A Glimpse of the Future

Now that we’ve had a day to digest the election, let me tell you why Obama won and why his followers won’t be happy with him.

● Why He Won: A lot of people are giving a lot of reasons why this election went the way it did. And to a degree many of them are right at the margins. But at its core, this election turned out the way it did for one simple reason: “short-sighted self-interest.”

Our government is a ponzi scheme. A ponzi scheme is a fraudulent investment where people are enticed into investing with promises of unsustainably high returns. Those returns are paid for with the money taken from new investors. Essentially A’s benefits are paid using the investment of B and C. B and C’s benefits are paid using the investments of D, E, and F. And so on. As long as enough new people keep entering the scheme, the benefits will flow. But the moment the new money slows down, the entire scheme collapses. That is how our government is structured, as a fraudulent investment that pays out way more than it can afford because it is stealing from the future to pay the present.

Many people don’t understand this. They only see the high benefits they get, so they want the scheme to keep going. To them, it is manna from Heaven and they don’t want it to stop. These are core Obama supporters – progressives, welfare cases, minorities. Others understand the nature of the scheme but still invest in the hopes that the system won’t fail until they have made more than they invested. These are suburbanite Obama supporters – soccer moms, professionals. Others know the system will collapse any day, but also realize that so long as everyone else will get these benefits, they might as well get them too until the system collapses. These are union workers and government workers.

Here’s the problem for Obama. He can’t keep the benefits flowing. Why? Consider these problems Obama now faces.

● The Deficit: In the past four years, Obama added more to the national debt than all prior presidents combined. Our debt ($16 trillion) now equals the size of our economy (102%), it was 51% in 1988. This means we can no longer spend money without risking a Greece-like meltdown. Moreover, we are still headed in the wrong direction. The deficit is now one trillion dollars per year. This means Obama cannot spend more because there is no more. But he has a problem. . .

● Interest: Because of the deficit, our credit rating was downgraded already and we are warned of worse to come. The cost of servicing the national debt is already $450 billion at 2.8% interest (historic lows). That’s 12% of the budget. If we continue on this course, we will be downgraded again and again and our interest costs will rise. Every 1% rise in rates adds $160 billion to the deficit each year.

● Military: Right now, the budget is balanced on the idea of taking about $200 billion a year from the military budget. This was always fake and will return to the budget. Moreover, war with Iran (or Syria) will add about $300 billion a year.

● Medicare: Obama faces two problems with regard to Medicare. First, he’s promised to steal $700 billion from it (about $150 billion a year). That is a fake accounting gimmick and will return to the budget. Secondly, Medicare is becoming a worthless benefit because doctors will no longer take it because it doesn’t pay enough. Fixing this will cost around $100 billion per year, increasing by 20% per year.

So if Obama does nothing else, the deficit will increase by between $350 billion a year to $750 billion a year, plus interest cost increases. We could be looking at $2 trillion a year in deficits by 2015. And that’s just the beginning.....

● Obamacare: If you assume a best case scenario, Obamacare is estimated to cost $1.76 trillion over ten years, or $176 billion a year. But you never get best case in government. The long-term reliable estimate for government spending is five times the initially estimated cost. That would be $880 billion a year. Moreover, this assumes most people will stay on private plans, but there’s no reason for employers to keep those plans. Also, health care costs, which were projected to go down, are going up 21% per year.

● Unemployment: There are 23 million unemployed after the prior jobless decade. Another 20 million jobs will be needed just to stay level with population growth. Obama’s policies kill jobs. Moreover, estimates are that if taxmaggedon happens, we are looking at another 6-10 million jobs lost. All of those unemployed people will need benefits. Even if we give only $10,000 a year to these people, you are looking at adding $480 billion a year in support payments, not to mention the lost tax revenue from them not working. Black unemployment will remain in the 20% range as will youth unemployment.

So now we’re looking at deficits of $3-$3.3 trillion a year. And it gets worse.

● Retirees: The federal government owes $2 trillion in unfunded retirement benefits to its workers. The state governments owe $5.2 trillion in unfunded retirement benefits to their workers. But that’s nothing compared to the coming Boomerpocalypse. The Boomers never bothered to save for retirement, choosing instead to rely on SSI. Over the next three decades, 81 million boomers will retire. That will create a $25 trillion unfunded liability in Medicare, plus another $21 trillion unfunded liability in Social Security. Moreover, these people will stop contributing to the tax base.

Further, there is strong evidence that all the economic bubbles we’ve experienced are actually the result of the boomer bubble itself. The boom of the 1990s appears to have been fueled with a massive spending binge by baby boomers. And now that the boomers have stopped spending, the economy may not recover. In fact, long term stock market trends predict that we are in a long term collapse nearly identical to the Great Depression. . . because of the boomers.

● State Bankruptcy: Several states, with California taking the lead, will go bankrupt in the next 2-4 years. They have committed to spending too much and cannot raise taxes enough to cover their debts. They are hoping for a Federal bailout, but that won’t come because there is no money to give them. Look for the shock of this to push the economy into depression and to result in court ordered (1) breaking of state employee union contracts, (2) massive across the board tax hikes, and (3) slashing of benefits, which will worsen the death spiral.

So this is what Obama faces, an economic and fiscal catastrophe caused by the actions of his party over the past twenty-plus years, actions his own policies made worse. He now faces stark choices: bankruptcy or letting Medicare die as an effective benefit, bankruptcy or killing Obamacare, bankruptcy or letting the unemployed starve. His supporters will now face (1) a likely depression or deep, jobless recession, (2) broken state budgets resulting in jobs cuts for union workers and benefit cuts for core Obama supporters, and (3) a federal government that has no power to spend money to save any of Obama’s supporters from the problems they will face. The ponzi scheme has run its course and his drones will not be happy when the money stops flowing.

Moreover, Obama will need to go to war with Iran or watch as London or New York goes up in smoke. He will need to turn his back on Eurozone requests for a handout to save them from their folly – not to mention, our economy still drives the world and our depression will drag down everyone else. He will need to spend vast sums on military preparations to face down a China made aggressive by their own economic malaise and by Obama’s perceived weakness. The falling dollar will crush Mexico, Germany and China, who rely on exports to us. His policies will make gas, food and electricity costs more expensive. And he can’t deliver on any of his legislative promises.

And all the while, his people will be wondering why the ponzi scheme has stopped paying out.

It’s going to be an ugly four years.


Also, let me stress... I am NOT predicting doomsday here. That is not what this is. Each of these issues can be overcome, but they can't be overcome with Obama's policies or in ways that will leave his supporters happy.

That is the real point here, Obama faces a dilema: let the country sink and outrage his followers when the money stops OR fix things and outrage his followers by taking away their benefits.

So don't read this as an end of the world prediction.... leave that to the Mayans.