Wrisley.com

Can credit bubbles be made to run on forever?
Charles Hugh Smith is extremely doubtful.

"All the ironclad promises made in bubble economies ultimately depend on credit-asset bubbles never popping--but sadly, all credit-asset bubbles pop. So all the promises--which are of course politically impossible to revoke--will be broken as all the credit-asset bubbles that created the 'wealth' that was to be redistributed--pensions, retirement benefits, etc.--deflate." Bubbles

Bubbles? What bubbles? The Federal Reserve says inflation is only running a tad under 2 percent, annually. In 1980 it was 13.5 percent. Now, THAT was a bubble created by cheap currency. It would be many years before price inflation would decline to about the present level.

Charles Hugh Smith contends economic bubbles cannot expand forever. History agrees with him, and so do we. One sign of it is the trouble the Fed is having finding a way to get the present economy into high gear.

Social Security: The Political Third Rail

"There are scores and scores of millions who depend on things remaining the way they are. Like the 50%-plus of Americans who are net recipients of benefits from the State… the 60 million on Social Security… the 66 million on Medicaid… the 50 million on food stamps… the many millions on hundreds of other programs… the 23 million government employees and most of their families." The Deep State

We admit to feeling a sense of guilt from living partially out of the pockets of strangers. But the New Deal's Social Security system and the Great Society's Medicare and other government benfits were set up that way. We have been receiving Social Security funds for 20 years. After adjusting for inflation we got back every dime of FICA taxes we and our employers paid into the system since we began our working career in the 1940s.

   The deal was this: If we and our spouse died early that was that. We would not get our money back. If we lived long lives we'd get it all back in a tad less than seven years and begin living out of the pockets of current FICA tax payers.

    But a voice in the back row insists "Wait! There's plenty of money in the Social Security Trust Fund."

     So politicians keep reminding us. We forget, though, that the Trust Fund will be running low on money only 14 years from now. Also overlooked is the fact that the fund's cash has long since been spent by Congress and government securities (notes and bonds) have been deposited to replace that money. Increasing amounts of securities will have to be converted to cash in order to meet future Social Security expenses.

    Putting millions of people into the habit of living out of stranger's pockets is a socialist plan that must eventually founder in bankruptcy.

Republic or Democracy?

         As a kid in the town bugle and drum corps in the late 1930s we remember snatches of patriotic speeches on the 4th of July and other such occasions. Speakers, usually town politicians, invariably used the term "republic" as in "Let us not forget the valiant men who fought to preserve our republic." Or, "It is our duty to preserve the republic for future generations."

     Even to this day we salute the flag "...and the republic for which it stands." No reference to "democracy."

      Legend has it that at the close of the Constitutional convention in 1787 a lady asked Benjamin Franklin, "Doctor, what kind of government have you given us?"

      "A republic, if you can keep it," he replied.

      It's true the distintion between democracy and the republican form of government is not at all clear in the public mind. Nor in the mind of politicians, either. But it's there and worth a Google search.

      It's also true that the world history of the experiments in democracy have not turned out well; lasting about two or three centuries before collapsing into another form. To the casual mind some type of socialism is usually the most appealing.

      Does it matter that the U.S. form of government is now popularly accepted as a democracy and the old term, repulic, has been put out to pasture? Our instinct tell us "yes."

"Ballooning healthcare costs, labor shortages and financial services for the elderly: for the first time Sunday, the world's top policymakers are tackling economic issues relating to ageing and shrinking birthrates."

What an ominous headline! Surely the population is not so out of balance that the rapidly aging demographic is in for trouble. The headline actually comes from the G20 meeting in Japan. That nation faces a serious demographic imbalance. The U.S. faces one, too, but it will still be a while before taxpers realize how expensive it is to support their parents and grandparents as they live well into their 80s and 90s. There has already been some static about what to do when Medicare runs out of money and Social Security digs deeper into its Trust Fund. (The fund is composed chiefly of government securities....IOUs. Cashing in bonds and notes at a high rate places more strain on the U.S. Treasury.)

One of the frightening prospects, owing to the nature of humans, is to examine the bottom line of the major monetary support systems. When the strain of paying the tab becomes exessively burdensome to taxpayers we should not be surprised to hear calls for sharp revisions to the programs. Consider the person who has been drawing Social Security checks for many years - far surpassing the money they and their employees paid in FICA taxes, even adjusted for inflation. They are now living directly out of the pockets of strangers. The poor may get a bye but the well-to-do will not. Critics will demand a net worth assessment for upscale Social Security recipients.

"People ask me all the time about how they can prepare for the next economic downturn, and one of the key pieces of advice that I always give is to not take on more debt." ~Michael Snyder

     Mr. Snyder has made a living for years predicting economic downturns. The downturns occur at regular intervals but never seem quite as horrid as anticipated. It's true the general economic turn of events is about to drop another recession in our laps, possibly by mid-2020. It may be a doozy. Or maybe the Federal Reserve to Quantatative Easy will rescue us once more. We and the Missus have been through eleven U.S. recessions since we were wed and conclude we know something about surviving them.

   An acquaintance of ours, now in his senior years, has often said that when he dies he wants to be overdrawn $5.00 at the bank. People chuckle at the remark, but it's not as absurd as it sounds. It's based on the idea that we all came into this world owing and owning nothing and there's something to be said for exiting in the same condition.

    Tradition, however, dictates that we ought to accumulate assets that can be distributed among survivors, pay funeral expenses, clear up any debts that remain, etc.

    We're fond of the frugal idea of keeping debt non-existant or low enough that it can be cleared at any instant. This is easy to do if one is careful to keep expenses below the level of one's income. A great many people and corporations, as well as the federal, state, and local governments, find this impossible to do. Hence the Sword of Damocles that hovers over our heads today; a momumental and unpayable debt.

     A long ago South Carolina banker once told a young man seeking a loan that it was very easy to run into debt but "...you get out, if your ever do, at a walk."

   Even longer ago a Greek philosopher remarked "The debtor is slave to the lender." We have never been greatly attracted to slavery.

Factoid: Gold and silver are not "investments." They are chiefly a store of wealth - - insurance, if you will, against the

decline of the dollar. To illustrate how the dollar parity has declined against gold we offer this price comparison. When we and the Missus were married the official exchange rate was $1.00 = 1/35th of a troy ounce of gold. Today it is: $1.00 = 1/1,336th of a troy ounce.

                                    A U.S. citizen was not permitted to hold monetary gold when we were wed in 1948, but the dollar was officially backed by gold at $35 to the ounce and could be redeemed in that amount to foreign traders. However, under the terms of the famous Bretton Woods meeting in New Hampshire three years earlier the dollar became the basic money unit in which much of world trade was done. Oil and other important commodities were priced in U.S. dollars.

                                     The U.S. quit redeeming dollars in gold to foreigners in August, 1971 which demolished the Bretton Woods agreement. The dollar is technically a fiat money unit backed by none of history's most popular monetary metals.   The Constitution prohibits this practice, but its provision for sound money was tossed aside forty eight years ago and we are all now happily afloat on a sea of debt-based currency whose future purchasing power is not known. (Although plenty of commentators make their living making dire predictions about it.)

                                     If you paid $400 an ounce for gold some years ago.....that is, you paid $1 for 1/400th of an ounce of gold.....you may feel quite smug about the fact that people are now paying lots more dollars for that ounce of precious metal. But upon exmination you will discover that in terms of its parity against common goods, such as food and medical care, it has remained quite the same. Moreover, the precious metals do not yield interest. They are good, though, at maintaining wealth across long periods of time.

It costs the U.S. Mint more than 1¢ to make a 1¢ coin.
We wonder why it keeps doing it.

"The cent is struck on a 99.2 percent zinc and 0.8 percent copper planchet plated with pure copper. The 5-cent coin’s planchet is a homogenous alloy of 75 percent copper, 25 percent nickel. Dime and quarter dollar planchets are composed of outer layers of 75 percent copper and 25 percent nickel bonded to a core of pure copper.

"Mint officials identified no alternative composition that would reduce the cost of producing and distributing the Lincoln cent to less than face value. However, the government has been reluctant to stop producing the coin although many other nations have ceased production of their cent-equivalent coins.

"The Mint struck more than 7.8 billion cents in calendar 2018 and 8.63 billion cents in calendar 2017." The cost of small change

Where in heck is the popular demand for minor coins? Why must taxpayers underwrite the cost of producing one-cent and five-cent coins if there's no overwhelming point to it?

We can envision a howl from the gallery complaining that greedy shopkeepers will round prices up to the nearest dime and thereby get even richer. A similar complaint was made in 1857 when the mint stopped producing the half-cent coin.

"We'll be ruined!" complained the doubters. "They'll round all the prices up to one cent!) They half-cent soon stopped circulating and were forgotten. In this day of electronic transactions small change is not all that useful.

The zinc industry will complain if the cent is dropped from production. So will copper and other metals makers, but it's idiotic to keep manufacuring one-cent and five-cent coins that cost more than face value to make and distribute.

If you like government money handouts you'll hate this guy's comments.

"A lot of Democrat politicians are promising 'free college,' but what they really mean is 'free for you.' Someone has to pay, and that someone is me, and I need to level with you.

"I am not interested in paying for your college.

"Now, some may call me 'greedy' or 'selfish' for not wishing to work and then have the money I earned taken from me to provide things to you that you want but did not pay for instead of being able to spend it – the 'it' being the money I earned – on things that I want. I am okay with that. I would much prefer having people who fundamentally misunderstand the concepts of greed and selfishness call me 'greedy' and 'selfish' than subsidize their educations, educations that evidently did not include learning about basic concepts like greed and selfishness." SOLVE YOUR DEBT PROBLEM

Kurt Schlichter will win no friends among liberals who think the U.S. government is a magical fountain of free money to ease the burden of debt they had taken on with such abandon. They have fallen for the myth that the government can pull money from thin air to support people who cannot pay their bills. Schlichter understands the government doesn't have a dime it hasn't taken in taxes or borrowed with the promise of paying it back with interest. There's also Congress's trick of monetary inflation which steadily decreases the buying power of the dollar. It could stop inflation in its tracks by returning to the money mandate of the U.S. Constitution. Inflation would also slow to crawl if Congress would run a balanced budget, which it has forgotten how to do

A Goldbug's Recollection:

"Back in 2001-2, I had the personal experience of recommending to a number of friends and relatives what I at that time saw as the most important asset to hold. I was even so keen on this investment that I talked about it in 2002 when I gave a speech to one of my daughters at her wedding. Since the bridegroom was English, the tradition is that the father of the bride pays for the whole wedding. So at that particular point, your daughter becomes extremely dear, especially since we have three daughters who all got married within ten months! I thought I would give everyone a gift at the wedding breakfast (that’s the name in the UK even if it is dinner), so in my speech I recommend everyone to buy gold for wealth preservation purposes. There were Brits, some Swedes and Swiss etc attending. Of course, a wedding is not a typical venue for investment advice but still I felt passionate about the risks in the world already at that time. Gold was then $300 and £200 per ounce." ~ Egon von Greyerz

This personal story from our favorite Swiss gold bug reminded us to check on the present spot price of gold. It was a tad over $1,300 per troy ounce this morning. In other words, had you bought an ounce in 2002 as Von Greyerz recommended to his his daughter's wedding audience you'd have done quite well. Owing to 17 years of price inflation you would not have cleared much profit but your gold would have maintained its purchasing power against goods and services. Von Greyerz on Gold