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Wednesday, April 18, 2007

Which is worse: Terrorism, Iraq, or Global Warming?

There are a lot of issues out there for us to worry about: terrorism, the Iraq War & Occupation, the possibility of war with Iran, global warming, etc. On which issue(s) should we focus our time and energy?

Here's how Chris Leithner (http://www.leithner.com.au/index.html) thinks we should be spending our time and energy (Leithner Letter Issue No. 87-89, 26 March - 26 May 2007 at http://www.leithner.com.au/newsletter/):

First, disregard high and possibly rising international tensions. They are real, but have been caused mostly by Western governments. Accordingly, these governments could, if they chose, reduce these tensions; and at any rate, they are much less severe and their consequences less pressing than they were during most of the 20th century. Most notably, the risk of terrorism in Oz is trivial. Also, forget about the bird flu scare. As Jeffrey Tucker shows in Bush’s Fowl Play, it is largely the concoction of budget-maximising bureaucrats. Finally, ignore global warming. It’s a possibility; but so too, as Lawrence Solomon shows (Will the Sun Cool Us?), is global cooling. And perhaps warming is a good thing. Whatever it is, it’s not a hard fact. It is, rather, an accelerating bandwagon energetically pushed by (a) scientists whose status and income depend upon the state rather than a sober application of the scientific method and (b) politicians and other zealots eagerly grasping the latest opportunity to aggrandise themselves and plunder everybody else (see, for example, Climate Chaos? Don’t Believe It by Christopher Monckton and The Stern Review: A Dual Critique). Accordingly, even if global warming exists, says Bjorn Lomborg in The Sceptical Environmentalist, the interventions demanded to combat it – like all government interventions – will produce more harm than good.

Put out of your mind, in short, the exotic and hypothetical risks that are stirring ever more people into a collectivist frenzy. Instead, focus upon a danger that is much more pedestrian, whose evidence is much firmer and whose consequences politicians are doing their best to ignore. Why wait? Be the first on your block to recognise that the U.S. Government likely is – or before long will probably become – bankrupt.

Leithner goes on to state that

During 2006, the fiscal gap continued to swell rapidly and now stands at ca. $53 trillion. And that’s just at the federal level. One could increase it by adding various local and state shortfalls. Further, this figure assumes the continuation of short- and medium-term economic sunshine, i.e., that nominal GDP will grow at a rate of least 5% per annum during the next five years. In other words, because the Treasury’s projections do not incorporate economic weakness, this estimate of $53 trillion could easily err on the low side.

. . .

The $53 trillion estimate equates to ca. 400% of America’s GDP in 2006, and has increased from about $20 trillion – an amount equivalent to 200% of GDP in 2000. (As a comparison, the net debt of Her Majesty’s Government is ₤490 billion. That’s equivalent to $US950 billion and to 38% of Britain’s GDP. Adding the NPV of “off balance sheet” liabilities produces an amount that approximates 100% of its GDP.)

Finally, note that Treasury has expressed this $53 trillion fiscal gap as a net present value. To make it disappear tomorrow, tonight Uncle Sam must confiscate that amount from his subjects and deposit it in bank accounts earning hefty rates of interest (the GAO uses 5.7% as the assumed long-term rate of return). But in Main Street U.S.A., these deposit rates do not exist. Because they didn’t collect interest on the money that they didn’t deposit into these hypothetical accounts this year, Americans will have to “deposit” even more next year. As a matter of elementary maths, 5.7% of $53 trillion is a bit more than $3 trillion – an amount ca. 15 times greater than Uncle Sam’s present annual budget deficit. Even if the deficit suddenly became a very large surplus of, say, $500 billion and remained at this level (a very unlikely proposition), the fiscal gap would still continue to rise relentlessly. Accordingly, during the next year it will likely swell by at least another $3 trillion – plus whatever additional outrages the Racketeers in the White House and on Capitol Hill can devise. So for the sake of argument let’s add another $4 trillion, making a total of $57 trillion, as an early guess of the fiscal gap in 2008.

What are the consequences of this gargantuan fiscal gap? What does it portend for investors?

I urge you to read the entire article!


Anonymous Nikki said...

Does he touch on the fact that China controls a lot of our loans? (I'm not sure that that is the right way to express it, but I think you know what I'm talking about.)

I look forward to reading the article soon.

27/4/07 17:38  
Blogger Tad Pole said...

Sorry it took me so long to repond! I didn't notice your comment until just now!

I didn't remember if he mentioned China in this article or not. I did a search for "China" and another one for "Chinese", and both returned zero matches, so I guess he doesn't talk about China holding a lot of the U. S. government debt--at least not in this article.

21/10/07 15:32  

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