As you must know by now, Detroit is bankrupt and must restructure…somehow. They once were the manufacturing capital of the United States and the largest concentrated manufacturer in the world. They now have over 28% unemployment (actually much higher), and cannot afford to pay for even basic services and much of the city is “bombed out” as in destroyed. There are calls for all sorts of remedies such as private equity rebuilding and public (federal) bailouts. ALL of this misses the point…
The point is that Detroit is not “fixable” and is actually only a signpost along the path that all of the U.S. (and entire Western world) is traveling. If you recall, Meredith Whitney forecast this scenario 3 years ago. She was early and made the mistake of saying “in the next 12 months”…BUT she was correct in her analysis. Monetization by the Fed only postponed the final reckoning, it has not been cancelled. Bond investors will be killed by the ability to service even a fraction of the debt when it does not exist, this is a “given.”
What is not a “given” and only a very few have figured out yet is that pensioners will also be destroyed. I am not talking about “Detroit pensioners” (though this is a certainty); I am talking about pensioners in general, across the spectrum and all over the world. Let me explain. Pension “promises” have been made throughout the years by corporations, institutions, cities, states and sovereign governments during a “different era.” Years ago, pensions were actually funded, FULLY funded. Then along came the 80’s and 90’s and the actuaries started to “up” the assumed growth rates which meant that less money had to be deposited to pay future benefits.
Well here we are years later and the actuaries were wrong…REALLY wrong! We did not get the expected growth rates, interest rates were pushed to virtually zero AND not enough was deposited to begin with. Not to mention enough to make up for poor investment results. THIS is going to be a problem everywhere, a huge problem. Those already receiving pensions will see them curtailed, those expecting pensions will receive far less than they were promised AND the “kicker.” The “kicker” being the fact that benefits will be paid out in currencies that have only a fraction of the value that they have today.
This will in essence wipe out a middle class that “played by the rules,” they went to work, they saved, and they “trusted” their future in their employer’s promises. I have said for years and it now looks assured to have been correct, “When it comes to retirement, rely on your own investments and do your own thinking because promises will be broken at your expense.”
The same could be said for everything else financial in your life. Do you feel good because you have large balances in the banking system? Or a huge muni portfolio that pays you tax free income? Or a large stock portfolio in a “house of cards” market that is supported by the low interest rates in a Ponzi currency and debt market? Or how about that ETF that allows you to sleep at night because it is “backed” by gold? Do see my point?
“Promises were made to be broken” and they will be.
Dear Bill Holter ( A German Name ) I hve seen your articles over the last 7- 8 months at zero Hedge and Harvey Organ. This particular article ( The whole world is Detroit ) is very Key to understanding the world situation ” Whole Sale “. The genetal – rank and file mass of people understand things – ” Piece – meal ” – or one item, one incident or one mouse or bedbug at a time at a time, as separated from everything else. The intelligent man understands everything on principle, not on detail.
The principle here is illuminated by the simple principle every cook in the litchen knows ” If I Press one grain of rice in a pot of cooking rice, or one potatoe in a pot of boiling potatoes, or a strand of spagetti in a pot of boiling spagetti , and I find that one grain, one potatoe or spagetti is done, I can safely and conclusively know that the whole pot of rice is done, the pot of potatoes are done, similarly with the spagetti. There is no need to press every grain of rice to make sure they are done, or potatoes, or spagetti, it is certain everything is as done as the one grain of rice pressed in the beginning.
However the foolish mass of people will not accept your conclusion -” The whole world is DETROIT ” – Actually we could play on the word Detroit…. The whole world will be DESTROY-‘T…. like DETROIT. No doubt about it.
With regards,
Hans Jurgen Kary / Thank you for you good common sense , it’s refreshing.
P.S. Originally , Detroit was in the Vanguard of Automobile manufacturing, a first pioneer, so it profited greatly, it was the envy of the world. However, now every country manufactures automobiles, and in countries like China, India , Russia etc, they do this manufacturing business for a bowl of rice and some tofu…. so how will America survive this ? The firsts ( Pioneers ) in any field, like in a Ponzi scheme , will profit. Those coming on line later simply become fodder for the mill. All economic development and politics is a variety of the Ponzi principle. Get something for nothing. Nothing comes from nothing, you have to do something to get something, it’s called – WORK.
Amertica, as we have expanded it, will not survive, unless America comes back to manufacturing those things that human beings actually need to sustain his body and soul together…. namely , Producing , Food, Clothing, shelter and a recognition of the dependence on the energies of ,Earth, Water, Fire, air , ether , mind , intelligence and most important, the Living force) – THE SOUL that is necessary to assimilate all these ingredients to live from one day ( One second, one minute ) to the next.
No man, scientist or politician has the power to create, or manufacture even a Drop of milk, or an apple, potatoe or grain of rice. All these necessities are produced by the arrangement of Nature, and Nature is God’s arrangement ( Factory ) which can producee all mans needs, if Man learns to co-operate with God and his Nature to produce food, cloth, shelters , wool, silk, Gold, Silver, pearls and everything necessary for happy , healthy and peaceful life on this earth, which is God’s property .( Real estate ) we are after all, only tenants – temporarily.
In other words, Human society must change ( A change we can believe in ) our way of thinking, from TAKING, EXPLOITING and LORDING IT OVER OTHERS , to Co – Operating with God and God’s arrangement ( Nature ) for a healthy, happy and peaceful life while residing temporarily ( Tenant ) on God’s property .
For an alternative perspective to the comming DESTROIT future for the world as rightly described by you , please visit my web site ” HANSADUTTA.COM ” it could be interesting for you. Everyone will die, before death comes, an intelligent person must solve the questions and problems of life, otherwise he dies in vain, like a dumb animal. This is the difference between a human being and an animal. A human being can ask ” What am I ? why do I sufferer old age, disease and ultimately die ? why ? “…… without the awakening of this thinking, a man is no better than a polished animal because he has only developed his eating, sleeping, defending and sex indulgebnce, but has not on principle solved the basic problems of BIRTH, OLD AGE, DIEASE AND DEATH. He has just polished the animal propensities ….. eating in a fancy hotel, sleeping in a soft bed, defending with Atomic bombs and advocating same sex marriage…. o on principle what is the difference between the cats and dogs and the so – called human beings ?? No difference at all. Polished sex, polished eating with knife and fork, improved defense… Atomic bombs….. . The big Banksters making millions and billions of dollars, but can he eat more that a few peces of toast a cup of coffe and a ciggarette ? No … just a polished animals life. If anything the animals have a better situation…. freely having sex without expensive hotel , liquor, cars and all…..
Think about it…
Economists don’t understand the creation of credit and other derivatives that have value on the basis of future productivity (that may not take place) so why would actuaries ?
Gold is money. The economic reality is yesterday’s news, not next year’s.
All it would take is enough loyalty to this country to pay a small bit more to Buy American. Most American-built goods are more reliable than imports. For example, the Toyota Avalon is built in Kentucky.
Loyalty? Is General Motors “loyal?”
http://www.jamesrgrangerjr.com/2012/06/27/u-s-taxpayers-suckered-again/
My slant is that it is the Politicos who are more to blame for our economic woes than the private sector employers (with regards to pension promises). It all comes down to this one thing, politicians will say WHATEVER they think will garner votes, and nothing garners votes like promises of something for nothing. This country (the country with the highest standard of living the world has ever seen) was built on the hard work of our forefathers. The country prospered. The Political Class was itching to get their hands on the money the private sector generated, but the Constitution did not allow them to tax our income, so they got the Sixteenth Amendment passed by promising to majority they would discriminate against a minority group, the financially successful. The people who vote for this kind of crap are being played for fools by the political class and being proved right, i.e. they are fools.
I saw a bumper sticker the other day, “JOBS NOT CUTS.” This implies that the person who put this on their bumper believes the Government is where jobs are created. HELLO!!! Every job the government creates is funded by taxes (money taken from the private sector where real jobs are created). Why are there no jobs? Because the people keep voting to take the money from those who could be creating jobs to keep their promises of something for nothing. This is not rocket science.
A government job cost $250,000 of private sector taxes to create. Plus they must use tax revenues to keep their Social Security, Government Pension, and Medicare promises AND fund food stamps, unemployment benefits, disability payments… Do the math. They claim they will, “only raise taxes on the rich.” The voters love to hear this, so it’s the promises the Policians make to win election, but the truth is if they took 100% of the income of all the so called rich they still could not fund all the promises they have made to the American People (they seem to think an income of $250,000 a year qualifies a person as rich – what this income level really constitutes is a minority group they can get the majority to vote to discriminate against).
It is easy for the Politicos to make Government employees unrealistic pension promises, all they have to do if vote for them. Actually coming up with the money when the debt is due is another matter entirely.
The Politicos are sucking the life blood out of the private sector to fund all this Government B.S. It won’t work, it can’t work and it is now leading to the United States of America’s financail ruin.
“Do not blame Caesar, blame the people of Rome who have so enthusiastically acclaimed and adored him and rejoiced in their loss of freedom and danced in his path and gave him triumphal processions. Blame the people who hail him when he speaks in the Forum of the “new, wonderful good society” which shall now be Rome’s, interpreted to mean “more money, more ease, more security, more living fatly at the expense of the industrious.” – Marcus Tullius Cicero (106-43 B.C.)