"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."    ~Ludwig von Mises

     


August 21st, 2019
LINKS  PAGE 
(Caveat Emptor)

News and opinion from all over the political universe. 

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

Email: Wrisley.com

   The Recession Reality.

Trump is no dumbell when it comes to understanding the whims of people with their money.

   President Trump has caught a whiff of economic recession in the air and is tweeting his head off about it, assuring everyone within earshot that the present economy is in pretty good shape, thank you, and privately hoping that a recession will not hit until after the November, 2020, elections. 

      He understands perfectly well that consumer activity accounts for about 70 perent of the Gross Domestic Product (GDP) and that consumer willingness to take on debt accounts for large measure of  the bottom line. 

      Michael Lebowitz and Jack Scott have tried to untangle general understanding of the signals that portend recessions, but the general public is most likely to take its cue from the daily media coverage. 

     "We can follow all the economic data and trends diligently, but consumption accounts for over 70% of U.S. economic growth. Therefore, recessions ultimately tend to be the effect of changes in consumer behavior. If the narrative du jour is enough to trouble even a small percentage of consumers, the likelihood of a recession increases. The evidence of such a change will eventually turn up in sentiment surveys, and when it does, the problem has already taken root. This is not a dire warning of recession but rather offers consideration of a legitimate second-order effect that potentially threatens this record-long economic expansion. 

   "While the media focuses on the inversion narrative, alerting the public to recession warnings and driving consumers to re-think their planned purchases, we care more about when the yield curve will steepen. The steepening curve caused by aggressive Fed action after a curve inversion is the tried and true recession warning. For more, please read Yesterday’s Perfect Recession Warning May Be Failing You."                   ~Michael Lebowitz & Jack Scott

    Bottom line:  The more talk you hear of lowering interest rates, cutting payroll taxes, capital gains taxes, the more sure you can be political leaders are trying to keep  recession at bay.  They understand perfectly that when consumers feel more dollars will come into their pockets the more willing they will be to spend it.  It's when the sense that money is in short supply they tend to lay out less of it.  When that happens the recession bells go off.

*  *  *  *  *  *  *  *  *

   American economists have been polled on the subject of "the coming recession" and a majority say it will probably not happen until 2021. A few believe it could land on the national doorstep in 2020 which would be calamitous for the Trump re-election campaign.

    Democrats are still busy trying to annul the 2016 election results, but as the campaign heats up for the 2020 election don't be surprised to  see them push liberal economists into the spotlight to explain that Trump has become Herbert Hoover and their candidate is FDR reincarnate with a plan to set everything back in order. 1932 - - "
D
éjà vu
all over again!"


The Dollar: A Simple Definition

Everybody knows what a "dollar" is, but most of us are baffled about its troubling elasticity. 

Why, in a logical world, would a unit of money not hold its value over time? 

It's puzzling to learn that the U.S. dollar of today is worth about a nickel  compared to the dollar of 1930.  What use is a money unit that can't hold its purchasing power over long periods of time?  The U.S. dollar held up very well  during most of the 19th century but lost its store-of-value function in the 20th.  The slide began in earnest in the early 1930s. 

At the rate the dollar is losing ground it could one day be worth nothing.  The destruction of the Zimbabwean dollar a few years ago was a good example of currency becoming worthless. The rotted currency of Zimbabwe was only one such episode in a long history of hundreds of such failures.  In fact, the U.S. suffered a period of hyperinflation  in the 18th century under the Continental Congress.  The Continetal paper dollars became worthless, prompting the authors of the U.S. Constitution to demand a new money unit be made of a defined weight of silver.

The provision defining  the dollar as a specific weight of precious metal has never been annulled or amended.  Congress abandoned the U.S. Constitution on the matter of money by a series of steps over a long period of time.  The dollar was officially defined as 22.32 grains of gold when Franklin Roosevelt won the presidential contest in 1932. It is no longer legally defined in any weight of any instrinsic thing.  Until November, 1963, the Federal Reserve Note  was redeemable in "Lawful Money."  That promise was removed. Today the dollar, like most of the monies of the world, is a fiat (irredeemable) currency. 



 
< The dollar was defined as 22.32 grains of gold?
  
     In the good old days of bimettalism people had a pretty good idea what money was. It jingled in the pocket and consisted of either silver or gold coins manufactured at the U.S. Mint.  (Minor coins for change-making were made of copper or nickel.)
 
     From 1792 until 1873 the dollar was defined as a specific weight of SILVER. In February, 1873, the mint became part of the U.S. Treasury and a weight of GOLD the definition of the dollar. The system became bi-metalic again in 1893.

     Congress passed the Gold Standard Act March 14th, 1900. $1.00 gold coins were too tiny to be practicable, but by the Great Stock Market Crash of 1929 a dollar was lawfully defined at 23.23 grains

      Knowing there are 480 grains in a troy ounce one divided   480 by the defined number of grains in the dollar, 23.23. This resulted in $20.67 per troy ounce. The popular $20.00 gold double eagle contained just UNDER 480 grains of gold accounting for 67¢. The gold eagle coins gave rise to the payday excalmation "The eagle flies today!"
    




  
"Sticks and stones may break my bones . . .
But names will only annoy me."
     There's a kind of childishness surrounding the manner in which popular news media cover political gossip. One gets the impression the old days of reporters bent over the Associated Press printer for the latest on events at Washington, DC and other hot spots have long since been replaced by scanning leaked emails and  tweets by loud-mouth politicians.
    
       It's not that we object to the breathless reports of name-calling, innuendo, outrage and basic gossipy-ness of modern news dissemination - after all we're for free speech.  But we came through the days when reporters and newscasters were generally urged to stick to the facts and let the readers and listeners draw their own conclusions.  The Op Ed pages were reserved for opinions. Imagine Ed Murrow on his nightly CBS radio show casting aspersions at politicos whose views he didn't personally like.  He would merely tell the facts of a prominent person's nitwittery and let the listener draw his or her own conclusions. 

       We recall also the days when a news broadcaster was required to actually count the lines of text covering political contests to be sure that a balance was maintained in the reporting of Republican and Democrat candidates.  That practice also long ago went by the boards.

        The political bias that has crept into modern journalism is in keeping with the laxity of the times.  Where it is leading no one can be sure.




   A persistent question: "What's the matter with money?"
We keep coming back to  the fundamental question.
    We're pretty sure a relatively clever 2nd grade public school teacher could convey this fact to a roomfull of pupils.  IF MONEY IS PLENTIFUL ENOUGH IT IS NOT VALUABLE ENOUGH. IF IT IS VALUABLE ENOUGH IT IS NOT PLENTIFUL ENOUGH.
 
  This is true no matter what one considers "money" to be...Federal Reserve notes, gold, silver, even the Native American wampum that circulated as a store of value and medium of exchange when the European immigrants arrived. Scarcity invariably conveys value. Even toilet paper becomes highly prized if it's scarce. Ask a citizen of Venezuela.

   Gold and silver are limited by nature. It's costly and labor intensive to wrest these metals from the earth. Printing press money is far easier to get. A government authority prints "Legal Tender for all Debts, Public and Private" on bits of paper and money scarcity is all but eliminated.  BUT - as it becomes more plentiful it becomes less valuable.  It's a pity this fact is missing from the political debates.




    It's really sad to see and hear public discouse descend to the level it has, thanks to advances in technology.  Now that everyman can broadcast snap judgements and shallow opinions via the social media - and, in turn, be picked up by the so-called "legitimate press" -  common sense and moderate language have flown out the window.  A short review of public comments that follow commentaries and reports on many web sites seem to indicate that people are not generally well versed in the use of the English language and are also prompted to interject as many obscenities as they can. 

    Is this all just free speech carried to greater efficiency in the 21st century,  or is it an indicator of a long-running decline of public self-censorship?  And does it matter? 

    We think it does.  Senator Mitch McConnell calls for "a better level of discourse."  We ought to encourage it.  At the moment the only prohibition that remains intact is the admonition that the word "fire!" ought not be yelled in a crowded theater.



"Some $13 trillion of debt securities world-wide are priced to deliver a yield of less than zero."
 There’s been nothing like it in 4,000 years of recorded interest-rate history.
   
    A precise legal definition of the dollar is hard to come by. James Grant recently brought the subject up in the Wall Street Journal opinion page.

   His piece supports the nomination of Judy Shelton to the Federal Reserve Board. She has often written of advantages that accrue when a nation's monetary unit is defined in actual weights of wealth - such as precious metals. Modern economists howl in anguish at the idea of restoring redeemability of the dollar. At present the dollar can be exchanged for wealth but is not, in itself, wealth. It's an IOU.   

    "So what?" you ask. "As long as the Fed can print up more dollars we'll always have enough money to go around."

     That's the general impression. The fact the Fed can order bales of paper money from the government printer and create additional electronic dollars with just some taps on keyboards is a convenient way to inflate the money supply. But that leads to trouble as loose money floods the economy and drives up the general price level.

      It's far easier to create fiat currency out of thin air than to be forced to dig through tons of earth searching for elusive specks of gold, but it's gold's scarcity, beauty, and durability that has made it the most trusted money over the past five  millennia. The famous banker, J.P. Morgan, wasn't kidding when he said "Gold is money. Nothing else." Ask a politican the difference between a $50 Federal Reserve note (a legal tender) and a $50 U.S. gold coin (also a legal tender) and you'll understand why such confusion reigns. Jim Grant is trying to shed light on the subject. ABANDON THE PhD RULE
  



   "Central bankers around the world are admitting that low interest rates can't sustain real growth." -- George Melloan

   Aha! All our life we have heard that monetary policy by the powerful central banks was the "engine of economic growth."  Now that notion is being revealed as the myth that it is. Mr.Melloan reports  that the myth is falling apart and central banks are running out of ammo. His main point is that low interest rates stimulate borrowing but that isn't the same as actual economic GROWTH. 

    Small wonder, says Melloan, that Democrat candidates like Senetors Warren and Sanders debt is no problem and and more government "freebies" can be simply financed by mere borrowing. (The public debt is now over $22 trillion.)

     Speaking of which, the federal government may run into trouble by September in paying its bills. It's assumed Congress will raise the debt ceiling in September so borrowing can increasse on October 1st. But at the moment it looks like several federal agencies may run out of money by the end of September.  Stay tuned!


The Democratic promises of the 1932 campaign were not kept.

    An honest look at the Democrat political campaign of 1932 clearly shows the Democrats may have deliberately misled the voters.  Here are the first three planks of the Democratic Party platform of 1932:

    "We advocate:
     1. An immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus and eliminating extravgance, to accomplish a saving of not less than 25 percent of the cost of Federal government.
    
     2. Maintenance of the national credit by a Federal budget annually balanced.
    
     3. A sound currency to be maintained at all hazards."
   
      Upon taking office in 1933 President Roosevelt threw the campaign promises overboard and steered the Ship of State sharply to the political left. To this day there is a general impression that the New Deal was the best thing that ever happened to the USA. Whereas the people were once responsible for the government under which they lived we saw the government assume responsibility for the people. The world's largest welfare state was born.

 

PREDICTING THE NEXT RECESSION.

We and the Missus have experienced 11 economic recessions since we were married. We may face the 12th in 2020.

   For more than one hundred years the Federal Reserve has been trying to smooth out those economic slowdowns that used to be called panics or depressions, but now are daintily called "slowdowns" or "recessions."  So far the Fed has not found the key to perpetual prosperity.  This fact may be gnawing at President Trump whose chances for re-election depend greatly on the condition of the domestic economy.  If a recession is in the wings it needs to stay there until after the election of November, 2020.

   Professor Harvey says,  "From the 1960s [the yield curve inversion] has been reliable in terms of foretelling a recession, and also it has not given any false signals yet."

   The Yield Curve Inversion refers to the point at which long-term interest rates are paying out less than short-term rates. It occurred at the end of June. 

   No wonder trump is putting pressure on Fed chief Jerome Powell.  The last thing Trump wants is an economic slowdown in the runup to the 2020 election.  If such a slump occured he'd be in the same spot Herbert Hoover was in 1932  - running for re-election in an economic depression.  That set the stage for the overwhelming victory of Franklin Roosevelt and the advent of the New Deal, which put the United States on the road to a quasi-socialist scheme of governance. 

    Notice that the left wing of the Democratic Party has swung even further toward Socialism and it appears to be attracting a considerable number of voters. 




  Historical note: Prior to the Civil War the US got along with national debt of about $90 million (1862)  By 1867 the federal government was almost $3 billion in debt.  It stayed under $2 billion
from 1883 until 1917.  By 1919 the debt had climbed to more than $25 billion!  (War is costly.) These borrowed billions helped make the 192OS "roar."  But the financial bubbles burst in the autumn of 1929 creating a wretched presidency for Herbert Hoover, who took office in March, 1929.

     Franklin Roosevelt overwhelmed Hoover in the 1932 election , called in the people's gold in 1933 and promptly devalued the U.S. dollar in terms of gold - which Americans would not be allowed to possess again for more than forty years.  Borrowing continued to rise in the 1930s and the economic depression persisted. By the time the nation got into World War Two its annual deficit was nearly $50 billion.  But the borrowing went into overdrive when war dragged on. The federal debt had piled up to $259 billion by 1945...122.75 percent of GDP.

     There were a few years in which the national government ran budget surpluses, but the debt pile grew until it reached $995 billion in 1981.  Converted into millions that's 995 thousand million. Still quite a lot of money - - even today. 
        

             The debt pile began to be measured in trillions in 1982. By 1995 the accumulated debt was $4.9 trillion! 

      Politicians have chosen to ignore the debt accumlation. The Treasury Department says it is presently about $23 trillion, but we must wait until after next year's election before our Congressional representatives will admit it may be a Sword of Damocles and something ought to be done about it. The main objective is to make voters happy....and voters have no wish to cough up the thousands of dollars per capita to pay down the towering national debt.

      So - what happens? Can't the debt be declared null and void and just disappear? No - not without wrecking the lives of all those investors in the US and around the world who have invested in all those IOUs in the belief government will make good on its word to redeem them.