Thursday, April 29, 2010


There are three types of economic thought: classical economics, behavioral economics and Austrian economics. Classical "Wall Street" economics has morphed into a make believe world where debt doesn't exist. The only variable that is measured is the debt payment. I have a degree in economics but unfortunately I am also an accountant, so thinking about both schools of thought gives me a headache.For my own sanity I have given up most thoughts of classical economic theory.

Once in a while I let myself think about Austrian economics where total debt is actually a variable. But this thinking is mostly just folly. The accounting balance sheet in the Austrian model does not allow for limitless debt so it presently can't be used by our government or our financial sector. If a real balance sheet was put it in place now it would be like opening the covering of a glass bottomed airplane at 45,000 feet without warning your passengers. And of course this event would be worse in our country's current condition because most of our population thinks we are on the ground and not flying high at the peak of maximum attainable debt load.

Anyway in my folly, I have heard some of the more thoughtful Austrian and behavioral economists use the idea of "bubble-nomics" to describe economic events like our recent period of excess. This would be the fiscal and monetary manipulation of an economy by a government creating a false period of prosperity followed by a real period of slower economic growth.

But I don't think that the idea of "bubble-nomics" is a true representation of our present situation. A bubble is a balloon that inflates to the point of maximum expansion. This is a very rigid and boring concept to describe a period of very extreme human behavior. Plus no matter how big the bubble gets it doesn't really burst. It just creates a hangover as the economy goes back to normal growth minus the false growth from the bubble.

It's more like a party. Our government spikes the economic punch with either fiscal or monetary manipulation and our country starts buying a lot of drinks for the house. If our citizens become really intoxicated we start to use extreme debt to keep the party going. And if the party gets really, really out of hand we bring our kids to the saloon, sit them on a stool by the bar and tell the bartender to charge the drinks to "them".

Borrowing money from children to keep an economic party going has happened only once in human history to my knowledge. But boy this has been a great party. The bartender is just now getting the tab ready for our kids to sign. Hold that thought! I think our kids still have a little credit left with China and The Middle East.

Hey maybe we could invite Iceland, Spain, Portugal, Ireland, Italy and Greece to the party? They are all in extreme debt but I don’t think that their kids have a Chinese credit card yet.

Well, it's just a thought.

But anyway, eventually someone has to sign the bar tab and we will need to get back to our lives of working and saving. The economy will get back to normal - minus the distortion caused by the bubble or the party or whatever metaphor floats your boat.

At the end of the 1920's that's what happened. We partied until we couldn't party anymore. Then the government spiked the punch and we started the party again until 1933 when we just couldn't borrow anymore. The bar tab seems to be the tipping point that shuts down the extreme party.

In 1933 total debt to GDP shot to 350%. At no time in our country's history has it been even close to that number. Well not until now. We have raced past 350% and now we mostly don't even keep track of the number anymore. All tiers of government, federal, state and local are using unfunded liabilities instead of stated debt so no one knows the exact amount of what has been borrowed. Our financial sector has learned this trick also.

How much debt does our country hold? No one really knows and nobody really cares. In Wall Street economics debt doesn't exist so it never needs to be paid back. But as an accountant I have been trained to assume that debt does need to be paid back by someone, at sometime in the future. I am sure that Japan, China and The Middle East would agree with me on this point.

Anyway, since we have been allowed to bring our children to the bar and charge their Chinese credit card to party we might be able to create more debt than was humanly possible before. Of course no one knows the number but let's say that "real" debt to GDP is 450%. Once we hit the debt wall in the next few years like we did in 1933 then GDP could go down 20% thus spiking the debt to GDP ratio to 563%.

It's really a shame that our government and our financial sector are using hidden accounting tricks to state their debt ratios. If they were required to use real accounting standards then we could have an all time record. Over 500% of debt to GDP! No one has done that before – Yee Haw!

Hey has anyone thought of asking North Korea to give us a hard money loan?

Just kidding.

It's not wise to take money from countries that don't like us. Maybe we should just stick with borrowing large amounts of money from China and The Middle East.

Once we are through partying and "our friends" decide not to lend us any more money then our kids will set up high interest payments to all of “their” creditors.

The bar tab will shut down the party. Everyone will have to go home.

Then and only then will our country go back to a normal life. Back to just worrying about working and saving.

And of course paying off the massive debt from the past 15 years.

Calling the last 15 years a "bubble" does not do it justice.

The biggest party the world has ever known will be over.

Let the hangover begin.

Wednesday, April 21, 2010

The Corrosive Nature of Debt

Let's assume that our government, federal, state and local has an income of $5 trillion. This is equal to a third of our federal Gross Domestic Product. While their income is $5 trillion they have outstanding liabilities of maybe $100 trillion in stated and unstated debt. So our government is leveraged 20-1 above their income level. This is a government created liability that is directly owed by the taxpayers of our nation.

This includes the stated debt of federal, state and local entities of perhaps $20 trillion and their unstated promises of maybe $80 trillion. If you don't agree with the numbers then what are they? This is my point. No one knows and no one seems to care.

But we know that our government holds an extreme amount of debt and is desperate to borrow much much more. So as our government borrows more money to increase the debt to taxpayers, what is the expectation?

Common sense tells us that there are 3 and only 3 outcomes that can happen when an entity borrows money:

  • You can borrow money with the expectation of paying off interest and principle in the future. This debt would be used to amplify investment gains with the expectation that principle and interest will be paid back in the future with investment gains. This is called "speculation". An investor is making a bet on the future. It is a win or lose proposition.

  • You can borrow money with the expectation of only paying interest in the future. This is immediate gratification. Mortgaging your future to live better in the present is "debt servitude". Historically, "debt servitude" has been used by the more financially incompetent members of a society.
  • You can borrow money with the expectation of never paying the principle or interest off in the future. The is called "fraud". It is robbing present resources from others to pay for your excesses in the present.

So there are only 3 expectations when someone borrows money: Speculation, Debt Servitude or Fraud. You can either plan on paying all of the money back, or just the interest or nothing.

The type of debt depends on one's motive. Every society has many examples of each type of debt.

The first type of debt is speculation. Most people borrow money to make a single bet. And they have high hopes that this bet will be a winner. Our government has made bets in the past. They borrowed money to pay for World War II, the interstate highway system and putting a man on the moon. These investments have been winners. The speculation by our government was a good bet.

The second type of debt is normally created from the first type of debt. A speculator will win some bets and then they become comfortable speculating with future resources. This is called , "gaming the system". This gambling will become a habit. Then instead of the risk being one roll of the dice, it becomes a continuous recurring daily event that actually becomes a risk payment instead of a bet. This is "debt servitude". It's more of a drug than a bet. One individual is choosing to rob resources from their immediate future to give all of their future gains to another. It doesn't really make economic sense for anyone to live this way. It is just the immediate gratification from the drug of debt.

Unless you are a criminal, the third and last level of debt morphs out of the second level. As you game the system more and more then the drug of debt becomes a compulsion. Your risk payments will increase to the point were you can't make your interest payment out of current income. You choose to start paying the interest payment with more debt. This level is unsustainable. Our government and most of our households with a mortgage are at this level. The drug of debt has created a nation of junkies and dealers with our government being the biggest junkie of them all.

A whole science has emerged to explain how insurmountable debt is a good thing for our nation. Economists tell us that debt is presently no problem because we can make it go away with "magic inflation". So they are saying that we can get ourselves into "debt servitude" as long as at a later date we are able to make it go away with "fraud". The Economists also explain to the government how hiding debt off their balance sheet is a good idea and allows them to borrow more to buy more of the debt drug. So no one has any idea of how large the debt is.

We are misstating our debt so no one knows how much we hold. We are presently in a situation where we need to borrow money just to pay the interest on the loan so our nation has started a Ponzi scheme. And the game plan of our politicians is to keep the deceit going until we can create the "magic inflation" that will bring our nation back to the old "debt servitude" from our present period of "fraud". So we will use fraud to extricate ourselves from fraud. We are thinking just like a junkie.

It is beyond all reason, logic and math but in our country's drug induced state it makes all the sense in the world.

But I can tell you for a fact that "junkie economics" will not work. It has never worked in the thousands of times political tyrants have tried it in the past and it won't work now. First our country will hit the debt wall where the market will force us to slow down our creation of debt. This will collapse asset prices. Then interest rates will rise and collapse asset prices even more. Then we will have the magic inflation that will inflate us out of debt but it will only inflate our asset prices up to the values they were before. We are thinking exactly like a junkie. Avoiding pain now for a higher level in the future.

"Junkie economics" doesn't work for political tyrants any more than it works on the street.

Our plight compares perfectly with that of a junkie. We are now giving away trillions of dollars to the debt dealers in our financial sector for just another hit of the debt crack pipe. The money has been stolen as happens with all hard core junkies. Our nation is stealing money from our kids.

We are creating untenable debt in our children's name to be paid back at very high interest rates to hostile foreign nations. I am not even sure that a homeless crack smoking wino on the street in Washington DC would do something like this to his children.

But each day our government officials must create more of this unsustainable third level of debt so our nation can get one more hit of speculation from it's drug of choice. It is unconscionable and illogical but it happens thousands of times a day on the streets of every major city. But like I said before, I believe very few junkies would make the choice to sell their children's future into debt servitude to their enemies. As a country we have found ourselves at a lower level of morality than the junkie on the street.

How do we get out of this mess? Well I would suggest that the first step would be to look in the mirror and see the mess we are in. How does a government borrow 20 times their yearly income? And then lie and say that some of it doesn't exist. How can we say that the obligation of Social Security, or Medicare or the Pension Guarantee Corporation or a thousand other state and local obligations doesn't exist? Why would a government do such a thing?

It's time to look in the mirror and to make some hard choices. We have lived the last 20 years on debt and it could take 40 years of onerous payments to get back to the same standard of living that we had in the 1980's. This would be the choice to end the debt servitude.

Now try to focus and think about what it was like to live 30 years ago. Only one member of the household had to work. Health care and housing were very affordable. Our financial sector was much smaller and our education system was top notch. We had a solid middle class. Our currency was sound and our nation was strong. Our country had one third of the debt load that we currently carry and we were able to record it honestly. Our government and our financial sector didn't have to use Enron style accounting to misstate their debt. We absolutely had a higher standard of living because we weren't in "debt servitude".

But we have borrowed and borrowed and then borrowed some more to speculate as the bets have become more and more absurd. Then 20 years ago we started to borrow larger amounts of money to service the debt. We have borrowed so much that we must lie to ourselves about our debt load. We can't even look ourselves in the mirror anymore. Today our government, our financial sector and our households with a mortgage must commit "fraud" just to service the debt. Mathematics tells us that this will get worse as interest rates go higher.

Anyone that says we are better off today than 30 years ago must be a junkie or a Wall Street economist. And here I must apologise to the junkie for the comparison.

Even if we choose to live forever in our present debt servitude then we will still have to slow down debt creation from present levels. This will lock all future generations into a lower standard of living than we have now. That standard of living will get lower and lower as interest rates rise. It's simple accounting math and basic logic but it is far beyond what the economists at the Federal Reserve can possibly understand in their drug induced state.

So we are still at a juncture where we can choose a sustainable path. Hard work could make our country strong again. But what are the odds that a drug crazed junkie could do anything but beg for their next fix.

Our country will find out that debt addiction is exactly like drug addiction. It brings forth insurmountable choices, each with very bad outcomes. Our choices will probably be made for us as hostile foreign nations put us farther and farther into debt servitude.

Presently we are selling our children into debt servitude to China and The Middle East for more of the debt drug. The funny part is that this debt servitude will be just the start as we continue to sell off all of the priceless gifts that were given to us by our forefathers. Sound currency, sound government and finally our basic freedom. All of these cherished heirlooms lost for one more hit on the crack pipe of debt.

Thursday, April 15, 2010

Blind Faith and Insidious Debt

Blind faith is a blessing in one's religious life but it can be a curse when money becomes a variable. There is nothing more wonderful than having a direct connection to your Creator. But there is nothing more devilish than someone putting a roadblock between a spiritual traveler and paradise and then charging a fee at the gateway to the promised land. If there is a purgatory then it should be filled with people using the idea of Hell to make large amounts of money as the gatekeeper to Heaven.

Presently our elected officials are the gatekeepers to our Financial Heaven. They are spitting fire and brimstone as they tell us that if we don't borrow money and give it to the government and Wall Street then we are risking financial Armageddon.

Metaphorically speaking, savings is the road to the financial promised land. In a rational world a benign government would reward savers. This would help individual households grow and make our country strong. At the very least a government should stay out of the financial system.

But in our present irrational world our elected officials are using extreme measures to keep our citizens in horrendous debt. Currently our households are desperately trying to pay off the debt that the government has spend trillions of dollars to subsidize. Over the last two years our households have been able to pay off a few hundred billion dollars of debt as our government is creating trillions of dollars of debt to hostile foreign nations that households will be required to pay off at high interest rates in the future.

So as a country we have experienced two years of financial pain. This pain was fruitless because we have increased the amount of total debt that households will be required to pay in the future.

This corrosive debt cycle is getting more and more irrational every day. So why does no one care? Because we have blind faith that our elected officials will get us out of this mess that they are almost solely responsible for getting us into in the first place. Our nation has become totally disconnected from financial reality.

We have many recent examples of this disconnect. The Tech Bubble, the Credit Crisis and the Housing Bubble were directly propagated by our government. The financial collapse of Iceland, the collapse of the Japanese financial bubble and the contraction of the PIIGS(Portugal, Ireland, Italy, Greece and Spain) are examples of how corrosive debt can destroy an economy. We are ignoring all of these recent episodes as our government is desperately trying to recreate them.

How are most people dealing with our current period of insanity? They are creating another financial bubble. Stocks have become overvalued. Housing in some markets is going back into a bubble. Long term bonds are in a bubble. This is happening as our economy is contracting as households are desperately trying to eliminate debt.

How am I dealing with our current situation. I sold my primary residence in 2007 and rented a house in Lafayette. I started shorting the peak of the stock market in 2007. When the government started to make more irrational decisions, I moved to a house with half the rent payment in Walnut Creek. I jumped into the stock market as everyone was selling in March of 2009 and presently I am market neutral as stock investors apparently see blue sky forever.

I carry no debt and I am saving 50% of my household income. If the stock market keeps going up I will consider shorting the market in the fourth quarter of 2010. I will not buy a house until the next recession, probably 2012. Or maybe I will never buy a house if our government is successful in keeping our households in their current insidious debt ridden state.

Whether it is credit card debt and mortgage debt or government debt and higher taxes is not of consequence. It is all debt that will have to be paid back in the future by our households. Families like yours and mine. Anybody that tells you something different is lying to you, plain and simple. I don't care if it's a Nobel Prize winning economist that's paid by Wall Street or your financial advisor that is sucking you dry as your accounts go lower and lower.

I might add that both of these people have missed predicting every single major economic shift of the past ten years. But they are excellent at cheerleading you to borrow more money and speculate during bubbles.

Most people say that I'm crazy. I have become very used to it. I have developed a tough skin trying to talk people out of buying stocks during the Tech Bubble, houses during the Housing Bubble and getting into debt during this Debt Crisis.

Some would say that I am now acting irrationally and I really can't disagree.

But I would like to suggest that in an insane world it might be prudent for the rational man to act irrationally.

I would also like to suggest that our government and the Wall Street economists don't deserve the blind faith that should be saved for your connection to the Creator.

There is only one Savior and it is definitely not our government or Wall Street.

Good luck with your investing, your saving and your worshiping.

Sunday, April 11, 2010

Bubble 3.0

I see more and more indications that we are into our third bubble in the past 12 years. I will call this new economic event: "Bubble 3.0" until someone thinks of a more appropriate name. It will be named once we figure out what sector of the economy overheats. In 1998 the first bubble was called the Tech Bubble. In 2004 the second bubble was called the Housing Bubble. Maybe this third bubble will be called the Bond Bubble. But of course we won't know until the recession of 2012 rears it's ugly head.

Our nation's current economic environment is somewhat unprecedented. There are only two comparisons to what we are going though now. But neither is an exact match.

The first comparison would be with Japan of the 1990's. I will call this the Economic Model.

In the 1980's Japan's private sector borrowed much more money than it could pay back as it inflated real estate and stock prices. Presently Japan's private sector is desperately saving money as their government is desperately borrowing money. Total debt for the country is increasing because the government is a lot more efficient at borrowing money than the private sector is at saving.

The Wall Street economists that didn't see a problem with Japan's private sector debt in the 1980's, presently don't see a problem with the massive debt that the Japanese government is creating now. These same economists are emphatically saying that we must use the same Japanese style solution in our economy. But of course we are Americans. We have to do it bigger and better.

The second comparison to what we are going through now is the Accounting Model. This was the method suggested by the bankers at the outset of the Great Depression. This method involved the private sector repairing their balance sheets through debt destruction instead of the government taking over the debt. Our country incurred a lot more pain but we came out of the 10 year World Depression in 1940 as the strongest country that has ever existed. That's why I have such an affinity towards the Great Depression.

I kind of like the idea of going through a little hardship and having a reward at the end.

Anyway, there is no need to worry about that. We are a nation of financial weaklings and have chosen the Economic Method to solve our debt problem. So we are in uncharted waters. The only example that we have is Japan and that scenario hasn't played out yet.

How the decision was made to use the Japanese Economic Model instead of the Accounting Model is interesting.

This actually happened one night when Ben Bernanke went to sleep thinking that our economy was in fantastic shape. He must have had a nightmare because the next morning he woke up as a maniac, running around yelling that the sky was falling and that the only way to prevent the end of the world was to funnel as much money as humanly possible to our financial sector so that they don't have deal with their bad decisions of the previous few years.

Investors currently think that Bernanke and the Federal Reserve will keep borrowing money from China and The Middle East in the taxpayer's name and flooding it into the financial sector for "an extended period", or basically forever.

So investors have extrapolated that for the next period of "forever" our government will put taxpayer's into indentured servitude to hostile foreign nations and give the money borrowed to the financial sector. Presently the financial sector is so bloated with cash that they don't know what to do with it all. This money along with the hope that we are different than Japan is driving our current bubble.

Our government has showered money on the financial sector hoping that our insolvent banks will lend money to our insolvent households. There are two big problems with this plan and both of them involve insolvency. Japan could be the perfect example of what not to do. They tried to use debt to get themselves out of insolvency for 15 years. They are still dealing with the original problem of insolvency, or to much total debt.

We have cemented the Japanese chain of economic events into our future. So far our government is borrowing $5 for every $1 that is paid off in the private sector so we can plan on a faster outcome than Japan. We might even get "there" before Japan does. Where ever "there" is.

The only events in the future that we can predict with accuracy is that within 3 years Ben Bernanke will get a Nobel Prize for using extreme measures to save the economy. And then 3 years after receiving these accolades he will start being demonized in the same way that Alan Greenspan is being demonized now for keeping the Fed Funds rate to low for to long.

So in essense all we know that our nation has a very, very short attention span as we are attempting to borrow our way out of to much borrowing.

So what is an investor to do?

I have thought about this moment a lot since Bernanke's nightmare. How do you invest when the Federal Reserve and the government are pouring massive amounts of money into the economy and creating an investment market full of drunken speculators? Is it wise to take risk and ride the bubble close to it's peak and then sell off? I told myself at the time that a ride on the bubble sounded like a good plan.

But now that it is happening I am a little nervous. I have rode the stock market up to overvaluation but presently I am totally out of the market. I have learned something about myself. I just don't have the guts to be a speculator.

I have made the decision to watch from the sidelines.

Sometimes I have delusions of grandeur and fantasize about placing a large short position at the peak of Bubble 3.0 just like I did with the stock market in 2008. But of course this is just folly. There are an elite few that have the intestinal fortitude to make money shorting a monumentally dysfunctional investment market like today. This market will create a lot of collateral damage. Shorts are already getting brutalized and it could get much, much worse. This could be the first market in history that has capitulation at a price peak instead of a price bottom.

For now my money will stay under the mattress, so to speak. I will buy as I always do, at good value. Probably in the declining market of 2012.

Today is not even a market for George Soros. He plays the odds. This will be a onetime bet for future Joe Kennedy's and John Paulson's that could potentially create investment dynasties. Or lose everything trying.

Presently any gain in this market from here to the peak is not worth the risk. From this point forward we will see a gun battle between the shorts and the longs. It will be like a winner take all, wild west shoot out on the muddy streets of Dawson during the gold rush of 1898. A pull of the trigger will determine who's standin' and who's lyin'.

All I can say is Yee Haw!

Saturday, April 3, 2010

The Cookie Jar

I think of our founding fathers like grandparents. They thought long and hard about the children of the future and created a framework of sound government and sound currency. Rules and laws to pass on to future generations. This is our country's legacy. I think of it like a cookie jar. A simple savings repository placed high on the early log cabin kitchen shelf that holds the family nest egg, important deeds and documents destined to be passed from generation to generation.

A cookie jar is a little different than a piggy bank. A piggy bank is savings passed directly to a child. A cookie jar represents a longer time line such as wealth and ideals passed from a grandparent to a grandchild. It's more of a legacy than a simple savings account.

A piggy bank can be seen as something with just an immediate dollar value. Money that will be spent when a child reaches adulthood. A cookie jar becomes more valuable with each generation until it ends up holding the morals, principles, ethics and values of a family, or in this case a country. It will also hold all of the country's accumulated wealth.

Anyway since the time of our founding fathers each generation has added something to this national cookie jar. Some generations have added wealth and some have added a framework of ideals and principles that would make our country stronger.

  • Andrew Jackson added a sound currency.
  • Abraham Lincoln added the concept of a united nation.
  • Teddy Roosevelt added laws to protect us from big corporations. He also set aside land for our national parks.
  • Franklin Delano Roosevelt added more laws to protect us from the financial elite and the big banking interests.
  • Lyndon Johnson added laws to protect the under represented.

By the 1970's our country's cookie jar was full of a nest egg with enough value to last for 200 years. We had a vast store of wealth and ideals. People owed their homes. People saved money. Many had pensions and fairly priced medical plans. Most household's only needed one member of the family to go to work while the other member could stay at home and raise the children. We had a solid middle class. Our currency was more sound than any in history. Our government was strong and protected us from the tyrannical wealth and power that can be created in an unchecked capitalistic society.

This in my opinion is the biggest problem with capitalism and I think our founding fathers knew this. Unchecked wealth and power are the biggest threat to any capitalistic nation.

So in the 1970's we had an almost perfect middle class society. But that wasn't good enough.

Wall Street suggested to our government that we could have a higher standard of living if we borrow a little from the cookie jar. They said that it would get paid back with interest and everyone would be better off.

I would call this robbing from our children's legacy but at the time they called it "trickle down economics". The Wall Street economists were certain that giving money to the rich will let some trickle down to the poor.

But in essence it took away most of the checks and balances to protect our people from tyrannical wealth and power. We lost many of our principles that had been placed in the cookie jar over the past 200 years.

I would like to compare this pivotal moment in history with actor Mickey Rooney's parents robbing all of his wealth from being a child actor. The first dollar that is stolen from a child's piggy bank is the hardest. I can picture it in my mind. A parent with a coat hanger fishing for pennies and nickles that will be stolen from his child. The mechanics of the theft is easy. The difficult part is rationalizing the behavior. The first dollar is the hardest to procure because of this guilt and progressively it becomes easier and easier until it becomes a parent's right to take the money.

The 1970's was our watershed moment. "Trickle down" was the first dollar that was stolen. Our country was able to rationalize the behavior. But this money was not just taken by a father from a child's piggy bank. This was the theft of a legacy handed down from all of our previous generations.

The theft of our children's piggy bank would have been a outrage. But the ruination of our children's cookie jar with the loss of all of the financial principles and values and wealth created with great sacrifice by the past 30 generations is an abomination.

We built this nation as savers but now we are debt fueled consumers. Our grandparents were individualists and mistrusted a government that is to large. Today our government is seen as our savior as it borrows more and more money and grows bigger and bigger controlling more and more of everything. There is far more debt than could ever be paid off but the Wall Street economists insist that we can debase our currency and magically make the debt go away.

So sound currency is gone, sound government is gone, all of the wealth has been spent and we are now placing our children into debt servitude to China, The Middle East and Japan.

Progressively we have robbed the cookie jar of all of wealth that was lovingly left for posterity. The wealth is gone and we are now doing what Mickey Rooney's parents were not even capable of accomplishing. We are borrowing money in our children's name and leaving IOU's in the cookie jar.

This behavior is easily seen on a graph. In the 1970's our country's debt to GDP ratio exploded like a bomb. For the last 30 years it has been on a space shuttle trajectory toward the moon. We have rationalized the theft and see it as our right to borrow every last dollar possible to maintain the false prosperity created by the original theft of our children's legacy. We are throwing around trillions of dollars like it's pocket change. The amounts don't matter anymore. It has no value to us because we never had to work for it, and we will never have to pay any of it back. It has become debt owed by our children.

So now thirty years later the cookie jar money is gone and our federal, state and local governments have at least $15 trillion in IOU's to the cookie jar and perhaps $100 trillion in obligations that they haven't even bothered to put IOU's into the cookie jar.

To put it in perspective. We have not paid off any of our country's debt for the last 30 years. None. A Wall Street economist might argue that a few billion dollars was paid back during the Clinton administration but they are wrong as always. We may have paid off a tiny portion of the stated debt but the unfunded liabilities that the government is not putting IOU's in the cookie jar far outweighs a paltry few billion. We have created $115 trillion in liabilities by federal, state and local governments and never paid a dime on the principle as it keeps getting bigger and bigger and bigger.

Here is the bottom line. We have been through absolutely the most prosperous time in human history. And during this unprecedented economic boom we could not pay off a dollar of the national debt.

The next ten years will be one of the most stagnant economic periods since the Great Depression. We couldn't pay off a dime of our debt during the biggest boom in human history but now we are expecting our children to to pay off $115 trillion dollars in a stagnating contracting economy.

And don't forget payments on this debt will at least triple due to spiking interest rates when this debt bomb goes off.

I can understand how our generation was able to rationalize the theft of the first dollar and how it has continued to the point where we feel we must take everything. Bernie Madoff started off as a honest guy but he took a dollar, then two, then, well you know how it ended. It's human nature. If you are in a position of trust, once you rationalize taking a penny you are pretty much bound to take it all. It has happened thousands and thousands of times in human history with people a lot more honest than our elected officials.

But what I don't understand is how our society has created a whole science to explain how the theft is a good thing. Almost every economist today is 100% certain that our country must borrow ever more money to stimulate ourselves out of this insolvency we have created. There is no math that can justify it and no logic that can explain it but everyone is positive that we must use the Japanese model to solve our problems.

I guarantee once Japan hits the debt wall and its economy collapses our economists will still be sure that debt will drive a country out of insolvency. Our economists don't use real math or logic. They would never think of back testing or comparing data. Their formula's are basically just a form of rationalization to create a planned outcome. And that outcome is the theft of our country's cookie jar.

Remember these are the same economic knuckleheads that didn't see the Tech Bubble, didn't see the Housing Bubble, didn't see the Credit Crisis and don't see a recession coming in 2011-2012. Their science is to simple minded to understand an accounting balance sheet and they can't comprehend the biggest economic event of the 20th century. This would be the collapsing of the interest rate mega bubble.

I would also like to add that these "economists" are the same people that are just now demonizing Alan Greenspan for pegging the Fed Funds rate 325% below the ten year treasury for a year and a half. This is happening while they are cavalierly forcing the Fed Funds rate over 2500% below the 10 year treasury rate for an "extended period" or basically "forever". Eight times as low for maybe ten times as long.

So it could create 80 times more distortion in our economy than Greenspan's faux pas.

Unfortunately, classical economic theory doesn't have a balance sheet. So debt doesn't really exist in Wall Street economic theory. All of the Nobel Prizes that were given to this group can't change the fact that debt has to be paid back by someone, someday.

Presently our government is insolvent. Our banks are insolvent. Homeowners that have a mortgage are insolvent. Over half of our households are living paycheck to paycheck as they pay far to much for education, health care and financial products because of inefficient and manipulated markets. For the past 15 years asset prices have spent most of their time in a bubble as the government is debasing our currency, manipulating interest rates, while borrowing vast amounts of money from the cookie jar and funneling a significant portion of it to Wall Street. Most of the time our government doesn't even put IOU's in the jar anymore.

Much of these unfunded promises will turn into high interest rate debt for our children to pay in the future.

Instead of one parent working, two must work. Families are so strapped for cash that they are not able to save. So most will not be able to retire.

In a generation we have spent the wealth created by our ancestors. We then decided to borrow more money than we can possibly pay back. We are so broke that the only people that will lend us money now are hostile foreign nations. We don't save and need twice the amount of people working to support a household while our children live at daycare. While our children live at daycare we can't afford to properly educate them. The education system in our country has become second rate.

But the biggest problem is that we are losing the "middle class" as our rich elite are taking more and more of our nation's resources.

So what are we doing.

Our markets are climbing to overvaluation once again as everyone in our nation is looking to the government, Wall Street and the big banks to come to our rescue.

All of the Wall Street economists are adamant that "Trickle down" will be our savior if we can just jam a few more IOU's into our children's cookie jar.

For me, I will never be able to understand political economics. Like I have said before, "I am absolutely 100% politically incompetent."