About twenty years ago, I was at a used bookstore and I picked up what looked like an interesting medieval spin on James Bond. It was set during the period of the Crusades, but appeared to be conceived as an action-thriller series rather like The Executioner, Mack Bolan. I started reading it, but around page 30, when the slave girl sent by Saladin to spy on the Crusaders was in full throat enjoying her third rape at the hands of her captors, I suddenly realized that the book was not a historical novel but rather one of those strange 70’s porn novels with a thin veneer of historical fiction. A little research indicates that the book was probably the fifth book in the Crusader series, Saladin’s Spy (1986), written by an author very familiar to Black Gate readers, although he published it under the pen name “John Cleve” rather than Andrew J. Offutt. I hadn’t thought about that book for years, until I was casting about for a way to explain the epic fantasy of R. Scott Bakker’s series entitled The Prince of Nothing.
Daniel Indiviglio makes some relevant points in his article about the downgrade at The Atlantic and he was one of the few who correctly saw it as a real possibility, but I think he ultimately goes off-track when he calls into question S&P’s decision to downgrade the U.S. sovereign credit rating:
S&P was not happy with the $2.2 trillion minimum debt reduction plan. That’s understandable. A bigger deal would certainly have been preferable from a fiscal soundness standpoint. But does the agency really estimate that the deal is is so dangerously small that there’s a realistic chance that the U.S. could now default at some point in the future? In particular, does U.S. debt really look significantly riskier now than it did in, say, April?
The bond market certainly doesn’t think so. Treasury yields are near all-time lows, despite all that political nonsense. And remember, the interest the U.S. pays on its debt is far, far smaller than its tax revenues. If the Treasury prioritizes interest payments, then there’s no conceivable way the U.S. could default.
I defended S&P’s initial decision to put the U.S. rating on negative watch back in May when politics were becoming poisonous. But to actually downgrade the U.S. after Washington managed to avoid its self-created crisis is another story. S&P should have acted like the other agencies and affirmed the U.S. rating, but kept it on negative watch until more deficit reduction plans were put in place over the next couple of years, as I explain here.
In fact, this might not turn out well for S&P. The firm might think it’s acting boldly or proactively. Instead, the market may question S&P’s reasoning skills. The rating agency is acting here on an assumption not shared by its peers at Moody’s and Fitch: that U.S. politics are so screwed up that they could render the nation unable to live up to its debt obligations. That’s despite pretty much everyone agreeing that the nation will be financially able to pay for its debt in the short-, medium-, and long-term.
Indiviglio did a great job of demonstrating that the U.S. downgrade was be almost perfectly in line with the historical Japanese downgrade, which took place when its net government debt reached 60% of GDP. (It is presently around 225%). However, he reaches the wrong conclusion, as many have, by getting sidetracked over the way in which S&P’s analyzed the political situation in the U.S.A. And while there was never any question of short-term default, (despite the scare tactics of both Democrats and Republicans), I very much disagree that the nation will necessarily be able to pay for its debt in the medium- and long-terms.
The real reason that the downgrade was not only inevitable, but correct, and not only correct, but the first in a series of downgrades, can be seen in projections based on the historical patterns in the Z1 debt sector charts. These show the S&P’s worst case scenario to be far too optimistic to be credible.
While the debt figures don’t match up perfectly, as August “Net debt held by the public” is a little different at $9.78 trillion than Q1-2011 “federal government debt outstanding” at $9.65 trillion, they are close enough for the purposes of comparison. Utilizing the Q1 figure provides a federal debt/GDP of 64.3%, which is much lower than 74% presently estimated by the end of 2011 by S&P’s. However, we can see how they reach that number by plugging in the expected growth in the amount of debt at the post-2008 quarterly average of $365 billion. This indicates an end of year federal debt figure of 10.74 trillion and a GDP figure of $14.513 trillion.
In other words, S&P’s is probably assuming that either GDP will contract $490 million in the second through fourth quarters or the rate of federal borrowing will slow down. Either way, the so-called “double-dip recession” already appears to be baked in the S&P’s cake, assuming that its analysts are as capable of reading the Federal Reserve reports as Karl Denninger is. But that’s not the interesting aspect, from my perspective. What is interesting is the debt/GDP projections under the three future scenarios, Upside, Base Case, and Downside. Consider these projections of future federal debt to GDP ratios:
Where I suspect S&P’s has gone amiss, (and perhaps it had no choice in the matter due to its professional obligations), is by taking the CBO scoring figures seriously and thereby utilizing GDP estimates as the primary variable. Based on my calculations, it is also possible that S&P’s is simply plugging in the 66-year average rate of increase of federal debt, 5.92%, into their spreadsheets. But it isn’t GDP that has changed so drastically over the last three years and significantly modified the debt/GDP ratio, it is the rapid 82.89% increase in the federal debt over the last 11 quarters. If we utilize federal debt as the primary variable and plug them into S&P’s GDP estimates, we get some very different results. (I’m going to ignore the inflation and tax estimates in order to reduce the number of variables; these are estimates for the purpose of critical comparison, not predictive projections.)
The S&P’s GDP estimates are as follows:
UPSIDE: 3% GDP growth + lapsed tax cuts BASE CASE: 3% GDP growth DOWNSIDE: 2.5% GDP growth
However, net GDP growth over the 13 quarters from Q1 2008 to Q2 2011 is $729.9 billion, or 5.1%. That is an annual rate of growth of 1.57% and assumes that overall credit continues to remain flat at $52.6 trillion while federal debt continues to rise at the rate that private debt contracts. Call it the CURRENT CASE. Plugging in 1.57% annual GDP growth and 22.7% annual federal debt growth provides the following debt/GDP ratios if one begins with the firm numbers from the end of year 2010.
CURRENT CASE: 2011 77%, 2015 164%, 2021 509%
And if we substitute actual rates of federal debt growth for the S&P estimates of it that are based on the notoriously unreliable CBO scoring, it becomes very clear that the debt/GDP projections are wildly inaccurate regardless of what rate of GDP growth is assumed and shows that the problem is not one that economic growth can possibly solve. In fact, the revised UPSIDE case which takes historical debt growth into account is much worse than the Base Case that does not.
Notice that while the end of year 2011 figure (actually 76.8%) isn’t much worse than S&P’s is projecting at 74%, it is considerably worse than the DOWNSIDE in 2015 (164% vs 79%) and more than six times as bad in 2021 (509% vs 85%). But are these astronomical ratios even remotely possible? Could federal debt really rise to $26.1 trillion in 2015 from $9.6 trillion at present? After all, that would amount to 39.4% of all U.S. debt outstanding, assuming that the private sectors shrank at the same rate that the federal government sector expanded, and would indicate a Game Over default sometime in between 2016 and 2018.
This chart, which shows the historical percentage for each of the major debt sectors since 1946, demonstrates that at least the 2015 rate is clearly within the bounds of possibility. The Federal Government sector represented more than 39.4% of total U.S. debt until 1955. Furthermore, it also shows that the decline of Financial sector debt, which has contracted $3 trillion since 2008 and fallen from 32.7% of the total to 26.8%, could conceivably continue to dwindle away to less than one percent of the total, which would amount to an additional $11.2 trillion in debt-deleveraging that would need to be replaced by federal debt in order to prevent concomitant economic contraction. (It also, by the by, shows very clearly the real source of America’s current economic woes.) Government spending and borrowing is not the root cause of the problem, it is merely a failed attempt to cure the disease of massive private sector debt expansion and contraction.
Now, I am not making any predictions here, other than a general one that because private sector debt will continue to fall, there will be tremendous pressure to continue to increase federal spending and borrowing at rates more similar to that of the last three years than the historical norm. This is because the alternative is an immediate and sizable contraction of GDP. As ugly as it appears, the CURRENT CASE scenario I have outlined is not a worst case scenario because it does not account for the economic contraction I expect to finally begin showing up in the GDP numbers later this year and in 2012. The determining factor will be whether the rate of increase of federal debt is closer to the 22.7% annual rate of 2008-2011 or the 5.9% rate of 1946-2011. Just out of curiosity, I looked at the latter, which in combination with the 1.57% 2008-2011 GDP growth produces the following scenario:
Which of these five scenarios appears to be playing out should be readily apparent by the time the Q4-2011 debt sector numbers are published in the Federal Reserve’s Z1 report. If the Household and Private sectors continue to decline and end-of-year federal debt/GDP is over 75%, then CURRENT CASE is probably in effect.
UPDATE – More like 3 in 3, I would say: “A Standard & Poor’s official says there is a 1 in 3 chance that the U.S. credit rating could be downgraded another notch if conditions erode over the next six to 24 months. The credit rating agency’s managing director, John Chambers, tells ABC’s “This Week” that if the fiscal position of the U.S. deteriorates further, or if political gridlock tightens even more, a further downgrade is possible.”
It is always educational to see how quickly the badge gang shows their true colors as soon as citizens start shooting back, regardless of the country:
An entire 20-man police force resigned in a northern Mexican town after a series of attacks that killed the police chief and five officers over the last three months, state officials said Thursday…. The mass resignation appeared to be connected to a Tuesday attack by gunmen that killed three of the town’s officers, Salas said.
American police have abandoned their erstwhile right to be regarded with any particular respect now that they have claimed the right to be able to murder American citizens with impunity. In most cases, police departments steadfastly refuse to prosecute, much less punish, police officers who have fired upon and killed innocent men, women, and even children.
There are the occasional exceptions, but even in such cases, police inevitably escape with a lesser penalty.
I heard Don’t Stop the Sandman a few months ago and thought it was hysterical. But the entire CD simply takes it to another level and redefines awesome.
“[T]he sound was achieved when the metal band was stranded on a desert island in 1989 with a CD player, plenty of batteries and the CD collection of a 13 year old girl.” I think my favorite part is when they segue into a Hells Bells riff backing the Madonna lyrics.
Rock Sugar is like the bastard love-child of Spinal Tap and Tenacious D. About the only way I can imagine it could ever be topped is if Al Jourgenson, Trent Reznor, and Rob Zombie were to team up and put out a CD covering songs by Britney Spears, the Pussycat Dolls, Girls Aloud, the Spice Girls, and Destiny’s Child.
They remind me of how it cracked all of us up when Paul threw in a Loverboy guitar riff after the Technojihad chorus without warning. It was the only time I can remember Mike, who had the freakish robot-like precision required to play live drums along with samples and tightly sequenced electronics, completely missing a beat.
Q: Randy Moss’ retirement made me wonder about the five player-specific NFL career highlight films that would be worth buying. My personal list would be Barry Sanders, Deion Sanders, Moss, Brett Favre and Ronnie Lott. There are players with better career numbers, but for “did you see what he just did” moments, these guys have to be at the top of the list. — Eric, Ann Arbor
SG: I like this idea — seems like a natural for iTunes. (My five would be Moss, Barry Sanders, Gale Sayers, O.J. Simpson and Earl Campbell.)
Mine would be: Fran Tarkenton, Randy Moss, Barry Sanders, Reggie White, and Sammy Baugh.
Tarkenton for the ridiculously long scrambles, Moss for the deep routes, Sanders for the impossible escapes, White for the sacks, and Baugh just to see the all-around QB/DB/punter performance.
I still remember Reggie White playing against the Vikings. They called an ill-advised roll-out that called for Cris Carter to go in motion, then stay in and block the free defensive end, who happened to be White. White didn’t bite on the line feint, but stayed home, then literally threw Carter five yards into Warren Moon with one hand. He was dragging Moon down when the whistle blew and “in the grasp” was called. I was at that game with seats on the 20-yard line, the play was right in front of us, and it was the one of the most physically dominating defensive plays I’ve ever seen in the NFL; keep in mind that Carter was neither a small wide receiver nor a bad blocker. Even the most hard-core Vikings fans roared after that play.
It’s fascinating how one’s memory remembers things incorrectly. Until I found the clip, I would have sworn that White a) beat an initial blocker and b) actually knocked Moon down with Carter.
Two government officials tell ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of US debt from its current AAA value. Official reasons given, one official says, will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited. The official was unsure if the bond rating would be AA+ or AA.
A third official says that S&P made a “serious mistake” in its analysis, “based on flawed math and assumptions,” so the Obama administration is pushing back. But even though “S&P has acknowledged its numbers are wrong, it’s unclear what they’re going to do.,” the official said.
But… but… I thought being able to borrow more money made the existing U.S. debt safer! Anyhow, I don’t think any government whose agencies have made the historical 2001 recession disappear, and whose unscheduled ex post facto revisions are nearly five times larger than the revised growth are in any position to claim anyone else is using “flawed math and assumptions”.
The worrisome thing is these are the agencies that still had Enron at AAA when it was going bankrupt. It boggles the mind to think how bad U.S. finances must be for the ratings agencies to actually notice.
UPDATE – The administration’s whining didn’t work:
– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating….
– The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
Notice that nothing is said about the need to raise taxes. S&P knows as well as the American public that more taxes will only lead to more spending. And there will almost surely be less reduction in spending than agreed to, given that this has been the case following practically every budget deal of the last 31 years.
As I wrote several times prior to the hike in the debt ceiling, increasing the amount of debt doesn’t make default less likely, it makes it MORE likely.
The Milwaukee News offers its readers a new round of the American media’s favorite game:
Police Investigating Multiple Beatings Near State Fair Park
Local law enforcement agencies are investigating several incidents near State Fair Park late Thursday night.
Milwaukee police said that around 11:10 p.m., squads were sent to the area for reports of battery, fighting and property damage being caused by an unruly crowd of “hundreds” of people. One officer described it as a “mob beating.”
Police said the group of young people attacked fairgoers who were leaving the fair grounds. Police said that some victims were attacked while walking. They said others were pulled out of cars and off of motorcycles before being beaten.
Milwaukee police said at least seven people were taken to area hospitals with non-life-threatening injuries. They said that number could go up as other responding agencies release information.
Who were these young people exhibiting their vibrancy so exuberantly? Were they Amish? Turkish immigrants? Native Americans? Ecuadorans? Who could possibly say? Since it’s Milwaukee, I’m going to guess it must be Norwegians run amok in light of the recent events in Oslo.
Wait a minute, this is interesting… apparently local TV wasn’t aware that its viewers enjoy playing the guessing game:
Witnesses tell Newsradio 620 WTMJ and TODAY’S TMJ4 of a mob of young people attacking innocent fair-goers at the end of the opening night of State Fair, with some callers claiming a racially-charged scene. Milwaukee Police confirmed there were assaults outside the fair. Witnesses’ accounts claim everything from dozens to hundreds of young black people beating white people as they left State Fair Thursday night….
“It was 100% racial,” claimed Eric, an Iraq war veteran from St. Francis who says young people beat on his car. “I had a black couple on my right side, and these black kids were running in between all the cars, and they were pounding on my doors and trying to open up doors on my car, and they didn’t do one thing to this black couple that was in this car next to us. They just kept walking right past their car. They were looking in everybody’s windshield as they were running by, seeing who was white and who was black. Guarantee it.”
Eric, a war veteran, said that the scene he saw Thursday outside State Fair compares to what he saw in combat.
“That rated right up there with it. When I saw the amount of kids coming down the road, all I kept thinking was, ‘There’s not enough cops to handle this.’ There’s no way. It would have taken the National Guard to control the number of kids that were coming off the road.
Drat, wrong again. I’m a little surprised to see that no one in the vicinity appeared to be carrying. I wonder what will happen this summer the first time a gang of “youfs” encounter an armed individual who isn’t inclined to take a beating.
Unsurprisingly, it’s the multicultis who are primarily to blame: “The incidents Thursday night come as the State Fair board over the last decade has worked to increase diversity at the annual fair, expanding its entertainment lineup and marketing to appeal to a younger, more multicultural audience. Diversity was a priority for State Fair Park Chairman Martin Greenberg, who spoke often of making it “truly the people’s park” – a “place of inclusion, not exclusion.”
Seldom has a payrolls report been awaited with more bated breath than this morning. Here’s what is anticipated:
U.S. payrolls probably rose by 85,000, according to a Reuters survey, after a measly 18,000 gain in June. The unemployment rate is expected to hold steady at 9.2 percent.
I have little doubt that Ben Bernanke was on the phone to the BLS last night, informing them that the number had damn well better be north of 100,000.
1. Is there a superior race? What groups represent it?
2. Is that race superior because of some sort of divine intervention or plan?
3. Does miscegenation “better” “lower” races?
4. Does Christianity allow for or encourage racialism?
5. Does God prefer whites to non-whites?
6. Why would God create races of people who were inferior to others? If you believe in some sort of evolution, is it a process guided by the/a devil, or did God purposefully create inferior races?
7. If groups of people are genetically pre-programmed to inferiority / violence, do you support genocide? I’ll use the legal definition of genocide here, but limit it to extermination, segregation, and limiting births in a specific population. Why or why not?
1. Superiority entirely depends upon the metric chosen. This question cannot be answered until you provide your favored metric. However, there are without question racial differences ergo the various races – and, for that matter, human sub-species – will presumably be superior to the others at some things and worse at other things.
2. Again, provide the metric by which “superiority” can be determined. “The quality or condition of being superior” requires a means of comparison by which that superiority can be ascertained.
3. I should think so. A half-African, half-Asian child will likely be more athletic than the average Asian and more intelligent than the average African. On the other hand, it will probably be less intelligent than the average Asian and less athletic than the average African. Hence Arthur C. Clarke’s dream of one mocha-colored, post-racial, bisexual humanity.
4. This is like asking if Christianity “permits” gravity. Christianity certainly acknowledges that the different races exist and expects Christians to surmount racial differences within the Church. But it doesn’t require or expect them to pretend such differences don’t exist outside them.
5. I see no reason to believe so. He does appear to be partial to Jews.
6. Perhaps for the same reason a game designer creates non-player characters that are not all as powerful as the protagonist. If there is to be variety, one individual must be superior to another in various ways, and therefore some groups will be superior in various ways.
7. No, I think containment is sufficient. The ancient German example and the modern Ottoman example indicate this to be the case. Violent people are usually content to fight amongst themselves if deprived of the ability to seek easier prey. Of course, the Mongol invasions would tend to argue that this strategy won’t always work. The violent breakups of Yugoslavia and the Soviet Union demonstrate that even forced “unity” maintained for decades will collapse as soon as the force imposing it weakens.
Now, in light of this Federal lawsuit, I have three questions in return for Holla:
For at least two years, dozens of students at a Minnesota high school caricatured African-Americans in a homecoming week dress-up day by wearing low-slung pants, oversized sports jerseys and flashing gang signs, according to a federal lawsuit. The lawsuit filed last week claims officials at Red Wing High School knew of the activity and had a duty to stop it because it created a racially hostile environment. It follows a state investigation that found school officials did not fulfill their obligation “to provide an educational atmosphere free of illegal racial discrimination.”
“Acting ghetto, young white men seem to think that is the funniest thing in the world,” she said. “They don’t understand that kind of joke is the worst kind of stereotype.”
1. Did the school create a racially hostile environment by permitting whites to dress like blacks?
2. Should whites be permitted to sue for damages in Federal court when blacks caricature their culture by wearing suits and ties?
3. Is “acting white” also the worst kind of stereotype?
Shaking hands in celebration, these two youths appear to have something to be happy about. But this sickening gesture is actually two murderers triumphantly celebrating their killing of a 16-year-old schoolboy. The footage was captured on CCTV of a London bus as killers Lamarr Gordon and Dale Green fled the scene of the stabbing of Nicholas Pearton in south London.
Today, a judge described the killers as a ‘pack of animals’ as he jailed Gordon, Green and five others for a total of 74 years. The youths were all found guilty of killing Nicholas, who they chased across a park before stabbing him outside a shop doorway in Sydenham.
It is educational to see the repentant “youfs” doing their best thug impressions in the mug shots. The primary lesson is one from the Old West: it is better to be judged by twelve than carried by six. The economic downturn is not going to help, so if you aren’t carrying yet, it’s time to get to a range and start. You may not be able to save your culture or your country, but you can still save yourself.
