Friday, July 29, 2011

The Economy & the Fate of Paintball

There's been almost endless talk about the economic state of the paintball industry for a number of years now and it's impact on everything from the local field to the tournament player and the decline in new playership. And I'm here to tell you it isn't even close to as bad as it could--almost certainly--will be in the not too distant future. Given the list of changes made to the game on the basis of economic reality I don't even want to think what could happen. But somebody has to give you the head's up so it might as well be me; Mr. Popularity. It's gonna get worse before it gets better. Get ready & get smart. It won't be the end of the world but it ain't gonna be pretty.

Okay. About the economy. Here's some basic numbers. Current (acknowledged) U.S. government debt is over 14 trillion dollars. To try and put that number into some perspective annual government revenues the last couple of years were about 2.1 trillion. So we owe about 7 times what we take in on an annual basis. Over the last two years we've also borrowed about 43 cents of every dollar spent. Which amounts to around 1.7 trillion for an annual expenditure of around 3.8 trillion despite the fact Congress has failed to pass an actual budget. If that doesn't sound too bad maybe breaking it down will help. Divide 1.7 trillion by 365 days and divide again by 24 (hours in a day) and that works out to the U.S. government borrowing over 190 million dollars an hour. Yep. An hour. Still not convinced of the magnitude of the insanity? Imagine you started a business the day Jesus was born and immediately began losing a million dollars a day. Your loses won't reach a trillion dollars until the year 2732.
Okay, this is gonna be real long if I keep going at this rate. Time to shorthand it. Don't worry about default if the debt ceiling isn't raised. (It will be.) Technically it ain't gonna happen--at least in the near term. Yes, the government will run out of money to pay for things it has chosen to take on as obligations but the only way it meets those obligations is by continuing massive borrowing. This year, depending on which government office's numbers you believe (no, they don't all agree) debt repayment will eat anywhere from approximately 17-20% of all revenues. That is with historic low interest rates. All the current blather over an extension of the debt ceiling is utterly irrelevant in the longer term--which may be as little as next week to a year or two, if that, because continued borrowing only digs the hole deeper. What matters is getting a handle on spending and addressing the need to cut deficit spending. (Sure, a failure to borrow more today would precipitate a crisis but it would be the sort of crisis that forced the government to spend less and make big, immediate cuts. More on that in a second.) (For those of you who insist the government can print money forever, well, yeah, they can but there are inevitable repercussions from doing so. Yes, the government could pay off almost any debt but it comes at a cost too. A brutal one at that for the average citizen. Wiki 'hyperinflation' or 'Wiemar Republic' or any of a number of financial collapses in Argentina in the last 60 years or so to see what happens.)
Here's the thing. We are already caught between a rock and a very hard place. GDP (gross domestic product) includes government spending. But 43% of all government spending isn't spending--it's the disbursement of IOUs. Last quarter's growth was first announced to be 1.8%. Yesterday that was revised to 0.4%. That means that there has been effectively no growth but it's worse than that. Remember 43% of government spending is debt disbursement and that amounts to around 12% of the calculated GDP. If deficit spending stopped tomorrow we would see that real GDP was well into negative numbers--and has been since 2008.
So if we stop the deficit spending cold turkey the economy takes a big hit that will drive further contraction (a shrinking tax base too) and produce considerable suffering likely for a few years. If we keep on the current course we will, sooner rather than later, reach the place where default is inevitable, the dollar will be virtually worthless and we will suffer the same pain, only worse and for longer--but we might be able to stretch the inevitable out a few years--max.
A middle course would be to make real and serious cuts in spending immediately--not the illusion of promising to do it 5 or 10 years down the road or halting the automatic increases and calling that cuts. And even that would create hardships but it might save the nation's credit rating, reassure international markets and help preserve what's left of the dollar.
What both parties are currently debating is a waste of time and breath. It's unserious and will see our rating downgraded almost immediately and the follow on from that could precipitate its own crisis--with, you guessed it, a similar outcome to the other scenarios. At some point the house of cards collapses. The only question is whether or not it's a controlled demolition or complete structural failure.
And it isn't just us. Euroland is in the boat next to ours and busy making their own mistakes. And conditions either here or there could send the cards tumbling for everyone. The window is open now and I would be very surprised if we got past 2013 before it all falls down. Happy happy joy joy

UPDATE: Sounds a lot what I suggested. From Moody's today--"Reductions of the magnitude now being proposed, if adopted, would likely lead Moody's to adopt a negative outlook on the AAA rating," the credit rating agency said in a new report. "The chances of a significant improvement in the long-term credit profile of the government coming from deficit reductions of the magnitude proposed in either plan are not high."


Anonymous said...

You talk about money like few people are involved.

Bush knocked down the towers.

Additionally, I'm not going to believe in a perspective about debt based on a competitive paintball coach's view, when I know full well you've probably spent thousands on a game that is built to consume itself.

But I like your face, so I listen.

Jii said...

I recently bumped into a nice visualization of the U.S debt situation, well worth a look - and no, I don't consider this message spammy since it "fits the bill" :)

Baca said...

Nothing ideological about this. I simply mentioned the last two years deficit spending numbers to keep it simple. Blame whoever you like.
Nor am I trying to convince you of anything. Sadly it will all be plain soon enough.

As for me spending thousands on this game--hah! I haven't spent a nickel on paintball in many years unless you want to count gas money to and from practice. (So, yes, I'm also part of the industry's problems, too.) :-)

sdawg said...

Dammit, Jim, you're a paintball coach, not a national fiscal policy expert.

Anonymous said...

WoW .. Does this mean paintball's and beer are going to cost more ?

Baca said...

Anon #2
They already do. In paintball's case you're seeing a general effort to hold the line on retail pricing but otherwise costs are up throughout the system.

dan. said...

well written and right on point. I particularly like the perspective that government "spending" is truly I.O.U.'s. If you take out the spending that they don't have, we truly are in deep depression. The wonderful thing about definitions of depression versus recession versus real job growth, etc. is ask 100 top economists to define the terms they use and you will get 100 different answers.

abc said...

To make matters worse aggregate consumer debt exceeds the national debt! So we have over twice as much to pay off!

Baca said...

Very true, abc, but both consumer and corporate debt has been decreasing--as peeps and companies reduce their debt loads. It's only the government that continues at a runaway pace.

Missy Q said...

The US is totally in denial. I was watching a politician yesterday say that he believes that the US can certainly keep it's place as being "the world-leading superpower it has always historically been"
Historically as in the last 100 years? Wouldn't that be refrerred to as 'recently' in historic terms? And also, isn't a main reason the US is in so much debt because it's leaders continue to try to assert the super-power profile? Maybe if they stopped spending money to be a 'super-power' they might have enough money to be a 'well run country'. It doesn't sounds as cool, I know, but it might be worth a try.
I do have to applaud the US for finally scrapping the shuttle program. I should say they scrapped the 'old shuttle program' - the smaller military version of the shuttle has now made several flights and presumably costs a lot more than it's older less lethal cousin (and you don't even get to watch it take off in the news anymore...) I bet the money spent on 'space' and the 'final frontier' would come in pretty useful right now, but at least you're protected from the 'red threat' - whoever that is these days.

Anonymous said...

Mark said:
Our government is spending upwards of 20% of GDP, our super power status accounts for 4.5%, 40% less than we used to spend nearly every year since 1945.

We have as many ships in our navy as we did in 1916, our airforce has as many planes as it did when Pearl Harbor was attacked, an entire fleet of which (the B-52) are twice the age of the airmen who are flying them.

But hey, studying shrimp on a treadmill, now there's a worthwhile endevor!
Paying peeps to inspect the diapers of a terminally ill grandma in a wheelchair before allowing her to fly while letting Olajide from Nigeria get on a flight in NY with a college ID and an expired boarding pass in somebody else’s name before arresting him after landing in LAX sure sounds like a better defensive posture to me!

Missy Q said...

Wow Mark, you've been watching a lot of politics huh? I think that's a politicians explanation. Sure, there are (or may be) the same amount of units in operation. But in WW2 those units were costing a tiny fraction of what they are costing today.
Another idea- Perhaps the US should arrange to pay less for things that they buy from inside their own country? I will use Weapons and medicines as an example. Medicines is an uber-obvious one. Paying far more than products are worth, in order to create giant Weapon/Pharmaceutical giants paying huge salaries to ex government 'employee's' sounds kinda dumb, though is apparently necessary in the current way of doing things. I understand that you don't want to buy weapons from China, but do people need to get that fat on the profits seeing as this is tax-payers money? Shouldn't the govermment pay less rather than more? I have had government offices buy product from me many times in the past, on official goverment PO's, and they do not care how much things cost. No-one has ever asked me for a deal, and I may have been inclined to give them one if they had. They only care that they spend their budget allocation, as if they don't, they get less next year. What kind of sense does this make? You have the government trying to spend money unnecessarily so they they can continue to have the freedom to spend money unnecessarily the following year. These buyers should have their salaries based on how much they can save, rather than how much they can spend. That might make a difference.

Anonymous said...

Mark said:
Missy, I mostly agree with you. We definately need more free market principles in Gov't!

Ken said...

late to the post party.......
Someone posted that consumer and business debt is down. This is not what it seems. When you look at the numbers closer, those debts are down because of mortgage defaults, not because they are paying off their debts.