Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts

How screwed are we?

I have to admit, I sometimes get tired of being the voice of doom. Sadly, our political class–Republicans and Democrats alike–seems determined to follow the worst policy options available. So, doom slouches closer. The proximate doom they’re fiddling with this time is the approaching debt limit. Now, I yield to no man in my hatred for ever-increasing government spending, but this debt-limit battle is pointless.  We will increase the debt limit. We have no choice.

Here’s the current situation:

OMB estimates federal revenues for 2011 will hit $2.17 trillion. Granny, our servicemen, and other such untouchables — by which I take him to mean Social Security, Medicare, national defense, and debt-service payments — will add up to $2.21 trillion, meaning that even if we cut the rest of the federal budget to $0.00 — no Medicaid, no food stamps, no Air Force One — revenues still would not cover these untouchables, according to OMB estimates…

Our deficit is about 40 percent of spending this year; continued recovery, if the estimates hold, will do some of the work for the 2013 regime, but even under current forecasts that are arguably too rosy, we’ll still be running a 26 percent deficit in 2013.

Even if we eliminate every penny of spending this year except for Social Security, Medicare, and Defense, we still can’t cover this year’s spending.  And next year’s spending projects an economic recovery will save us, and reduce the deficit to 26% of spending. Absent such a recovery, next year we’ll be back to another 40% deficit.

And the politicians of both parties are nowhere near to making the appropriate cuts in the budget in years farther out than that.  The biggest deficit reduction package currently on the table is for $4 trillion over the next 10 years. Which sounds impressive, until you remember that the actual projected budget deficit over the next 10 years is $13 trillion. So, we’re still $9 trillion short of closing the budget deficit for the next 10 years.

But, wait! It gets better!  This $13 trillion figure assumes that interest rates will remain stable where the currently are. If interest rates for treasuries go up by 1%, that wil add 1.3 trillion to the deficit over the same period.  As the moment, the Office of Management and the Budget (OMB) projections are for a stable average interest rate of 2.5%. Of course, the current 20-year average is closer to 5.5%, so a return even to normal interest rates will add up to $3.9 trillion to the deficit.

But the magic doesn’t stop yet! OMB forecasts growth rates of between 4%-4.5% from 2014 to 2014. The average trend rate of growth is between 2.5%-3% however. So, if we don’t get the strong growth the OMB is predicting over the next three years, and the following years, we’ll need to add another $3 trillion or so to the deficit over the next decade.  And, frankly, if you believe Goldman Sachs today, a return to trend rates of growth seems..unlikely, as they’ve lowered 2Q GDP growth to 1.5% from 2.5% and 3Q to 2.5% from 3.25%.  They also forecast unemployment at end of 2012 to be 8.75%.

So, the best case scenario is that we’ll add $9 trillion to the deficit over the next decade. A return to historical growth and interest rates–even if we assume the $4 trillion of budget cuts will actually happen–means a 10-year deficit of $16 trillion. Essentially, we will more than double the National Debt, pushing the debt to GDP ratio to about 160% by 2021.

And that’s the good news.

The bad news is that, in the current debate over the debt ceiling, everyone involved seems determined to play chicken with a default–even if only a selective default–of US treasury obligations.

Tim Pawlenty even suggested that a technical default might be exactly what Washington needs to send a wake-up call to the politicians about how serious the situation is. Others, like Michelle Bachmann, and a not inconsequential number of Tea Party caucus members are steadfastly against raising the debt ceiling for any reason at all.

This is insanity.

Any sort of default, even a selective default that would suspend interest payments only to securities held by the government, while paying all private bondholders in full, will have completely unpredictable results. The least predictable result, however, would be business as usual. A technical default–i.e., delaying interest payments for a few days–or selective default, or any other kind of default is…well…a default. It is a failure to make interest payments.

The most obvious possible result of any sort of default will be to eliminate the US Treasury’s AAA rating, and push interest rates up sharply. If we’re lucky, we’d be talking about a yield of 9%-10%…and an additional $5 trillion added to the deficit (running total in 2021: $21 trillion added to the national debt).

And, again, that’s a best case scenario. Because it assumes that everyone will be willing to hold their T-Notes through all of this.  If any major overseas institution or government–say, China–decides to unload their holdings, it could be the start of a flight from treasuries that will destroy the US Dollar in the FOREX, vastly increase the price of imported goods, like, say, oil, and spark uncontrollable hyperinflation in the US. The life savings of every person and institution would be wiped out.

Naturally, yields on interest-bearing instruments would then pull back on the stick and climb for the skies. Not that it’d matter much at that point, since the currency would merely be ornately engraved pieces of durable paper.  Suitable for burning in the Franklin Stoves with which we will be heating our homes, in the absence of oil.

Flirting with default is extraordinarily reckless. I don’t even have the words to begin to describe how badly any sort of default might go.

The thing is, we don’t know–we can’t know–what the results of a technical or selective default might be.  It might be the judgement of worldwide investors that there are no better alternatives to US-denominated securities, so they’ll just have to ride out a technical default, and accept their interest payments coming a few days late. It might be their judgement that unloading their US-denominated securities and losing a little money is better than the risk of losing everything through a currency collapse. It might be a lot of things, and we have no way of knowing which of those things might come to pass.

As Tim Pawlenty says, a default might be a wake up call.  From an exploding phone filled with napalm and plutonium.

Whatever political points might be at stake, is it worth this level of risk?

The safe path here is a simple $500 billion debt limit increase. That’ll give us 6 months to figure things out, and try to discover some way to get our fiscal picture under control, and avoid a default. Government spending is out of control, but a default is really not the best way to impose fiscal discipline.

~

Dale Franks
Twitter: @DaleFranks

Observations: The QandO Podcast for 10 Jul 11

In this podcast, Bruce, Michael, and Dale discuss the L.A. Counties harrassment of desert dwellers, and the ongoing budget negotiations.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

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Observations: The QandO Podcast for 26 Jun 11

In this podcast, Bruce, Michael, and Dale discuss the Libya vote in the House of Represenatatives, the economy, and Gunwalker.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

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Observations: The QandO Podcast for 12 May 11

In this podcast, Bruce, Michael, and Dale discuss Weinergate, Sarah Palin and Mitt Romney.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

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June 6th will always be D-Day

Originally postedin 2007

It actually started on June 5th. And it almost didn’t start then. The weather had turned bad. A great storm had blown in from the Atlantic. High wind and high seas had forced ships of all kinds back into bays and inlets. Low clouds made it impossible for aircraft to find landmarks. If the weather didn’t break, nothing would happen until at least July.

But the weather did break, and so, it began only a day later than planned.

There must have been about, oh, I don’t know, 15 of us there. Our two great men were there, Monty and Eisenhower. The poor weatherman had to talk first. Eisenhower asked Monty what he felt. ”Sure, I’ll do whatever you say, you know. We’re ready.” Then Eisenhower very calmly said, ”We’ll go.”

150,000 soldiers—American, British, Canadian, French, and many others—embarked on 5,000 ships, began moving towards places known today as St. Lô, Vierville-sur-Mer, Pouppeville, Arromanches, La Rivière-Saint-Sauveur, Pointe-du-hoc, Ouistreham.

The men on those ships, for the most part, didn’t know those names. They had simpler terms for the beaches where they would be spending the day—and for many, the rest of their lives. They called them Juno, Sword, Gold, Omaha, and Utah.

There were soldiers from many nations involved that day, all of whom deserve to be recognized and remembered. But as an American, it is the men from my country that I will write about.

Only about 15% of them had ever seen combat. But by this time, cold, wet, seasick, crammed into airless holds, or huddled on unprotected decks, many of them preferred combat to what they were going through on board ship.

Get us off these ships. I don’t care what’s waiting for us.

As it happened, though, it didn’t begin on the beaches, but in the air. On the night of June 5th, an armada of over 800 C-47 transport planes ferried the US 82nd and 101st Airborne Divisions over the invasion fleet towards France. For them, the weather was still pretty bad. And it was dark.

It was going to be difficult. Everything depended on landing the pathfinders in the right place. Then the pathfinders had to light the dim beacons for the landing zones. The pilots carrying the airborne forces had to see the beacons, then they had to fly precisely, right over the landing zones.

And the Germans. Always the Germans, with searchlights and flares and the 88mm anti-aircraft cannon—the “flak” guns.

Getting everyone down alive, together, and ready to fight was going to be a chancy business. And the airborne troops knew it.

I lined up all the pilots. I says, ”I don’t give a damn what you do, but for one thing. If you’re going to drop us on a hill or if you’re going to drop us on our zone, drop us all in one place.”

But…they didn’t. The airborne forces were scattered. Almost no one landed on their programmed landing zone. Units from the two airborne divisions were scattered and intermixed, forcing officers and NCOs to create scratch units on the spot, with whomever they could find. The 101st Airborne Division commander, Maj. Gen. Maxwell Taylor, found that his new “unit” consisted of himself, his deputy commander, a colonel, several captains, majors, and lieutenant colonels…and three enlisted men. He quipped, “Never have so few been commanded by so many.”

And still they fought. Gen. Taylor soon had gathered a force of 90 officers, clerks, MPs, and a smattering of infantrymen. With them, he liberated the town of Pouppeville. Elsewhere, American soldiers gathered into groups, and struck out for an objective. Even if it wasn’t their objective, it was someone’s, and they were going to take and hold it.

And when they took it from the Germans, the Germans tried to take it back. But the paratroopers held.

It was a terrible day for paratroopers, but they did terrible fighting in there and they really made their presence known.

By this time, the Germans knew something was going on, if not precisely what. Their responses were confused. Their commander, Field Marshal Erwin Rommel had returned to Germany for a brief leave. He wasn’t the only one absent that night. The 21st Panzer Division’s commander, Lt. Gen. Edgar Feuchtinger, was spending the night in Paris with his mistress. Col. Gen. Freiderich Dollman, commander of the 7th Army, and many of his staff officers and commanders, were 90 miles away in Rennes, on a map exercise. Ironically, the scenario for that exercise was countering an airborne landing.

The Germans were surprised, yet subordinate commanders began to take the initiative, seeking out the paratroops and engaging them, trying to determine what was happening. Was it the invasion? A diversion from the expected landings in Calais? What was happening?

Then, as the black night gave way to the cold, gray dawn of June 6th, they began to find out. Looming out of the fog, a vast armada of haze gray ships and landing craft began to move ashore.

At 5:50am, the warships began shelling Utah and Omaha Beaches. In the exchange of fire with German artillery on Utah Beach, one of the landing control ships was sunk. As a result, when the first wave came ashore on Utah beach at 6:30am, they were 2,000 yards south of their designated landing point.

It was a blessing in disguise. There was almost no enemy opposition. Brig. Gen. Theodore Roosevelt Jr. made a personal reconnaissance past Utah beach, and found the beach exits almost undefended. He returned to the beach to coordinate the push inland. By the end of the day, 197 Americans were dead around Utah Beach, but the landing force had pushed inland.

At Omaha Beach, the story was much bleaker.

At around 6:30am, 96 tanks, an Army-Navy special Engineer Task Force, and eight companies of assault infantry went ashore, right into the teeth of withering machine-gun fire. Despite heavy bombardment, the German defenses were intact. Because the landing was at low tide, the men had to cross 185 yards of flat, open beach, as the well-protected German gunners cut them down. Tanks were sunk in their landing ships, or blown up at the edge of the water.

Them poor guys, they died like sardines in a can, they did. They never had a chance.

The men from the 29th Division’s 116 Regimental Combat Team (RCT) and the 1st Division’s 16th RCT were pushed off course in their landing craft by strong currents, and landed with machine gun bullets spanging off the gunwhales of their LCT’s. When the bow ramp dropped, men were riddled with bullets before they could even move. Others, jumping off the sides of the ramp, burdened with their equipment, drowned as they landed in water over their heads. Many more died on the beach, at the water’s edge.

You couldn’t lay your hand down without you didn’t touch a body. You had to weave your way over top of the corpses.

The first instinct for many was to crouch behind the steel anti-tank obstacles, to take cover behind the bodies of fallen comrades, to try and scrape shallow trenches with their hands. And yet, they couldn’t. More assault waves were on the way, and the volume of fire was so great that to stay where they were meant certain death. The beach had to be cleared for the incoming waves of infantry, but to move across that open beach also seemed like a death sentence.

He started yelling, ”God damn it, get up. Move in. You’re going to die, anyway. Move in and die.”

And so they did. They crossed that empty expanse of beach to the only cover to be had, a narrow strip of rock shingle at the base of the cliffs, below a short, timber seawall.

Those who made it to the shingle in those first hours…just stopped. Behind them was a carpet of bodes, and a tide that ran red with blood, making the spray from the curling waves a sickly pink. Ahead of them were intact and well-armed German defenders. Those men cowering on the shingle behind the low seawall had seen their units decimated, watched successive waves being slaughtered as they hit the beach. Shocked and disorganized, they stayed beneath the seawall, in the only narrow strip of safety they could find.

Meanwhile, at Point-du-hoc, at 7:00am, the men of the 2nd Ranger battalion came ashore beneath the cliffs. Their mission was to climb the steep cliffs with grappling hooks and ropes, to capture the German heavy artillery threatening the Omaha and Utah landings.

Under heavy fire from the cliffs, they fired back with the small mortars that launched the grappling hooks. With their fellow rangers dying on the beach beside them, they grasped the ropes and climbed. They climbed until German riflemen picked them off. They climbed while they watched their buddies arch in pain, and then fall headlong to the rocky beach below. They climbed as the men above them plummeted into them while falling, threatening to tear their fragile grip from the rope. They climbed and climbed.

And when they got to the top, the Germans were ready for them. But the Rangers were ready, too. So they fought their way through the pillboxes and trenches surrounding the gun emplacements. Pushing through the Germans, killing them to capture the guns.

And when they did, they discovered that the guns weren’t there. The men of the 2nd Ranger battalion had captured empty concrete emplacements, at the cost of half their number.

Back on Omaha Beach, the carnage continued.

Confusion, total confusion. We were just being slaughtered.

And as for the men (Huh. “Men.” Most of them hadn’t yet seen their twentieth summer.) who had survived the holocaust on the beach, and who now hid behind the tiny cover of the shingle? Well, who could have blamed them if they had just quit? Decided that this one taste of violence and death was enough for a lifetime? Decided that they didn’t want to face what must have seemed like inevitable and horrible, painful death?

And yet…they didn’t. Somehow, they gathered whatever courage was left to them, and began to try and figure out how to get off that beach, and move inland.

We were recreating from this mass of twisted bodies a fighting unit again, and it was done by soldiers, not by the officers.

It was C Company of the 116th RCT, accompanied by men from the 5th Ranger Battalion, that began the push. At the top of the seawall was a narrow road, and on the other side of it, protecting a draw, was a mesh of barbed wire. Pvt. Ingram E. Lambert jumped over the wall, crossed the road, and set a Bangalore torpedo in the barbed wire obstacle. He pulled the igniter, but nothing happened. Caught in the open, Pvt. Lambert was cut down by machine gun fire.

His platoon leader, 2d Lt. Stanley M. Schwartz, crossed the road, fixed the igniter, and blew the torpedo. The men of C Company and 5th Rangers began crossing through the gap, some falling to enemy fire. As they left the beach, and assaulted through the draw, others followed. Those men shivering behind the seawall grabbed their rifles, stood up, and began leaving the beach, moving toward the Germans.

Other breaches in the German defenses followed. Company I of the 116th RCT breached the strongpoints defending les Moulins draw. The 1st Section of Company E, 16th RCT, who had come ashore in the first wave, along with elements of two other companies, blew their own gap in the wire, and moved inland. Company G, 16th RCT, needed four Bangalore torpedoes to cut a single lane in the wire and anti-personnel mines that were set up with trip wires.

The breaches were narrow, and tenuous. Follow-on waves still faced murderous fire from the bluffs overlooking the beaches, and there was still confusion as the timetable was set back by the initial fury of German defenses. The 18th RCT was originally scheduled to land at 10:30am, but didn’t get on the beach until 1:00pm. The 118th RCT was delayed even more.

By the end of the day 3393 Americans were dead or missing, 3184 wounded, and 26 captured. But the breaches in the German defenses had been made. The Americans were ashore, and they were moving inland. The “Atlantic Wall” had been broken, but at a heavy cost.

When I was relieved and I walked by, oh God, the guys that died that day — all those beautiful, wonderful friends of mine, the day before, the night before, kidding and joking.

Field Marshal Gerd von Rundstedt was the German Army’s Commander in Chief, West. He was a crusty old soldier who disdained the flashy accouterments of rank that a German field marshal usually wore. He was content to attach his batons to the shoulders of his old regimental colonel’s uniform. He was also a realist.

Knowing what D-Day meant, he called the Chief of Operations for the German Armed forces, Col. Gen. Alfred Jodl. “What do you suggest we do now, Herr Feldmarschall?” Jodl asked.

“End the war, you fools! What else can you do?” replied the old warrior.
____________________
All quotes taken from the PBS documentary, D-Day.

Dale
Twitter: @DaleFranks

The QandO Podcast for 05 Jun 11

In this podcast, Bruce, Michael, and Dale discuss Weinergate, employment, and the budget.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

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Observations: The QandO Podcast for 22 May 11

In this podcast, Bruce and Dale discuss the president’s middle east speech, Obamacare waivers, and fiscal policy.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

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The Third Age of Money

The first age of money was the age of gold and silver; your basic metal currencies. The second age was the age of the freely convertible fiat currency.  The third age of money will be virtual, unhackable, and anonymous. So, this is what you call “interesting”:

Bitcoin is an open-source virtual currency generated by a computer algorithm that is completely beyond the reach of financial intermediaries, central banks and national tax collectors. Bitcoins could be used to purchase anything, at any time, from anyone in the world, in a transaction process that it is almost completely frictionless. Yes, that’s right, the hacktivists now have a virtual currency that’s untraceable, unhackable, and completely Anonymous.

And that’s where things start to get interesting. Veteran tech guru Jason Calacanis recently called Bitcoin the most dangerous open source project he’s ever seen. TIME suggested that Bitcoin might be able to bring national governments and global financial institutions to their knees. You see, Bitcoin is as much a political statement as it is a virtual currency. If you think there’s a shadow banking system now, wait a few more months. The political part is that, unlike other virtual currencies like Facebook Credits (used to buy virtual sock puppets for your friends), Bitcoins are globally transferrable across borders, making them the perfect instrument to finance any cause or any activity — even if it’s banned by a sovereign government.

All is proceeding as I have foreseen.

Dale Franks
Twitter: @DaleFranks

Observations: The QandO Podcast for 15 May 11

In this podcast, Bruce, Michael, and Dale discuss the Indiana Supreme Court’s Ruling on the 4th Amendment, and this week’s political stories.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

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Observations: The QandO Podcast for 08 May 11

In this podcast, Bruce, Michael, and Dale discuss the death of Bin Laden, and the economy.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

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