One thing you seem to ignore is that governments, in an effort to preserve their favorable retirement situation, will simply change the way revenue is collected.

this is mostly seen in the "state funding" versus "local funding" game, a game that redistributes wealth based on both local ability as well as socialized ability to pay.

some theorize that the "carbon tax" will be a greenwashed national sales tax. I've already seen people promise that "if a carbon tax is passed, your property taxes will be less, etc..."

another thing that's happening is that hospitals, universities, etc... are starting to build up endowments that, in my view, generate income based on a "national taxation model" since the price of goods and services include a surcharge (i.e. a tax) that goes directly to investors like MIT and the Mayo Clinic.

the last efforts I see to pay for pensions are charging "user fees" for "used to be free" services; this includes tolls on roads and entrance fees to public parks.

regardless, people don't seem to complain too much that trucks don't pay higher gas taxes because they damage the roads a lot more than cars and business taxes, at least here in Minneapolis, have been shifted into "residential property taxes" so, even if you want to boycott the business, you can't.

The other side to pensions and debt, etc..., is that, because of pensions and debt, money still flows through the economy and creates local liquidity. People cite the Bible (debt forgiveness every 7 years) and the tulip bulbs (netherlands didn't enforce contracts) of how correcting interventions can work.

For example, the "California goldrush" was a bust for many but the people who sold the shovels, picks and housing rentals are said to have made money and helped make California what it is today.

My "biggest fear" is that when people retire, society losses their skills. In all cases, the optimists claim that technolgoy will save us... That's the great god of the west's religion, my opinion, and our creeds and prayers, like "free markets work," are wrapped around that belief in technology. as an environmentalist-- and even because of the recent oil spills, I have my doubts... so faith is obviously required!

the higher the future return I use the less I have to contribute this year. What many of the companies did was use very high future rates of return, the pension fund would be deemed over funded they then took cash out of the fund for bonuses and other thievery. It's not legal to donate company stock for the current contribution unless you get a special IRS ruling, which was pretty easy to get if you were a big blue chip. My favorite in all this b.s. is IBM. People who end up with millions should go to prison, I think I read hank Paulson has 800 million. One of these days people are going to turn off the tv, stop eating wheat gluten and high fructose corn syrup and get mad.

The highest sales by dollars are refined flour, starch, sugar and high fructose corn syrup. Is it any wonder we lead sedentary lives, high fructose and sitcoms, refined sugar and reality shows. Alcohol and drugs aren't so bad after all. This is how people like G. Bush get elected.

Hi…just wanted to add to your post today about public pensions: another bombshell waiting to go off in this area in addition to the reduction of tax base revenue is the fact that many public pension funds apparently are highly invested in mortgage-backed securities in order to get high yield….I don’t know how much, but the articles I read state that they are some of the biggest buyers of this toxic crap (or have been up to now)….what is going to happen when these need to be “marked to market”, or start to default? …there goes the asset base….being somewhat cynical, I doubt we taxpayers will be able to lower govt. retiree pensions (one can dream), so guess whose taxes are about to skyrocket in the next several years?....

this really is starting to look like the end of everything…today someone at Morgan Stanley I believe was quoted as saying there is a greater than 50% chance now of the entire financial system coming to a “grinding halt” ...I had to read it twice, as it did not come from some wacko blogger or anything but a major financial firm….just checked again, here is the article…!!!!

Mortgage Loan Losses Pose Risk of Systemic Shock, Peters Says

By Carol Massar and Fabio Alves

Nov. 13 (Bloomberg) -- There's a greater than 50 percent probability that the financial system ``will come to a grinding halt'' because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said.

There are many sound observations being presented here on the current economic and fiscal health (or sickness) of the country. I certainly appreciate the well-informed commentary. My own comments would be, I fear, redundant and I have little standing.

However, here is someone who does have standing -- and apparently is not afraid to expose his thinking to the many "parties of interest" involved. This current Newsweek interview ( https://tinyurl.com/3a4wog) with David Walker, director of the GAO and Comptroller General, should be enough to make almost anyone blink. Essentially the man is stating, with few reservations, that the nation is headed for the precipice, and that we have no leadership at any level willing to come to grips with the frightening outlook.

I find the last paragraph very meaningful. You will not hear this kind of raw-edged discussion in the Halls of Congress. Yes, I know -- Walker is an accountant, probably quite conservative -- but I suspect very intelligent and totally immersed in the numbers. Numbers that a lot of politicians and financial industry titans would like not to see highlighted.

Note his comment about the Medicare Prescription Drug "Benefit". My sentiments EXACTLY.

I don't agree with you completely (re: the dollar). Partly yes there will be overexaggeration as always and whatever decline we have will be magnified by fear and leverage as always. However the dollar will be devalued as it was during the Nixon or later era by 40%+ or so. This will reduce the pressure on the stock market and levy the pain on all people in the form of higher inflation.

One of my professors used to work in the treasury and he reminded us a few times the words of one of the former secretaries of the treasury whom was meeting with foreign counterparts (which forms the foreign exchange policy basically of the U.S. not the Fed) the attitude then and now is that *were the guys words--->* "the dollar is our currency and your (europeans etc.) problem". Last time Europe etc had to deal with our devaluation and this time it is again their problem not ours, no matter how much they wish it to be. Hence I firmly believe we will have a huge inflation spike in a year or sooner.

My basic thought is once inflation hits owning anything is better than money. Ergo stocks, food, energy, real estate (granted not overleveraged and overpriced same for the prior). If we get inflation in the region of 5-6% all of the CDs banks are giving people now at 4.5 and below are basically benefiting banks in amortizing foreclosures and selling property at a higher nominal price based on inflation runing. Foreigners will lose 20-50% of their claims upon us once we hit inflation and our foreign debts will become lower compared to our post inflation gdp in real terms. True we will suffer higher prices and grudgingly slow economic pace but so will they. We exported our bubble while they exported their goods to us.

Those whom are caught in the yen trade will have to unwind, suffer losses or go bankrupt, tough cookies for them. Those whom are caught in the dollar investment trade will have to unwind, suffer losses or go bankrupt. I am certain whatever collateral is gotten by those whom lent yen to people investing in dollars will be worth far less at the time of its margin call, then those institutions can unwind, suffer losses and translate back to yen.

China loosing half of their forex purchasing power is going to be a huge blow mentally and fiscally to their system. The amount of purchasing power of dollars cut in half after inflation will make it harder to hold yuan under. Once it begins to appreciate out of control even more purchasing power is going to be lost on dollars held (hence the robbery of their savings by their gov't for our benefit through stupidity). When it appreciates and the economy grind to a halt they will have the 1929 recession you are talking about since they will have no leeway in either keeping inflation low and suffering extreme export shocks to their goods or going into hyperinflation mode and having a famine due to not being able to supply grain supplies. I rather have the export shocks turn inward and internally develop but those export businesses control the elite and they will want inflation to do what will happen here lower debt burden etc. once a few hundred million can't buy food there will be hell to pay.

I was thinking about U.S. banks investing into Chinese banks lately and so far I have two opinions. 1) They will either suck out all the money when the currency appreciates by selling the stakes back or floating them to Chinese investors while the stockmarket is skyrocketing. 2) Once hyperinflation hits they will buy them out completely like what happened with Mexico and China will become a state with foreign fiscal control.

Another post about Peak Oil (links at the end for previous chapters)

I noticed that your graph today just about extends to the last runup in gold prices (higher than now, corrected for inflation.) I'd be interested in a piece comparing the 70's runup with the current one. Are you sure the price of gold reflects anything more fundamental than just "panic"?

As for "sound money", I understand the restraining effect of having to mine all your currency instead of just print it. And I guess there's some equilibrium, where the value of the currency is linked to the actual cost of mining gold. As the demand for currency grows, the value of the gold increases, and so more of it is mined. When the economy is flat and there's less demand of new currency, less gold is mined.

I guess this answers the problem of how money is supposed to enter the system when the economy grows. As a thought experiment, consider a world with a single valley of 1000 people, all with 1000 dollars each -- a million total. After a generation, they've had kids and increased the land they cultivate (real growth), and there are now 2000 people. But, there is still only a million dollars. Over that generation, prices would have dropped by half. This kind of deflation means it's hard to make loans (unless they have very high return, it's more profitable to just keep money under the bed.) That in turn means the economy doesn't grow as fast as it could.

With a fiat currency, more money can be added, but the question is when and where? There has to be some banking authority and it has to inject currency into the economy somehow. It's never been clear to me how this would be done (it's not clear to me how it's done in our economy!)

A barter economy doesn't have this problem. If you are trading grain for animals or something, you don't need to increase the medium of exchange. Just grow more grain.

A gold based-economy solves it the way I outlined above. When gold gets more valuable (can be traded for more of other goods), gold miners have an incentive to mine more of it. But not an unlimited incentive. If they flood the market with gold, it will drop in value below the cost of mining it. So the value of gold stays around the cost of producing it, and all other goods are linked to gold.

Still, in this model, it seems like some portion of the economy's growth is wasted mining gold, just to have more tokens to hand around in lieu of bartering goods. In a modern economy, with the huge demands for currency, it seems like this would be a huge loss.

So I don't understand how a gold-based modern economy would work either. For example, in the real world, only a tiny percentage of the world's effort is spent mining gold. I don't see why that is. If gold is worth $800 an ounce, and only costs $20 an ounce to mine, why doesn't gold mining continue until the price has dropped back down to near cost? I thought supply and demand sorts itself out that way for other goods. So how can gold have any arbitrary value higher than it's production cost? And if gold is that cheap, and there is gold to back each dollar in circulation, how can you avoid dedicating a huge amount of the economy to mining gold?

Any idea where I'm going wrong here?

From your entry "Changing Tides IV: Private Gold Currency":
So if I want to transaction some business internationally, in a currency with an assured value, I would deposit whatever fiat currency I had in hand into the ETF and then wire the gold-backed quatloos to my trading partner wherever the firm might be located geographically. Actually Goldmoney has this feature currently. www.goldmoney.com

It sometimes serves us well to recall the sage words of the past and find them prologue.

"The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy. It denounces as public enemies, all who question it's methods or throw light upon it's crimes. I have two great enemies, the Southern Army in front of me and the Bankers in the rear. Of the two, the one at my rear is my greatest foe..corporations have been enthroned and an era of corruption in high places will follow, and the money powers of the country will endeavor to prolong it's reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed. -- Abraham Lincoln

I apologize in advance if I misunderstood something reading your recent essays, but I would like a clarification over something you've noted in various essays.

You (and others) have observed that the current housing and credit bubble really represents a transfer of wealth from the lower classes to the upper classes on a massive scale. You (and others) have also observed that the bulk of the financial wealth is owned by the top ten percent, possibly even the top one percent, of citizens in this country. Therefore, while the middle and lower classes in this country (yes, we do have them), will suffer losses and endure hardship and indebtedness for a long time; it follows that the current turmoil in the housing, real estate, financial, banking and other economic markets, will be borne entirely by that top one percent. In other words, the transfer of wealth is illusory, because the wealth itself is illusory: they will also suffer. Many could possibly be wiped out as well.

CHS note: Yes, Ia gree. If this wealth is illusory, then all holders of that wealth will suffer losses as it evaporates.

I'm a fairly new but very enthusiastic reader at your site. Regarding the Changing Tides V essay, I have a brief comment. While it's clear that Medicare is not sustainable at its current levels of coverage and rate of growth, Social Security appears to be in better shape. As I understand the debt projects are not nearly so serious as for Medicare, and there are some reasonable approaches that could push insolvency well into the second half of the century. Of course that's debatable...

The bigger point I wanted to make is that if SS and Medicare are unsustainable, why can't we make the same conclusion about our militarist foreign policy, which easily costs $500 billion to over $ trillion per year (depending on what's included [e.g., Veterans benefits])? How much longer can the country afford to invade and occupy nations halfway around the world, especially nations that never attacked us, and Moslem nations where our very military presence helps engender terrorist movements? How much longer can we afford over 700 foreign military bases? Have you read the works of Chalmers Johnson, e.g., Nemesis? Well, thanks again for your hard work and insights. I will send more dollars as my own meager financial situation allows.

I just read your latest article and I am somewhat astonished that one of the problems you "missed" was the completely out-of-control military spending that our Great Decider embarked on after 9/11.

Before you start asking that disabled people like myself go die in the streets, would it be possible to get back the 2 trillion (and counting) cost of the War on Terrorism (and the rest of the world just for good measure) and place that money back into the Social Security Trust Fund?

Could we at least confiscate the obcene salaries and war profits of the arms manufactuers and their former government insiders like generals and politicians and use that so that people like me can live a few more years to say good-bye to our wives and children, settle our affairs, and make funeral arrangements before we fall on our swords for the good of the country?

I just recently bookmarked your site, but if you continue to ignore obvious economic problems like one trillion dollar wars over desert rocks and oil wells for the rich and politically connected, I might just need to remove your site from my list of worthy reading material. Killing off the old and disabled will solve nothing if the money saved is immediately sent to Iraq or Pakistan or Egypt or Israel. Surely you can see that. Why not mention it in your article on potential disasters?

Just thought I would make a comment on the Ron Paul run for the Republican party.

Even thought I am a Canadian I have been keenly aware of the Ron Paul Revolution that is starting to sweep America and I believe that many are asleep at the switch by not paying attention to him. Just recently on Nov 5 2007 he had a one day fund drive on the Internet that has broken just about every record in US history. Another one day drive is set for this Dec 16 2007 https://teaparty07.com/ . They will make another attempt at breaking records and I will watch it with keen interest. Ron Paul is the only one that voted against the Iraqi War and is clearly saying we should pull the troops out immediately. You can see what he stands for at https://www.ronpaul2008.com/. I have watched well over 75 of all the Video speeches and debates about Ron Paul and personally speaking he blows all other Republicans runners out of the water. If he gets in he will force Canada out of the war as we are not going to fight this useless war ourselves. The real fun Videos that I have seen is when he rakes Ben Bernanke over the coals about printing money.

Ron Paul fits in extremely well as the Gray Haired Champion in the books by Strauss and Howe's The Fourth Turning. Many historians have researched and seen the 4 seasons of time but this book is the best in explaining it.

Some analysts have used the 4 seasons in with the K-Wave thelongwaveanalyst. and I think this is wrong as the K-Wave is a two stroke debt cycle.