Sunday, April 06, 2008

Bigger Bubbles To Pop

Everybody knows about the housing bubble. In nine months, it has gone from blog-talk to front page newspaper headlines. As for the Recession, our government has yet to forecast even one. What has been ignored is the intertwining of three major bubbles: Government Funded Programs, Private Sector Finances and the "Hot" housing market!




The degree of overlap between bubbles is meant to suggest that they have implied financial liability. Any thing overlapping the Government bubble would have insurance protection (ie [housing bubble, Fanny Mae] [Finance bubble, FDIC Bank Insurance]).

The financial markets supplied the easy money for the housing bubble. They also supplied the cash that funded all of our credit card debt and our soaring stock market. Where did the money come from? It isn’t hard to figure out; it came from someone’s savings account. Total US retirement assets are at 17 trillion dollars. Here is a Link with more information. This is Bubble Two and it is maturing at a rather fast rate. Just ask anyone who worked at Bear Stearns.

The biggest bubble is the promised government benefits to retirees in the form of Social Security, SSI and unlimited health care to seniors(estimated to be 50 trillion). Bubble One has popped (loss range estimates are one to six trillion). When Bubble Two pops, there goes our retirement savings (estimates range six to twelve trillion). At that point we are really going to need the benefits promised by Bubble Three (try not to laugh).

Bernanke is adding 30 billion to the financial bubble (a loan from Bubble Three to Bubble Two). More funds may solve an immediate problem but all this will do is buy time and increase the size of the mess. The road to hell is paved with good intentions. Ben's going to loan us his hand basket, such a nice touch. I guess he doesn't have to take the trip.

Copyright 2008 All rights reserved

19 comments:

Baltimore Pessimist said...

Seems like we have been running on fumes for the past 15-20 years. I am suprised to see this type of behavior has gone on this long.

I understand the US is by far #1 when it comes to national debt. A neat topic would be how the US compares with other post-industrial type countries such as the UK, France and Japan? I would be interested in knowing the % of tax dollars they spend on entitlement programs.

Paco Bell said...

Urfh. All this bubble talk making anyone else feel bloated?

For some relief, try watching Jim Rogers call Ben Bukkake an idiot.

JR's being interviewed about commodities so if that bores you ffwd to the 5:00 minute mark for the laugh o'd da day.

baltimore pessimist said...

Paco, thanks for the link. That was hilarious and absolutely true.

SACKERSON said...

Don Boudreaux is sanguine:

http://theylaughedatnoah.blogspot.com/2008/04/chirpy.html

SACKERSON said...

Ataboy!

Jim in San Marcos said...

Hi Sack

You probably noticed that the Visual Graphic changed a little from your first visit. Someone copied my original and put in the POP, POPPING and GOING TO POP and posted it to a discussion group. I liked what he did and updated my Picture with his additions.A hat tip to "Sir Ed" over at the Dailyreckoning.com forum.

bitterrenter said...

Well sure, Social Security will fail because the republicans convinced you it will. They worked at it for almost 70 years and they finally found a generation selfish, craven and ignorant enough to believe it in large numbers.

Those filthy savages have been creating SS "crises" every few years for decades.

alex said...

I may be mistaken. I don't think "everything" is funded by someone's savings. Bubbles are for the most part fed by credit enabled by the fractional reserve system.

So the overlaps of the bubbles may not be as large as one would think.

Jim in San Marcos said...

Hi Bitterrenter

I really don't look at it as a political issue. When the program started, very few qualified for payments and it worked well. Now the Social Security SSI and medical account for 58% of our budget. For it to function properly, you should not be able to collect (as a group) more than you put in. Open heart surgery is about $80 thousand per patient. Kemo treatments are reaching $2,000 each.

The concept of doing grand things by passing laws is quite noble. But you need to be able to fund it.

During the Great Depression, government had no large social commitments. This gave them room to stimulate the economy with work programs. We don't have that luxury today. If taxes coming into the government decrease, that 58% could become 88% of what is coming in.

Every foreigner in this country legally is entitled to SSI and free medical at the age of 65. You sure can't beat that.

What needs to be realized is that the system needs change to survive. From a political point of view, that's not going to get you re elected.

Anonymous said...

Shouldn't you add the oil bubble to your chart. Although doubtful that bubble will pop, the high prices are going to kill us. Maybe make a bubble on your chart that shows the oil bubble getting so big, it pushes on the other bubbles and helps them pop.

Jim in San Marcos said...

Hi Alex

No argument from me. A big problem when I generalize, words have more meaning that they should have. The money lost is real. My 401k lost 10% last year. The idea that Bear Stearns lost 30 billion is far removed from the concept that this came out of someone's pocket.

The bubble placement and scale was arbitrary. But realize the Real Estate and the Finance Bubbles generate taxes, and the third bubble spends taxes.

The government Social Security and Medical bubble had about 10-20 years to live under a normal economy. The last nine months have probably changed the time frame on this.

Jim in San Marcos said...

Hi Anon 10:44

I think that oil is a matter of perspective. A Silver quarter from 1964 will still buy more than a gallon of gasoline.

Inflation is a tax. To look at it a different way, the value of gas, eggs and milk is pretty constant. Our currency has lost value.

A Congressman is a little like a magician. Misdirection makes the act successful. "It's the Arabs and the oil companies not government spending." Yea, Right! From a political point, how you view this issue will probably determine how you vote in the coming election.

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Anonymous said...

All that the Fed and administration are doing is rearranging the deck chairs on the Titanic. This is event driven (the momentum has built, created by greed, corruption, and maybe ignorance)no person or group can control this at this point in time. I expect we'll be in a depression within the next 3-7 years (a heavier, deflationary one than the one of the 30's). Flight is already beginning. The wealthy are moving their assets and businesses off shore. The next economic eschelon below them are beginning to follow suit. These are people with money (and knowledge because they can pay the big savvy CPAs and attorneys who give them the real scoop). I'm moving to Nevada to avoid Calif income tax and landlord and business oppression. My next step will be offshore. Our framers are rolling over in their graves.

Jim in San Marcos said...

Hi Anon 9:26

Why pick Nevada? That's an awfull long drive to the beach.

I don't think that we can assume that the wealthy are smart they will probably be the biggest losers in this fiasco. The only real winner is the guy without even a dime to his name, he has nothing to lose.

I wouldn't move off shore, we are going to take the blame for this mess. The rest of the world is going to want to shoot someone, you don't want to be a target.

California, Utah and Colorado can't be beat for weather. Look them over

Take care and good luck. whatever you decide.

watchtower said...

I am really digging your graph Jim, great job!

Jim in San Marcos said...

Hi Watchtower

Sir Ed over at Dailyreckoning.com deserves the credit for the neat modification with the bubble comments. I uploaded his modification into my blog. Then Patrick.net suggested that I modify the title and add "to Pop" in there.

Sir Ed pointed out a program called Snag-it. Its well worth the download and a big help with capturing web content. Now I can put bubble comments on the family portrait. My wife will just love that ;>)

This article turned out to be a group effort, I'm glad you enjoyed it.

Anonymous said...

Just what are you thinking? We get rid of Social security? What do you think is gonna happen when the government tells people who have been paying into social security every week for anywhere between 20-40 years that Ooops no money for you sucker?

Jim in San Marcos said...

Hi Anon 10:31

Imagine that someone gave you 50K over 20 years with the agreement that you would pay them 10K for every year they live past age 62. Where does the money come from after the first 5 years?

That's what our government does. Not only that, but they spent the money the year they received it. The government has promised more than they can deliver.

Technically a government cannot run out of money, they just print more. It's a little like a fresh pecan pie. Every worker is entitled to a slice. When the government doubles the amount of money in circulation, the workers only have claims on half of the pie. The new printed money gets the other half.

Right now we are at the point where workers only get access to 42% of the pie because of government printing. It could shrink to 12% in the next 10 years.

Because of the inflation created by such a system, your social security check for a month might just fill your gas tank.

The government is not going to stop the checks, but what it will buy might not be enough for a candlelight bottle of Ripple wine in your "Sleep on the street cardboard box."

I would sincerely wish to be dead wrong on this scenario, but it's beginning to look very real.

Thank you for your post, and lets hope I am wrong.