Friday, March 11, 2011

Yes Way Out: Survivor Economics

Recently, Veronique De Rugy at National Review Online noted that Bill Gross of Pimco (who recently dumped all holdings of US Government debt) believes that there is no way out for US deficit spending. The amount of money needed to service the debt will explode, as long term rates go up and up to reflect the risk of (very likely) not getting repaid and (printing money making the dollar worth less every year). Helicopter Ben Bernanke thinks inflation is well tamed, while Gross, who has actual money in the game, dumped Treasuries because inflation is eating away at US productivity, and high inflation means less in taxes in real terms, choking off any recovery let alone growth.

This is basically the "No Way Out" scenario of a death debt spiral. Japan would seem to be in the same boat. Yet its bonds while under stress (debt service for Japanese government bonds is considerable) have held up better than US Treasuries. Why?

Silly! Its the Demographics. Japan is an aging society that while incurring health care costs, will have low costs for education, low costs for childhood health care, low costs for immigrants (because they have in effect, none). Japan may be a declining nation demographically, but they are still about a 130 million or so crowded into the size of the Atlantic Seaboard. While producing valuable products and creating wealth. Japan's bonds will not all mature tomorrow. There is time and space for them to pay them off, still despite the considerable burden they create, because their social spending needs are modest.


So what is the way out for America?

Simple. First, deport all illegals, their children (regardless of pro-forma citizenship status), and probably the grandchildren of illegal aliens. Call it Survivor Economics. Outwit, Outlast, Outplay. Win by voting other (poorer) people off the island. Literally.

Removing the Hispanic exodus into the US would reduce K-12, Welfare, and Health Care on massive levels. Some small amount of taxes would be lost (not much -- poor people don't pay much taxes). But the offsetting reductions in mandatory spending on health care (for the ninos of desperately poor Mexicans), education (for those ninos who are often illiterate, speak little to no English, and require extensive special help), and welfare (for desperately poor people who are in fact, poor) would be substantial.

Enough to devote far more cash to paying down the debt.

The other means at hand is good, old fashioned, and proven to work. Imperialism! Latin America is filled with weak nations that have sent their poor to us. It is time the US returned the favor, and simply ran those rich in resources, particularly silver, gold, and oil, to pay off the debt. The militaries and populace of the vast part of Latin America is not particularly adept at fighting, and while oil facilities are fragile, silver and gold open pit mines are not. Mexico and Peru in particular are tempting targets. Amass enough gold and silver, to convert into US Dollars, and instead of "devaluing" US currency, adopt a bi-metallic, or even simply silver based standard, for the US dollar. Suddenly, the US dollar buys more, is stronger, based on proven silver/gold reserves held by the US, "stolen" from Mexico and Peru, and mined or believed to be mined in the US.

No, this is not particularly moral, nice, friendly, or likely to impress "important people" in Davos and other world stages. It does however, have the ability to work, while not destroying world financial markets and the US government ability to borrow for important things like future wars, or disaster recovery, and the like.

America could simply of course, follow Argentina's model and openly repudiate the debt, but that would make both the US dollar relatively worthless in buying things like oil and imported food and such, close capital markets for future borrowings. America could inflate the dollar to nothingness, which does essentially the same thing, but that would make the average person unable to buy food, clothing, or energy. Not a winner in a democracy. More likely to create a mob. Led by factions of the military.

Ask the average person, would they like their dollar to buy 200% more of what it does now, and all it will cost is A. Deport lots of illegals and their descendants, and B. Invade Mexico and other Latin American nations and extract gold and silver to "pay for illegal immigration costs in the past." About 90% or so, even those of Hispanic background, will say yes (as long as they and theirs are unlikely to be deported).

America has not had to come to grips with the necessities of life. Of how to pay for all the "nice things" America bought on credit, to pay for essentially illegal immigration and cheap disposable labor. Well, now the bill is due.

America can simply repudiate the debt, openly or through inflation (Bernanke is doing the latter). America can on the other hand reduce costs and add to wealth by good old-fashioned imperialism, unapologetically putting the interests of Americans ahead of foreigners. Too bad for them, we're broke. Really put into practice Smedley Butler's conception of a gangster for capitalism.


INdecentMan said...

I see you woke up with a bit more 'piss and vinegar'than usual Whiskey. But, since the likelihood of the US expelling the invaders is pretty much zero, as is the likelihood of invading and commandeering Mexican goldmines, do you have a plan B?

I'm 42 yrs old and my main concern for the future is what type of world will I be living in when I get to my 'golden years'. I already figure that there will minuscule, if any, social security payments for me, even though I have been and will continue to waste a portion of my income paying for it. I'm more worried about the lack of social cohesion my older and frailer self will be faced with. Also, what type of medical system will be in place 30 years from now? I live on Long Island on one-half of an acre and pay over $15,000/yr in property taxes. I'm pretty sure once I retire that will be untenable. Sometimes I just feel like cashing it all in and moving to the hills of New Hampshire to grow my own vegetables or buying a boat and sailing off into the sunset to frolic with young, naked Caribbean girls.

Scotsman said...

Whiskey, the fact is that all our recent (post WW2) interventions have brought us refugees from every country we invaded. A Latin American invasion would only do more of the same.

I agree with you on point one. How to accomplish this? Operation Wetback II. The dirty little secret is most Americans would support and cheer it on.

peterike said...

Way too sensible a plan. After all, it would actually work! And we can't have that.

I just do not see this happening, no matter how bad things get. We would rather kill ourselves than violate our PC delusions.

By The Sword said...

How much would it cost to send these people back to their respective nations? Or would we just chase them over the border?

Country Lawyer said...

I suspect invading Mexico will become inevitable asd the chaos spreads down there and across the border.

Whether it will be out and out imperialism, is the big question because it would have to come at a massive change in American outlook and a return to our "manifest destiny" outlock of more than a hundred years ago.

I'm still betting we become a third world shit hole in twenty years.

sestamibi said...

I agree with the idea, but we don't have the resources any more to pull it off, since we allowed our women long ago to decide not to have babies any more.

The armed forces who you would have engaged in "imperialism" will be increasingly drawn from the descendants of those you propose to subjugate. Remember that old Lone Ranger joke where Tonto says "What you mean "we", kimosabe?"

Anonymous said...

What if we invade Mexico and clean it up? Start off first by securing/pacifying the border cities, then establish a no-drugs, no-corruption buffer zone. Our own Golan Heights, if you will. Ruthlessly enforced.

That should give the legitimate Mexican federals a quiet place to set up shop to clean up their own mess.

And, with a tranquil zone, companies can establish there and attract the Mexican poor.

Rollory said...

The only difference between what you describe and what actually happened is geographical. Mexicans in the clean, well-ordered, lawful regions that happen to be north of the Rio Grande rather than south of it. And we see what the result is.

The Anti-Gnostic said...

That should give the legitimate Mexican federals a quiet place to set up shop to clean up their own mess.

And, with a tranquil zone, companies can establish there and attract the Mexican poor.

LOL. Funny guy.

JacksonvillePat said...

If my memory of Colonial history is correct. The British solution to protecting South Carolina from Spanish migration was to settle Georgia with colonists. Debts were settled for those in debtor prisons for an agreement to settle Georgia. Governor Oglethorpe provided grants of 200 acres. Between armed settlers and British regulars at Fort Fredrick the Spanish were confined to Florida.

Perhaps if the drug cartels could be cleaned out of Northern Mexico some immigrants would be eager to settle and farm. This would of course require abandoning NAFTA and farming subsidies so that small farmers could compete with ADM.

As far out as this idea may seem the most unlikely may be the though of politicians ending a subsidy or rethinking free trade and globalization.

Anonymous said...

Wow, you really are a fool. Japan's debt to GDP ratio is twice that of the USA. But their debt is held domestically while the US debt is held by foreigners. Mexicans have nothing to do with it.

Anonymous said...

Anonymous (March 11, 2011 5:32 PM) said...
"Wow, you really are a fool. Japan's debt to GDP ratio is twice that of the USA. But their debt is held domestically while the US debt is held by foreigners. Mexicans have nothing to do with it."

Foreign exchange reserves are important indicators of ability to repay foreign debt and for currency defense, and are used to determine credit ratings of nations
foreign exchange reserves,
Japan == $1,092 billion
United States == $129 billion

current account balance
Japan == positive $131.2 billion
United States == negative $380.1 billion

Japan is in a much stronger position to pay off its debts because it is not burdened by a huge underclass of NAM's.

Anonymous said...

"Japan's debt to GDP ratio is twice that of the USA. But their debt is held domestically while the US debt is held by foreigners."

This meme is widespread, but it's exaggerated. Only about 1/4 of US federal debt is held by foreigners. When you add in state and municipal debt, the fraction is still smaller.

raliv said...

"The other means at hand is good, old fashioned, and proven to work. Imperialism!"

Imperialism is a long and noble tradition that I would like to see America embrace. All we need is an official company like the British East India Company. The company will set up a base of operations extracting wealth and we use the US military to protect "lawful american business people from local drug terrorists."

It could simple and exciting too! A great opportunity for young men looking to earn their fortunes.

Anonymous said...

You guys are so funny in your ignorance.

The US exploitation of Latin America has been ongoing for the last fifty years.

While the wealth extraction mechanism currently in place is not perfect, it is quite satisfactory to your current elite and they are not going to allow their great unwashed (that's you sparky) to upset it.

Do some research as to where and how much of your tax money is going. The last "official" figures I saw was approximately 5% of your GDP or around $685 billion on defence.

Add in "aid" as in credits extended to Egypt and other countries and spent on arms and approximately 50% of your GDP is spent each year on your military industries one way or the other.

What has happened to the US is that your elites no longer consider themselves to be American because they have gone Global as have your corporations.

As far as they are concerned America is just another country for them to exploit.

Do not just take my word for it. Do some online searches and use credible sources.

Avoid the conspiracy buffs and the NWO nutjobs.

Here is a good place to start:

Paladin said...

Just FYI, but as easy as it sounds, Imperialism is actually a really bad way to make money in the long run. While it's easy to roll into a third-world country, actually maintaining a presence, particularly a military one, gets very expensive very quickly. This is the main reason why we, the Western powers, stopped building and keeping empires-they're money holes in the long run. Britain once controlled one quarter of the globe, but out of all that territory only one colony (India) actually made a net-profit, and only in the short run. All the rest were losses. Starting an Imperial binge would only run up the deficit further in the long run.