"It is unethical for any man to tax another man's house for his social agenda.  Friends don't do that, but enemies will." ~John Taft

Curmudgeon's   Archive.

The Dollar Is...?
Who Supports Whom?
One Foot in the Grave
Magical Money  

Posterity's Debt To Me
The Battle for Honest Money
From Riches to Rags
Fiddler's Broken Wrist
Jack-lantern Wealth
Chance of Gold Confiscation

Poobahs of Positivism

Blood In the Streets
America Descending
Just Plain Stealing  ?
A thing to fear
Heavenly Sex
What Fools, We Mortals
Unvarnished Truth
Hucksterism Gone Wild
Religious Violence


March 19, 2018

Time to give up on the cent and nickel coins.
The subject pops up once more. (Yawn.}

    The Wall Street Journal devotes an entire March 19th page to the recurring question of whether the U.S. Mint should continue manufacturing one-cent and five-cent coins at a financial loss.

    Writing in favor of dumping these minor coins is Henry Aaron:  "No U.S. coin has ever been as worthless as the penny or nickel.  Until 1950 the penny had a purchasing power greater than today's dime.  Until 1974 the nickel had purchasing power greater than the quarter does today."

    Note: The popular use of the word "penny" is a holdover from Colonial days when the English penny circulated in the United States. When the U.S. created the half-cent and cent coins in the late 18th century the cent was about the size of the English penny and the name easily transferred to the new cent. But the U.S. Mint has never manufactured a coin called "penny."

     In support of continuing the cent and nickel Dr. Jay Zagorsky points out that, overall, the mint makes forty-five cents for every face-value dollar of coins it ships. He notes that it cost 1.8 cents to make a one-cent coin in 2017, and 6.6 cents to make a nickel...but he considers these to be "loss leaders" and worth continuing. 

      Until 1857 the half-cent coin  circulated in the U.S. When Congress discontinued it there was a howl of protest from many citizens who worried the merchants would round prices UP to the nearest cent. As it turned out this minor coin vanished into history without unsettling the marketplace.

       Decades of inflation have had a predictable effect on currency. Dropping the cent and nickel from production would save  a considerable sum. It would also relieve  the citizenry  from the bother of  stashing  their minor coins in jars, cans, and  bureau drawers

The Dilemma (Part I)

The great middle class has been knocked on its ass
    And doesn't know what to do.
"Pick up the pieces," says Ludwig von Mises,
     "And I will supply the glue!"

"You were badly misguided," von Mises confided,
       "You were led to believe a big lie.
"I have a hunch 'twas your quest for free lunch
        That caused things to go so awry."

Don't rub it is. We're guilty as sin
          For thinking we all could get rich.
The illusion beguiled, and, like a child
          We ran ourselves into a ditch.

It's really perverse when assets reverse
         And sink to some fraction in size.
We have cause to fret for we assumed too much debt,
          About which we now agonize.

There's no quick solution for our asset dilution.
         We must take it a step at a time.
As bad as it seems we must live 'neath our means
           While saving each nickel and dime.

The Fed's apprehension of money deflation
            Is something we all ought to note.
The huge money scheme is really obscene.
           Remember that next time you vote!

There is little room for another debt boom,
           We are at the end of our rope.
They can print money all day, but there is no easy way
            To smooth out the steepening slope.

Congress ran us in debt, and you can bet
             They'll vote to go deeper in hock.
How far can they go before it all starts to blow
              And the economy falls like a rock? 
~John Wrisley

(Coming soon - The Dilemma, Part II)

The unsustainable trajectory of national debt.
No one truly believes it will ever be paid.

   Having been born with a genetic aversion to taking on debt that's impossible to repay we believe reckless borrowing is not only dangerous for individuals but nations as well.  We may be entirely wrong. Perhaps it IS possible to borrow oneself rich...but history shows no examples of such a scheme working out successfully.

     Remember:  Congress faces NO official debt ceiling at the present time.  The borrowing limit has been suspended until March 1, 2019.  

      On September 8th the public debt topped $20 trillion for the first time.  Last Thursday it exceeded $21 trillion.

       How willing are future generations to shoulder this monstrous debt obligation?  No one knows.  They aren't thinking about it.  But they will when they realixe former Colorado governor Richard Lamm was right when he said, "It's Christmas in reverse. We get the presents and send the kids the bill!"

Don't Abolish Cash.

    Writing in the Friday Wall Street Journal Joseph Sternberg claims the present "War Against Cash" thwarts modern monetary policy, which is being promoted by policy makers and certain pundits and academics. They have made the case that circulating cash leads to nefarious activity by criminals and can be eliminated because so much daily financial activity is handled electronically.

  Shouldn't the consumer have a say in all this? Must every transaction be tracked through the innards of computers? If a person happens to have a couple of $20.00 bills in his/her pocket why should should they be prevented from spending them anonymously  as is now legal. If one wants to slip into a liquor store on a Friday afternoon and purchase some adult beverages for the weekend they may be asked to show proof of age but their identity does not have to be recorded on a computer. Under present rules no crime is committed by making such purchases with cash.

   Moreover, the promoters of cashlessness hate the idea of cash causing a zero level on interest rates. They would prefer that negative interest rates be permitted,"when necessary", to tax bank account holders for saving their money.If they were allowed to pull their savings out in cash to avoid the penalty the banks would be hit by people transferring their cash assets to mattresses and other places of concealment (which don't charge interest).

   We all have a ringside seat as the "War on Cash" continues.

"Since 1914" would be more accurate. The Fed did not begin operation until then.

   We often point out that the purchasing power of the 1914 U.S. dollar has now plunged to less than a nickel after more than a century of supervision by the Federal Reserve System.  How long it will take the Fed to drive the value of the dollar to zero is anybody's guess, particularly since it must respond to the machinations of a political body that has little common sense when it comes to spending the people's money.  (Congress.)

    This caught our eye yesterday:

     “What we really have is a case of the monetary Wizard of Oz. There is nothing behind the Eccles Building curtain except a posse of essentially incompetent economic kibitzers who spend 90% of the time slamming the same old 'buy' key on the Fed’s digital printing press, while falsely claiming credit for the inherent growth propensity of private capitalism.”  SHOOTING OUR FEET

    In defense of the Fed it should be said that its original mandate was  simpler than it is now.  Although Federal Reserve notes were legal tender each note carried the printed promise it could be redeemed at will in "lawful money."  That promise vanished in late 1963.  Nor did many people notice the switch of circulating coins from 90 percent silver prior to 1965 to the base metal of 1965 to the present day.  No one cared that the composition of the lowly cent was switched in October 1982 from mostly copper to mostly zinc with a thin veneer of copper.  These actions were approved by Congress. 

       Congress further muddied the job for the Fed when it conferred upon it the responsibility for maintaining a vibrant economy and a high rate of employment.  This meant it must do everything in its power to prevent deflationary recessions.  By debasing the dollar the job has become nearly impossible.

The Age of Inflation
Imagine a world in which prices must constantly rise.  We've been living in it for years.

   Reuters News:  "Healthcare costs slipped 0.1 percent in February after advancing 0.4 percent in the prior month. Prices for hospital care fell 0.5 percent and the cost of prescription medication declined 0.4 percent.

                           "The cost of doctor visits rose 0.2 percent. Apparel prices continued to march higher, rising 1.5 percent in February after surging 1.7 percent in January. The cost of motor vehicle insurance rose 1.7 percent last month.

                            "Prices of new motor vehicles fell 0.5 percent, the biggest drop since August 2009, after slipping 0.1 percent in January."

                             The Federal Reserve Open Market Committee meets next week and will be reviewing the apparent slowdown in the rise of the general price level.  Make no mistake. Rising  prices are a CONSEQUENCE of money inflation generated by huge federal budget deficits. Congress now perpetually promotes price inflation through its policy of spending money it doesn have.  It borrows it.  The Fed monetizes much of the debt by creating dollars from thin air. In our lifetime we have seen the price of a nickel cup of restaurant coffee rise to $2.00 or more. 

                              If the politicians ignite a Venezuelan style inflation that restaurant cup of coffee could rise to $20.00 and higher.  That would be a result of hyperinflation. It's unlikely the U.S. will let it go that far, but it's within the realm of possibility.  People will consent to almost anything if it prevents dreaded deflation

                               Some gloom-and-doom prognosticators warn of an eventual deflationary depression.  That's possible if something isn't done to repair the damage that's being done to the dollar.  But how to generate some interest in the subject?

In late 2008 our staff curmudgeon wrote:

       "In a letter to Thomas Cooper, Jefferson said, 'Our whole country is so fascinated by this Jack-lantern wealth [it] will not stop short of its total and fatal explosion.'

     "Franklin Roosevelt began removing the dollar from its moorings in 1933.  Richard Nixon finished the job in 1971.   From a monetary unit based on something of intrinsic value we're now doing business with 'money' backed by nothing of value.  We're about to be punished for allowing it to happen.  

     "Let's talk about restoring the United States to a system of honest money!  Surely there's still a market for honesty."  JACK-LANTERN WEALTH   (Nov. 19, 2008)

      Modern economists have been trained to believe that the U.S. Constitution is quite irrelevant when it comes to defining the U.S. dollar.  But the fact is that the founding document of 1787 (ratified 1789) has never been amended with respect to its definition of money.  That section of the Constitution has been abandoned, to be sure, and no court in the land will examine the question.  In fact, anyone even suggesting that a return to the dollar mandated by the Constiution is considered a "looney tune" who doesn't understand that the Age of Inflation has been a very good thing and that even discussing a return to sound money is a foolish waste of time. 

      The fact remains, humankind rely on a set means of measuring everything in their lives....weight, distance, time. height, etc....but measure their exchange of goods and services with a monetary unit that has no reliable dimension whatever.  The problem is - should the dollar be something of actual value and relative scarcity, or an IOU (evidence of debt) created at will from nothing?  A secondary question is, "Can the Age of Inflation last indefinitely or must it come to a grinding halt, ending an era of material abundance?"

Truth  cannot compete with hoax and rumor.

We-the-people (including college graduates) love to be fooled.

    An Associated Press dispatch confirms our suspicion.  False information on social media travels six times faster than the truth and reaches far more people.  Researchers at the Massachusetts Institute of Technology (MIT) examined more than 126,000 stories tweeted between 2006 and 2015 and found that "fake news" sped through Twitter "further, faster, deeper and and more broadly than the truth in all categories of information."

    Twitter officials say they are trying to do something about, while Facebook announced this week it was entering into an agreement with the Associated Press to identify and debunk false and misleading stories that are expected to surface in the runup to the mid-term elections in November. 

     The late showman P.T. Barnum believed that "a sucker is born every minute."  That may not be far from the truth in this age of abundant electronic means of personal communication.   Rumor and innuendo once traveled in slow motion across the backyard fence and neighborhood saloons, but now almost anyone can post gossip and heresay on social media and have it read by hundreds or thousands before 24 hours have passed.

      A sad consequence of the trend is that established print and broadcast journalists too often weave material from social media into their reports, frequently crossing the line from "news" to "gossip."

       Jonathan Swift remarked long ago, "Truth  cannot compete with hoax and rumor."   Can't argue with that!

   Household debt totalled more than $13 trillion at the end of 2017, according to the N.Y. Fed' Reserve bank.  The graph above plainly shows that the lion's share of the debt is tied up in mortgages.  Auto loans and credit card debt add to the debt burden, and student loans indebtedness has recently exceeded a trillion dollars, most of it guaranteed by government.

       Debt, judiciously used, can be a very useful tool.  Economists from every part of the political spectrum are agreed on that.  The question is - how large can it grow before it collapses? As far as the public debt is concerned Congress has stponed debate on that for a year.  There's talk of eliminating a debt ceiling altogether and let Washinton run whatever budget deficits are  necessary to revive economic good times and keep them going as long as possible. Unfortunately, spending beyond one's income invariably leads to bankruptcy.

        Now, why would anyone want to aspire to THAT?

A trillion here, a trillion there.
A thousand trillion is a quadrillion. Then comes quintillion, sextillion, etc., etc.

   "In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year.

   "Then nearly $1.1 trillion next fiscal year.

   "And up to $1.3 trillion the year after that.

   "This means that the national debt will exceed $25 trillion by September 30, 2020."
~Simon Black

        Mr. Black is quoting the U.S. Treasury Department's own projections.  At some point, however, lenders realize that buying government debts isn't a very good deal.  We recall patriotically lending the federal government $18.75 for the war effort in the 1940s.  The face value of the war bond was $25.00 when cashed in several years later.  Upon cashing in the bond we got $25.00, as promised, but it would not buy the equivalent of the $18.75 we paid.  Inflation had done it's usual dirty work. 

            Inflation is still gnawing away at the dollar, although at a relatively slower rate.  But history clearly shows there has never been a long-running episode of money infation that did not end.  One modern example is the chaotic economy of Venezuela. 

          The accumulation of national debt did not top $1 trillion until 1982.  Ten years later it was $4 trillion.  Now it is $20.4 trillion and will stay at that level for a year because Congress postponed dealing with adjusting the official debt ceiling until March, 2019.  Debating it in advance of the mid-term elections could upset several apple carts. Meanwhile, the Treasury Department will continue borrowing as needed under a continuing resolution.

            We've come to accept the fallacy that a government entity can constantly spend money it doesn't have without a negative effect. It can't.  We all feel the consequences when we see consumer prices constantly inching up.  Inflation also diminishes the desire to save.  Why put a dollar away at an interest rate of 1 percent or less when the price inflation rate is 3 percent or more?

             Can the problem be fixed?  Sure - but not until politicians face up to the fact that government cannot borrow itself wealthy.  Operating with constant budget deficits only puts the heavy weight of debt onto the shoulders of rising generations.  They'll be really furious when they realize what's happening.     

If Social Security and Medicare are not sustainable for the long haul, what's the solution?

   It's a sticky question no one really wants to think about.  The FICA tax is paid by employees and employers and the employee is entitled to a monthly benefit upon reaching his or her 60s.  Many people sign up for the early payment at age 62, accepting the lower monthly payout on the basis that waiting until nearly 67 for the full entitlement involves a certain risk.   Some people opt to wait until age 70 and reap a slightly higher monthly payment for their patience. 

   Now that Baby Boomers are piling in at the rate of some 10,000 a day the numbers in the Social Security Trust Fund are getting a bit dicey.  Recall that most of the fund consists of IOU's...the bonds Congress puts into the fund so it can use the cash for other purposes. 

   Economist Martin Feldstein says Social Security and Medicare contribute heavily to America's "debt disease" and are projected to increase budget deficits over the next decade if something isn't done to rein in some of these heavy outlays.  One method he suggests is raising the age level to 70 for receiving full benefits.  He notes that the average American lifespan has increased by three years since the last time any adjustment to the official retirement age was made in 1983.  This would surely raise a howl, but something must be done to at least slow the  demand on the system. 

    The idea of setting the Social Security elegibility age at 65 came from Germany.  Chancellor Bismark inquired into the lifespan of average Germans and discovered it was about 65 years.  So that's the age level he chose for launching his popular program for old-age state subsidy.  Franklin Roosevelt's advisors recommended that age when the U.S. Social Security system was devised in the 1930s. 

     It's a very good deal for oldsters. In our own case we found we got back everything we and our empoloyers had paid in about seven years after we signed up, adjusted for inflation.  Since then we have been living directly ourt of the FICA taxes beomg paid by present workers and their employers. 

     We'd like to see some of the chatterboxes on television take up the subject.  But they're too engrossed at the moment trying to disable the Trump presidency. 

The Age of Inflation
We've been taught a little inflation is good for us. (!?!?)

   Venezuela is teaching the world right now that "a little inflation" can run out of control and become a horridly destructive monster. The history books are filled with such disasters, yet we persist in believing the politicians and bankers when they say that price inflation of, say, two or three percent per anum is very good for the economy.

    Well, it isn't. Expecially when you're trying to set aside a little money accumulation to support your retirement in old age.

    Analyst Doug Casey puts it like this:

  "You’ve heard that central banks are trying to create a little bit of inflation because, they say, 'A little bit of inflation is good.' No, even a little bit of inflation is deadly poisonous. For two reasons: It creates the business cycle. And it destroys the value of savings. Saving is the basis of capital creation.
   "People who say that a little inflation is a good thing are dangerous fools."

       In the past century money inflation has driven the purchasing power of the U.S. dollar from $1.00 to less than 5¢. The popular delusion that destroying the buying power of currency is a healthy economic trend is a growing mystery. We'd like to hear some bright  people discuss it in a public forum.