My last post focused on Denninger’s discussion of nutrition and how it was good news for those seeking to produce their own food on a homestead. But I also hinted that he touched on dire financial figures for the future of the US economy. Here are some of the numbers. If you have only 5-10 years to become self-sufficient, what should you be doing right now?

[Note: Normally I prefer to go straight to a primary source. But since Denninger’s blog is current returning errors for all of his posts from OCT2016 to May2017, I’ll be quoting Peter Grant who quotes Denninger, and linking appropriately.]

Let’s open with two blurbs on numbers. First, according to Denninger (via Peter Grant):

Last fiscal year the Federal Government spent $1.417 trillion on Medicare and Medicaid, 9.3% more than the $1.297 trillion it spent the previous year. Last year was not an aberration; it was in fact very close to the historical expansion rate from the 1990s forward.  Spending has almost quadrupled on these programs since FY 1998.  Total outlays in 1998 were $1.651 trillion of which Medicare and Medicaid comprised 23%. Last fiscal year 37% of all fiscal expenditures were made on these two programs.  The ACA (Obamacare), for all of its warts, only managed to dampen that rate of expansion in spending for two years, after which it returned to trend.  At this rate of spending expansion within the next four years the government will attempt to spend $2.02 trillion on these two programs combined which will blow an approximately $600 billion additional hole, per year, in the deficit.  That will not be able to be financed since if you ignore this issue it will be clear that within 10 years the government would try to spend $3.4 trillion per year on the same two programs — an utter impossibility under any rational expectation for economic expansion.  The impact on private health spending has been even larger on a percentage-of-increase basis due to the blatant cost-shifting that is well-documented in myriad reports and is responsible for a large portion of the stunting of economic progress in America that has occurred over the previous two decades.

. . .

We either admit to what we’ve been doing and stop the scam or it will overtake the economy and our ability to pay — both in the government and otherwise, within the next 4-5 years.

We either stop it now or it destroys the economy, asset prices and the nation.

This isn’t politics.  It’s math.

The facts are what they are.  Demonstrating them is easy and irrefutable.

Here’s the key takeaways for our readers:

  • That 9% annual growth in federal entitlement spending on medical becomes a basic figure in articles Denninger writes for coming months.
  • Last year, these medical entitlements were 37% of the federal spending, and they are growing at a rate of 9% per year.
  • Within 10 years the costs the feds are trying to cover will be utterly impossible to cover. What then?
  • The medical costs will begin overtaking our ability to pay (publicly and privately) within about 5 years.

Hence, the figure I opened with: if you only have 5-10 years to be ready for financial Armageddon, what do you need to be doing RIGHT NOW?

More Numbers

Here’s the second quote from almost a month later, for your consideration (via Peter Grant):

… on the math, we have roughly 5 years before the US Federal Government will attempt to spend $2 trillion a year between Medicare and Medicaid annually, $600 billion more on a yearly basis than it spends now.  It may try to forcibly shift some of the Medicaid spending to the States (as the AHCA did) but the bottom line will continue to expand at its ~9% annualized rate.

That cannot be financed.

It is mathematically impossible to do so, and thus it will not happen.

If the government tries to “print” it (via Fed machinations) doing so will further depress productivity which will go negative from its already-suppressed levels (as a result of the last ten years of deficit spending) and at that point GDP collapses and so do asset prices and tax revenue.

So they won’t do that either because unlike in 2007 when the total between those two programs was $830 billion they can’t get away with it at nearly three times the price.

What they’ll probably do instead, therefore, is unilaterally and sadistically cut people off.

If you’re one of them you will either suffer, die or (probably) both and they’ll target those who are both fat and sick figuring, quite properly, that you’ll be physically unable to do anything about it.

The low-hanging fruit, where a full 25% of the spending happens today, is on Type II diabetes.

Here are the key takeaways:

  • 5 years until medicals costs start to be beyond the Uncle Sam’s ability to pay for everyone
  • If Uncle Sam tries to print his way out of it (as he’s been doing for a decade), GDP and asset prices will collapse.
  • Uncle Sam will not be able to repeat his solution from 2007 because 5 years from now it will require triple the amount of that already massive stimulus.

The other thing that does not bode well is to consider all the Republican action on healthcare. They’ve virtually all given up on trying to “Repeal Obamacare” and instead all discussion is on how they are going to “fix” Obamacare. There are many pejoratives for it; I’ve taken to calling it RINOcare.

The problem isn’t “how to pay for all this healthcare,” but “why does US healthcare cost SO MUCH?” Denninger writes about this quite a bit, and one factor it is reflected in that last point where he mentions that 25% of the cost is in preventable issues like Type II Diabetes. Our regulated medical system doesn’t care about preventive treatment, only palliative treatment. And then everyone wonders why we couldn’t avoid all these outrageous costs.

Because the Republican stance is now “fix Obamacare,” they are basically all stepping up and saying, “Yes, I’d like another crisis like that of 2007, only bigger and more like those photos from the Great Depression!”

We already knew the Democrats were all in for crisis at our expense because they “never let a good crisis go to waste.”

Solutions

I don’t personally know you, so I cannot give personalized advice. But what you need to do is start your planning with this question:

  • If the total financial collapse of the USA is coming as soon as 5 years from now, what should I be doing right now to be prepared?

When I lived on the East Coast, I developed what I called my “5-year plan” because I wanted to be out of that area within 5 years. It was for completely non-financial reasons, but it was still a serious exercise in planning a total relocation. In reality, I was out of there within 2 years and have been happily living in the American Redoubt ever since. So the plan was a success and executed even better than I originally expected.

A word of caution: if you’re thinking “I’ll work hard in my corporate cubicle for the next 5 years, and then make an ordinary move to a new life and new job in the Redoubt 5 years from now and buy a completely self-sufficient homestead outright that is turn-key ready.” then I’ll tell you that according to my professional work, it isn’t going to happen unless you’re arriving in the Redoubt with somewhere around $500k or more in cash. And if you want to avoid financial apocalypse, don’t plan on getting a mortgage when you arrive in 5 years. Even if you qualify, a deflationary scenario (in which every dollar becomes more valuable) would leave you owing your bank a sum worth enough to pay ransom for King Solomon himself.

The costs of real goods (capital assets) are rising rapidly [go look at that ShadowStats inflation ticker on the left sidebar]. And real wages (what folks earn after adjustment for the “official” inflation figures) have not increased since 1973. It’s even worse if you adjust according to the ShadowStats inflation. That means 5 years from now, your dollars are going to have significantly less purchasing power than they do today.

For the more concerned folks who are ready to jump on this advice, your advantage is that you don’t need to buy a finished self-sufficient retreat right now – you can by something with potential and build it up to self sufficiency in the next 5 years. And right now, a mortgage can still be a useful means to an end, especially if it is part of a larger plan working towards eliminating all debt.

The only specific advice I can give at the generic level is to ask, “How soon until you Flee The City and invest into land you own in a place more free from government meddling, such as the American Redoubt?”