“Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.” G. Michael HopfI again want to discuss where we are precisely in G. Michael Hopf’s quote and how we got here. We are in the last stanza for sure. This should help us understand the debt ceiling. There is a famous scene in Sergio Leone’s gangster epic Once Upon a Time in America where one of the kids Patsy got an expensive charlotte russe cake with whipped cream and he was going to trade it to a neighbourhood girl for a little romantic entertainment, but when he came a calling she was in the bath and he had to wait in the hallway. While waiting patiently for his first foray into manhood, he tasted a little bit of the frosting and then a little bit more. He then opened the carefully packaged pastry and ate the entire thing leaving himself with nothing to trade for romance. He smiles with frosting on his face and you see that there is zero regret. We have talked about delaying gratification and how important it is, but cinema probably doesn’t have a finer example than the charlotte russe.
The baby boomers are retiring and they are choosing lovely locations in the south like Charlotte, North Carolina which is growing by leaps and bounds. These boomers couldn’t wait to eat their pastry and have instead left behind the Charlotte Ruse, that’s ruse with one s. Which brings us to the word of the week-ruse.
Ruse- an action intended to deceive someone; a trick.
The Charlotte Ruse is a result of not delaying gratification. The baby boomers brought us abortion in 1973. Since then there have been 60 million potential American lives short circuited because it was an inconvenience. I’m not here to debate whether or not it is legal or good or bad, I’m merely pointing out that it has happened. This is because it is an inconvenience to a generation that couldn’t delay gratification. Roe vs Wade was decided two years after the nation went off the gold standard because the baby boomer government’s couldn’t delay gratification and spend within their means. Gold was flowing out of America to Europe. A society that only knew too well how difficult it is to rebuild when their forefathers had squandered their good times leaving them to watch with envy at the Americans baby boomers doing the same to their forefathers whom Tom Brokaw called the greatest generation in his eponymously named book. Remember that this greatest generation came after the roaring twenties and grew up during the depression caused by such progressive luminaries that developed the Federal Reserve, passed the 16th amendment which led to the income tax, and easy margin of the 1920’s stock market. The greatest generation also came after hard times, but today’s next generation will get to attempt to duplicate that feat because of the Charlotte Ruse.
The Charlotte Ruse has been an expansion of government that simply never went away. When the government couldn’t meet its obligations and balance a budget they cut taxes for themselves while increasing spending. When social security wasn’t sufficient on its original tax rate, it got cranked up, when medicare couldn’t meet its obligations, same thing. The boomers kicked the can down the road. This allowed the middle class to enjoy what was previously the spoils of the rich. Air travel, trips to Europe, eating out at restaurants on the regular all became the domain of delayed gratification. Government employment and budgets blew up. Postal workers’ compensation doubled the national average, prisoners were more expensive to house than a kid at Harvard, and the ticket dispensing meter maid went from a modified golf cart to a $100k decked out Ford Expedition with every toy from the James Bond starter kit inside. All while driving 2 mph putting tickets under windshield wipers. The deficits grew as the boomers aged. When their retirements were threatened in financial crisis, the interest rates went down and crisis diverted, when the financial system almost melted down banks were bailed out and the printing press was fired up. We now find our once productive system with little government interference partnering with governments to be successful, investing in malinvestments for tax incentives not productive uses of capital and a regulatory and tax burden that has made our productivity go from the world’s best to mediocre. As Hopf explains, it’s the decisions of weak men that create the hard times. This generation was weak; they were weak morally; they were weak when it came to be disciplined; they were weak when it came time to leave their country a better place for the next generation than they had it. They would not be good national park visitors because instead of leave no trace, they left tire skid marks all over the pretty meadow that was formerly America and the opportunity that it afforded.
There are many ways in which they did this but it largely came from acting like a college freshman that just got approached by three credit card companies on the quad while playing folf and now have the ability to buy $1500 of beer when they were broke when they woke up that morning and had to go to their job to get their beer money for the weekend. That’s right- once they realized they could print money and there would be no consequences for awhile they figured out the time frame of their ruse. Imagine if those freshman knew they were going off to war and didn’t have to pay those cards back? Would those card companies be offering up those lines of credit? Of course not.
Ayn Rand, the anti-government and anti-free rider philosopher wirtes, “To free itself—for a while—from the limits set by reality, the government initiates,” she explains, “a credit con game. . . . It borrows money from you today, which is to be repaid with money it will borrow from you tomorrow, which is to be repaid with money it will borrow from you day after tomorrow, and so on. This is known as ‘deficit financing’.” The boomers didn’t face reality but promised that the future would face reality for them.
I wonder if future generations X, millennial and Z aren’t going to play their own ruse back on the Charlotte Ruse characters? These are the generations that are now carrying the bag for the boomers. The boomers have manipulated tax rates, tax laws, and reproductive rights to ensure that they had a lifetime of avoiding inconvenience. There should be 60 million additional little working Americans ready to pay into social security to support these boomers, but no that meant that boomers couldn’t go on vacations but instead had to buy diapers, pay for braces, and raise more children that they created, but didn’t carry until term. They did what was best for boomers. Now, they are fat and happy in their retirements buoyed from 40 years of artificially low interest rates and rising stock prices, which they have voted into manipulation. They have their second homes and their lifestyles of snow birding between avoiding the inconvenience of bad weather- that’s right getting the beauty of the north during the summer and enjoying the warm weather of the south during the cold winters up north. So what is the counter ruse to the Charlotte Ruse? The debt ceiling is the answer. If the debt ceiling isn’t lifted the baby boomer stock portfolio takes a hit, their bonds get crushed and their real estate goes down in price. The boomer is no longer in their productive earning years so the ability to refill their retirement bucket would be limited. The media would have you believe that this would be devastating if stocks and bonds and real estate were to fall and to that I say to whom? Today’s gen x, millennial or z that can’t afford it? I think they would welcome buying stocks at cheaper prices, a house at an affordable ratio of their income and having their savings earn a proper return in a savings bond or cd. I also think they would tell boomers to piss right off.
See, social security and medicare are the two biggest future unfunded obligations that have traditionally been considered the third rail of American politics. Well, this new generation is the generation of the disruptor, right? When will they discover that they can have what they want by changing the laws and telling the boomers to pound sand? If they ever take their beaks out of their Instagram feeds and discover that by creating their own coalitions and voting blocs that they have unlimited power to enrich their lives by doing what the boomers did, look out. There is a $31 trillion debt that is owed and the interest is now over $1T a year so we are to the end of the Boomer’s yellow brick road. We are at the end of this freshman credit card kegger that the boomers have left us. Is this the debt ceiling that the youth push back and say “our lives aren’t that great anyway, we don’t care if the stock market crashes, our debt gets downgraded, and you think that we think we will ever receive a dollar from social security?” It might not be this time that the ceiling doesn’t get lifted, but the next time might be or the time after. The boomers got to enjoy a lifetime of not delaying gratification, wouldn’t it be ironic if the youth of America pulled the rug on boomers? What if they were to say we will create a budget surplus and pay down this debt by cutting entitlements of retirees first, then government teat suckers, and then finally the unproductive. Those are the decisions that hard men make. Unfortunately, it is usually after hard times that those decisions get made, why not delay the hard times by putting the hard times on the shoulders of those that deserve it now? Economics isn’t so boring now is it?
Sincerely yours,
C Thomas Printer
This week’s financial tip
The price of an ounce of silver dropped almost 10% this week. Do what you will with that information because I know you are watching it as well.
On this date in history
123 years ago to be exact…L. Frank Baum publishes The Wizard of aaz, the wonderful children’s book that would go on to be a world famous movie. Do you believe that it is a monetary allegory as I do? Oz actually stands for the abbreviations for ounces which are the denominations in which gold and silver are sold. What if I told you that Dorthy’s ruby red slippers in the movie were actually made of silver in the book as a veiled reference to the government going off the Silver Standard in 1873. The color Red just looked better on the big screen and on Judy Garland.
Also born on this date
The speedy baseballer with the best nickname in all of sports, Cool Papa Bell.
Resources of the episode
Between Robin Hood and Ayn Rand: High Capitalism in the 1950s
The Wizard of Oz is a story about the dangers of the gold standard