Energy Discussion

[Randy Daytona]

The reality is this (with rounded numbers):

-$1T on interest that isn't negotiable
-$1.2 T on military
-$3T on healthcare (medicare + ACA)
-$1.5T on SS
-$800 billion on literally everything else

$2T deficit

If you go back to pre Bush tax rates you raise $0.5-1T (maybe... we're still not out of the 2008 recession and this could be the straw that breaks the camel's back).

You can't balance the budget without repealing Obamacare subsidies to employers. It's literally not possible.

So the answer to your question is whenever we pass sweeping healthcare reform. You have to view GOP fiscal policy over the last 15 years as purposefully forcing that decision.

I have mentioned Professor Michael Pettis in the past, a new article from him in Foreign Affairs which touches on some of this:

A Great Rebalancing Is Coming

Who will bear the costs of a global trade adjustment?

www.foreignaffairs.com

The trade imbalances that have come to characterize the global economy are fundamentally untenable. China, Germany, and a handful of other economies run large, persistent trade surpluses, while the United States absorbs much of these surpluses by running the world’s largest trade deficit. Sooner or later, something must give. For an advanced, capital-rich economy such as that of the United States, an enduring trade deficit will bring with it either rising unemployment or rising debt, neither of which is sustainable.

 

[Griz882]

I have mentioned Professor Michael Pettis in the past, a new article from him in Foreign Affairs which touches on some of this:

A Great Rebalancing Is Coming

Who will bear the costs of a global trade adjustment?

www.foreignaffairs.com

The trade imbalances that have come to characterize the global economy are fundamentally untenable. China, Germany, and a handful of other economies run large, persistent trade surpluses, while the United States absorbs much of these surpluses by running the world’s largest trade deficit. Sooner or later, something must give. For an advanced, capital-rich economy such as that of the United States, an enduring trade deficit will bring with it either rising unemployment or rising debt, neither of which is sustainable.

I read it and it is a good article. A rebalancing is coming and it’s going to hurt. American consumerism will take a hit and that will hurt the economy. China will have it worse and Russia’s economy will probably collapse, but smaller nations like Vietnam are set to become the next South Korea. I doubt we’ll be able to buy our way out of this one with another market bailout.

 

[Spekkio]

I have mentioned Professor Michael Pettis in the past, a new article from him in Foreign Affairs which touches on some of this:

A Great Rebalancing Is Coming

Who will bear the costs of a global trade adjustment?

www.foreignaffairs.com

The trade imbalances that have come to characterize the global economy are fundamentally untenable. China, Germany, and a handful of other economies run large, persistent trade surpluses, while the United States absorbs much of these surpluses by running the world’s largest trade deficit. Sooner or later, something must give. For an advanced, capital-rich economy such as that of the United States, an enduring trade deficit will bring with it either rising unemployment or rising debt, neither of which is sustainable.

I'm more concerned that we seem to be losing control over the ability to raise interest rates to combat inflation because everything in our economy is primed on massive amounts of debt.

That includes but isn't limited to foreign trade.

Core PCE is stuck at 3-3.5% for over a year and employment numbers don't look good. The Fed is stuck between a rock and a hard place.

A lot of the current debt demand is to build AI data farms, which also have insane energy demand requirements. I'm not a tree hugger by any means, but people no longer can disable AI web search results from Google on smartphones and tablets, the settings only exist in the desktop version of chrome. Do we really need to use that kind of energy on every single web search when Google worked just fine before the year 2025?

If the shoe drops, the 2008 bank bailout will look like child's play.

 

[ChuckMK23]

If the shoe drops, the 2008 bank bailout will look like child's play.

What would be a "shoe drop" event example?

 

[sevenhelmet]

What would be a "shoe drop" event example?

Not answering for Spekkio, but I think we’re in for stagflation. Higher interest rates, unemployment, and lower overall growth.

The AI bubble bursting would define a “shoe drop” moment. However, I think that is less likely in the near term. What I think we’ll see is a minor retracement, and then another mini boom. Medium term (I’d guess in the next 1-2 years), I think an AI recession is inevitable. How severe it will be is hard to predict.

 

[Spekkio]

What would be a "shoe drop" event example?

I have three scenarios, both will look more like the slow bleed of the early 00s.

The near term risk is a rise in interest rates and / or underperfoming quarterly profits leads to layoffs, but this mostly impacts well off white collar workers. They tighten the belt on non-essentials, which means less eating out at restaurants and maybe you're not paying for a $30 haircut quite as often.

Where the shoe drops in this scenario is if middle class small businesses go out of business. McDonald's is already cheap again, so it's already happening. But your local restaurant / pub serving $8 pints and $20 cheeseburgers doesn't have an owner who is being fed mountains of analytic data to show that a storm is coming, which is look around and notice that the average age of his customers is 55+. He just closes up shop or sells. Put this out on a wide scale and unemployment can get over 6%.

This snowballs because people have most of their net worths either in a 401k or house. The former is more easily liquidated, creating the positive feedback loop where businesses lose all the capital they've been drunk on the last decade.

The second is more long term, insofar is the last paragraph happens when people born after 1980 start retiring en masse. Members of the S&P 500 are going to be facing the same problems as SS and Medicare now that most boomers have retired - there will be more people taking out than putting in.

The third is healthcare bubble pops as boomers finally croak, plus AI can handle answering what would be most simple visits that really can be solved with OTC medication + self care, and you suddenly have nurses, technicians, etc. laid off and unable to find work. My own mom switched careers in the 1990s because no one was hiring nurses at the time (this is when HMOs were in vogue and why pay a nurse to do what a technician can do?), but healthcare in the 1990s wasn't over 25% of our GDP. So then go back to scenario one, but initiated by healthcare professionals instead of tech companies.

 

[Randy Daytona]

I wonder if every other nations’ economy implodes first and they rush to invest in the US, will we ride out the downturn smoother than anyone else?

 

[Spekkio]

I wonder if every other nations’ economy implodes first and they rush to invest in the US, will we ride out the downturn smoother than anyone else?

I mean, international markets over the last 15 years have returned about 4-5% while the US returned 12%.