Is Collapse Inevitable?

“What do you think is going to happen?” my friend asked, adding that most people he talked with believed the nation if not the world would suffer a major economic collapse in the next four years. Given the nation’s $16 trillion debt, plus another (according to one calculation) $84 trillion in unfunded liabilities, simple arithmetic suggests that a U.S. government default is inevitable, and that default would have world-wide repercussions.

For this very reason, many conservatives and Republicans argued that the recent election was the most important one in our lifetime, or at least in many years. Apparently, they believed (or wanted voters to believe) that they could somehow prevent this collapse–though if collapse is truly inevitable, by definition a single election couldn’t prevent it.

Now that Obama has won re-election, some people actually seem eager for the collapse in the hope that it will teach some kind of lesson to those foolish enough to vote for the wrong candidates in the recent election. Meanwhile, the web is filled with sites telling people what they need to hoard before the collapse comes (warning: annoying video starts as soon as page opens), or arguing that people should buy gold or providing some other useful (and often profitable, at least to the advisor) advice.

The Washington Times has even pinned down the date of the collapse: March 2014, so you have about 15 months to get ready. There are entire blogs, books, and youtube seminars dedicated to preparing for the collapse.

Despite this, I told my friend that I wasn’t worried. I see the world as an economic race between four kinds of systems: those dedicated to political and economic freedom (mainly English-speaking countries); those dedicated to political but not economic freedom (mainly continental European countries); those dedicated to economic but not political freedom (mainly Asian countries); and those that lack both economic and political freedom (mainly the Middle East but also many African and South American countries).

We can count the last group out–if the Mid-East didn’t have oil, it would be as economically irrelevant as most of Africa–and Europe seems to be losing as well. The main competition left is between the English and Asian systems, and I think the systems lacking political freedom will inevitably lose out to ones with political freedom.

Conservatives fear (and Asians perhaps hope) that our political freedom is leading us down the path of “socialism.” But the United States still has enormous economic freedom, especially if you live in states like Texas, Kansas, or North Carolina. Since we also have plenty of mobility, the loss of economic freedom in places like California won’t mean much in the long run.

What that means is that, despite the arithmetic logic that says the U.S. government is a poor credit risk, people will continue to lend to us because we are the only place in the world with potential for near-unlimited economic growth. It may take decades; we may have to short-change baby boomers on promised social security; and it will only be delayed by expensive programs like Obamacare and inane projects like high-speed rail; but eventually we will pay off those debts and return to full economic health.

That doesn’t mean we shouldn’t fight those programs, but it does mean we shouldn’t panic or give up. Economic freedom will prevail, and we should use every tool of our political freedom to maintain that economic freedom.

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29 thoughts on “Is Collapse Inevitable?

  1. Dan

    Overwrought hyperbole surrounding the fiscal slope notwithstanding, most types of economic systems are about utilizing resources: natural and human capital. If you don’t have natural resources, you are out of luck in the long run. We have plenty. The world does not and that is a problem, but North America has all it needs in the long run.

    DS

  2. C. P. Zilliacus

    The Antiplanner wrote:

    The Washington Times has even pinned down the date of the collapse: March 2014, so you have about 15 months to get ready.

    The founder and owner of the Washington Times, the convicted felon Rev. Sun Myung Moon is dead, but the paper is still getting subsidies from Japanese fascists.

    I don’t regard anything that comes from any of Moon’s operations as credible.

  3. Andy Stahl

    I wonder how southwest Oregon’s survivalist movement is doing nowadays? Probably a booming business in guns, canned food, Geiger counters, and flak jackets.

    AP sums up his thesis by predicting that “eventually we will pay off those debts and return to full economic health.” I doubt the U.S. will ever pay off its debt and I’m confident that doing so is not a
    prerequisite to full economic health.

    The U.S. has had a national debt since at least 1790. At no time since then has our federal government been debt-free. Yes, there have been periods of no annual deficits when the debt declined, but it has never zeroed out. Nor, most economists would argue, would the nation’s economy be better off with zero national debt.

    Debts and deficits — they are different critters, as the AP knows well.

    bennett Reply:

    I have a few conservative friends that are stocking up on canned food and munitions for when the big black boogie man comes for their freedom. I’m happy to see the Mr. O’Toole isn’t running for the hills.

    metrosucks Reply:

    Some people seem to think it would be great if there was some sort of Red-Dawn collapse of civilization and they could hunker down and clean house.

    I think the only appropriate revolution is one of ideas, not violence. Our modern civilization and its conveniences are essential to the lives of billions.

  4. paul

    In my opinion Obama has made some significant mistakes such as funding for high speed rail. But he is not all to blame.

    Collapse is likely in any system which does not acknowledge its faults and try to correct them. For example, many Republicans point out the deficits of the last four years without admitting that it was the Bush administration and Republican congress that were handed a balanced budget in 2001; immediately ignored their promise for a balance budget amendment http://en.wikipedia.org/wiki/Contract_with_America; ran huge deficits by not renewing PAYGO http://en.wikipedia.org/wiki/PAYGO; borrowing for wars in Iraq and Afghanistan; passed the unfunded Medicare prescription drugs benefit with a clause that actually prohibits the federal government from negotiating discounts with drug providers (!) http://en.wikipedia.org/wiki/Medicare_Prescription_Drug,_Improvement,_and_Modernization_Act;

    The list goes on and on. Yet the Republicans will not take responsibility for the deficits they created. Then rather than working to fix the problems with Obama they vowed to obstruct his presidency and make him a one term president. Even though Boehner made some reasonable compromises with Obama that normally would have passed the house Boehner couldn’t control the tea party part of his own republican delegation. It is this dysfunction in government that is most likely to collapse the United States. See “It’s Even Worse Than It Looks” by Thomas E. Mann and Norman J. Ornstein http://books.google.com/books/about/It_s_Even_Worse_Than_It_Looks.html?id=ycKCxduv3xEC.

    As to the cost of Obamacare, then the solution is to spend less overall while covering everyone with better health care as all other industrial nations do. If you don’t like the Canadian or British systems, what about the Japanese or German health care? What will eventually cause collapse in the United States is the increased cost of health care, much of it funded by government with the US equivalent of national health insurance known as Medicare.

    sprawl Reply:

    Clinton left office with a surplus because the house was controlled by the republicans and spending starts in the house. Gridlock is often good if it slows down the spending in Washington.

    After Bush was elected and the republicans control the house and presidency they lost control of themselves.

    President Obama and the democrats held the house and senate and made the the republicans look like they were the responsible party.

    They are all the problem.

    C. P. Zilliacus Reply:

    Clinton left office with a surplus because the house was controlled by the republicans and spending starts in the house. Gridlock is often good if it slows down the spending in Washington.

    Um, please explain the “W” Bush/Rove/DeLay/Armey/McConnell (unfunded) prescription drug benefit gift (since there has been a lot of bitching about “gifts” lately) to geezers on Social Security that was passed to secure their votes in favor of Republic Party candidates in 2004?

    A gift that made a bad federal deficit situation even worse, and sure as Hades did not in any way lessen the economic crash that came in 2007 and 2008.

    sprawl Reply:

    That was a great example of losing site of what the republican voters wanted and they soon lost the house to the democrats. Then the democrats stepped up the spending to new highs.

    Andrew Reply:

    Clinton left office with a surplus because the house was controlled by the republicans and spending starts in the house.

    There was a surplus 1997-2001 (which no politician at the time had expected) because of the stock market and tax returns from capital gains, while spending was on a slow 3% growth path set in fiscal year 1991, well before the Republican Congress.

    After Bush was elected and the republicans control the house and presidency they lost control of themselves.

    Spending went out of control in 2001, with growth immediately rising to a 7% clip and continuing at that pace until the recession starting in 2007, at which point it exploded due to increases in unemployment and welfare spending on the jobless. At the same time tax revenue was attacked with a meat cleaver by the tax cuts in 2001 and 2003, followed by additional stimulus tax cuts in 2008, 2009, and 2010, so that tax revenue in 2009-2010 was the same as in 2000-2001 at $2-$2.1 trillion per year

    President Obama and the democrats held the house and senate and made the the republicans look like they were the responsible party.

    Government spending has been flat since July of 2009, at a clip of $3.5-$3.6 trillion per year. Spending actually fell in fiscal years 2010 and 2012, and rose very modeslty in between in fiscal year 2011. Because of this in combination with a recovery in tax receipts, the deficit has fallen from a peak of $1.5 trillion to $1.1 trillion in just three years.

    Scott Reply:

    Paul,
    You touched on deficits under Bush (not a conservative). Yes, it’s true that spending was too high. The SS drugs should not have been passed, just as Nixon should not increased payments. Those benefit receivers had not paid in sufficient amounts to justify that.

    Usually missing from budget analysis is that the Dems had the House after the 2006 election & that there was not much objection from Dems, during the Bush 2 terms, to the spending, nor to the supposed policies that created the recession — which were actually “lower lending standards” existing from Clinton.

    Most importantly are that the lower income tax rates (even proportional larger cuts for lower incomes) helped the economy, and the deficits then are much smaller than under Obama — the Porkulus Package raised the baseline spending.

    Andrew Reply:

    The recession was caused by oil price shock and the banking collapse from internal control fraud, not Americans buying houses. Housing prices peaked in 2005, but simply having a lower housing prices was not a reason or cause for the collapse in the banking system. Housing prices fell because of high oil prices reducing demand for new houses under construction and requiring long commutes, plus normal boom-bust overbuilding and malinvestment in Florida, Arizona, and Las Vegas.

    As I recall, many Dems objected to Bush’s war spending and tax cuts.

  5. OFP2003

    Thanks for your opinion on this timely subject.

    My opinion is that our society/government is lacking an understanding of several key aspects of a successful society (with economic and political freedom).

    #1. We don’t understand the importance of honoring the Creator.

    As our fore-father’s learned, you can’t keep dis-obeying God’s laws (by supporting discrimination/slavery) without consequences (read Abraham Lincoln’s Second Inaugeral Address).

    #2. We don’t understand the complexity and scale of our economic/political systems.

    Who really knows what it means to have more people in a society employed by the government than any other industry? Who really understands how the economy works? Who can grasp what a Trillion dollars is?

    #3. We don’t know that we don’t know what we don’t know.

    Losing the ability to self-analyze must be how down-spirals start and sustain themselves. An education system that fails to teach learning will sure speed this process up.

  6. Scott

    Note to readers: if you really want to learn & try understanding the direction the US is headed, in addition to getting through my whole ~page post, there are 2+ hours of reading in the linked articles & the links within those articles.
     
    For those who like freedom, capitalism & individual responsibility, where do’ya move to after the further destruction of the US?
     
    Romney would have only delayed that eventuality, & the path existed pre-Obama, especially w/future payouts for public pensions, SS & Medicare – all lacking sufficient savings & future pay-ins.
     
    There are several annual measures of econ freedom – one by by Heritage & the WSJ; a 2nd by Cato & Fraser. On the measurement shortcomings: Failings of the Economic Freedom Index 1-2005.
    more…

    Andrew Reply:

    The simplest measure of economic freedom and living standards is the revealed behavior of human immigration.

    If a country does not have to put up walls and barricades to keep foreigners out, it is not free. If it has to put up walls to keep its inhabitants in, it is a slave state.

    It is patently obvious where the US stands relative to the rest of the world by this measure.

  7. Scott

    …cont…
    The top 2 (HK & Singapore) will become extra difficult to emigrate to, especially once the mass exodus begins, which might even gradually start next year, when the many planned tax increases & regs occur.
     
    It’s kinda surprising that those 2 city-states are not referred to more often for mass transit. Maybe that’s somewhat avoided because upon further research, there could be an eventual realization that:
     
     1. Very high density & within a mostly closed geographic area are needed for transit to be efficient & widely used.
     
     2. True capitalism does really create prosperity, which should be self-evident in the US, but much history & causation is forgotten or unknown to many, along w/revisionism.
    Also, freedom of exchange is often diluted w/gov meddling & excessive rules, & there is often confusion w/Crony Capitalism , involving many types of gov favoritism.
     
     3. Supply restrictions do really increase home prices, unlike the view of those whom just look at demand.
    Reality & basic economic principles are just sometimes avoided by those with over-riding visions, clouding logic, history, facts, etcetera (Cognitive dissonance).
    more…

    Scott Reply:

    ..cont…
    How long will this avoidance of reality by those liking big-gov & most Obama voters (many BO voters just want “free” stuff) continue? Events in Europe are foretelling, along with Japan’s stagnation [since the 90s], w/their housing bubble & crash & massive debt.
     
    It’s just a matter of time before the great-recession becomes worse, not to mention other intrusions on liberties – some being  goals of Agenda 21 , which Randal discounts or otherwise thinks as irrelevant. Sure, some ideas for higher densities have been independent of ICLEI  & some began before 1992, but there has been increasing influence to accelerate & expand the various aspects of compact living.
    more…

  8. Scott

    …cont…
    Noble good intentions, for gov programs, are not sufficient ? there are often hidden goals; moreover ? there are unintended consequences, usually ignored by politicians, especially w/class warfare, along w/the false premises about higher taxes on the rich.
     
    There is impending gloom-&-doom, but nothing to do w/AGW (hoax).
    You can run, but not hide, hmmm?
     
    For those statists or those who just heavily favor public transit, have you actually read many of Randal’s longer articles (see Cato) & other material on the subject (ie Reason)? To fully comprehend thatr material, there is some necessary base knowledge.
     

    (Could be duplicates due to multiple links causing the need to split up content)
    —Done, but hardly scratched the surface.

  9. Frank

    “In the long run we are all dead.” Keynes

    Collapse is inevitable. The American Empire is not written in stone.

    We can only hope that if we experience a currency collapse it goes over as smoothly as it did in the Soviet satellites. They, however, were used to austerity and had a solid agrarian base, and transitioned peacefully as a result.

    Time will tell.

  10. Iced Borscht

    They, however, were used to austerity and had a solid agrarian base, and transitioned peacefully as a result.

    The Russians are also tough as nails. The current breed of Americans? Not very tough at all, to put it politely.

    Dan Reply:

    Being a plant guy, I like the book Hunger by Elise Blackwell as an illustration of the ‘tough as nails’. Wonderful little book.

    DS

    Iced Borscht Reply:

    Thanks; I’m always looking for good reads.

    Two other books about Russia that I highly recommend:

    http://www.amazon.com/Lost-Cosmonaut-Observations-Daniel-Kalder/dp/B0046LUM6Q

    http://www.amazon.com/Strange-Telescopes-Following-Apocalypse-Siberia/dp/1590202260/ref=sr_1_sc_1?s=books&ie=UTF8&qid=1353541534&sr=1-1-spell&keywords=strange+telescpes

    Dan Reply:

    That first one is right up my alley, thanks – I have a buddy who rode his bike from Krasnoyarsk to Mongolia and he has all kinds of stories like that (& I couldn’t make that trip & am envious x10). On my christmas list…

    DS

  11. Matt Young

    I have the 2020 census as the drop dead date. On that data, 6 Senators in the three large states will have about 160 Congressional delegates. While 20 Senators in the mid-America will have 30 Congressional districts. At that point, DC legislation no longer functions, no oligarch with that mis-proportionality has lasted without going bankrupt (except China).

    Andrew Reply:

    NY, PA, IL, TX, CA had 148 representatives in 1942, 153 in 1962. Swapping IL for FL, they have 161 today. In 2020, its likely that NY and PA will lose 3-4 seats and FL and TX will gain a similar number due to slower overall growth from less immigration and births. The 13 smallest states had 22 representatives in 1942 and 20 today.

    I’m failing to see the crisis of misproportinality.

  12. Andrew

    Given the nation’s $16 trillion debt, plus another (according to one calculation) $84 trillion in unfunded liabilities, simple arithmetic suggests that a U.S. government default is inevitable, and that default would have world-wide repercussions.

    The only reason for default would be a suicidal decision by the government to not honor its debt interest payments and debt redemptions upon maturity. The government can create any money necessary to pay.

    Running a deficit creates the necessary demand for the bonds being sold. This is why treasury auctions never fail. The bond auction is just an accounting fiction anyway and not strictly necessary. Running a deficit is the same thing as printing or coining money and tossing it out of a helicopter. No one “has” to pay for it, ever. In days of yore, with the gold standard, the same function was fulfilled by free coinage of silver and gold bullion at the US Mint – i.e. inflation.

    The national debt is the source of our money and thus our wealth. The unfunded liabilities represent future wealth already pledged to be distributed to the American people, not some insurrmountable financial liability. National Debt becomes individual wealth because running a government deficit means that the private sector can save from its income (it pays less in taxes in net than it gets back in purchases and transfer payments) and purchase goods in foreign trade. When a surplus is run, it means the private sector is draining its savings and sending it to the government as excess taxes. These taxes are used to extinguish part of the money supply by paying off national debt, i.e. – deflation.

    If all the National Debt were paid off, there would be no money in circulation, since money comes into existence from the Federal Reserve buying debt with money created out of nothing. This would mean mass deflation and panic, as seen when this was done in 1835.

    Matt Young Reply:

    Say what? Money requies a government agent to go borrowing? Nonsense. Private money is created and destroyed all the time.

    Andrew Reply:

    Not true at all. When a bank makes a loan, it enters an asset (a debt owed to it) and a liability (deduction of cash on hand) on its balance sheet, and the recipient does the same, receiving an asset (cash) and a liability (a debt owed to a bank). These both net out to zero to the institution and the person and the sector as a whole.

    Fractional reserve banking does not and cannot create money in net in the private sector. To get the cash to lend out in excess of deposits the bank must go to the government (Federal Reserve), and borrow money that the Federal Reserve creates out of nothing by monetizing the budget deficit because it alone runs a single entry accounting book, whereby it buys Treasury Bonds with monetary credits created by computer keystroke, creating money that is used to issue as Treasury Department checks that are cashed at banks and turned into currency or demand deposits convertiible to currency.

    Money is an instrumentality of the state, and is only created by the state. This is why its creation must be under political control, and also why it is only created by state spending. This should be obvious. Neither you, nor I, nor any bank owns a mint or a printing press. We can only lend out what we have, or what we can borrow from another person with the same limitation. But the Federal Government has both. The printing press and mint are the only ultimate source of money.

  13. Matt Young

    Absolutely DC will collapse. The American economy will survive, but DC is dead. The key to watch is separatism. When regional states band together to create their own currency, then the future of a dismembered USA looks pretty good. Remember, after the collapse, we get to skip out on a large portion of the debt, and that is good.
    So DC collapse results in and political economic freedom wqhich then results in boom for the reconstructed regional economies in the continent.

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