Where's The Money Coming From? -- Part 2

 

At the end of the First World War, two important things happened: the Spanish Flu, and the Treaty of Versailles.  The first killed 50 million world-wide including 675,000 in the U.S. alone.  The second imposed ruinous economic conditions on Germany such that the Weimar Republic resorted to printing money so fast that inflation made all of it worthless.  You may recall stories of harried Germans trying to buy bread with a wheelbarrow full of Deutschmarks.  It's a crap-shoot at this point whether our own Chinese Coronavirus will kill anything like 50 million world-wide, but there is absolutely no doubt that printing 2 trillion (with a 'T') dollars with nothing to back it up is going to cause inflation of the U.S. currency.  How much inflation?  I have no idea, and neither does anyone else.  It is, however, a fact you can take to the bank that prices are going to rise because 2 trillion more dollars are now chasing the same amount of productivity.  Less productivity, actually, because many otherwise-productive businesses have been shuttered by executive fiat.

Amazingly, everyone seems 'OK' with that because the 2 trillion is going to be distributed more-or-less evenly across the population.  Did you catch that?  Everyone is going to get approximately the same benefit from the Mint printing all those dollars.  No one is going to be treated any better or worse than anyone else.(**)

The geniuses in Washington just did a 'stock split' on the cash in your wallet, in your savings account, in your IRA, and everywhere else you had stored your accumulated wealth.  In a stock split, you get more shares of stock, but each of those shares is less valuable than they were yesterday.  Everybody thinks "Oh, boy!  I'm getting $1200 bucks!"  Unfortunately, what you had yesterday plus the $1200 bucks now has, together, the same value as what you had yesterday.  Or less.

You've just been played.

Again.

 

 

(**):  This is not exactly true because as part of that massive 'stimulus' package, a lot of non-productive recipients are also going to get a pile of cash: various arts organizations including The Kennedy Center ($25million), and the all-time record-setting least-productive part of the economy, the U.S.Congress ($39million).

Yes, indeed, you've been played.

 

Where's The Money Coming From? -- Part 1

 

On last night's (Friday Mar 27th) show, Tucker Carlson asked a very important question regarding the $2.2 Trillion Corona Virus bailout package.  He may not have realized how important the question was when he asked it.  He asked "Where's the money coming from?" and then offered that it might be money borrowed from China.  It may be worth a moment or two to ask (again) the question people shy away from asking — perhaps from some inbred instinct that they're not going to like the answer: Where does the government get its money in the first place?

All the money the government spends comes from three sources:

• taxing
• borrowing
• printing

All of these things hurt the economy and the people for whom the economy exists.  In fact, government spending, because it is funded by these methods, hurts the economy and the people for whom the economy exists.  I addressed this issue about 10 years ago right here on this blog where I suggested we were on the verge of a financial catastrophe the likes of which we had never before seen.  And we're intent on doing it again.  Why are taxing, borrowing, and printing money bad for the economy?

Taxing:  When two people make a free exchange of goods, whatever form those goods may take, profit ensues.  Each participant in the exchange wants something the other has and values it more highly than what they already have.  I have $5, you have a cake.  You think the cake is worth less than $5 and I think the cake is worth more than $5.  When you make the sale, you now have $5 — which is better than just a cake — and I have a cake worth more than that five-spot I just gave you.  We both profited.

Then the government steps in.  It snags a few percent off the top as sales tax, and some of that profit has just evaporated because the actual price I paid has been artificially inflated.  You don't get off scot-free, either.  All the material you put into making that cake you had to buy from people who charged you sales tax for the flour, the eggs, the sugar, and everything else that went into it, plus you're going to pay income tax on the $5 you got from me.

The act of taxing is like tapping the brakes on your car: it slows the process down, perhaps imperceptibly, but the slowing happens even if you can't detect it.  Multiply this drag by millions, billions, or trillions, because it happens each time a taxable transaction occurs.  The actual slowing is the removal of profit.  What profit each of us made has been transferred — some of it, all of it, or more than that — to the government so that it can be spent on things that have nothing to do with that cake.

Borrowing:  Whenever you borrow something, the intent of the lender is that whatever was borrowed will come back eventually, and often with interest.  There are certainly cases where borrowing, even at interest, is a good thing.  That's why there are mortgages on homes.  When borrowing happens in order to increase one's productivity, the increase in productivity is expected to be greater than the interest and thus enable the loan to be paid off over time.  The greater the increase in productivity, the easier it is to pay off the loan, but it still involves transferring profit to the lender.  The borrower trades future profit for current advantage.

That, alas, is not how government borrowing usually works.  Government borrowing is a way of 'kicking the can down the road'.  The loan will be paid off in the future when the politicians who borrowed it have retired, and 'paying the loan back' is somebody else's problem.  The 'somebody else', in case you haven't figured that out, is you.  The government doesn't want to tax you in the current cycle for current budget needs, so it taxes you in the future at higher rates.  As I said: somebody else's problem, but the effect is the same: a drag is imposed on the economy.

Printing money:  Most people think money is wealth.  How wealthy am I?  Let me see what's in my wallet.  But that's not wealth.  The true measure of wealth is "what can I do with this money?"  If a haircut or an oil change costs $300, how far will your $100,000 retirement fund take you?  That's what 'printing money' does.  It shaves a little bit off every dollar in circulation and transfers it to whoever owns the printing press.  In lots of cases, the effect is so slight that it's virtually unnoticeable, but over time the effect is cumulative.  In the past hundred years or so, approximately 95 cents has been shaved off the dollar.  That's why 1920 prices seem so bizarre to us.  Cars being sold for $600; gasoline at 7 cents per gallon; houses for $4,000!

In days of yore when 'money' was based on something solid like gold, evil rulers would 'tax' by shaving a tiny sliver of gold from the edge of a coin.  In modern times, governments just inflate the currency.

So, Tucker Carlson asked the right question: "Where's the money coming from?".  The answer is that the government is going to inflate the currency, make each of your dollars worth a tiny bit less, make each of the things you buy a tiny bit more expensive.  Whether they do it by taxing you (unlikely, since they're writing $1200 checks to every taxpayer) or by borrowing, or by simply printing enough extra dollars, the effect is the same: starting tomorrow, life is going to get more expensive.

 

Ranks of Gun-owners Explodes

 

I'm hearing stories of people rushing to their local gun stores and panic-buying guns.  News reports suggest these are "pro-gun fanatics" doing the buying in anticipation of the need for self-defense armament in the face of the current corona virus pandemic.  That seems extremely unlikely.  All the known "pro-gun fanatics" already have guns and ammunition sufficient for their self-defense without the necessity of expanding their collections or stocking up.

No, I believe these are primarily first-time gun owners who are worried that the breakdown of civil society is going to impact them and their families harshly.  If they haven't already, they're suddenly realizing that in extremis, they are their families' best or only defense and their first thought is "I had better get myself a gun".  When they get to the gun store, they get a nasty shock.  A series of nasty shocks, actually.

One, there are long lines.  There are reports of lines wending out the door and down the block of people waiting their turn to get in so they can look at the merchandise and make their selection.  The lines are long because those who are busy making their selection are taking their time about it — because they don't know anything about guns and need lots of help from the harried staff — because they're first-time buyers.  Any reputable gun store will only sell you a gun if they're confident you're competent to operate it safely, therefore they take the time to show you the features of whatever you're buying.

Two, the selection is narrow because — hey, a store can only stock a certain amount of stuff, right?  In places like California, the selection is even narrower because only certain firearms are even legal to sell in that state.  Yes, California has an official list of firearms that may be sold or possessed within that state.  A Glock 17 in standard black may be legal whereas the same gun with a powder-coated finish may not.

Two(a), in some states (NY, NJ, CA again, IL, HI, maybe others) you need a 'permit to purchase' before anyone will even let you look at or touch a firearm in their store.  To get that PtP, you will need to visit your local police department or sheriff's office who will do a pre-BGC BGC.  They're busy with other things like crimes and your petty concerns are not high on their priority list.  When they do get around to you, they can take as long as they want before issuing the PtP.  NY and NJ are notorious for taking six months or more before you can even walk into a gun store to examine your impending purchase.

'Impending purchase'?  Yes, three, throughout the United States there is a mandatory minimum waiting period during which the Famous But Incompetent FBI will complete a background check to ensure you're legally entitled to purchase a firearm.  Almost everywhere, it's three (3) days, but in some places (California, again), it's ten (10) days.  Oh, you wanted that gun right now?  Yeah, sorry, but you can come by on Tuesday and pick it up, except...

Four, FBI, which does those background checks, is having a problem with staffing because of the Moo Goo Gai Panic, and just announced that it might take as much as twenty-eight (28) days to complete yours.  Aha, but the law says any BGC not completed in three (3) days is to be treated as a 'pass'!  Gotcha!  Well... no.  These days, when the FBI can't complete the check on time, they issue a 'conditional disapproval' — and they're issuing lots of CDs these days.  Sorry.  Game over.  Thank you for playing.  What '2nd amendment'?

Five, when those panicky first-time buyers get frustrated, they flip open their laptops and hit the web because it's easier just to buy your gun over the internet.  Suddenly, they discover that you actually can't buy a gun over the internet without having it shipped to a local Federal Firearms Licensee, the same people who can't handle the flood of new customers wanting to buy their wares.  Naturally, they will take time out of their busy day to help you fill out the Form 4473 for somebody else's merchandise, but you'll still have to have a BGC which could take as long as 3 or 10 or 28 days before you actually take possession of your new hardware.  That's after it gets shipped across country.

I don't know for certain, but I would bet a lot of money that many of those first-time buyers experiencing the roadblocks outlined above were, until a few days ago, hard-line supporters of 'reasonable restrictions on who can get a gun', and they are, also for the first time, beginning to understand why all those "pro-gun fanatics" were so upset over each new reasonable restriction.  They're faced with a situation that does not treat lack of preparedness kindly and is especially cruel to those who weren't even aware that they weren't prepared.

Welcome to the party, pals.

 

Inmates In Charge Of The Asylum

 

Notes from the front lines of the war against CoViD-19: This is (I think) Day-12 of our ordeal.  Bars and restaurants and other places where people typically congregate (including places of worship) are closed by diktat, Clearwater Beach is closed in the middle of Spring Break, school is out until at least April 1, everyone is on a de facto lock-down because — really, where can we go?  There have been about 160 deaths from exposure to CoViD-19.

'Seasonal flu' kills people at rates 100 times that, but (we're told) CoViD-19 hasn't 'peaked'.

Small businesses that rely on a more-or-less constant flow of paying customers are hurting so bad that many of them may not survive until they're allowed to re-open, but — not to worry! — the SBA has loans and grants to tide them over, and a bi-partisan budget expansion — paid for by you, of course, — will surely pass on its first appearance.  The employees of those businesses are furloughed because (a) the business is closed, and (b) they're not allowed to travel (or strongly discouraged).  Many of those employees are low-wage workers heavily dependent on tip income.  Ah, well, at least there's unemployment, and by now the mandatory two-week waiting period is just about over, and they'll be allowed to apply so they'll get their first check after (maybe) another week.  Or two.

Larger businesses have the advantages of scale and the ability to hunker down and mothball their capacity, so this mandatory shut-down is a huge boon to them as far as 'competition' is concerned.  Smaller businesses?  Bummer, Dude.

This artificial impact on businesses from coast to coast is a cratering event for the various stock markets and the economy in general.

Time for a reality check:  the earliest data we have on CoViD-19 comes to us from a cruise ship, the Diamond Princess.  That environment is 2,000-3,000 people in relatively close proximity for a week or more, passing germs back and forth at every meal.  Many of those passengers are older and are much more at-risk than is the general population.  That looks very like a 'worst-case scenario'.  And what conclusions can we draw from the Diamond Princess?

Worst case:  The Diamond Princess tells us that the contagion rate (who's going to catch it?) will probably top out around 20%.  For the U.S. population as a whole, that's 600,000 people, and 80% who won't catch it regardless.  20% of those infected (120,000) will show symptoms severe enough to require intervention, real quarantine and/or hospitalization, some of them in an ICU.  10% of that (12,000) will die.

We lose more than that to seasonal flu, and we lost way more than that to the H1N1 Swine Flu epidemic during the Obama administration, and nobody got anywhere near this excited back then.  In short, this is not Captain Trips, and we are not all going to die, and we are almost certainly over-reacting.  The worsening economy is a net negative for Donald Trump whose re-election campaign will almost certainly focus on economic performance issues.

The biggest loser is the Constitution.  Isn't it amazing that what is almost certainly an ordinary virus is all it takes for the American people to look the other way when the government virtually repeals the First Amendment?  Peaceably assemble for dinner or a beer?  Nope, all those places are closed and we don't want you traveling, and we especially don't want you gathering in groups!  Freedom of worship?  Maybe after the crisis passes (heh heh heh).

Never let a crisis go to waste.

 

Stranger Things

 

And...  Bloomberg's gone!

Money can't buy you love, and it appears now it can't buy you the Democratic nomination for President, either.  Just weeks into a campaign funded by over a half-billion Bloomberg bucks, MikeyB craters on Super Tuesday and Biden is back in the hunt.  Just like that (snaps fingers).

In fact, Biden did so well yesterday that — if he can keep up the 'Joementum' — he could make it oh-so-easy for the convention to sidetrack Bernie Sanders...  again.  Over the next few weeks, each Tuesday is going to have several state primaries.  Biden has to do much better in those than he did last night if he is to successfully fend off Sanders, but it's doable.

What's not doable is to avoid a convention in which there is considerable horse-trading.  Warren doesn't have many delegates, but she's holding a bunch.  Same for Buttigieg and Klobuchar, although those are probably already pledged to Biden.

I continue to believe that neither Biden nor Sanders, the only two viable candidates left, can face off against Trump in the Fall campaign unless the economy tanks before then.  The Republican primaries last night confirm that.  Trump ran virtually unopposed and so GOP voters did not even have to cast a ballot, but they did, and in what was for all practical purposes a one man race, Trump collected more primary votes than the top three (3) Democratic contenders.  If he can repeat that performance in November, it will be a blowout

Oh, this is going to be sooooo interesting...