“Everything ends badly otherwise it wouldn’t end.” Brian Flanagan
Good morning I’m Austerity Jones and welcome back to Bygone Relics. I am here with C Thomas Printer who is deathly afraid of snakes.
Thank you and good morning Austerity. That is correct, but I’m not sure we needed to send this out to the world wide interwebs. But anyways, today I want to tell you a story that begins in 1992. On August 23, 1992 the category 5 Hurricane Andrew ripped into South Florida as one of the most powerful hurricanes to ever hit the United States. It was a direct hit and much of south Florida was destroyed. Included in the billions and billions of dollars of destruction was a Bermese python breeding facility. The snakes slithered off into the Everglades. Fast forward 3 decades, the raccoons are gone as are the foxes, the opossums, little dogs and cats, and now even alligators are being eaten by these massive animals and they are capable of eating deer and even humans. The bermese python is an invasive species, and now their only real natural predator is man. Hunting has been allowed for some time but it doesn’t seem to be slowing their growth down. There was a video I am attaching of a man that caught the world record 19 ft python. It took 3 men to corral this snake. These things are terrifying. This is an unintended consequence of Hurricane Andrew, and of having a breeding facility in an environment where hurricanes can hit and the snakes can thrive.
This got me thinking of other unintended consequences.
Last year poor Liz Truss lasted 44 days because she tried to use tax cuts to stimulate her country’s economy. Combined with the additional spending on natural gas credits, the Bank of England was forced to pivot in one day from selling guilds to buying them, lest their pension funds blow up. We don’t know the unintended consequences of this. If their pension system goes broke what would happen to their markets, they would crash. Truss lost her premiership, but British finance minister Jeremy Hunt and Rishi Sunak are trying to hold things together by kicking the can down the road. The people could really use the Truss tax cuts now, but the government has to keep things together and try and stay solvent. Now inflation is 8.7%, and the Bank of England was forced to make back-to-back rate increases. The problem with the UK is that their homes do not have a 30-year mortgage, but most are forced to refinance every 5 years. Those that have had to do that this year have seen their payments skyrocket. Company insolvencies in England and Wales jumped 40% YoY in May according to a report in Reuters.
Before we leave Europe let’s consider their decision to shift to green energy using wind and solar. We don’t know the unintended consequences of this. Just this week according to yahoo news, Swedish Energy giant Vattenfall said that financials conditions have deteriorated and they are forced to shut down work on the Norfolk Boreas site and they will review plans to go forward o two other sites in the area Vanguard East and Vanguard West. Telling Russia that they didn’t need their energy was an easier thing to do when interest rates were 0 and lots of institutions would loan them money for the opportunity to move from a less dense and cheaper energy source to a more costly one. Now the Nord stream pipeline leaks like Lincoln’s hat and all of Europe is forced to buy expensive chilled gas from the US or shift to renewables. Germany, once the nation’s industrial giant is in recession now, their nuclear energy facilities have been shut down, and their consumers who turned down their thermostats during last year’s mild winter had better start looking at a calendar again.
When the Federal Reserve was founded in 1913, did the politicians ever consider that there would be $9 Trillion dollars on the Fed’s balance sheet when the federal tax revenues for the year would only be $5 trillion? We don’t know the unintended consequences of this. Remember, there was 0 dollars on the Fed’s balance sheet about 15 years ago. When we tried to end QT (the opposite of quantitative easing) in 2019. The results were poor. The overnight repo markets almost blew up. The Fed had to inject $75 billion into the repo markets every morning for a week or the secret plumbing of the financial markets could have given us another Great Financial Crisis. The Fed had to step in and buy bonds, do quantitative easing, and even offer to buy corporate debt in 2020 during Covid to stem the tide of the sell-off. You see we don’t know the effects of what quantitative tightening does or for that matter what quantitative easing does on the scale that the Fed did. What we do know is whenever we have tried to slow it down since 2007, the market tends to react poorly. The Fed was doing this from last summer until the banking crisis in March. Silver Gate and Silicon Valley Bank and others went bankrupt. The Fed had to step in and guarantee all deposits or there was a fear of a bank run contagion. The FDIC has enough funds for maybe 1-2 banks and the Fed guaranteed all uninsured depositors including those over $250k? When the banks had a terrible mismatch in their balance sheet because they were holding long term bonds that had declined in value over the last year and saw a decline in deposits the Fed stepped in to provide liquidity. $400 billion back onto the Fed balance, but now we are back to the levels we were at before the blowup. People are pointing to the market as a sign of strength and I just think if Powell hadn’t stepped in on the repo market, the equity market would have crashed, if Powell hadn’t stepped in during Covid the market would have crashed, if the Powell hadn’t stepped in during the banking crisis, the market would have crashed.
We handled the Russia invasion of Ukraine with our usual diplomatic aplomb. We used our tried-and-true playbook of Iran, Venezuela, and Cuba. We will put sanctions on them, and in 50 years the Russians will still be driving the same cars and missing out on McDonald’s. We went so far as to seize their frozen reserves and kick them out of the Swift system. This showed the world our hand. If you do something we don’t like we will try and hurt you financially. Now over half the population is wanting to settle their trade in something besides the dollar. We don’t know the unintended consequences of this. Experts tell us that this will not hurt us, but they also told us Anna Nicole married for love. What we do know is that alliances are being made and trade deals worked out. Saudia Arabia has gotten a new dance partner in the Middle East by making deals with China, and not settling oil transactions in the dollar. The dollar, the dollar, the dollar. There is an unintended consequence right there. We had real financial problems in the early 1970s: inflation, a costly war, and we were tethered to the gold standard. When Nixon took us off the gold standard it was supposed to be temporary. It wasn’t.
We talked the last couple weeks about how the market has worked in cycles across 30 years or so. As we have seen across history prior to the government becoming so intimately involved in our finances, the economy would boom and bust. The busts were harsh, they were fairly short, and the country always came back better than ever, leaner and more efficient. I don’t see lean and efficient. I see a country full of companies that rely on the government to be their customer. They get rebate checks from friendly incentive laden bills, the get tax credits to finance capital expenditures, and I see a world hesitant to use as their reserve currency a dollar that is backed by a country with a $1T trade deficit that is behaving like a banana republic. We don’t know the unintended consequences of this.
We have never had leadership this week in this country. Just this week 81 year old Senate Minority Leader Mitch McConnell freezes up and can’t speak during a press conference. Two months ago 89 year old Diane Feinstein, who had been away from Washington for two months recovering from an illness, told reporters she hadn’t been gone she had been working.” 80 year old Joe Biden tried to gobble a scared little girl last week, this week he claims to have cured cancer in slurred speech. Unfortunately, I think that if you are not mentally ready to vote at 18 years old, then you are not mentally fit to lead at 81. It’s a barbell approach 18 and 81, I like the symmetry. You have to wait to be president until you are 35 but we should have a ending age as well. These people are not well. How can we have these people deciding our future when the future to them is what color jello is being served at lunch? We don’t know the unintended consequences of this. But Xi and Putin are watching as is the rest of the world and we look like we aren’t a country that is mentally well. We have cities that are crime infested drug laden shells of themselves, we have a society that is trying to decide what gender they want to be all while the others try not to offend, and our economy is a banana republic running deficit that just keep growing and growing. How we conduct ourselves on the world stage matters.
Every superpower in world history that thought themselves invincible made a bad series of decisions over time that had unintended consequences. Think of France selling the US the Louisiana Purchase and all that energy and farmland. Think of the UK, signing 99 year leases and seeing their territories expire. Think of the Spanish and how they treated the South Americans. Instead of having all the natural resources they would ever need they were kicked out of the new continent. I hope that the US didn’t just have a Hurricane Andrew/Burmese python moment. If it did, would we even be able to identify it? I don’t know.
Sincerely Yours,
C Thomas Printer
On this date in history…147 years ago to be exact, legend of the American west Wild Bill Hickok was murdered playing poker holding 2 pair-Aces and 8’s in Deadwood, South Dakota doing what he never did. He was sitting with his back to the door as a joke amongst friends. We know the unintended action of this.
This week’s thought experiment- what do you think the Burmese python moment could be for the US? Is it the debt? Is it the dollar? Could we go to and lose a war?
Also born on this date… Carroll O’ Connor from All in the Family.
The unintended consequences of the Burmese python
Snake wrestler catches world’s longest Burmese python