Friday, May 23, 2008

David Walker on CNBC this AM

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So as with all things in America, we will not be proactive but instead reactive - one the tsunami is upon us will the "calls to action" begin - it is now starting in energy, although this has been a growing storm for years (ignored). Unfortunately many of our problems will take years to "fix" so even if we got serious "today", real solutions will take many years to start taking effect.

Now, the huge worry on the horizon once we get through our credit, housing, and energy issues is our national debt issue - especially entitlements. People have been signaling the warning signs YEAR after YEAR, but as with all things, they will be ignored until the problem is overwhelming... and THEN we will try to address it, in haphazard manner if past is precedent. [Mar 26: Annual Spring Warning on Entitlement Programs Falls on Deaf Ears]

I talk about the structural government imbalances on almost a weekly basis - not directly, but as part and parcel with the world view that we are simply a subprime nation and the effect on our dollar. While the dollar has gotten a lot of attention the past year, the truth is it's been in a swoon for many years. Frankly, anyone who tries to raise a fuss is quietly ignored to the point they feel like they are running into the wall.

Who will finally stand up and try to do something? My guess - no one will get anything done until its a crisis condition - which means we can kick the can down the road for maybe another decade. And then when it's a crisis we will pay 15x the cost it would cost now to be preventative. But that's the American way - if it's Katrina, if it's bridges, if it's Medicare, if it's mortgage regulation, if it's (fill in the blank) - this is how we do it. Ignore warnings and only address when its an imminent threat.

The few voices out there trying to get attention to these issues just seem to be drowned out under ignorance and/or "someone else will take care it down the road" thinking. Politicians don't want to touch it because (gasp) unpopular choices will have to be made. One such man who has been TRYING to sound the alarms is David Walker. Unfortunately he has now left government because his voice was not being heard [Feb 25: I Didn't Realize US Comptroller Resigned], so is trying now to sound the alarms in private practice.

Frankly, my take on it is one day within 2 decades the US will be facing collapse under it's own weight - entitlement spending has surged from mid teens (as % of GDP) to >30%. At current pace its going to take over half the budget, and throw defense on top of that, and you will be "crowding out" almost all other spending in about 2025-2030. That's the path we are heading down. But no one wants to touch it. This is why the DOLLAR will NOT be recovering in any meaningful way no matter what CNBC says - yes it can rally for a few months here or there. But we have systematic issues that are ingrained into our system, and a leadership that will not fix it. Until things implode one day. My long term prediction is the United States of Subprime will one day default on all debt, tell the world "we're sorry it won't ever happen again", and start with a clean slate. Sort of like an airline does every 5 years. We'll look like a 3rd world banana republic for doing this, but we won't have any other choice - and we're beginning to look like one of these republics anyhow. Just as with energy we have no clear long term policy, no vision, no courage to face our problems and instead hide behind baloney government statistics.

David Walker was on CNBC this AM - if you want to hear some truth, rather than the political spin, I'd encourage you this weekend to take time to listen to the video clips. I can't embed the videos into the blog so below are the links - if this is the only thing you read on the blog the next week, I hope you watch these 2 clips. Our leadership is spinning us into a coming disaster. Energy is going to look like a softball compared to where we go in the next decade.

8 minutes - An Inconvenient Debt
5 minutes - Healthcare Making America Sick

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