Centralized Money Issues
My wife woke me up in the middle of the night, screaming that they are coming. Who? I ask, robbers, they are outside. Fortunately, I live in a nice neighborhood, and I know the fear is misplaced. To our relief nobody is there, it was only a nightmare.
Or was it? Recent events have caused the real thieves to emerge. I think they are robbing us every second, and it keeps me up at night almost every night.
They quickly spent $2.2T with less than 25% of that going to helping everyday people. Even then they got their buddies to manipulate the system and steal from the PPP small business loans for the greater company. I am of course talking about our Federal government and the crony capitalism they’ve pushed on to America. Please do not mistake my angst against capitalism… it is the crony part. The crony part encompasses the socialist, top-down response that benefits only the select. Actions and policies which fly in the face of free markets, natural competition, and the best ideas bringing forth the best outcomes. Look at the global level of living quality for everybody given the push towards capitalistic societies. However, if the risk isn't allowed to be borne by those benefiting from the risk taken, then it is unfairly borne by those not able to bear it. Furthermore, there is no feedback mechanism to stop the initial capital destructive behavior.
My theft narrative is outlined as such:
A search of the “US 2019 population” yields 328.2 million people, so $2.2T of spent money by the government is a lifetime tax burden to every woman, man, and child of roughly $6,700. That’s some leap from the “stimulus checks” of $1,200 for adults and $600 for children.
Not to get too technical, but for the crowd that views the world through the lens of Modern Monetary Theory saying the government is at liberty to create that money, I concur. But who is buying it? Aha, we come to the second form of theft, the Federal Reserve Bank.
*The Chart above is the Federal Reserve Bank balance sheet, provided by the good people of the Federal Reserve, whom I thank for being so open about their spending.
It comes as a cost to society in the form of unproductive government spending resulting in unchecked monetary policy. Our own government bank is buying up the past transgressions and propping up prices and effectively lowering the borrowing rate of our government. Do we really trust the government that much to let it borrow at 0% when its people cannot get a loan much below 4%? Even Verizon must borrow at a nominal rate of at least 4.5%.
What is worse is the alarming rate the reserve bank is growing purchases. While it may not show up as a tax benefit, the actual impact is of spending 6M of $1M dollars ($6Trillion) is the dilution of the purchasing power of the USD. This is one primary route wealth inequality emerges.
Using our same math, for every $1T in excess, the Fed buys, every man woman and child receives a dilutive problem of $3,050. Sure, maybe the population will grow to solve this over the life of a 10-year treasury bond, but the best resources I have about demographics show slowing population growth. Even the government themselves sees a maximum population of 360M by 2030. That amazingly reduces the problem to only a $2800 responsibility.
While you may feel ease buying cheaper toilet paper or food at the store, the inflation is real. Think about rising healthcare costs, technology upgrade cycles ($100 phones to $500 phones to $1000+ phones), and education. Technological advancements in food distribution and manufacturing have brought about basic goods and services at extremely affordable pricing. Rather than seeing prices drop, due to wonderful technological deflation, they have stagnated. Again, the quality of life goes up, but is there an unequal burden of cost? Unequal allocation of reward?
While diluting Main Street, Wall Street has celebrated All-time highs in February of 2020. But it came at a cost, multiple expansion. That is to say that on any metric of the relating price of equity (a piece of a company, or piece of future free cash flow of a company) one must pay a higher cost based on the present or next twelve months: Revenue, Cash Flow, Earnings, etc. This creates fragility and we have seen its consequences.
*Thank you Google for an easy screenshot search of “Stock Chart of SP500”
Again, it’s easy to be fooled by the price alone. The real gains have gone into the abandonment of the US Dollar as a legitimate currency and pricing mechanism. Here is the same 5-year chart of the SP500 (SPX) but priced in Gold (XAUUSD). Please forgive my need to use a third software called TradingView, but they do a wonderful job. So instead of real gains of wealth, through the exposure of the world’s best companies, we see commonplace inflation. The math works as such:
SPX priced in USD/ Gold priced in USD = SPX priced in Gold
But in case you did worrying about how this would impact the wealthy, don’t. There is a litany of the growing chorus that the next plan is for the FED to buy Stocks, as they have already been bailing out the debt of public corporations through special purpose vehicles (SPVs). The public is now effectively paying the dilutive and depreciative effect of poorly run companies, management pilfering profits through excessive compensation bonuses and share buybacks.
This could be a $10T problem according to Forbes. Of course, nobody on the Federal Reserve Board of Governors is an elected official. (Perhaps that should change).
We are left with a key non-free-market-capitalist question for the Federal Reserve to justify their actions. How does one fairly decide which companies get a bailout pass?
Given our present banking services, the 2008 resolution left a lot to be desired. Socialism for the few leaves not much else in a free society. Ask a Chinese Citizens in Wuhan, a Hong Kong liberation protester, a rioter in Lebanon, or a Yellow Jacket in France (Europe).
My wife’s nightmares are not unfounded. Not only do we have a national security threat from the Chinese Communist Party’s COVID-19, but our own government’s elite and friends are getting a bailout while we are about to suffer the coming inflation, jobless.
Call to Action: I am a firm believer in providing at least some ideas to answers when presenting a problem. I do not have the right answer, but I do have my answers.
1) Save in Gold/Silver/Cryptocurrency – these are the purest way to boycott a socialist system. Keep your holdings a secret or expect a big tax bill when these inflate.
2) Participation in your local, state, and federal governments. I specifically do not mean buying into the 2-party system. It is time we the people look for alternatives in politics. It’s time to revive a third or fourth party. The world is not black and white, it is filled in color! Libertarian, Green Party, and independent candidates bring a lot more to the table. (Opinion - They should be allowed on the national debate stage and the hi-jacking of Sanders campaign by the Democratic Party in 2016 is a prime example of the constraints of the two-party system)
3) Do your own research and be willing to share this information and your findings with others! Knowledge is power
4) Only Opinion: Nobody should be getting bailed out, savings should always be in place for a rainy day. Those acting recklessly can only learn by suffering. If you did not burn your hand on the stove, how often would you touch it and ruin your hand? This should include the equity holders of public companies and the borrowing rate of the US Government.
5) Only Opinion: The Federal Reserve Board does not have the legal right to buy non-US treasury or US-government backed assets. Their intervention should be minimal, and the policy plans should not be centered around propping up private asset prices, for it is dilutive to the public.