"It is easier to believe a lie one has heard a thousand times than to believe a fact no one has heard before." 

                  ~Robert Lynd

 

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(Caveat Emptor)

News and opinion from all over the political universe. 

Much of it to be taken with several grains of salt.

August 13th, 2020

MAIL:  The Editor
"If you have extra coins at home, please use them to make purchases— or deposit them at the bank or exchange them for cash. Help get coins moving!"
~Steve Mnuchin,  Sec'y of the U.S. Treasury (via Twitter)

    Coin shortage?  Not really.  Almost every household has a stash of coin cash.  In some cases jars and boxes of coins. In others, small stashes in purses, bureau drawers, and under couch pillows.  U.S. mints stamp them out in large numbers, but the virus pandemic nearly stopped production for a while.  However, the mints have been returning to production since June.  In the meantime, "normal" circulation has lagged, according to bank officials. 

    As inconvenient as coins are they actually have more physical value than their paper equivalent.  In fact, the metallic content of U.S. one cent coins minted before 1982 is almost two cents!  Moreover, coins are not IOUs as are paper Federal Reserve notes.  The banking system buys paper notes from the Bureau of Engraving and Priinting at a rate unrelated to the face value.  The Fed pays the same for a skidload of $100.00 notes as it does for a skidload of $1.00 notes.  However, it must pay face value for coins it buys from the U.S. mint.  If Mr. Mnuchin can persuade citizens to turn in their spare coins at face value without banks  paying a premium he makes a smart business move.  In other words..while four quarter-dollars and a $1.00 paper bill have the same purchasing power, their physical properties are vastly different.  Although made of base metal the coins  contain the metallic value of the copper and nickel.  Federal Reserve notes, on the other hand, have no intrinsic value and are notes (IOUs) signed by two government officials confirming that the United States owes the Federal Reserve whatever figure is printed on the note. 

    Bottom line:  Beware trends toward a totally cashless society.  Hang on to some of your spare change.  Coins are the closest thing we have to actual money.

 
Wearing surgical masks - a personal choice, governmental order, or suggestion?
    We went to Walgreens Wednesday morning and spent  $48.83.  We handed the checkout clerk exactly $48.83 because the store conspicuously posted notices concerning a "coin shortage" and encouraged the use of credit/debit cards or exact change. We also wore our cumbersome facial mask and took care to stand at least six feet behind other customers. We inquired if customers comply with the  "exact change" request. She might have smiled - we couldn't tell - but with a chuckle she replied that it didn't happen often.

    It's true carrying loose change around can be a bother.In our youth we put up with it because coins carried a lot of value, making them worthwhile. We clearly recall the days when a twenty-five cent piece would buy five 12-ounce bottles of Pepsi Cola. It was promoted by a clever jingle: "Pepsi Cola hits the spot. Twelve full ounces, that's a lot! Twice as much for a nickel, too. Pepsi Cola is the drink for you."

    The quarter-dollar doesn't buy much these days. People use them to operate snack dispensers and commercial washing machines/dryers. Some parking meters still take them. In the early days of the USA a fellow could get a shave and a haircut for two bits. (Twenty five cents.) In the early 20th century some New York taverns would supply a mug of beer and a generous sandwich for five cents. A quarter-dollar would buy lunch for five days!

   But the government does not REQUIRE that people pay for purchases with exact change. However, a mask-wearing rule has been laid down in many communities. Many people hate masks and don't feel they should be forced to wear them. This has led to some interesting altercations.

  
Pandemics of the coronavirus variety scare the hell out of people and they usually go along with whatever "experts" proclaim as useful behavior. Our apprehension comes from a growing doubt that government can pay the soaring costs involved with the virus and paper over the shocking effect of economic slowdown.

   On the bright side...there are some light moments.  We, for one, love the idea of walking into a bank wearing a mask! Also, we don't feel an obligation to shave as oten as we used to.

    

         FICA'S FUTURE

        ITEM: "The Old-Age and Survivors Insurance Trust Fund, which funds Social Security benefits, could deplete sooner than the projected 2035 date
as fewer people pay into the system andthe U.S. dollar
continues to weaken."

         
Can you imagine the Social Security system running out of money?  We bring up the subject because th We clearluye 2021 inflation adjustment will be set by Congress next month.  The subject is not nearly as interesting as the election contest between Donald Trump and Joe Biden and hardly anyone believes the famous Social Security Trust Fund can possibly run out of money even if the economy stays in the slow lane for quite some time.

        The fact is the Trust Fund contains mostly IOUs (government securities).  The cash was spent by Congress as it came in, exchanged for paper promises to repay (securities) when necessary.  No one believes the fund can possibly run dry, even when incoming FICA taxes do not meet the promised outlay  - which is the case right now.
         If you're in your 90s the fact that the Social Security well will run dry in fewer than fifteen years should not be a concern.  But for the younger "old people", the ones in their 60s and 70s, the prospect looms as serious.
$48,83
         "Not to worry," says the politician running for re-election. "We won't run out of money.  We are no way limited in the amount of money we can borrow and the Federal Reserve is obliged to stand behind us no matter how high our debt runs."

         This is shorthand for "We can inflate the money supply 'til the cows come home if we have to."

          That's true.  Except the cows always come home and no money inflating in the history of the world has ever NOT STOPPED.  Rep. Howard Buffet of Nebraska was correct when he said in the 1940s that fiat money systems always collapse

          So, let's see what the price inflation is in September (CPI) as it will indicate the size of indexing to compensate for the weakening dollar in 2021.
'
  
  
By the way, look for he gradual elimination of paper money. Only a fraction of the money supply is in hand-to-hand currency anyway.  It's far more efficient for the Fed to create dollars via computer keyboards than order the paper ones from the Bureau of Engraving and Printing.
In Sweden, as Egon von Greyerz reminds us, no one carries or pays with paper money. Even for small amounts like a loaf of bread, a credit card is used. No question. With the digital money age in full swing wheelbarrows full of paper dollars will never be necessary. And how can bank runs occur when there are no paper dollars to stand in line for? (Yes, ATMs can be shut down with only a few key strokes.)

   The world's currency systems are in a state of flux. How all this will shake out is anybody's guess.

    Should we all rush to bitcoin and other digital currency? No. These are all fiat currencies like the dollar, euro, yen and the other IOUs that presently serve the money function. The subject needs plenty of study but politicians and news media hate to discuss such dull topics.  Racial discord and political clashes are far more interesting.  A Tweet from a boor in the White House gets more attention than the soaring price of groceries and medical services costs.

 


   "These are the times that try men's souls."  ~Thomas Paine.
    When the British born Thomas Paine wrote that famous line the American colonies were bestirring themselves about their role of being underlings of the Mother Country, Great Britain.  "Taxation without representation," and all that.  Thiey were trying times.  Not all of the colonists  favored a political break with the Brits buthe Declaration of Independence set the wheels of revolution in motion and every knows how that turned out. 

     As for the monetary unit created by the Continental Congress, despite the written promise of redemption in honest money the paper issue failed.  It resulted in a fierce inflation which lives on today in the old expression "Not worth a Continetal."  The Founders understood the danger of issuing such paper currency and wrote a sound money provision into the U.S. Constitution - ratified in 1789.  By 1792 a Coinage Act had been approved and for nearly a century the United States transformed itself from a fledgling nation of thirteen seaboard colonies to a vast nation that led the world in mechanical, social, and economic advances.

     It is rarely discussed, but the Constitution's provision for sound money was never amended.

     
Now, the USA is embroiled in the destruction of its fiat currency, an economy that has fallen into recession with the shadow of a 1930s style depression lurking backstage.  We are required to hide behind hideous masks in an effort to protect ourselves and others from a worldwide virus pandemic.  And in three months we'll  march to the polls or post offices to cast ballots in one of the strangest elections in USA history in which two dominate political parties appear to support the same goal.....bigger government.  One heading to the political left as fast as it can and the other waffling around in confusion. 

       "These are the times that try people's souls.  Indeed."



"I pledge allegience to my flag and the
republi democracy for which it stands....."

   When the flag pledge was introduced in a youth magazine in the late 19th century it was intended to be used in public school classrooms to remind children how their loyalty should be directed.  In those days the United States was defined as a REPUBLIC.

    The pledge was simple until Cosngress got hold of it and "improved" it in the 1920s to make sure the tots understood clearly which country the flag flew over.  The original pledge didn't mention that. 
   
      In the mid 1950s authorities noticed the flag pledge didn't mention a Supreme Being, so they inserted "under God" into the script.  However, they still haven't got around to changing the word "republic" to "democracy.'"   It really should be done for the nation has spent several decades evolving into a modern variety of democracy which was not the intent of the writers of the original Constitution.  (They created a representative republic.)

      History doesn't seem to treat the democratic framework of government very well.  The theory is swell.  It promises that citizens who find themselves financially inconvenienced can count on the generosity of others to help them.  This is a huge attraction to a voting majority.  John Adams warned against it.  So did many others of his day.  And in 1776 the Scot professor Alexander Tytler  summed up his study of collapsed democracies through the ages:

"The average age of the world's greatest civilizations has been 200 years.  These nations have progressed through this sequence:

"From bondage to spiritual faith;
 from spiritual faith to great courage;
 from courage to liberty;
 from liberty to abundance;
 from abundance to selfishness;
 from selfishness to apathy;
 from apathy to dependence;
 from dependency back again into bondage."          THE CYCLE OF DEMOCRACY

      Which brings us to the election of 2020.  Neither of the two major political parties offer much hope by way of platform promises.  We used tdo believe we had a choice....either a party promising more largess from the public treasury or one pledging to trim waste and strive to eventually produce a balanced budget.  We played along knowing very well the hollowness of political promises.  (!) 

     Today we can choose between big federal government and bigger government.  The lesser of evils, as it were.  We have the gut feeling a lot of frustrated voters will stay home on November 3rd.   


New York (CNN Business) "Gold prices continued their scintillating run Wednesday, rallying yet again to hit an all-time high of above $1,950 an ounce."

      Not entirely true. CNN forgot to calulate the inflation factor in its comparison of present gold prices and the "high" of 2011.  Today's price would have to be over $2,230 per troy ounce to match the purchasing power of the 2011 dollar.

       Speaking of the purchasing power of the U.S. dollar. . . What's all the talk lately about the dollar losing its grip as the THE reserve currency in world trade?

      The topic has caught the eye of the NY Sun editorial department and today's comment on the matter is well worth the read.  DOUBTS ABOUT THE DOLLAR EMERGE.
< We're not rooting for the displacement of the dollar by yet another fiat currency, but ever since weathering the heavy dose of monetary inflation of the 1970s we've expected the ruin of the dollar would be the eventual result of loose monetary policy.  In fact, in our own lifetime we've seen the purchasing power of the dollar dive from $1.00 to about 5 cents.  So, years ago we climbed on the bandwagon touting the return to sound money.  Only recently have we seen many other passengers climb aboard.  We're delighted to see the likes of NY Sun publisher Seth Lipsky calling for the re-establishment of a trustworthy monetary unit. 
August, September, and October will go by in a flash.  
   The robo caller political pollsters have begun to bug us. We don't participate in their inquiries although we plan to cast ballots in November.  So, what good is a poll of voters if many of them won't spill the beans about their present political views?  It does provide employment for pollsters. That's helpful to some extent.

   We had hoped a political statesperson or two would emerge as candidates for the top offices but that apparently will not happen.  Joe Biden is well past his prime and has chosen to climb aboard the leftist bandwagon which is bound for some socialist Nirvana.  Donald Trump will ride atop the GOP wagon headed for something no one can clearly ascertain.  He appears to think if we'd let him run the U.S. as a dictator everything would fall into place.  Sadly, the platforms of both the Democrats and Republicans are not clearly evident and the hapless citizenry is split right down the middle on public issues. 

    Unless a drastic change occurs we will go to the polls or our mailboxes in November to choose the less destrucive of two candidates for the office of U.S. president.  Will it be the election of 1932 all over again?  We've heard that, but when one reads the Democrat platform of that long ago election it's clear that the Democrats promised a more efficient government and Candidate Franklin Roosevelt went on the record promising that the nation's money unit, the dollar, would be maintained at all costs.  The Democrats won and the opposite occurred.

    These are interesting times.  Shelves full of books are being written about  them. 

  

BANKS GIRDING FOR LOAN DEFAULTS

   To no one's surprise the U.S. has been officially in an economic recession since February.  Reacting to the outbreak of a worldwide virus pandemic commerce came to a screeching halt as governments declared emergency shutdowns of almost everything.  Joblessness  soared from just under 4 percent to well into double digits.  Anyone handy with a sewing machine seemed to take up the surgical mask making business.  Congress and the Federal Reserve kindly created a phenomenal amount if new cash and pumped it into the pockets of hard hit businesses and individuals.  We're now fighting among one another about how far and how fast to reopen the economic machinery in light of daily headlines that blare frightening numbers about increasing virus cases and deaths therefrom. 

   So it's little wonder businesses and individuals who had taken on very heavy debt loads during the perceived recovery from the 2008-9 recession found themselves suddenly stuck for liquidity to make mortgage and other loan payments. Banks see it comiung and have been setting aside large reserves to soak up the losses from likely defaults. 

    And now we find ourselves in another recession that can, without much more pushing and shoving, sink into an economic depress whose duration could run on for quite some time. Hardly the situation any politician running for high office wants to face in an election that's less than 4 months away.