Saturday, May 9, 2020

They Will Write Books About This Financial Conundrum

Like The Hindenburg We Just Needed A Spark
What is occurring today is absolutely mind-boggling. Someday they are going to write books about this! While there have been some messed up financial conundrums over the years none rival the current situation now before us. The dilemma before us is a fast-moving enigma wrapped in a gossamer cloak. Not only are the players that make up the global political-financial complex busy buying up bad debt, stocks, and bailing out those they deem too big to fail, they have destroyed the concept of real interest on loans. They have trampled all over true price discovery the basis of a free market.

The budget forecast be damned, its full speed ahead. The only justification we need is saying it will be far worse if we do nothing. The bungled response of a delusional government so obsessed with the idea that by simply passing legislation they can make things happen should not be overlooked. The Paycheck Protection Program or PPP was originally funded with $350 billion but the money was soon gone. Of the thirty million small businesses in America, only 1.7 million received money from the 2.3 trillion dollar aid package passed to help sustain America during this difficult time.

This resulted in more funding but still, the last report I saw indicated only around 13% of the, less than half the businesses that were eligible, were approved before the fund was again depleted and 60% of these had yet to receive any money.  Just as poorly handled was rapidly getting out money promised to individuals and creating a system where many people could receive more money by collecting unemployment than returning to work. The problem is that when all is said and done, large businesses with access to cheap capital will again be the winners and the big losers are the middle-class, small businesses, and social mobility.

It has become difficult to comprehend the size of the failure the political-financial complex has designed. This is partly because stocks have continued to soar with every announcement of rising unemployment and even as businesses continue to fail or file for bankruptcy. Bad news is not good news. The sick idea that poor spending habits are the answer to achieving a faster-growing economy is absurd and twisted. This is not new, politicians seem unable to grasp the fact economic growth does not necessarily bring about economic strength or long-term prosperity. Following 9-11 I remember then-President George Bush encouraging and pleading for Americans to rush out and buy more junk.

In a world where central banks are pouring out money to stimulate an economy eager to die the question many people are asking is will it work? Until now it appears these actions are only postponing the inevitable. The folly and insanity of continuing down a path where each wave of failure costs more than the one before holds little potential. Stacking debt upon debt and bad loans upon bad loans has already proven to be an answer that doesn't work. The fact that country after country has joined in this game only extends the illusion it is a reasonable path of action.

As I bang out this piece behind me on a shelf is a book titled, "The Greatest-Ever Bank Robbery" by Martin Maver. It chronicles the collapse of the savings and loan industry in 1987 and how it would cost American Taxpayers upward of 500 billion dollars over the next half-century. That is a drop in the bucket compared to what we are witnessing today as the powers that be endeavor to paper over past financial sins by simply issuing more credit and debt.

Debt has exploded and as defaults grow wealth vanishes or is transferred. The economy is complex with ramifications that overlap and tie unrelated events together in ways that are difficult to imagine. When we look at how people spend the twelve hundred dollars donated by our surging deficit we find where it goes makes a big difference. Responsible people will most likely use their money in ways that yield a better result for society than if it is just squandered.

How money is spent matters. Failure to use money and credit wisely is a huge factor in why so many governments and people are broke. Paying down debt or paying for necessities pays dividends. Paying rent allows a landlord to pay their obligations and allows the money to move forward in an economically constructive way. Investments in things that add long-term benefits and pay dividends such as adding insulation to your home may not be flashy or bring instant gratification but they constitute a hand well played.

A list of ways to blow this money off that adds to our woes include things such as buying expensive goods produced in a distant land and imported. These goods do little to provide work for Americans or our communities. Ordering a slew of imported consumer goods on Amazon to be delivered below cost by an outdated, inefficient, subsidized United States Postal Service is the biggest slap in the face a person can bestow upon the economy.

Almost as bad is leveraging the money into more debt when you are already deep in a hole of debt. Unfortunately, many or most people will choose to use their money poorly, and that is a big part of the reason we are in this situation. What is almost impossible to grasp is the incredible size and magnitude of the extension of unjustified credit taking place in a relatively short period of time. This time we are talking trillions upon trillions of dollars being created out of thin air.

Swinging back to the key point of this article is that governments and central banks rival these people in bad spending and fuel these habits. While covid-19 can be viewed as the straw that broke the camels back. It would be unfair to think the disaster before us would have been avoided had the pandemic not descended over the world. Even before this mess disaster hovered above our heads in the form of ever-growing debt. Like the Hindenburg and all it needed was a spark.


  1. looking forward to when you see the starving. I have been a prepper, as many have, since hearing so many qoutes in the seventies and early eighties from elites, rich, famous, politicians, and royals talking about taking the population down to 500 million, many qoutes about that, and I counted 3 that said something different, one said "under 2 billion" and two said "under a billion" . I can only see this as relating to those quotes.

  2. dont show the comment, you can just riff off it.

  3. Thanks for the comment. It did not appear right away because an approval process was implemented to prevent spam. Once spammers lock on they are difficult to stop.

    As for your comment, you are not alone in being concerned about how the future will unfold.