Yep, you can read the previous post and pretend that I just posted it. The same situation and the same outcome again the only different being that we are further in debt than we were last time. There is going to be political posturing and cheap political points scored but, when it is all said and done, we are going to be authorized to spend more money that we are going to have to print out of thin air again.
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We have another potential debt ceiling crisis looming for the end of this month (July 2021). The debt ceiling has been quiet over the past few years as congress has raised it a couple of times with no fuss. It makes you wonder if this time it is going to just slip under the radar again?
Interestingly enough it is that slipping under the radar that makes this whole situation more interesting, why are both parties keeping quiet about it when, depending upon who was in control, they would use it to try and score political points? Maybe it is in both sides best interest not to bring the subject up? After all when you look at the numbers you find that no combination of parties controlling congress or the presidency has ever brought the national debt down. I am always suspicious when both political parties go quiet on the same issue. It makes me think that neither of them have a fix for the issue and they just want it to go away. We will see if anybody makes a fuss about the debt ceiling towards the end of the month. The U.S. National Debt has reached $26.8 Trillion dollars and is not slowing down at all. This experiment in debt is going to come to an end when the government can no longer sell any more bonds due to the world being awash in dollars. Our only hope is that other currencies are destroyed quicker than our own. Only then will people want the U.S. dollar any more. We have to hope that we remain as the most stable currency of them all. The printing of dollars will continue until the value of the paper money exceeds its face value. This happened with coinage which is why the coins went from being part silver to no silver back in 1964. The U.S. penny and U.S. nickel reach that stage when the price of copper and zinc spike. At some point in the future they will be worth more melted down which is why there is a law in place forbidding the melting of these coins. Back in 1963 when the quarter and dime were partly silver the government found cheaper metals as a way of continuing to make the coins. Once paper money is worth less than the paper itself then there is nothing we can go to which is cheaper.
This is a what if entry instead of a reporting the numbers entry. I have been thinking and I want to put this plan out there.
The problem. We have two major problems with finances in thei world. The first problem is that we have a massive wealth inequality. We have people who, if they made no more money and spent $10,000 per day could not spend all of it for over 4000 years. We also have people living in poverty in squalid conditions or even on the street. The second problem is that we have a government that is printing money like crazy, trillions of dollars are being printed every year and that money end up in the hands of those that already have money. The proposal. So how about a two pronged approach? The first one is the stock market, who needs it? Businesses carried out business before the stock market existed. You see the stock market is designed to multiply money so if you have it you can make a lot more of it. It is also designed to have both winners and losers that must balance out due to the buying/selling pairing you have to have for trading. This multiplying money that is vreated through the stock market is made without enhancing the economy. No goods are produced and no services are performed, it just gets created. Imagine a world without a stock market, without companies issuing stock and without people being able to speculate. Most of the billionaires got rich by taking millions from a company in stock and then trading it. Companies get a tax break from giving them the stock and they get millions. If companies were forced to pay these people through payroll it would be a very different situation. The likelyhood is that the multi million dollar compensations would have to be cut back as companies do not have that much cash on hand to pay people. The second approach is to have a gold or gold/silver based currency. This would stop the massive money printing that we currently see because the currency would have to be backed by gold. It would mean that if you wanted to print money beyond your gold reserves you would have to publicly devaue your currency. It would also stop forex speculation as there would be no more floating currencies, they would all peg to gold. Those two changes would help stabilize the financial side of the economy and stop the excesses of the ultra rich. We would still have rich and poor but the gap would be a lot less. So what is going on in the economy? We have record numbers of business bankruptcies, record unemployment, record economic contraction and yet the stock market is making new highs? This just goes to show how skewed the markets are and how detached they are from reality. So how come this is happening?
There are two major forces behind this disconnect. The first is that large companies are finding that they have a lot of cash on hand due to the government bailouts. They are getting billions from these programs and instead of passing them down to the employees they are using them to perform share buybacks. What is a share buyback? It is when a company purchases its own shares. Why would it do that? When a company purchases its own shares they effectively vanish leaving less shares out in the wild. When this happens the share price goes up because the value of the company divided by the number of shares rises as the number of shares falls. This leads to inflated stock values. The other things that has been happening is that the Federal Reserve has been increasing its balance sheet. It has been buying bonds like crazy which means the interest rates on bonds drops as they no longer need to be attractive to people in order to sell. This pushes money that would otherwise have gone to bonds into the stock market. The Federal Reserve has announced that it is going to start buying stocks and shares which will simply pump more government money into the markets to keep the stock prices up. Unfortunately both of the above methods coupled with almost zero borrowing rates allow companies to stay afloat that should have gone under years ago. At some point these companies will eventually go under and when they do people will start to lose trust in the stock market to tell them when things are going badly wrong at a company. Once the crisis of confidence hits the markets then people will be pulling money out and the whole thing will collapse. Now add to this that the US Dollar is being used less and less for international trade and that in order for the government to borrow money it has to be able to sell bonds on the international markets. As there becomes less and less interest in US Dollar Bonds the government is going to have to sell them at a higher and higher interest rate in order to get takers. This is going to massively increase the US government debt when it happens. The US government is sanctioning more and more countries (meaning that they cannot use the US Dollar) and telling other countries that if they do business with sactioned countries then they too will be sanctioned. This is driving more countries away from the US Dollar as they see more and more restrictions placed on using it. Russia and China now sell their stuff (including oil) in their own currencies or even in the currencies of the buyers and more countries are turning to them for trade. This lowers the demand for the US Dollar as countries do not need to keep as much on hand as they used to. Lower demand for the dollar reduces the dollars strength against other currencies causing its exchange rate to drop. As the value of the dollar drops the countries holding the dollar are going to look to replace it with something that is going to hold its value such as gold. As you can see, we are heading into a train wreck of an economic situation quickly. I am buying gold and silver to protect my wealth as the dollar slowly goes down the toilet. The U.S. national debt is now almost $26 Trillion dollars and climbing. The government is looking at printing even more money for another round of Covid-19 relief and in order to prop up the stock market ready for an election later this year. All pretence of trying to cut the deficit have long since gone out the window. What we have now is a government that prints money and gives it directly to large corporations with no oversight. What little we have is going to evaporate due to inflation brought on by money printing. By the time we retire there is going to be nothing left other than a very large debt and rich politicians telling us that we have no money in the social security fund.
So we have a $2 Trillion rescue scheme for the economy with more to come soon. About 1/3 of that original $2 Trillion is going to regular people and the rest is going to corporations. The oversight committee to make sure that corporations do not steal the money has been disbanded leaving them free to give that money to the executives and shareholders. The next round of what is known as "Helicopter Money" is not going to go to the people, it is going to go to large corporations again. There is even a tax cut based on $500,000 worth of depreciation in the first round of money. Even during this crisis politicians are stealing money from us and giving it to themselves and their rich friends.
What happens once all of this money has been printed and given out? Do we go back to the way we were, running huge deficits and printing yet more money or do we decide it is time to fix the economy so that we can all benefit? I think I know that answer to that one already. So now what? Your 401K has been decimated and so has anything else you have in the stock market. If you are within 5 years or so of retirement then you should have enough in the bonds part of your retirement to cover your expenses until the stock market gets back up to where it was before this disaster. For us Generation Xer's we are still far enough away from retirement that this latest crash will be no more than a memory. However we can learn from these current market conditions.
First of all, everything appears to have gone down even the "safe havens" have taken a hit. It is important to note, however, that the safe havens have taken much less of a hit than the regular stock market. For example, gold is down but not by much compared to the rest of the market. Bond yields have collapsed so the time for getting into bonds has already passed. Now is the time to look at stocks/bonds/precious metals and other things to see what has held up and what has not. By using this latest market crash as a template we can examine the markets and see what survives and what does not. Will the next crash be the same? Most likely not exactly the same but there should be similarities we can prepare for. Having a high allocation of stocks looked really good until a week or two ago and now it looks like it was a bad move. Just think, the next crash will happen when we are close to retiring. We are going to want to have a portfolio with enough safe stuff in it that we can ride out the crash without having to cash out of stocks while they are at a low point. So lets see how long the markets take to get back to where they were and use that as a guide. When the next crash comes (or maybe the one after) and we are retired or getting ready to retire lets make sure that we have enough money in the safe havens to ride us through and make sure that we do not have to cash in stocks when we will not get much for them. Subprime credit card delinquency rates are at 7% which is as high as they were during the last financial crisis. The delinquency rates have been slowly rising over the past couple of years and now they have topped the amount that we had during the last downturn. The problem with this is that we are not currently in a downturn. This is partly due to the "upturn" not affecting everybody in the same way. Sure, it is fine if you make your income from the stock market, things are really good but if you make your money from a paycheck then things are not so good. The average wage rise since the last downturn has been only 1% or 2% which is not very good. The income gap is still growing and we are starting to see the results of that increase with the transfer of wealth from the many to the few. How can the economy be expected to grow when most of the wealth that has been gained is locked away in offshore tax havens? How can a consumer based economy grow at more than the rate of the average salary increase?
Subprime vehicle loans are exploding upwards as people with bad credit scores purchase vehicles.
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AuthorA generation x-er trying to get enough money to retire. Archives
September 2020
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