanke.  Think in terms of simple arithmetic.  And when you do that for Italy, Davidson points out the math is pretty clear:

According to published reports, Italy needs to refinance about €310 billion in debt next year.  Currently, the average interest rate on the expiring debt is less than 3 percent. If the Italians need to
pay 7 percent plus on the refinancing, that implies an additional 400 basis points of cost times €310
billion of maturing debt. This will add another €12.5 billion of interest expense to the €54 billion interest payments already scheduled.

The problem here is twofold. Possibly optimistic projections suggest Italy’s economy will grow by 0.1 percent in real terms in 2012 and by 3 percent in nominal terms, adding up to an expected nominal gross domestic product growth of about €60 billion. By contrast, Italy’s interest costs on its mammoth debt will be about €66.5 billion in 2012, exceeding the economy’s margin of growth by 10 percent. And, while Italy is ill-prepared to grow its way out of the debt crisis, it is also too big to bail out.

Simply put, as I said in last night's blog, math can be a bitch sometimes.  Italy cannot mathematically grow its way out of the problem.  And just as Italy doesn't have the arithmetic to do so on its side, nor does the United States.  Again, putting aside economic theory and class warfare for a moment and just looking at the raw data, you cannot tax the rich enough to ever eliminate the deficit in any meaningful way.  There's simply not enough rich people out there to soak.  Like it or not, that's reality.  We need to learn to deal with that, lest we continue down the path we're on.

And That Path Would Be.....

A global recession, of course.  CNBC's website leads with this story it picked up from the Financial Times.   "Policymakers are worried," we're told in the article:

Deeper gloom has infected the Organisation for Economic Co-operation and Development, particularly with the response of advanced-economy politicians. Pier Carlo Padoan, its chief economist, said: "We are concerned that policymakers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy."

And the article goes downhill from there.

So let me ask you - just what the hell are you doing to prepare for further economic malaise and possible depression?  If your answer is "uhh," it's time to "panel up."  If you are starting to take action, I have to think you are way ahead of most people, even if you're in the first steps of preparing.

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