Insolvency | Ol’ remus and the Woodpile Report

A business enterprise is solvent when its operations are supported by its after-tax cash flow. Should cash flow be temporarily insufficient, borrowing against accounts receivable is the classic remedy. With serial borrowing however, operations-plus-debt-service eventually becomes unsupportable by cash flow, real or anticipated. Creditors withdraw when they see this, it’s insolvency or near enough. The business closes, its assets are liquidated and the proceeds distributed among its creditors. This is what’s happening to the US, aside from the liquidation part. Debt repudiation by inflation—watering down the currency—holds such comeuppance at bay, at least for a while.

art-link-symbol-tiny-grey-arrow-only-rev01.gif The US fiscal situation is so untenable that the government fails to collect enough tax revenue to cover mandatory spending and debt interest alone. This means that they could cut the ENTIRE discretionary budget and still be in the hole by $251 billion. This is why the Fiscal Cliff is irrelevant. Increasing taxes won’t increase their total tax revenue. Politicians have tried this for decades. It doesn’t work. Bottom line—the Fiscal Cliff doesn’t matter. The US passed the point of no return a long time ago.  Simon Black of Sovereign Man via

Mr. Black goes on to say, “since the end of World War II, tax rates in the US have been all over the board. Yet during this time, the US government has only managed to collect roughly 17.7% of GDP in tax revenue.” Tax rates aren’t about increasing revenue overall but rather who pays how much. The only question for politicians is whose support they can afford to forfeit in the next election. Those who believe the wealthy or businesses or even working people pay taxes by taking it from a safe stuffed with greenbacks in the basement get the lightest hit. They’re the most vulnerable you see—to outright stupidity among other things. Not coincidentally, they’re the most loyal voters in the galaxy.

DC begrudgingly understands that increasing taxes on businesswhich pays them out of sales, natchor on the rich or the working class means less commerce, more outsourcing, more layoffs, more tax avoidance or outright evasion. All this for no gain in revenue. Other than by increasing taxes overall and getting a bigger cut of a smaller GDP, revenue will stay the same, at best, because the energy source for the food chain, the working people, who support all the others, remains the same.

No amount of taxation is enough to support the spending of past and present. Were such a thing possible, not even turning over the entire GDP to the Treasury would be enough. Not nearly. Liquidating every federal asset, from the National Parks to the Post Office staplers would not be enough. Nor possible. Not even theoretically. Creditors know this. They’re backing away, but slowly, so’s not to spook the herd.

art-link-symbol-tiny-grey-arrow-only-rev01.gif The monetary system is un-tethered, unbounded, and unhinged. Capital is being destroyed at an exponentially accelerating rate, and this can be seen by exponentially rising debt that can never be repaid, a falling interest rate, and numerous other phenomena.
Keith Weiner at

Those who have worked at an insolvent business know how it goes. There’s a long period of ever-deepening austerity. Suppliers demand payment upon delivery, maintenance is deferred, employees do the work of two and take a cut in pay. Cash flow is a cash trickle but it gets the place by from one week to the next. Apparently. Nobody questions it too closely. Months go by. Judgments are deferred, meetings are held, state agencies get involved, promises are made. All the wrinkles are discussed in the break room. Some people know a guy who knows the “inside story” and the word is it’s not as bad as it looks. Heads nod in agreement. Key people leave and aren’t replaced.

More time goes by. Upbeat forecasts come and go, never mentioned again. Final deadlines come and go, new deadlines are announced, then retracted, then rescheduled. Insolvency seems “manageable” forever. Somebody’s “taking care of it”. Nobody knows how. One day the doors are locked and the lights are off and no one’s answering the phone. The local news bimbo interviews former employees in the parking lot. They worry aloud about their 401k and their insurance. Some admit they’re worried about getting by on unemployment. Privately they wonder how they’re going to keep their fear from the kids. They’re upset and confused. It seemed to happen all at once. Suddenly they’re on their own, surplus labor in a market full of surplus labor.

Now consider the Big One, the general insolvency.

art-link-symbol-tiny-grey-arrow-only-rev01.gif Central bankers are feverishly attempting to create their own new world: a utopia in which debts are never restructured, and there are no consequences for fiscal profligacy, i.e. no atonement for prior sins. They have created Potemkin villages on a Jurassic scale. The sum total of the volatility they are attempting to suppress will be less than the eventual volatility encountered when their schemes stop working.
Kyle Bass of Hayman Capital Management via

If insolvency is collapse, and it is, collapse isn’t approaching or just around the corner. It’s here, in plain view and has been for some time. This too seems manageable until the the colossal frauds papering over the defaults explode like a string of firecrackers. Then “first out is best out” takes over and the rush for the exit begins. So too begins Corzine-like last minute looting, including the Treasury. It can be done over a weekend if need be. The elite will deny it’s a Madoff Moment and caution against panic, as well they can, the so-called 1% have well equipped, well staffed self-supporting estates in remote areas of foreign lands, awaiting the massah.

Those who haven’t already fled are topping off. Sales of physical delivery gold and silver are brisk, capital controls have made precious metals a no-brainer. Sales of owner-operable, extended range, ‘long term independent’ yachts with shallow port capability are up, as are other ways to bug out in style and stay bugged out in comfort. When they leave it’ll be quick, quiet and efficient. They’re preppers too.

Even after the elite decamp there’ll be plenty of good eatin’ left on the carcass for the stay-behinds. This hasn’t gone unnoticed by the somewhat less than elite. For one, their toadies in DC have been building Führerbunkers and stocking them with supplies and ammunition for the day when they’re toadies no more. Some of the toady’s toadies have retreats and plans of their own. They keep it quiet, unsurprisingly. Then it’s all against all, a spectre of flag-waving warlords and tribal strong men, of alliances and secessions, of fiefdoms and redoubts and contested regions. Everybody who wants to be somebody will invite themselves to the fray. Who is king and who is not king will be the sum of all politics; asset-stripping the sum of all economics. It’s going to be a memorable squabble.

The signals are unmistakable, the warnings plain and candid. Yet there are those who believe in some “inside story” rather than what’s in front of them. They’ll keep going along to get along. They’re sure tomorrow will be about the same as today and every day that passes tells them they’re right. When it happens, it will happen all at once. Suddenly they’ll be on their own, surplus population, with all it implies. They’ll say nobody saw it coming. And mean it.

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