No Debt Crisis Resolution in Sight

I watch in amazement as our leaders practice a form of inadvertent comedy with their complete bungling of the debt ceiling issue. I don’t care what they say: a) the debt crisis will not be resolved with their proposals, and b) we are most certainly in a recession. The debt default in America that was once deemed impossible is now being discussed at the highest levels. Interesting, yes?

The arguments I’ve heard the past couple of years regarding the mythical economic recovery have been pretty asinine. I remember economists pointing to a decrease in the rate of decline in various economic metrics as being evidence of an economic recovery. That was a good one. Or how about the argument that corporate profits were robust? Well let’s see, we took on over $4 trillion in new debt since the start of the recession- why wouldn’t corporate profits rise? Everything needs to be put in context. If the marginal utility of debt is falling, then you can’t make apple to apple GDP comparisons. This is such a simple concept that no one seems to understand. And if supposed economic experts can’t understand these concepts, then trust me, we’re screwed.

Frustration Rising

The rising frustration of Americans is something to behold; the disapproval rate for Obama now sits at 54%. Not only are there no jobs around, but to top it off our brilliant politicians are raising taxes on us. That’s like kicking someone when he’s down. If our leaders continue to raise taxes, unemployment will rise above 10%. Civil unrest will then follow.

Boomers who were looking forward to retirement now face the reality that Social Security isn’t indexed to inflation. Not only that, but their expenses are increasing because of inflation and rising property taxes. The majority of Boomers have their money in bonds over stocks, so yes it will be ugly when bonds crash.

All eyes should be on the bond market. The coming dislocation in the bond market will be severe, especially because we have a demographic crisis on our hands. When bonds start showing weakness, Boomers will head for the exits. No matter what the efficient market theorists say, weakness begets weakness, so panics become self-reinforcing until there is a crash. I believe a bond crash in America is inevitable. First gold permabears went extinct; now it is time for bond permabulls to do the same.