Government Debt: Cause of the Next Financial Crisis

Government debt financial crisis

Spending Addiction

Governments across the globe have grown far too comfortable with expansionary policy. Increased military spending, entitlement programs, tax cuts, and bank bailouts simply add to the amount of debt governments owe to their lenders. As one would expect, government spending is politically popular. Tax cuts put more money in consumers’ pockets, which drives short term economic growth. Government welfare creates confidence among citizens that when times are tough, they’ll have a lifeline to grab on to. Politics aside, one reality awaits any debt addicted government: interest payments.

Paying the Piper

There is no need to engage in a complicated explanation of financial matters to highlight the problem the global economy is encountering. When the sum of debt (principal) increases, the amount owed in interest payments increases as well. Conceptually, interest is predicated on future growth. Debt investments, one hopes, generate future positive returns, which enable the payment of principal and interest overtime. However, when interest rates begin to rise at the same time the economy contracts, governments will be unable to pay their debt service. This leads to increased pressure applied by lenders. Foreign assets can be seized, domestic bondholders can turn against their government, and war can be waged. It’s worth noting that China owns over a trillion dollars of U.S debt. With a debt crisis looming over China itself, this dynamic between the U.S. and China will prove problematic in the future.

When Does the Music Stop?

If I could predict exactly when the crisis will take effect, I’d be a very rich man. Having said that, the first signs of a problem are beginning to show. The luxury real estate market has reached the point of oversupply. The risk of continued interest rate rises coupled with astronomic home prices has caused luxury home sales to decline. Similar trends are affecting the lower end of the market, as the appreciation of home values is slowing if not halting entirely.

While these developments aren’t necessarily a reason for concern, the outstanding mortgage loans have reached their former 2008 peak at nearly $15 trillion. We recently bore witness to the aftermath of a real estate bubble, so I won’t enumerate the details. However, governments have a lot more debt now than they did during the recession. Government stimulus is no longer a viable solution to financial woes. Debt must be paid, not built upon. Without a government savior, citizens will be hit incredibly hard. The suffering may not end for over a decade.

What Will Happen?

A collapse in the real estate market is just one component of the impending disaster. Corporate debt levels are at all time highs, due in large part to direct lending practices. Simultaneous defaults throughout the real estate, corporate debt, and government debt markets will leave all consumers exposed to a financial collapse. Citizens will lose their homes, companies will go bankrupt causing jobs to disappear, and government tensions will escalate further. I believe gold may offer me protection from collapsing markets (I cannot know for certain whether this will or will not be the case). Unsustainable debt levels spread across asset classes will lead to unprecedented chaos. I can only hope that you do what you can to prepare for it.

Have an opinion or question about the impending debt crisis? Leave a comment or contact me directly.

Government debt financial crisis

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The Fifth Risk Book Review

The Fifth Risk Book Review

A Different Take on the Government

Michael Lewis, author of Liar’s Poker, The Big Shortand Moneyball, delves into the workings of government bureaucracy in his new book, The Fifth Risk. Lewis manages to remove political ideology from his narrative, instead focusing on the work performed by civil servants within the Department of Commerce (DOC), Department of Energy (DOE), NASA, and other government institutions. I will readily admit that I’m unconvinced about the importance of the government, though Lewis manages to persuade even his most skeptical readers of the value we derive from government investments and programs.

Roughly seventy percent of the US government’s employees are in some way responsible for the safety and security of the American people. Lewis hones in on the DOE’s job of maintaining and protecting our nuclear weapons. Moreover, the DOE works to prevent terrorists from developing their own nuclear arsenals. Lewis suggests that it’s of critical importance to properly understand, staff, and manage these government projects, otherwise we increase the likelihood of large scale disasters. The titular risk Lewis wants us to consider to better prevent such disasters is that of project management.

Why the DOE is So Important

United States government investments in nuclear weapons during the Cold War enabled our country to amass an inventory of thousands of nuclear warheads. This nuclear stockpile, though, came at a price. Two-thirds of the plutonium used in the United States’ nuclear weapons was created at the Hanford Nuclear Site in Washington State. With Cold War tensions cooling, the government allowed the reactors to cool as well. Though the war has ended and the reactors have been decommissioned, it will take Hanford at least “a century and a hundred billion dollars” to clear away the nuclear waste.

Nuclear cleanup projects like the one in Hanford only account for some of the DOE’s portfolio of responsibilities. Lewis interviewed Tarak Shah, the former Chief of Staff to the Under Secretary for Science and Energy at the Department of Energy, about a terrorist attack carried out against our energy grid.

“Late one night, just southeast of San Jose, at Pacific Gas and Electric’s Metcalf substation, a well-informed sniper, using a .30-caliber rifle, had taken out seventeen transformers. Someone had also cut the cables that enabled communication to and from the substation… ‘We actually don’t have a transformer reserve… Our electric-grid assets are growing vulnerable.'” (66)

Forty percent of our hydroelectric power comes from the grid mentioned above. Investments in its continued protection are incredibly important as we grow increasingly reliant on electrical power.

Dismantling Our Core Institutions

In examining the operations of various government departments, Lewis shows his readers that many civil servants have gone unrecognized while protecting us from the threats of natural and man-made disasters. They’ve funded technological developments that have served as the backbones of many of our biggest industries. How about the weather reports we take for granted (and sometimes ignore?) These are the results of sustained government research projects and investments in improved technology.  Lewis makes it clear that the criticism and outright effort to privatize much of the government is a recipe for devastating consequences.

Barry Myers is the CEO of AccuWeather, a company that packages up the government’s weather reports and sells them for profit. The presidential administration picked Myers to run the National Oceanic and Atmospheric Administration (NOAA). Lewis warns that Myers has a financial incentive to prevent the government’s distribution of weather information. Only paying customers of AccuWeather will receive weather forecasts or warnings. This withholding of information will cost lives, especially as catastrophic weather events are a more common occurrence.

I recommend The Fifth Risk to government supporters and skeptics alike. Lewis, known for unravelling difficult subject matter and eloquently explaining it, offers a convincing argument for the continued funding of our government and its many projects. Whether you agree or disagree, please share your opinion in the comment section, or contact me directly.

The Fifth Risk Book ReviewThe Fifth Risk Book Review

What to do WROL

Returning to Our Basest Instincts

There are thousands of potential scenarios that could leave our society without rule of law (WROL). I’ve spent time covering Events that could do such a thing (EMP, tech), but I haven’t yet explored what society WROL looks like. Without the many luxuries we’ve grown to take for granted, our primal natures begin to overtake our sense of community. If food stocks begin to deplete and available water runs short, paranoia will sweep through the population. Unfortunately, paranoia tends to breed chaos and fracture our societal structures. The police force, government, and firemen we’re used to will no longer command the authority or respect they once did. You must be ready to adapt to a society that degenerates into every man for himself. This is what to do WROL:

 1. Prepare for the Long Term

When your community looks as if it will be WROL, you must first accumulate enough food, water, and medical supplies as possible. If you or a family member has a chronic illness, it’s important that you prioritize getting as much medication as possible. Chronic illnesses don’t just afflict a single person in the community, so it’s critical to be quick and efficient in ensuring your own survival. While this may sound cruel, we will see that far crueler acts are performed WROL. Once you have what you need to survive, you must protect it at all costs. Your shelter should be secure and you should have the necessary arms to defend what’s yours. I recommend reading William Forstchen’s One Second After to learn the power of quick thinking when society is WROL.

2. Never Go Out Alone

WROL, the police force is no longer around to maintain order. You should have someone with you to offer you protection if you leave your secure location. The above mentioned food, water, and medical supplies you’re in pursuit of are valuable to others as well. Have a partner or team with you to protect your goods. Moreover, you need to protect one another. We don’t need to dive too far into history books before reading about the gruesome acts men have committed against other men and women in war time. Prepare for violent outbursts when you’re exposed to those you don’t know or trust.

3. Set the Example

Societies are only temporarily WROL. Ultimately, order reemerges and the community rebuilds. That said, it should be the responsibility of the level-headed preppers to help instill the right values in those on the new governing body. Germany’s leadership following its defeat in WWI led to the atrocities committed during WWII. However, after its defeat in WWII, Germany ultimately became a leader and promoter of European democracy. Communities, let alone nations, aren’t necessarily set on the right course after societal breakdown. It’s up to us to create the model for the future.

Reemerging Stronger

Those of you who have read some of my other posts may think I’m a pessimist. However, I think that there are enough rationally minded and kind-hearted people out there to get society back on track if we are ever to be WROL. Communities can emerge more tightly knit and with shared values after experiencing a period of suffering. New York City became more resilient than ever following 9/11 due to the heroism and selfless acts performed by local, national, and international citizens. Doom and gloom doesn’t need to linger; in fact, times of crisis can bring us closer together and cause us to become stronger than ever.

If you have any suggestions or would like to discuss society WROL further, please contact me or leave a comment.

What do to WROL

5 Reasons Why Tech Will Lead to SHTF

Tech will lead to SHTF

The Problem with Moving Fast: Things Break

Tech developments are advancing at an exponential pace. Many believe this to be a good thing, as catchy mottos like “move fast and break things” have gone mainstream. Pressure to create, innovate, and scale has led to incredible changes in the way we live, which, up to this point, have largely been positive. That said, the competition among these technology companies resulted in some devastating consequences that cannot be repaired. Evolution tells us that only the fittest survive. It’s no wonder why companies, which are simply human collectives, display many of the same behaviors each employee does. In this post, I suggest that our human nature will ensure the human race is replaced by a superior being.

1. Evolutionary Tendencies

Human beings are the product of 4.5 billion years of evolution. We are the most intelligent organic species on the planet. Encoded in our DNA are survival instincts, like the need to reproduce, the need for shelter, and the need for security. Many men seek money as a means ensuring their own survival and that that of their bloodline. The California Elites (CEs) use their money to attract women, to buy fancy homes and unnecessary luxuries, and to purchase insurance policies against the risk of SHTF. When survival is no longer a worry, our natural instincts manifest as competitive spirits in need of applications. The application that will lead to our undoing is the realm of technological innovation.

2. The Economy

We’re in the longest bull market in history and, if you listen to the talking heads on the television, there’s no reason why it won’t continue on. Corporate tax cuts have left public companies flush with cash. In the tech sector, employees are watching their wallets grow fatter and large investments in artificial intelligence have led to feats like Amazon’s Alexa and Google’s AlphaGo. The problem is that corporate competition for artificial intelligence supremacy will lead to short-sighted decisions with irreparable long term impacts.

3. Lack of Accountability

Yes, Mark Zuckerberg was effectively forced to testify before Congress following the Cambridge Analytica fallout. However, I haven’t seen much happen since. Facebook promises to get better and invest more money in protecting against similar problems, but little beyond that has been done. I do not expect other companies to fear punishment stemming from stupid decisions they make with respect to artificial intelligence. The government has not held tech companies accountable for their mistakes in a meaningful way, so there is little reason for them to exercise better judgment going forward.

4. Tech Celebrity Worship

Elon Musk. Jeff Bezos. Steve Jobs. These tech celebrities have been the subjects of biographies, movies, TED talks, and discussions among the CE. With so many techies vying to be the next Mark Zuckerberg, little thought is given to the implications of a poorly written AI algorithm. The culture of tech celebrity worship breeds narcissistic developers obsessed with achieving fame and fortune. Focus is not placed on the benefits their products may have on the human race, nor is it placed on the consequences.

5. Risk Mis-Calculations

Humans exhibit risky behaviors all the time, though the impact is often limited to the individual taking the risk. We’ve witnessed during the Great Recession what happens when risks within a specific industry are poorly calculated. However, AI can exceed our own intelligence, which exposes us to consequences we cannot even imagine. You can argue that the consequences may be great–Alexa plays me music and Siri tells me what the weather will be like tomorrow. Who wouldn’t want more helpful products like these? What few techies know is that there will be a point where we no longer choose what the consequences will be, since we will no longer be the more intelligent species.

What Can Be Done?

I believe unchecked technology to be the most likely cause of The Event. You should take the necessary precautions to protect yourself. I wish I could prescribe the solution to the problem we’re seeing play out among the CEs, but it’s ingrained in who we are as humans. If you think you know what to do, please leave a comment or  contact me.

Tech will Lead to SHTF

5 of the Most Impractical Prepper Products

Prepper Products

The Perversion of Prepping

It’s no surprise that more people are prepping for The Event these days. High profile assassinations have been carried out by de facto authoritarian regimes, geopolitical relations continue to dissolve, and looming threats like the reckless development of technology could spell the end to humanity’s claim to being the most intelligent among Earth’s inhabitants. These developments have scared the California Elites (CEs), hedge funders, and other members of the 1%. Some ridiculous prepper products and services are now on the market to address these fears.

1. Luxury Bug-Out Bags

The only thing more outrageous than spending over a thousand dollars on a handbag is spending over a thousand dollars on a luxury bug-out bagPreppi (yes, that’s really the name of the company) sells “survival gear” to the ultra rich. While not the most expensive product on the list, the bag comes with designer lotions, a monogram, and a caviar case. It could be yours for just under $5,000.

Prepper Products

Image Source: Preppi.co

Impracticality rating: 9

2. Leased Escape Boats

Manhattan is the home of the bankers, so it may not be a shock to learn about their indulgent prepping purchases. Plan B Marine leases boats docked along the perimeter of Manhattan to their wealthy customers. With a tagline like, “Every Good Chief Executive Needs a Plan B,” Plan B Marine makes it clear who their clientele is. Their boats are leased for $4,500 to $7,500 a month. I’ll save you the effort of the math: the service runs from $54,000-$90,000 annually. I could imagine that with this investment, the bankers actually want there to be a SHTF moment.

Impracticality rating: 8

3. Survival Capsule

When a company’s website doesn’t publish prices, you know their products are incredibly expensive. That happens to be the case for this two person Survival Capsule, which is marketed as protection from natural disasters. Now I’m all for protection, but a survival capsule that I can only pre-order certainly isn’t the type of protection I’m looking for. You can rest assured that the CEs will get in line to add a toy like this to their collection. However, government rescue operations may be a practical application for this product.

Impracticality rating: 7

4. Luxury Bunker Condos

You all know I’m a big fan of bunkers, but I do draw the line somewhere. The line is drawn at the Atlas Missile Silo turned Luxury Condos. A full floor unit is a cool $3,000,000. Now I understand the urge to purchase some SHTF insurance, but $3 million is absurd! The unit is 1820 square feet, has an automation system, a “simulated view” of the outdoors, biometric key locks, and more. You can rest assured that the 1 percenters making this purchase won’t need to make any post-Event sacrifices.

Prepper Products

Image Source: survivalcondo.com

Impracticality rating: 8

5. New Zealand Citizenship

Peter Thiel, a President Trump supporter, doesn’t plan on living his life in America if SHTF. He and other CEs are becoming joint US-New Zealand citizens, so they can buy up land. The isolated island, by some estimates, is the intended insurance policy for about half of the Silicon Valley billionaires. Rather than being a man of the people, Thiel and his CE associates had to invest NZ$10,000,000 (roughly US $6.75 million) in the country over three years in order to gain permanent residency. With the cost of residency already twice as the above luxury condo, this prepping purchase is definitely the most impractical.

Impracticality rating: 10

Have any additional impractical prepper purchases? Contact me to share your suggestions in the comments section. You can also head to the Bunker Basics Store to get some gear with a bit more utility.

Prepper Products