I include a chart showing total sovereign debt since 1970. It has been growing steadily without being able to see a difference across administrations except perhaps in the late 1990s with Clinton when we had a surplus briefly. The debt held steady into GWB's administration, but then the war on terror cranked up deficit spending and debt growth faster. Then came the 2008 financial crisis, and things have been getting worse and worse ever since.
I see an input/output issue in our sovereign debt levels. It’s much less about how much gets spent than it is about how much gets collected. The many corporate tax cuts have benefitted share prices and a lack of monopoly prosecutions has benefited asset concentration. Aren’t the Fed’s tools limited at this point without a major tax restructure?
Well, to your earlier point about the several different tax cuts going back to the 1980s... yes, we should have been anticipating the entitlement expenses and collecting ahead for the rainy days that are upon us now as half the boomers have retired, but still, another half still have yet to retire. At this point, the "raising taxes" ship has sailed in my opinion. I don't think it is possible to raise taxes fast enough and high enough to stop the debt spiral. So the end game, as I see it, is that the Fed ultimately is going to have to monetize the debt, and the Fed's balance sheet will have to grow by tens of trillions of dollars. That will likely also entail yield curve control. Unfortunately, I don't think the global financial system can handle that, and so I expect a major breakdown/crisis that will force not only a tax restructure, but a debt restructure and likely a currency restructure as well.
Yup. Chaos does tend to take over when systems are pushed to their limits. Particularly when the players don’t understand the rules governing the game they are playing fully.
However, I remain hopeful sanity can still prevail if a few things can change quickly.
And in February, I will be covering his newest book "The Fourth Turning is Here: What the Seasons of History Tell Us about How and When This Crisis Will End." His main thesis is that chaos is baked in the cake demographically by the constellation or archetypes representing the different generations in existence. Timing-wise, he sees that chaos coming to a climax later this decade or early next decade, but then it is the First Turning, which is Spring following Winter. His thesis gave me a lot of optimism, knowing things will get a whole lot better, despite also knowing things first will have to get a lot worse.
I’m not sure how the chaos I’m referring to is “baked in” in Howe’s theorem. My reference is to the mathematical concept of chaos and the relative stability/instability of systems, including sovereign and international financial systems, and the meltdown that occurred in 2008-9.
Chaos is nonlinear absolutely, and with sufficient information, like say the massive data inputs used for the current weather prediction models, predictions are good for a while (maybe a few weeks) at macro levels but not so good on micro levels. The challenge ultimately is that nobody has the infinite amounts of data about any system, particularly weather, to predict anything accurately for very long.
Conversely, chaos also demonstrates periods of stability interspersed within much longer periods of instability which may appear in the “short run” to be somewhat linear.
The 2008-9 financial meltdown occurred because the Black-Scholes securitization models were inherently linear but eventually operated in an unbounded market space that became mathematically chaotic when the system was stressed with a very large volume of non-similar offerings, yield tranches, and was coupled with many derivatives for insurance, etc. That system broke suddenly with catastrophic results that are still being felt. The regulatory environment may now be sufficiently robust to possibly preclude the same failure.
However, other financial systems are operating in an effectively unbounded space, like sovereign debt financing, that does have currently unknown systemic limits that can and are likely to erupt suddenly (similar to the securitized debt failure that led to the financial meltdown) when the currently linear sovereign financial systems are stressed sufficiently to turn nonlinear.
If you’re interested, look into the linear/nonlinear systems works by Didier Sornette at ETH in Switzerland. He and his graduate students done a fair amount of financial and mechanical systems modeling about the unpredictable, chaotic, events that live in mathematically long distribution tails. These are often referred to as Black Swan events that unpredictably occur. In reality, most of the action is about virtually everything we experience lives in the long tails, but most folks just don’t realize it until they get bit. I’ve followed Sornett’s work for more than 20 years when he was at UCLA.
It would appear that the political corporate tax reduction strategies from Reagan forward aren’t working so well at the sovereign level.
Thanks for the like. Yes, total sovereign debt has been growing steadily since Reagan and before. If you check out this article...
https://thexproject.substack.com/p/an-introduction-to-inflation
I include a chart showing total sovereign debt since 1970. It has been growing steadily without being able to see a difference across administrations except perhaps in the late 1990s with Clinton when we had a surplus briefly. The debt held steady into GWB's administration, but then the war on terror cranked up deficit spending and debt growth faster. Then came the 2008 financial crisis, and things have been getting worse and worse ever since.
I see an input/output issue in our sovereign debt levels. It’s much less about how much gets spent than it is about how much gets collected. The many corporate tax cuts have benefitted share prices and a lack of monopoly prosecutions has benefited asset concentration. Aren’t the Fed’s tools limited at this point without a major tax restructure?
Well, to your earlier point about the several different tax cuts going back to the 1980s... yes, we should have been anticipating the entitlement expenses and collecting ahead for the rainy days that are upon us now as half the boomers have retired, but still, another half still have yet to retire. At this point, the "raising taxes" ship has sailed in my opinion. I don't think it is possible to raise taxes fast enough and high enough to stop the debt spiral. So the end game, as I see it, is that the Fed ultimately is going to have to monetize the debt, and the Fed's balance sheet will have to grow by tens of trillions of dollars. That will likely also entail yield curve control. Unfortunately, I don't think the global financial system can handle that, and so I expect a major breakdown/crisis that will force not only a tax restructure, but a debt restructure and likely a currency restructure as well.
Yup. Chaos does tend to take over when systems are pushed to their limits. Particularly when the players don’t understand the rules governing the game they are playing fully.
However, I remain hopeful sanity can still prevail if a few things can change quickly.
Are you familiar with Neil Howe and his thesis on "The Fourth Turning"? I covered the original book in this article:
https://thexproject.substack.com/p/the-fourth-turning-an-american-prophecy
And in February, I will be covering his newest book "The Fourth Turning is Here: What the Seasons of History Tell Us about How and When This Crisis Will End." His main thesis is that chaos is baked in the cake demographically by the constellation or archetypes representing the different generations in existence. Timing-wise, he sees that chaos coming to a climax later this decade or early next decade, but then it is the First Turning, which is Spring following Winter. His thesis gave me a lot of optimism, knowing things will get a whole lot better, despite also knowing things first will have to get a lot worse.
I’m not sure how the chaos I’m referring to is “baked in” in Howe’s theorem. My reference is to the mathematical concept of chaos and the relative stability/instability of systems, including sovereign and international financial systems, and the meltdown that occurred in 2008-9.
Chaos is nonlinear absolutely, and with sufficient information, like say the massive data inputs used for the current weather prediction models, predictions are good for a while (maybe a few weeks) at macro levels but not so good on micro levels. The challenge ultimately is that nobody has the infinite amounts of data about any system, particularly weather, to predict anything accurately for very long.
Conversely, chaos also demonstrates periods of stability interspersed within much longer periods of instability which may appear in the “short run” to be somewhat linear.
The 2008-9 financial meltdown occurred because the Black-Scholes securitization models were inherently linear but eventually operated in an unbounded market space that became mathematically chaotic when the system was stressed with a very large volume of non-similar offerings, yield tranches, and was coupled with many derivatives for insurance, etc. That system broke suddenly with catastrophic results that are still being felt. The regulatory environment may now be sufficiently robust to possibly preclude the same failure.
However, other financial systems are operating in an effectively unbounded space, like sovereign debt financing, that does have currently unknown systemic limits that can and are likely to erupt suddenly (similar to the securitized debt failure that led to the financial meltdown) when the currently linear sovereign financial systems are stressed sufficiently to turn nonlinear.
If you’re interested, look into the linear/nonlinear systems works by Didier Sornette at ETH in Switzerland. He and his graduate students done a fair amount of financial and mechanical systems modeling about the unpredictable, chaotic, events that live in mathematically long distribution tails. These are often referred to as Black Swan events that unpredictably occur. In reality, most of the action is about virtually everything we experience lives in the long tails, but most folks just don’t realize it until they get bit. I’ve followed Sornett’s work for more than 20 years when he was at UCLA.
Grins. Happy new year.