Re-Post from Charles Hugh Smith Of Two Minds
December 30th, 2014

HOLY SH*T: U.S. National Debt Has Officially Hit $18 Trillion

Lies are no substitute for truth and fantasy is no substitute for reality.

Follow the money is a good start–but what matters going forward is income, and most especially, net income and disposable income. Debt is important, money/capital flow is important, but when push comes to shove, all that matters is having net income/disposable income: to service debts, to invest, to spend.

Debt can be substituted for income, but not for long. Central banks have been playing a game for six long years: by lowering interest rates and making credit available, the central banks have encouraged households, enterprises and governments to substitute borrowed money (debt) for income.

This works as a stop-gap, but debt accrues a funny thing called interest that eventually eats the borrower alive. Income is (supposedly) the driver of stock valuations, the financial foundation of rental property and the ultimate arbiter of solvency: households, enterprises and governments whose income cannot meet their debt and spending obligations are insolvent and eventually declare bankruptcy.

The reality that all that really matters is income incentivizes gaming income. Corporations and their officers/stockholders benefit greatly when net income appears to rise smartly, as rising income boosts stock prices and the value of stock options.

So it’s no wonder that S&P 500 Profits Are 86% Higher Than They Would Be Without Accounting Fudges. Fudging operating income with accounting trickery pays such huge dividends, why not indulge in a bit of financial flummery? The chances of anyone questioning the sleight of hand is nil, since the entire financial sector relies on systemic flummery for its profits.

Following the income leads us to wonder how the 99% of households whose income is declining in real terms can borrow and spend more every year.

Following the income leads us to wonder how OPEC oil exporters will manage with $250 billion less income in 2015, after suffering a $200 billion decline in 2014.That’s a total of $450 billion of income that’s vanished in a few years.

Since OPEC accounts for about 40% of global oil production, that means oil producers globally will earn $1 trillion less than they did in 2012.

Such primary industrial income has a multiplier effect, which means every $1 of oil income that vanishes means $3 down the spending chain vanishes as workers earn less or are laid off, the stores that depended on oil workers’ spending take a hit, and so on down the line.

Thus the reality is the loss of income isn’t merely $1 trillion–it’s more on the order of $4 trillion, as the multiplier effect subtracts income from everyone in the food chain who depends on oil revenues in a secondary or tertiary role.

Income matters for another reason. Most households, enterprises and governments spend the vast majority of their income in one way or another. If income declines by 5%, that may not appear like much. But if the household, enterprise or government spends 98% of its income on debt service and essentials, that 5% decline puts them in the red by 3%.

It may be possible to borrow more to fill that gap–in essence, borrowing money to pay the interest on previous debt–but this is a financial Black Hole, as there is less income to service rising interest payments.

Once the gravity of insufficient income pulls the household, enterprise or government over the event horizon of insolvency, implosion is inevitable.

So when you read about ever-rising corporate profits, ask if that’s pro forma or actual net income. When the government claims its deficits are declining, check whether its debts are rising faster than the media is reporting.

When your neighbor seems to be spending more, ask if they’re making more net income, or simply borrowing more.

Borrowed money is no substitute for net income. The global economy has been living a Grand Lie for the past six years: that borrowing money can be substituted for declining income, and bogus accounting can be substituted for real net income.

Six long years of lies has persuaded many that the lies can be sustained for another six years–or even sixty years.

But lies are no substitute for truth and fantasy is no substitute for reality. The erosion of net income will eventually matter, maybe not in six years but within six months.

Delivered by The Daily Sheeple
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Maybe they should just go back to wooden coins skip the metal altogether!

If you loose your audience you will eventually loose your advertiser and you will then go out of business! Or you can change your business model but i guess that’s not an option.

We have 6 years of history that shows that what ever Obama claims the opposite is more likely to e true!

Obama claims immigrants aren't a burden to tax payers.

President Obama governs by executive fiat, defacto legislation and ignores separation of powers

As 2014 comes to a close, it’s worth considering the Obama administration legacy as we head into 2015.

Certainly, there were scandals. The IRS played hide and seek with documents regarding improper targeting of conservative and Tea Party groups.

The response to the Ebola outbreak was clumsy, and helped induce panic. Our foreign policy is in tatters.

Yet the most long-lasting damage may be the Obama administration’s cavalier attitude towards constitutional separation of powers.

Three areas of the Obama administration going it alone stand out: Immigration, Obamacare and the environment. Immigration is perhaps the most dramatic example.

Legalizing and eventually providing a path to citizenship for the estimated 10-12 million illegal immigrants is a top administration priority. But that priority hit a roadblock in the form of the Republican-controlled House of Representatives, and soon, Senate. Out of frustration, Obama has taken unilateral action to evade the immigration laws.

USA TODAY

Politicians benefit from American tribal warfare: Column

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Prior to 2014, the administration already had imposed non-repatriation policies at the border, and established the “mini-dream” policy, precluding deportation of people who were brought to the country illegally as minors and met certain other criteria. These policies, however, only applied to a relatively small portion of the total illegal immigrant population. So more was needed, and that “more” would not be coming from Congress.

Accordingly, soon after the 2014 midterm elections, Obama announced executive action to extend legalization for up to 5 million more immigrants, focusing on those who were in the country illegally but whose children were U.S. citizens by virtue of their birth here. Nearly two dozen times in the past Obama had stated publicly that he could not constitutionally undertake such actions, but he did it anyway.

This immigration end-run creates a class of people who effectively are exempt from the immigration laws, without Congress ever having recognized such an exemption. It is not prosecutorial discretion but a usurpation of legislative power.

There also have been dozens of unilateral actions as to Obamacare legislative requirements, including individual and employer mandate delays, and waivers of certain fees for unions. Of particular note, the IRS passed rules allowing purchasers on the federal exchanges to obtain subsidies the legislation reserves for state exchanges.

This issue was of sufficient importance that the Supreme Court unexpectedly agreed to hear the case without there even being a split in the circuits. These changes were undertaken not as a proper exercise of discretion as to how best to implement the law as written, but to push much of the pain of the law beyond the 2014 elections.

USA TODAY

Yes, there is a war on police: Column

As to the environment, EPA regulatory authority has been used expansively to scale-back the coal industry and shutter coal burning power plants. Those regulations have cost Democrats politically in states like West Virginia and Kentucky, but the damage to the coal industry may be irreversible.

Further, the administration has moved to implement national carbon-emission reductions even though Congress has not approved such a national reworking of our energy policy. Even The New York Times notes that President Obama “could leave office with the most aggressive, far-reaching environmental legacy of any occupant of the White House. Yet it is very possible that not a single major environmental law will have passed during his two terms in Washington.”

The exploitation of environmental regulatory authority not to implement laws, but to create a regulatory equivalent of legislation, is an abuse of executive discretion. At every level, the Obama administration has signaled that going it alone is the only way to get things done.

But that is not how our constitutional system is set up. The Framers understood the threat of an overreaching executive who wants to be king not president.

Midterm election exit polls confirm other polling showing trust in government near historic lows. Dissatisfaction with government is the top non-economic public concern.

The Obama administration’s relentless expansion of executive power through extra-constitutional means only further fuels the public’s distrust of government. If 2014 was a referendum on Obama, 2016 may be a referendum on whether the public wants the federal government, particularly the president, to live within constitutional boundaries.

Will our next president be a king, queen or a constitutionally-limited president? That is the question for 2016.

William A. Jacobson is clinical professor at Cornell Law School and publisher of Legal Insurrection Blog.