Dollars minus Decades

I haven't posted a blog to For Utopian Realists for a long while, however I feel motivated to speak again about the financial meltdown of the United States. On of my last posts I commented that I have seen and heard many of my middle-ages acquaintances have their retirements absolutely annihilated as our stock market continues its downward spiral. I literally cringe when I see their faces wrinkle as they admit they followed their "Adviser's advice" to stay in the market to prevent "making your current losses permanent." Basically these middle-aged individuals have been working full-time since the 1975, paying into the federal entitlement programs like Social Security, Medicare/Medicaid, both of which basically ramped up (and are continuing) solely during these individuals career lifetimes. Boiled down, they have paid the most in and yet will get the most out.

Exacerbating the issue is the shift from Employer managed retirement and health care to employee managed benefits has swung entirely from when these individuals started working to when they are now ending. Their parents had guaranteed pensions and enjoyed "womb to tomb" security even though they worked entry level positions, yet middle-aged people now with upper level positions in middle management have their ENTIRE retirements wrapped up in 401k seating uncomfortably in the worst seat in the house... ie the retail investment market. Sometimes the cruelty of fate really amazes me, but know that we (our generation of 20-30yr olds) are all going to have our parents dependent on us by the end.

Check this Vid from Dollar Doomsdayer Peter Schiff

Sorry for the long context but now we can get to the point of the post...

Listen to the buzz in the mainstream media, and alt sources and you see the talking heads stating how the sh!t has hit the fan and/or Bernanke stating on 60 min that everything will return to roses by the end of the year (Here pt1, Here pt2, and Here pt3). The rebuttal is always the same, either agreeing entirely or basically saying "if debt got us into trouble, how is pushing out more debt going to get us out?"

Well here is my take. More debt is NOT going to get us out of trouble. The government is NOT NOT NOT going to stop spending $$$, and I think they will continue to spend at an increasingly quick pace while the dollar is strong (which is a topic in and of itself). So what then is the Endgame for this cluster if we assume (I think correctly) that our officials are not morons while reserving the likeliness that our personal well being is not a priority for their actions? I believe the Keystone or Ace in the hole for the government is Inflation.

So it is very uncommon for a "normal" (not derogatory) person to have a good grasp of what inflation means in the context of macroeconomics. Most just know the term as it refers to the decreased value of the dollar in terms of purchasing power, which in general is true. The business class verbiage is generally "A Dollar Today is Worth More Than a Dollar Tomorrow." This is because as the seconds tick by there are more dollars made, and that single dollar from yesterday is now worth more (in general) than the dollar you getting paid today. This is the root for the "cost of living" increasing granted by most employers. So this is all taught with you head jammed inside of a box called the "Domestic Economy." In order to see the end game you need to stick your head in the "Global Economy" box for a sec.

The US is the largest debtor nation in recorded history, and not surprising as we are/have been the largest at many things. So how does national debt work? It works by our government selling "IOU's" through treasury instruments to other buyers like sovereign wealth funds along with other large purchasers internationally (Basically Asia and OPEC nations). Now these "investments" are purchase in US DOLLARS, by the buyer, and as such they are held as US$ which means we will have to pay them back in US$.

So if you have an insurmountable amount of debt held internationally along with a future budget that contains Budget Consuming monsters like Medicare/Medicaid and SS, and you control the the "value" of your dollars conversion rate abroad you now have a method of evaporating your liabilities away through inflation. Get it?

If in a year the dollar is worthless, so are all of the IOUs you gave out. This is an explanations for all the irrationality you hear from our officials, and it explains why we are PRECISELY doing the wrong thing to get our economy back in the traditional sense.

This is great for the government as their time horizon for strategy is really long. But what this means for You and Me if I'm right is that after a strong decline in the value of the US$ international goods and services will not be coming into the US. And because we sold off our production capacity through outsourcing over the last ~15 years... it could be lean over our lifetimes. Its food for thought for sure. I do not think of myself as an alarmist, or a conspiracy theorist. I just can't believe that our officials are doing the wrong thing out of ignorance.

Feel Free to comment w/ alternatives.
-Its Spencer

[VIDEO] Henry Markram: Designing the Human Mind

I've been finding some absolutely fascinating videos lately...I love it. In this video Markram describes his research in modeling rat brains using super computers. If you thought cutting edge neuroscience research was all PET and fMRI scans, you were wrong. This sort of detailed fine-grained modeling has never been done before on this sort of scale, and he and his team only modeled 10,000 neurons - the human brain has approximately 2 billion. The visuals in his slide are stunning. Be sure to hit the full screen button in the bottom right hand corner.

Crisis of Credit

Confused about the origins of the credit crisis? Head to CrisisofCredit for a quick 10 minute explanation. Clear, concise, and on a level that everyone can understand.

Note: normally I'd embed this sort of video but the producers did such a great job putting together both the video and the site, I'm linking directly to it.

[VIDEO] Eric Schmidt on Charlie Rose

I'm on a Charlie Rose kick this week. The embedded video is an interview with the very smart, articulate, and forward thinking Google CEO, Eric Schmidt. I will be the first to admit I'm not as business savy as my fellow UR bloggers, Alex and Evan, and so I really enjoy hearing the way intelligent CEO's walk through the challenges the challenges they face -- it allows me to develop and hone my not-so-business-ey mind.

Alex and I always talk about the role of Google in the future. Neither of us like the "trust us" attitude that Google has adopted. On one level it's difficult to argue with their mastery of search and usability -- the major tools I use online are predominantly Google products. On another we all know corporations are only 'not evil' as long as it remains profitable.

Nevertheless, it's a great interview. Even if you throw it on in the background while doing something else, it is quite insightful.

The Economist: Drug Legalization

An interesting article in The Economist argues that the legalization of drugs is the least-bad solution, a solution that reduces gangsterism and that shifts responsibility away from law enforcement and towards legislation for proper control and taxation.

I've heard similar positions before but to hear it from the center-right Economist is a bit of a shock. Prisons would free up space for more hardened criminals, law enforcement could devote more time to real crime, and the state would make money off the taxation (much like cigarettes).

I'm semi-skeptical of such a radical solution but perhaps at this point its worth trying. I'm not sure the majority of people have the kind of self-control that The Economist presupposes. However, certainly not everyone smokes cigarettes. Regardless of my fence-riding, it's an interesting read.

[VIDEO] Reid Hoffman on Charlie Rose

If you read TechCrunch then you likely already saw this interview with Reid Hoffman, founder of LinkedIn. Hoffman is a well-spoken, intelligent individual with proven experience in Silicon Valley and some realistic views of the future. Topics covered in the interview include the evolving roles of the various social networks, the stimulus plan, and the how entrepreneurs shape the world.