“A country becomes more prosperous in proportion to the rise in the invested capital per unit of its population.” Ludwig Von Mises
I was recently watching this new movie called Twister. It is a story about tornados and chasing them. It has Bill Paxton and the oh so lovely Helen Hunt. If you don’t find Helen Hunt adorable, there is something mad about you. It has beautiful weather scenes and even introduces us to the future owner of the Atlanta Hawks basketball team. If you have the time, I think you’d enjoy it. Since this isn’t a movie review enterprise you were probably wondering what a movie set in the 90s has to do with modern day finance.
Let me tell you about change, people.
Change is bad and change is good. It is each person’s reception and perception to change that is important. I don’t like the changes in the cost of labor some might say. Well, if you were a worker, you do and if you were management, then you don’t. Change is bad for one and good for the other. If management’s perception is that they were losing people to their competitor, but a pay raise might keep their employees from leaving, then it might be good for them as well. Then the employees might say I would really like to go somewhere else or do something else, but this pay raise makes it hard to leave so I will just stay here and not be happy. It’s about perception.
In the movie Twister there were no cell phones except for the rich doctor lady. She even described strong updrafts as “We have cows!” They were using CB radios (that stands for citizen’s band) and they were communicating that way for the majority of the time. They weren’t staring into the damn things pretending to be busy either. There is a wonderful dinner scene, and they were all laughing and talking and not one beak was buried in a cell phone being self-absorbed. It was pleasing.
The changes didn’t stop there, the restaurant had straws, and the servers were polite, and people ordered coffee. Not venti macchiato no whip I’m a dip no foam I’m going home alone and make it a double shot because that is what this dear writer just wanted to do to the back of his cranium after reliving and typing that sentence. But no, the changes didn’t stop there, they had maps and they knew what to do with them. They were folding them and calling out highway names and numbers and directing traffic like competent humans. Now people say, Hey Siri, where am I? Tell me where to go… It was nice seeing competent people, at least in a movie. These maps had pages too, some were like a little book, and you would have to switch pages as you drive into a new area. It was a nice skill to have it was called navigator. Now people navigate their way through imagine worlds with imagine tools slaying imagine dragons.
No change is simply inevitable, that’s all. When we look at things in this world, we tend to forget that. We think that the US dollar is money for example. It is not. It is simply credit backed by the government. Paper. It is fiat and not backed by anything and hasn’t been since 1971. That is a long time and people take it for granted and build their assumptions that dollars are money. They think US Treasuries are risk-free assets because they are backed by the US government. That was a pretty rock-solid guarantee in 1953. But today, no way. We have almost $35 trillion in debt, we have $2 Trillion deficits, we have interest expense higher than the national defense budget. Back then, debt as a percentage of GDP was falling after WWII, we had just helped defeat the world’s biggest armies, we had nuked Japan twice and we had almost all the nuclear weapons. We had all the gold, the manufacturing, the non-rubble cities, and we had the biggest Navy. Our guarantee was our competence and our reliability. Ike paid down our debt and we were again fiscally responsible, morally responsible, and our country was arguably the most powerful in all of history. Then along came that damn Elvis… He was shaking and swaying those hips and girls were losing their minds just aching to be loved tender. It wasn’t long before those frisky pre-teens grew up to be hippies and by the summer of love in 69, dope was dope and gold was on the way out. Those kids have only known good times and American prosperity. Their future was secured by the actions of their parents, the mom working in a munitions factory, not eating sugar for 5 years as it was rationed and getting laid about as often as Ghandi. Meanwhile, her dearly beloved got a bed in the mud and tin can rations for 4 years. When those kids got back together, they had a passel of kids, and they wanted their lives to be better than theirs had been and they were. Those damn hippies are the hipster boomers of today littering your local pickleball courts with their neoprene knee braces and chicken necks. That’s right they have also just about finished off the US dollar. It was backed by gold, but then they started borrowing against it so they could have what they wanted now just like their parents allowed. They didn’t raise taxes because they deserved to get an RV. They bailed out the banks in 2008 because they didn’t want their retirements to be destroyed. Instead they allowed the government to go into hock for more.
This is a real problem for their kids but mostly their grandkids who they pretend to dote on. They don’t really care for their kids or their grandkids because if they did, they wouldn’t have pissed away their future. Pissed away. The debt expense will be the largest expenditure in America by the end of this year. Home prices have become unaffordable for younger people, but the boomers are still living in both of their homes quite nicely and commuting by RV when they are not. The largest cohort of babies ever born all voted to give themselves wealth at the expense of the future generations. It is the equivalent of opening a copper mine in the middle of Yellowstone Park and watching the tailings sift on into the river and kill the bison.
Like the tailings in the water, the debasement of our currency and by extension our treasuries has been a slow process. Maps are out of vogue, replaced by GPS and talking British women. Like the last thing a man wants while he is driving is to listen to a woman giving him directions, but to each their own. The straw men and women have lived up to their fallacy with turtles around the world now having to roll up dollar bills to get their daily snoot toot. Some changes are fast like the window of time when disco was cool or when Renee Zellweger was attractive.
Our currency debasement is slow though and gradual like the slow seep of molasses in January….but interest is also slow, but like molasses when it warms up it is able to move faster. Inflation has been woken after a 40-year slumber brought to you by the Baby Boomers. Now, inflation is in charge and in the last few weeks we have seen the markets start to take notice. Larr Summers, former head of the US Treasury, has actually mentioned whether raising rates is prudent. Wait, Wait, wait! We just had a 20% rally because the market thought the Fed was done raising rates and now we aren’t? Why hasn’t the market sold off yet, because they believe that the Fed will bail them out. This has also happened since Alan Greenspan’s ego got inflated in 1987 with whispers of the Maestro. The Maestro was his nickname, but I call him the Godfather of Doom. After the crash of 1987, he stepped in and helped solidify the markets and a new change had happened before anyone realized. Now 37 years later a new change is about to descend on us, a Fed that can’t save us.
Look at Japan, for months the Japanese have said they would defend the Yen at a US/JPY ratio of 150 or no worse than 152. We went through 153 last week and 154 this week. The Japanese Yen has almost lost 3% in a week. This is a quick change. Imagine having $100 in your wallet and now imagine having $97 but you didn’t buy anything? Welcome to inflation Japan.
Japan has got themselves their very own version of a super storm, a cyclone or typhoon if you will. The energy that is building up above is building and building energy and there are warnings, some lightning flashes to illuminate those to safety and even some crashes of thunder to get your attention. But no, the storm builds and builds until the energy imbalance is unbalanced. It is like debt; the money just goes to pay interest but there isn’t enough so we borrow more to pay the interest but that makes the problem even bigger. These two storms both grow, one with the energy of water, wind and electricity and the other with fiat currency, worthless IOUs and sky-high equity values. The tremendous imbalance of the storm reaches a breaking point as lightning flashes, rain and hail fall. The debt storm reaches imbalance when delinquencies go up, bankruptcies rise, and companies start layoffs. Sometimes, very rarely, and under certain extremely imbalanced conditions the storm can’t shed energy fast enough through wind, rain, and hail. The air itself descends dragging a finger along the earth as the sky becomes the ground and destruction commences. A tornado or a twister is the most destructive thing to happen to society since a Kardashian. No NBA careers aren’t ruined, but houses are, and farms, and mobile homes get lost faster than Lamar Odom’s NBA salary. Only those that have gone and hidden can survive. For every James Harden there is an AC Green. That’s right there will be survivors in a twister. The imbalance in a debt twister gets relieved when people actually lose money and don’t get bailed out. When financial destruction begins. Imagine having money in an investment and the next day it is gone. You don’t get it back and then it gets worse so while you wait around for the government to bail you out like 1987, 2007, or 2020 but this time there is no government bailout. Or maybe there is, and they give you money, freshly printed $100 and instead of seeing $97 like the Japanese person, you look down the next day at $50. The next day it is $25, and you race to spend it before it is all gone. That is one path of destruction but the other could simply be that you wake up one morning and go to the bank and ask for some money and they don’t have any. If you don’t believe me, try this right now. Just go ask to the bank and try to withdraw $3500. Just try it and let me know how that goes? Was it smooth or did you get grief, excuses, questions? It is the bank’s money unless you have it in your possession people. When our lovely Helen Hunt finally survives the Twister, there is a family emerging from a good old fashioned storm shelter. This is this little bunker built into the ground where people from Oklahoma go when there is a tornado. I stopped the movie and rewound it two or three times looking to see if there was a sign on the door, but I didn’t see one. It must have blown off during the storm, but I was looking for the word gold on the door. It is the one safe refuge during the tornado because gold has no counter party, it isn’t someone else’s liability, it simply is money. It doesn’t matter that the US dollar has been considered money, it matters what happens when the storm hits. Gold is rising when it should be falling. Gold is money and that is one thing that hasn’t changed.
Sincerely Yours,
C Thomas Printer
On this date in history… 234 years ago today, the United States lost its greatest ambassador Benjamin Franklin, an inventor, author, and founding father of not just this country but the world.
Also born on this date… J.P. Morgan, the man that allowed his country to not have a Federal Reserve and still prosper marvelously.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.