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   "Republics decline into democracies and democracies degenerate into despotisms."  ~Aristotle

              

 


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December 2, 2016 

THE BIG MISCHIEF MAKER: DEBT.

   "When most people (when enough people) are willing – are eager – to go into hock for the next six years in order to have a car with an LCD touchscreen, leather (and heated) seats, six airbags, a six-speaker stereo, electronic climate control AC and power everything – which pretty much every new car now comes standard with – the car companies build cars to satisfy that artificial demand.

   "Artificial because based on economic unreality. That is a good way to think about debt. It is nonexistent wealth. 

   You are promising to pay with money you haven’t earned yet.

   "And maybe won’t."   LIFE IN HOCK

   Kudos to Eric Peters for his comments on auto debt.  The consuming public is constantly drawn into deals in which they buy cars they can't afford with money they don't have.  We know all about it, having passed through that phase in mid-life.  We finally figured out the old timers had it right - - "Debt is slavery of the free."  (Publilius Cyrus.)

    In the 1930s Harvard professor P.R. Sorokin made a strong case for living with one's means.  His book. "The Crisis of Our Age"  favored the idea of freedom, observing "A very little can satisfy our necessities, but nothing our desires.  Who has most?  He who desires least."

    This is contrary to modern consumerism which is based on "A little down- - and a little along."  How is it possible to have a thriving economy, say the economic engineers, if consumers are unwilling to go deeply into hock?

     Costly cars aren't the only culprit.  Boats are high on the list of things bought on the installment plan.  Our own fascination with sailboats began in August, 1957, when went for our first sail with a local businessman who had been born and reared in New Bedford, MA.  (We later learned his father had been the prosecuting attorney in the famous Lizzie Borden trial)

      He set us to work tending the jib  of his 19 foot sloop rigged yacht and we were hooked immediately.  On the trip back to the cove, where he moored his boat, we asked "Do banks lend money for sailboats?"  There was a very long pause.  Then came his answer.  "Son, if you have to borrow to buy a boat you can't afford one."  

       We heeded his advice and never bought a boat with a mortgage on it.

        Sometimes an emergency can drive someone into debt.  A furnace fails in the dead of winter and a new one is needed.  The rainy day fund may not cover it and it's necessary to borrow.  There are plenty of occasions when borrowed money can come to one's rescue.  But as Eric Peters notes,  it doesn't really make sense to go into hock for six years for a shiny new car that will lose much of its value the moment you drive it off the lot.  


    HYPERINFLATION RUINS THE BOLIVAR.

This chart is a sad reminder of the economic damage a government can do when it sets hyperinflation into motion by printing excess currency in a hopeless effort to boost the economy. History is littered with such episodes, but each generation seldom looks to the past for guidance in the management of money and makes the same mistakes over and over again.  

   Can this happen here in the USA?  It has already happened, although on a slow-motion basis.  Consider the purchasing power of the U.S. dollar of 1914 compared to the dollar of 2016.  Today's dollar has a value of less than a nickel compared to 1914.  An early 20th century example of what a nickel would buy was reported some years ago by Frank Chodoroff.  For five cents he purchased a mug of beer and an "ample sandwich" for lunch.  

   Our own memory of the "olden days" contains plenty of examples of prices before steady inflation took hold. A twelve ounce bottle of Pepsi Cola could be purchased for a nickel.  Two nickels would gain a youngster matinee admission to a movie theatre for TWO full length features, a newsreel, cartoons, and previews of coming attractions.

    Those were the days, my friend.  We thought they'd never end.  

    Well, they did.   


 "The forces of nationalism and populism have been unleashed all over the West and all over the world. There is no going back."

   After casting an eye on world-wide political trends, veteran scribe Pat Buchanan concludes that the recent election of Donald Trump to the U.S. presidency is but one example of the trend to a populist view on the part of people across  the globe.  

   He's right. 

   It's playing out right before our eyes and we may as well get used to it.  As Buchanan observes, "There is no going back."  Buchanan's View


Got a rupee in your pocket? 
DIf it's a 500 or 1,000 rupee note it will become worthless January 1st. 
Well, who could have seen this coming? The slippery slope towards full government control in a cash-less society is where Indian PM Modi is heading following his chaos-creating de-monetization efforts of the last two weeks. While massive opposition protests are planned, Modi remains indignant, as Reuters reports, “we can gradually move from a less-cash society to a cashless society…this is the chance for you to enter the digital world.”   CASHlESS SOCIETY There's quite an uproar in India about all this.  It bears watching as the proposals for establishing a "cashless society" increase everywhere.  Greece has entered the picture with a call for a TAX on all ATM withdrawals.  Squelching the desire for pocket currency would keep cash in digital form in banks where the hated negative interest rate may apply.  

        The manufacturer in western Massachusetts that makes the paper the currency is printed on won't be happy with the trend to cashlessness, but you can bet a lot of bankers and politicians think it's a grand idea!

In India, if there are five people thinking about making a law, there are 50 people thinking about breaking that law.” ~ Mukesh Butani, New Delhi lawyer.

   After December 30th the 1,000 nd 500 rupee currency notes will become worthless.  It's an attempt by the government to flush cash hoards out of hiding.  If the present nots aren't deposited or exchanged for new notes by the end of the year the owners of high denomination notes could be ruined.

   It's another chapter on the "war on cash".  Messrs. Ken Rogoff and Larry Summers, two prominent U.S. supporters of the cashless system, have already called for eliminating the $100.00 not and $50.00 dollar note by simply ceasing to print any more of them.  There's been no talk of canceling the legal tender status of the 100s and 50s, but without the threat of such an action the present supply of big bills would continue to remain in hoards or circulate in the underground economy.  The coming debate on the subject will bear close scrutiny.

   In the meantime, the Wall Street Journal's report on the Indian struggle to flush hoards into the open is discussed by "Tyler Durden" in BLACK MONEY BACKLASH.


     "The magnitude of wealth today is not due to investment skills but to the enormous growth of credit and money printing that the world has experienced since the creation of the Fed in 1913. This has caused a global explosion in asset values of unparalleled proportions." ~Egon von Greyerz  

   There he goes again!  Von Greyerz, a gold bug from Switzerland, sees danger ahead for the debt-based currency system.  He observes that a paper monetary unit, based on nothing more than a promise  to pay off the debt on which it is based sometime in the future, is less reliable for wealth preservation  than a relatively rare piece of metal wrested from the earth.  History is on his side.

    Gold gets its value from its rarity, beauty, durability, and several thousand years of acceptance as a medium of economic exchange and store of value.  Paper (and digital) currency are evidence of debt....a solemn promise to pay at some point in the sweet bye and bye, 

     As long the major nations of the world hoard gold it's probably a good idea for cautious  people to stash a gold coin or two at the bottom of the sock drawer.  Just in case von Greyerz is right. 



   "Mr. Trump won because the United States has had the 15 worst years of misgovernment by all branches and both parties, and the only period of absolute and relative decline, in its history. The new president will have a clear mandate for reform of taxes, spending, health care, immigration, and campaign financing; for a workfare program to address decrepit infrastructure; and for a redefinition of the national interest between George W. Bush’s mindless interventionism and Mr. Obama’s Panglossian crusade to make friends of America’s enemies."  A Vanquished Press. < Conrad Black reminds us that Donald Trump is the oldest and wealthiest person elected president, the first not to have had a public office or high military command, the first to pay for his own campaign, and the first since Washington to waive his salary.

      These facts aren't the main point of his commentary, but it confirms the wish of voters on November 8th to make some significant changes at the top of the power structure in Washington, D.C.  How Trump will fare over the next four years should be fascinating.  More important, how we-the-people fare has us holding our breath!

One tiny ray of hope.
Although little was said about the problems of fiat currency,
Mr. Trump has hinted he at least has no objection to considering a gold standard.

   Not since Ronald Reagan's election has any serious attention be given to restoring a gold backing to the U.S. dollar.  Modern economists will explain why it will be impossible to return to the "barbaric relic" of a gold standard. They will ignore entirely the fact that all central banks hoard the stuff.  

   The dollar price of gold is already serving a useful purpose as a barometer in detecting whether or not an inflationary or deflationary storm may be in the offing. We're sticking with the dollar price of gold as a reasonable indicator for the average Joe and Jane Twelvepack.  If the price drops it indicates a stronger dollar, which tends to be deflationary.  If the gold price runs steeply higher it's safe to say trust in the dollar is weaker.  The general price level rises. That's price inflation.

   As a kid we lived in a time of a great depression. It had its grim moments.  As an adult we lived through a time of double-digit inflation.  It, too, had its grim moments.  We concluded that whatever happened to the purchasing power of whatever passed for money we would live beneath our means.  The government has rarely been able to do that, which is why it struggles under a huge debt burden and can't seem to fine-tune the economy to suit everybody.

   To illustrate the decline in purchasing power of the dollar....when we were born a troy ounce of gold could be bought for $20.67.   Today it takes about $1,200.00 to buy an ounce of gold. The gold didn't change.  A troy ounce of it was 480 grains of the precious metal then - - and it still is today.  It was the dollar that lost ground.

The big question is: Can the USA clear up some of the money muddle during the Trump administration?

+  +  +  +  +

The Nov. 16 interview with Brietbart's Joel Pollak was too much for NPR.
  We overheard the NPR interview that apparently outraged so many listeners the network's ombudsman has recommend that NPR quit doing live interviews with conservatives.  Pollak stood up for former Brietbart editor Steve Bannon who has moved to an advisory position in the new Trump administration.  The emphasis seems to be on LIVE interviews.  When recorded interviews are made they can be edited in case the interviewee says something the network does not approve.        NPR NPR programming flows mainly from politically liberal centers such as Boston, Washington, DC, and New York.  It's staff and contributors lean heavily left. We would not expect NPR, for example, to say anything negative  about a member of the cast of the hit musical "Hamilton" scolding a prominent member of the audience - Vice President elect Mike Pence - from the stage following the show.  In our view, entertainers are entitled to hold  any political view that attracts them,  but paying customers usually don't go to Broadway musicals to get a political lecture from an actor following a performance.  

We've heard every opinion in the book about immigration.
Here's one that makes good sense.
      "I’m all for immigration and completely open borders to enable opportunity seekers    from anyplace to move anyplace else. With two big, critically important, caveats: 1) there can be no welfare or free government services, so everyone has to pay his own way, and no freeloaders are attracted 2) all property is privately owned, to minimize the possibility of squatter camps full of beggars"  ~Doug Casey  

   Anyone agreeing with Mr. Casey may be seen as mean-spirited and selfish, but the welfare state is teetering on the brink of bankruptcy - the evidence for which can be seen in the funds shortfalls in Medicare and Social Security, not to mention the phenomenal public debt, the strain on school budgets, etc. It's impossible to keep piling newcomers onto the welfare rolls without eventually going broke.


Meanwhile, how goes the global WAR ON CASH?
Joe Salerno brings us an update.

     "The global war on cash is remarkably well coordinated. Less than a week after the Indian government announced it was withdrawing its two highest denomination currency notes, r from circulation, the Anti-Cash Axis, which comprises a witch’s brew of national governments, establishment media outlets, international bureaucracies and, especially, gigantic multinational banks, has launched a concerted attack on Australia."  War on Cash

     ....and, of this 18th day of November, the clash between the forces of inflation and deflation doesn't tell us much.  The dollar price of gold (one of our favorite barometers) indicates the worry about high inflation isn't much of a factor at the moment, but the strength of the U,S, dollar against other currencies hints at that old Debbil deflation.   Example - one can buy a Euro today for $1.06.  

     The quandary here is the Federal Reserve is aiming at inflation - weakening the purchasing power of the dollar somewhat - while world monetary turmoil is presently making the dollar stronger.  Let's hope Mr. Trump and his administration gets a handle on this before we find ourselves sinking into the economic malaise we suffered more than eighty years ago.


     "I can recall that when Obama was first elected Rush Limbaugh said on his radio show that he did not want this leftist ideologue to succeed. Holy cow.  All hell broke loose among the [mainstream media] who feigned outrage — outrage!! — over how 'unpatriotic' and traitorous Limbaugh supposedly was.  All the same people who are now doing everything they can think of to make Trump fail, and will continue to do so for at least the next four years."  ~Thomas de Lorenzo

     He's quite right, of course.  Had Hillary won and Trump supporters had taken to the street to break windows and wreck public property the media would be running hours of video showing how awful the carnage was.  For some reason the childish liberal street protests don't interest media much.

      Yesterday we overheard a portion of an afternoon talk show on National Public Radio (NPR) in which the host was sampling the opinions of citizens who were outraged because Trump won the race to the White House.  It was as if the host had said "If you think your life will be torn to shreds because of Trump, please call us!"

       We think the media ought to tone down their left-leaning rhetoric and bone up on the fundamental economics facing the world.  If Trump and Congress can steer the U.S. from 2017 to 2020 without a painful economic correction (think recession) it will be a miracle.  Mr. Trump may be able to push through a tax cut program but he, like Ronald Reagan, will have to pile up more debt to do it.  Republicans don't like to be reminded that the public debt topped $1 trillion for the first time in 1982.  $1,137,345,000,000.00 to be exact.  

       On the other hand, Democrats don't like to be reminded of the huge debt increase on President Obama's watch.  Trump will inherit a public debt of nearly $20 trillion and unfunded liabilities of an unthinkable amount greater than that.  

        The favorite way to lessen the impact of government debt is inflation.  The sooner attention is given the tug-of-war between the natural force of deflation and the politically inspired method of inflation - the better.  

     '"In a shock announcement on Nov. 8, India declared that 500- and 1,000-rupee notes are no longer legal tender. Imagine that — the money in your wallet or purse is instantly made worthless by government decree. That’s what happened. There were limited exceptions for hospitals and gas stations. Naturally, gas lines formed everywhere, and some people rushed to hospitals to prepay for future medical care with now worthless bank notes. The other exception to worthlessness was if you deposited the notes in the bank. There you would receive 'digital credit' in your account. Of course, the tax man was waiting at the bank to ask you where you got the money. Those without an acceptable answer can expect trouble from the Indian Revenue Service. "  ~Jim Rickards < Predictions about governments promoting the cashless society have circulated for months.  We have posted most them here along with our skeptical comments.  Ken Rogoff, Larry Summers, and other notables have been promoting the idea of not  printing big bills in the U.S., too.

      Some residents of Israel remember the sudden shift to shekels from the  pound.  If you had hoarded pounds you had to .turn them in before they we try tore declared null and void.  If you did you had to explain why you held so many.  If you chose to hold them they became worthless.  

      If the U.S. stop printing $100.00 notes...and even $50.00 notes...it's unlikely Congress will cancel the ones already in circulation.  Congress may  inflate all currency to near worthlessness but they won't cancel their role as legal tender.  Today, for instance, the old $1.00 silver certificates are worth a dollar, even though the Treasury stopped redeeming them in silver in 1968.


   "The Donald has triumphed with an underfunded campaign — he spent barely half of what [Clinton]  did— with a skeletal crew and without the party’s full backing won out because not all of America agrees with the values of Jay Z, Beyoncé, Springsteen, Hollywood in general and gay marriage in particular." TAKI'S TAKE  <     Taki Theodoracopulos's name may seem to be a tongue twister, but his opinions usually make sense and his writing is easy to follow.  His readers call him "Taki." 

          Taki's latest column caught our eye because it deals with the decided heavy-handedness of the mainstream news media in its coverage of the recent elongated presidential political campaign.  We wonder how the news media will get its mojo back.  


Hate Trump. . . hate his appointments. 
The pundits pile in to explain why Trump's choices are wrong. 

   We're still learning the names of Trump's chief of staff and other choices for his presidential inner circle, and commentators are already throwing brickbats.  They are especially critical of Stephen Bannon who has been named chief strategist and senior counsel.  Bannon ran the conservative Brietbart news operation that consistently boosted Trump for the top job.  

    Trump is not going to get much breathing room from the media.  It may be a tough four years for Trump and company, although if he pulls off some of his goals - such as tax breaks for the citizenry and corporations - and the economic engine springs to life, he might get a break from the press.  

     So far, the U.S. dollar has got some pink in its cheeks in parity with other world currencies.  This morning, for instance, you could buy a euro for only $1.07.  The dollar is showing its muscle to other major currencies, too, but the downside is that a strong dollar carries with it the threat of deflation.  This is not what highly placed planners want.  Their goal is a bit more INFLATION.  The Federal Reserve has been aiming for an annual price inflation rate of 2 percent or more, which means they want each dollar to lose 2¢ of value each year.  Unfortunately, stimulating monetary inflation can backfire if it slips into overdrive and produced average price rises in double digits, or worse.

      DEFLATION, on the other hand, is considered a horror of horrors.  It means that the purchasing power of each dollar in one's pocket buys more.  That's good news for savers who have little debt hanging over their heads.  But those saddled with heavy debt are in hot water.  They must pay back their loans in scarcer dollars.  This includes the U.S. Treasury, which historically relies on inflation to lighten the weight of its multi-trillion dollar public debt.  

       Where is the dollar headed?  Up or down?  Using the dollar price of gold as a barometer, it's evident a fear of inflation doesn't predominate.  At least, at the moment.  This morning one can buy 1,217th of an ounce of gold for $1.00.   Last week, prior to the election, one could get only 1,300th of an ounce of gold for a buck.  Strong dollars that buy greater quantities of gold hint at deflation.  Weak dollars point toward inflation.  

        Let's keep an eye on it while everyone else is still fighting over election results. 



THEY PROTESTETH TOO MUCH. 
Destroying public and private property ought to earn considerable jail time.

    Angry protestors believe they are within the law to storm through city streets screaming their outrage, throwing rocks, smashing cars and store windows, and generally behaving like dangerously spoiled brats.  Forgotten is the American tradition of peaceable assembly to voice collective grievances.  It doesn't occur to liberal hotheads, augmented by rowdies who don't vote but enjoy  destroying other people's property, that there's no provision in the Bill of Rights that condones public demonstrations that lead to the destruction of public or private property.  

     We can't recall such carrying-on after Barach Obama beat John McCain and Mitt Romney.  If ticked off conservatives took  to the streets and beat up liberals we didn't hear of it.  Surely, the liberal media would have mentioned it.  

      The present atmosphere of angst, loathing, and outrage of Clinton supporters will eventually taper off and we can get back to worrying about something else, like erosion of the world's currencies and the uncertain future created by the biggest burden of debt the world has ever seen.  Somehow, the fundamental danger of constantly spending more than one's income must find its way into the national consciousness.  It applies to local, state, and national governments just as it does to individuals.  

       Perhaps one day we will see citizens in the street bearing signs citing the ancient remark of Publilius Cyrus:  "Debt is slavery of the free." 


Mainstream news media tried hard to control the election outcome. 
Their liberal bias was not as convincing this time.
    "The public’s loathing and distrust of the press is richly deserved and indicative of one of Western society’s greatest failings: the free press has failed. Only the fact that there is no alternative keeps it going. Few people now pay much attention to the common misrepresentation of public issues and people; nor should they. The American press turned itself inside out trying to portray Mr. Trump as a misogynist, a racist and an authoritarian populist whipping up mobs and inciting violence. All this was unmitigated rubbish."  Loathing of the Press  <   Conrad Black levels his criticism directly at the press. . . including not only newspapers but politically liberal journalism in  broadcast and other media as well.

        We were appalled at the extent National Public Radio (NPR) went in  its talk programming to trash Trump.  We recall many weeks ago a tirade by Max Boot about Trump's "deficiencies."  We waited for the interviewer to challenge him, but he didn't.  We waited for a follow-up interview with someone who  spoke for the Trump camp.  That didn't happen, either.  

        There was a time when broadcasters felt obliged to at least thinly disguise their bias by offering a semblance of balance in their opinion programming.