Sep 092017
 September 9, 2017  Posted by at 1:21 pm Finance Tagged with: , , , , , , , , , ,

Adolphe Yvon Genius of America c1870


A number of people have argued over the past few days that Hurricane Harvey will NOT boost the US housing market. As if any such argument would or should be required. Hurricane Irma will not provide any such boost either. News about the ‘resurrection’ of New Orleans post-Katrina has pretty much dried up, but we know scores of people there never returned, in most cases because they couldn’t afford to.

And Katrina took place 12 years ago, well before the financial crisis. How do you think this will play out today? Houston is a rich city, but that doesn’t mean it’s full of rich people only. Most homeowners in the city and its surroundings have no flood insurance; they can’t afford it. But they still lost everything. So how will they rebuild?

Sure, the US has a National Flood Insurance Program, but who’s covered by it? Besides, the Program was already $24 billion in debt by 2014 largely due to hurricanes Katrina and Sandy. With total costs of Harvey estimated at $200 billion or more, and Irma threating to cause far more damage than that, where’s the money going to come from?

It took an actual fight just to push the first few billion dollars in emergency aid for Houston through Congress, with four Texan representatives voting against of all people. Who then will vote for half a trillion or so in aid? And even if they do, where would it come from?



Trump’s plans for an infrastructure fund were never going to be an easy sell in Washington, and every single penny he might have gotten for it would now have to go towards repairing existing roads and bridges, not updating them -necessary as that may be-, let alone new construction.

Towns, cities, states, they’re all maxed out as things are, with hugely underfunded pension obligations and crumbling infrastructure of their own. They’re going to come calling on the feds, but Washington is hitting its debt ceiling. All the numbers are stacked against any serious efforts at rebuilding whatever Harvey and Irma have blown to pieces or drowned.

As for individual Americans, two-thirds of them don’t have enough money to pay for a $500 emergency, let alone to rebuild a home. Most will have a very hard time lending from banks as well, because A) they’re already neck-deep in debt, and B) because the banks will get whacked too by Harvey and Irma. For one thing, people won’t pay the mortgage on a home they can’t afford to repair. Companies will go under. You get the picture.

There are thousands of graphs that tell the story of how American debt, government, financial and non-financial, household, has gutted the country. Let’s stick with some recent ones provided by Lance Roberts. Here’s how Americans have maintained the illusion of their standard of living. Lance’s comment:

This is why during the 80’s and 90’s, as the ease of credit permeated its way through the system, the standard of living seemingly rose in America even while economic growth rate slowed along with incomes. Therefore, as the gap between the “desired” living standard and disposable income expanded it led to a decrease in the personal savings rates and increase in leverage. It is a simple function of math. But the following chart shows why this has likely come to the inevitable conclusion, and why tax cuts and reforms are unlikely to spur higher rates of economic growth.



There’s no meat left on that bone. There isn’t even a bone left. There’s only a debt-ridden mirage of a bone. If you’re looking to define the country in bumper-sticker terms, that’s it. A debt-ridden mirage. Which can only wait until it’s relieved of its suffering. Irma may well do that. A second graph shows the relentless and pitiless consequences of building your society, your lives, your nation, on debt.



It may not look all that dramatic, but look again. Those are long-term trendlines, and they can’t just simply be reversed. And as debt grows, the economy deteriorates. It’s a double trendline, it’s as self-reinforcing as the way a hurricane forms.


Back to Harvey and Irma. Even with so many people uninsured, the insurance industry will still take a major hit on what actually is insured. The re-insurance field, Munich RE, Swiss RE et al, is also in deep trouble. Expect premiums to go through the ceiling. As your roof blows off.

We can go on listing all the reasons why, but fact is America is in no position to rebuild. Which is a direct consequence of the fact that the entire nation has been built on credit for decades now. Which in turn makes it extremely vulnerable and fragile. Please do understand that mechanism. Every single inch of the country is in debt. America has been able to build on debt, but it can’t rebuild on it too, precisely because of that.

There is no resilience and no redundancy left, there is no way to shift sufficient funds from one place to the other (the funds don’t exist). And the grand credit experiment is on its last legs, even with ultra low rates. Washington either can’t or won’t -depending on what affiliation representatives have- add another trillion+ dollars to its tally, state capitals are already reeling from their debt levels, and individuals, since they have much less access to creative accounting than politicians, can just forget about it all.

Not that all of this is necessarily bad: why would people be encouraged to build or buy homes in flood- and hurricane prone areas in the first place? Why is that government policy? Why is it accepted? Yes, developers and banks love it, because it makes them a quick buck, and then some, and the Fed loves it because it keeps adding to the money supply, but it has turned America into a de facto debt colony.

If you want to know what will happen to Houston and whatever part of Florida gets hit worst, think New Orleans/Katrina, but squared or cubed -thanks to the 2007/8 crisis.



Home Forums America Can’t Afford to Rebuild

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    Adolphe Yvon Genius of America c1870   A number of people have argued over the past few days that Hurricane Harvey will NOT boost the US housing
    [See the full post at: America Can’t Afford to Rebuild]

    Ken Barrows

    Seems so, but the USA is the reserve currency; money is infinite 😉 FYI, it’s four Texas representatives,not senators. Can debt grow faster than income in perpetuity?


    Fixed that Ken, but at the same time that’s just details, and not what I’m after.

    America can’t pay back its debts already, and the storms will make it impossible to keep hiding that simple fact. By adding more debt as the only way out.

    Diogenes Shrugged

    Six itchy men are shipwrecked on a small, mosquito-infested island. Their names are Wark, Bink, Det, Guv, Prece and Robby. Wark spends all his time working: cutting bamboo, building huts, tending a garden, hunting, fishing, cooking for the group and singing everybody to sleep at night.

    Bink searches the island for seashells, and loans them to Det in exchange for any new seashells he might run across. Guv shouts orders at everybody and beats them with a broken strand of rigging when they don’t listen. Robby steals food, seashells, bamboo and anything else the others haven’t hidden from him. Prece writes about it all, but fibs and distorts a lot. With the exception of Wark, everybody spends the bulk of their days horsing around in the itty-bitty jungle and lying on the beach telling bad jokes.

    Bink is prosperous, as he says he has more seashells than the rest combined.
    Det is prosperous, having borrowed large quantities of shells from Bink.
    Guv is prosperous, as he screams at the others to surrender a “fair portion” of their shells.
    Prece is prosperous, as he’s bribed by Guv and Bink.
    Robby is prosperous, too, as he’s expert at stealing the others’ shells.
    Wark is stressed out, nearly broke, and in pain from blisters and abrasions.

    Then one day a seventh man floats to shore on a piece of driftwood. His name is Doct, and he offers to numb Wark’s blisters with wads of algae and sea snake oil. Before long, Doct is also prosperous, but Wark is now penniless. Sorry, shell-less.

    Bink, Det, Guv, Robby, Prece and Doct are all out celebrating their prosperity one day when Wark strolls up and tells them about the distant hurricane he sees coming. There is a traffic jam as they all try to escape on Doct’s little chunk of driftwood. During which time Robby is busy stealing from the huts. Guv shouts at Bink to loan him more shells. Bink just gave himself a bonus and finds himself momentarily out of seashells, but promises more later if Guv promises to save him. Det needs just one more loan.

    Wark quietly passes away that night. And with one less mouth to feed, the rest dance in celebration. Life has never been better.

    Two days later, everybody’s starving, and shocked to discover that seashells are hard to chew. Two more days pass and Guv is the lone survivor, a cannibal. Next day, the hurricane wipes the island clean. Then a week passes and another shipwreck brings six more itchy men to the island.

    Five of whom immediately express their strong contempt for all the bloodsucking mosquitoes.


    “America can’t afford to rebuild.”

    Why am I not surprised?


    As archaeologist Joseph Tainter asserts in his book The Collapse of Complex Societies, when a society no longer has the reserves to help offset what might otherwise be considered a recoverable disaster, collapse is not far off…

    V. Arnold

    Ken Barrows
    Seems so, but the USA is the reserve currency…

    That, effectively, is coming to the end; BRICS+, Russia, China, Iran, and Venezuela (to name a few) are all moving away from the dollar.
    Gold is once again gaining currency (no pun intended) for energy purchasing (oil, gas, LPG) with China, Russia, and Venezuela .
    The U.S. destroyed two countries and killed their leaders for the same thing.
    The greatest fear of the U.S. is a stable, multi-polar world; coming soon regardless…
    Or, anihilation in WWIII…

    Dr. Diablo

    Not to fear: we were never going to pay our debts back. Ever. Not since 1979. So we’re the same as before.

    Okay, but that does not mean we can go on rebuilding houses, badly, that add nothing and never should have been built in the first place. We have the resources to fix all this. We have men, skills, ore, trees, pipes, power, and believe it or not, still a lot of oil. The problem is, like Kunstler or Diogenes says, we’re just completely mis-applying them.

    I think Tainter, while correct, is also mistaken: yes the infrastructure outruns the resources, but why? Societies have business cycles they must safely contract in, and larger, 70-200 year cycles as well. We sometimes even catch them reforming themselves for round 2 or 3, or not. So why do some large societies reform themselves and heal, which is clearly possible, and some ossify and collapse? That’s the real question, and I think he wrote the book so that we might ask. The U.S. – and most places on earth, in fact — can still reform and recover. Congo has everything and is poor. Japan has nothing and is rich. Why? The largest long-term study discovered that property rights, equal justice, stability/visibility, and a few other things were the real signals of wealth; things that have been forcefully and systematically undermined in the U.S. since the 40’s — a long discussion, but reported by several converted spies and our otherwise inexplicable actions over the years. So we can go back to what worked, or we can go off the rails, your choice. But one thing’s for sure, thanks to the 50-year party I and everyone outside the 20 ordained cities fought against and didn’t enjoy, there are no promises now but “blood, toil, tears, and sweat.” So are we going to build more party houses, or are we going to get to work now?

    Don’t ask.


    Another realistic assessment of a situation that will become more frequent in the future, not just in the US but for all nations. In the context of the US, Tim Morgan’s recent post (No. 104) entitled “Why Mr Trump Can’t Raise American Prosperity” on his Surplus Energy Economics website explores and quantifies the the financial issues undermining the US economy, opening with:-

    With SEEDS – the Surplus Energy Economics Data System – nearing public release, this article has two purposes. It assesses the outlook for the American economy, and uses this investigation to demonstrate how SEEDS is applied to economic interpretation.

    It concludes that American prosperity is in decline, and has been falling ever since it ‘peaked’ way back in 1999. This doesn’t make America unique – prosperity has long been falling across much of the developed West. But it does mean that the central economic task of President Trump, which is to make the average American more prosperous, simply is not possible.

    Two main factors are driving the deterioration in prosperity. First, the underlying economy has been deteriorating, a trend disguised by the spending of borrowed money.

    As has already been identified by both Raul and Nicole on TAE, the deeper largely unrecognised issue is declining net energy, or surplus energy, coupled with its steadily decline in affordability that responsible for the slow motion evaporation of genuine wealth, which leads to more and more people becoming impoverished. Global political, economic and banking elites have failed to recognised this reality, and wrongly believe creating money can compensate for this decline in net or surplus energy. This blind spot in their thinking effectively equates to providing more bucks and getting less bangs, which will inevitably end with another financial crisis. Tim Morgans latest post (no.105) entitled “Anticipating the next Crash” explores the consequences of this misguided policy, arguing the next crash may possibly be caused with a loss of confidence in money rather than banks, and opens with:-

    Because the global financial crisis (GFC) was caused by a collapse of trust in banks, it can be all too easy to assume that the next crash, if there is one, must take the same form.

    In fact, it’s more likely to be different. Whilst the idiocy-of choice before 2008 had been irresponsible lending, by far the most dangerous recklessness today is monetary adventurism.

    So it’s faith in money, rather than in banks, that could trigger the next crisis.


    I remember reading that the USSR failed because so much was spent on military spending trying to keep up with the USA that it went bankrupt. I feel that the US is now in the same position but all the money is being spent to fight mythical enemies!

    Russia, China, Iran and North Korea are being portrayed as mighty monsters champing at the bit and ready to destroy the world! They’re not. They are countries who just want to trade with the rest of the world without the threat of interference from the US.

    The US is close to spending as much on the military as the rest of the world combined. The banks have had trillions of free money to try and cover their gambling debts. But the vast majority of Americans are living paycheck to paycheck, the infrastructure is crumbling, most pensions are in jeopardy, the police are becoming increasingly militarised and unconstrained by laws, and despite spending fantastic amounts on healthcare it is still behind any other developed country.

    The only thing keeping the US solvent is that the world is willing to invest trillions in supporting US debt. This could change quickly sending the US over the edge.

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