Wrisley.com

When borrowing becomes risky.

   Even Jerome Powell, the Federal Reserve chairman, sees a measure of danger in excessive borrowing - and he warns that businesses may be borrowing "too much."

    It's odd to hear the head of the US central bank suggesting there's such a thing as too much debt. After all, it's the general willingness of business, government, individuals, et al, to take on endless debt loads that keeps the economic engine running. If all these entities slammed on the brakes and began spending within their means we'd suffer the worst deflationary depression in history. Deflation is generally believed to be avoided at all costs, although it's beneficial to people who have a cash accumulation and little or no debt. Deflation is a distaster to people who are overloaded with debt.

   "Investors, financial institutions and regulators need to focus on this risk today while times are good," said Chairman Powell.

   An old saying by Benjamin Frankling seeps into our mind: "Pay what you owe and you'll know what you own. "

What's Your Net Worth?

    The quick method is add up all that you owe and all that you own outright. There are a couple of caveats here. We tend to fix a greater sale value on things we own outright. For instasnce, if you have a couple of gold Krugerrands tucked away in the bottom of your sock drawer it's a mistake to calculate their galue at the present retail or spot rate. We usually forget that commercial gold buyers pay WHOLESALE and not RETAIL. Key point: One usually pays retail when buying and receives a wholesale price when sellivg precious metals. .

     Census data indicate that Americans are living pay-check to pay-check at a very high rate and are carrying very high levels of debt. Think - mortgage loans, car loans, student loans, etc.

      Rainy days savings are almost non-existent in a high percentage of U.S. households.

      Something to worry about? Possibly. It seems to us it's time to adopt some contrarian habits - including paying down debt, avoiding new debt whenever possible, and living below one's income to the greatest extent possible. It's time to modify spending habits if you find yourself behind the financial eight ball. Especially if you discover you have a negative net worth! The peace of mind that solvency provides is far more enjoyable than the morbid feeling of heavy debt.

Try answering these questions from John Stossel

   
"Look at the dollar bills in your wallet. They say they are 'legal
tender for all debts.' But are they? What makes them valuable? What
makes them worth anything? Each bill says, 'In God We Trust.' But God
won't guarantee their value. The $20 bill depicts the White House.
Congress is on $50s. But neither
guarantees the value of our dollars. I wouldn't trust them if
they did. I don't trust
politicians, generally, but I especially don't trust them with money.
Since President Richard Nixon took the U.S. off the gold standard, the
dollar has lost 80 percent of its value. So what makes money
trustworthy?" IN
MONEY WE TRUST?

      

    Stossel
summarizes the PBS documentary.  

      

    Here's a link to the PBS video,
      "In
Money We Trust?" 

      

The China - U.S. Conflict

   Mr. Doug Casey is a veteran commentator on fundamental economics. Many people are skeptical about his predictions and take him with grains of salt, while others believe his analysis makes good sense and heed his warnings.

    Says Casey, "But there’s always some good news. Here the good news is that most of the real wealth in the world – skills, technologies, buildings, things of that nature – won’t disappear just because the economy collapses. Most of the real wealth will still be here. It’s just going to change ownership."

    So, Casey's forecast includes a collapse of the economy? How could such a crisis occur with more experts at the financial controls than ever? Surely a collapse would never be permitted! Besides, the banking system can create a nearly endless supply of money through Quantitative Easing and other techniques?

     NOT JUST A TRADE WAR

How much paper and coin currency is in circulation?
Bill Sardi has been rumaging among the data and has come up with this:

   "As of January 31, 2019 money in circulation is comprised of Federal Reserve notes ($1,655.2 billion), U.S. notes ($0.2 billion — apparently some of those silver-backed US Notes that were issued during the years John F. Kennedy was President is still in circulation) — along with dated currency that is no longer issued ($0.2 billion), and coins outstanding ($47.2 billion)." HUMPTY DUMPTY'S FALL

   We don't agree with all of Mr. Sardi's surmises, such as the U.S. notes still in circulation coming from "silver backed notes issued in the years of John F. Kennedy." The hoard of silver certificates sill in circulation are mostly Federal Reserve Notes which were redeemable in silver until 1968. Now they are merely collectible curiosities. But old U.S. notes are apt to be descendants of the old Civil War "greenbacks"

   Note that metal currency (coins) amount to a piddling $47.2 billion. They are not "notes" (IOUs) but gain their intrinsic value from their metallic content which doesn't come close to their face value.

    Obviously, cash currency is in short supply. Throughout the world the supply of actual Federal Reserve Notes is only $1.6 trillion. Most of the money supply exists only as electronic memoranda in computers.

This chart is worth reviewing. It confirms what many of us have long thought: Price inflation is thriving!

The chart traces various elements of the Consumer Price Index since 2000. Nearly 20 years of steady price inflation...particulary college tuition and fees (+103.7 percent), medical care costs (+93.7 percent) and energy (+88.7 percent.

The Federal Reserve's target annual inflation rate is 2 percent. That means it is striving to knock two cents off the purchasing power of the U.S. dollar each year. It means if the best you can get in interest for your savings is less than two percent you are losing money. Hardly the best way to get ahead!

Central banks and foreign governments from around the world are buying up gold at the fastest pace in six years.

      Now, why in the world are central banks buying up gold? Don't they know it was long ago labeled a "barbaric relic" which has no business trying to pass itself off as "money"? Money, as everyone knows, is paper scrip, certificates, bonds, electronic records in bank computers, etc. Not gold. Not silver.

       Simon Black looked into the gold hoarding programs of many of the worlds central banks. CENTRAL BANKS BUYING GOLD

        Black also points out that a great deal of the enormous U.S. debt is held by foreign nations. These bonds (certifiates of debt) could turn into a horror story if foreign holders decide to dump them for another currency possibly backed in precious metals.. The U.S. dollar has not had a connection to gold for nearly 48 years.

Tip 'O the hat to Alex Mooney.

   Mr. Mooney is a Republican congressman from West Virginia who has been trying to find out whether the government's statement of gold ownership actually matches the amount of the shiny metal in the vaults. The last time an official audit was made was 1953. Mooney also wants to know if any of the metal has been loaned or sold . Rumors have circulated for years that some level of hanky panky may have occurred. People like Rep. Mooney are merely asking for an official audit.

    So, he has introduced "The Gold Reserve Transparency Act (H.R. 2559) which not only calls for the assay, inventory and audit of all gold in the government and Federal Reserve vaults, but also a full accounting of all encumberances such as leases, swaps, or other such transactions.

    Prospects of anything happening with the bill are nearly nil. For one thing, mainstream news media cannot find time to examine bills such as this as they are aware how mind-numbingly dull the subject of gold money versus fiat paper banknotes can be.

    We have a hunch the subject will nudge its way into the national conversation - - possibly in time to spice up the political campaigns of 2020.

Local newspapers are failing to make the digital transition larger players did —

and are in danger of vanishing.

   There was a time when a great many people poked their noses into newspapers at breakfast time. People read them on buses and trains on their way to work. People read them AT work and on lunchbreaks.

    Today the scene has changed. People are becoming hunchbacks bent over their digital device screens. This has been bad for local newspapers. In our own case we are paying more for the local paper subscription than we do for the daily Wall Street Journal which is packed with everything except local news.

    The shrinking of the local news landscape has left us in short supply about what's happening hereabouts. Moreover, associated with our subscription to the print edition the paper jams our emailbox with constant reminders of "breaking news." We are not so hungry for news we must stop whatever we're doing every five minutes to examine the digital version of the publication.

      Broadcast news is not very satisfying either. It is almost impossible to pick up the facts of a political event because reports are so clouded with "interpretation." Announcing a political item and then asking an "expert" for his opinion in not "news." It is usually old-fashhioned propaganda. Also, local TV news leans heavily on filler material such as charitable fund raisers and other promotions. Not "news" in the classic sense.

      With colleges and universities grinding out journalists in record number we wonder where graduates will find jobs with so many local newspaper closing? Future of Print.

What a mess civilization would be in if there were no universal standards of measurement. Could there be civilization in the first place?

    We take for granted that 16 ounces constitute a pound and that 8 furlongs (5,280 feet) equal one mile. No one questions there are 2 pints in a quart or 60 minutes in an hour. Weight, distance, time - there are precise standards for measuring almost everything. Except money.

    Strangely enough, people are willing to measure their economic transactions with something that is based on no fixed standard at all! The U.S. dollar.

    The U.S. dollar once had a precise physical dimension. It was a coin containing 371.25 grains of pure silver. Later it was also defined as 22.32 grains of gold. U.S. dollars now exist chiefly as digits in countless computers and also as paper notes circulating in denominations from $1.00 to $100.00. By definition the notes are IOUs, although they are generally accepted in payment because the government has declared them legal tender. (Some merchants refuse higher denominations of notes such as $50.00 and $100.00. They are entirely within their rights.)

     Circulating coins, the smallest fraction of the money supply, are not IOUs. However, with the exception of the five-cent piece they don't contain metal that is valued anywhere near their face value. When the dollar was a silver coin the half-dollar, quarter-dollar, and dime contained silver proportionate to their stated face value. That is, a dime contained 1/10th the amount of pure silver as the dollar. The cent and nickel were minted for change-making in small transactions and contained no silver. Hence, their dimensions had nothing to do with those of the dime, quarter-dollar, half-dollar, and dollar. Also, they did not have milled edges as silver coins did to discourage scraping metal from the edges. (An ancient practice called "clipping".)

    Gold and silver coins emerged as useful money because they were perceived as valuable and durable. They became widely accepted as media for exchanges in the marketplace. The intrinsic value of money was about the same value as the items exchanged. A bushel of corn, for example, might be worth 30 grains of silver which, in turn, might trade for a pair of leather sandals. The actual exchange was corn for sandals, but a small silver coin containing 30 grains of silver became the conventional medium to expedite that exchange.

    The coin was also a store of value. The exchange of goods or services didn't have to occur on the spot. Goods could be traded for money and the money, a carrier of actual value, could be exchanged for goods or services of like value at a later time.

    Money was a standard of measure. The silver content was guaranteed by a trusted authority whose mint struck coins of equal quality and precise content.

    That was it in a nutshell; To be an efficient measuring device money had to 1/ be widely accepted as a medium of exchange, 2/ store value over time, and 3/ be a reliable standard of measure. Modern currency has lost all but the first attribute

How Fast Should the Dollar be Allowed to Depreciate?
Should we care the $ loses 2 or 3 percent per year?

   In these days of perpetual monetary inflation we take for granted that anyone with a few spare dollars rarely benefits from depositing them in a bank account. A yield of 0.05 percent is a drop in the bucket in an era of depreciating currency. Think about it. You lend your cash to a bank which lends it out at a much higher rate for profit.

    But the Federal Reserve makes it clear that their objective is to depreciate the dollar at a rate of at least 2 percent, annually. The Fed is plainly saying "Our policy is designed to reduce the purchasing power of a dollar in one year's time to 98¢." If you want to maintain purchasing power and the Fed is successful in maintaining a 2 percent inflation rate you must rent out your spare cash at 2 percent in order to break even!

     There are a few banks presently offtering 2.1 percent, which at least offers savers a break even position against the present rate of price inflation. But beware pressure on the Fed to uncork another round of lower rates. That has the potential of dipping into negative interest rates. Under such a bleak scenario bank depositors will generally PAY the bank to hold their money.

      What does the future hold? We have no idea. But we know what the historical record shows. In slightly more than the century the Federal Reserve has existed the purchasing power of the United States dollar has fallen from $1.00 to less than a nickel!