Guest post from John Wilder at Wilder Wealthy Wise.
“Whenever Corey and Trevor go out with Ricky and Julian, what happens? They come home crying. Dehydrated. Mysterious wounds. They won’t tell me what happened because they’re scared to death of those guys.” – Trailer Park Boys
And people say I have a dry sense of humor.
I remember hearing about dehydrated water as a kid – probably the first time was a joke from my science teacher in 7th grade. He also told us (I’m not making this up) drinking stories. He taught us that if you go out drinking when you have just donated blood, you get drunker faster. Who says that middle school science doesn’t teach important life lessons?
But the idea of dehydrated water as a product still got filed away somewhere in the six million neurons I have that are dedicated to 7th grade science. It’s filed somewhere between “don’t stare at the Sun directly through the telescope again Wilder” and “mercuric oxide might look like cinnamon, but it’s not as tasty.” And dehydrated water popped into my mind as I was preparing to write this post today.
Why?
The economy of the United States is dehydrated water at this point. The unemployment rate from Shadow Stats® is somewhere around 35%. Even the Department of Labor thinks the number of people that are unemployed is somewhere north of 20%. Heck, I heard a guy was upset about losing his job at McDonalds™ even though he worked for a clown.
The head of Old McDonalds® Farm is the CIEIO.
As I first predicted when the WuFlu was just coming over the horizon and the first lockdown hit, this is devastating to the economy. The difference between 2% growth year over year and -2% growth is enough to cause Washington D.C. to be as uncomfortable as a Joe Biden voter when Joe starts talking about how he thinks that JFK has the plan to save us from the Spanish flu.
I was not surprised by the quick action money shower from the .GOV folks. What did surprise me is that they used the occasion to juice the economy also by giving money to working people rather than just bailing out banks. Many people on unemployment are actually making more money on unemployment than they made when working, thanks to the extra $600 a week the .GOV folks are adding to their unemployment insurance check. Some could be making up to $50,000 a year. For not working. But Congress makes $174,000 a year for not working, so there’s still room for career growth!
But the .GOV isn’t just juicing the average unemployed worker. As noted in a previous post, the Federal Reserve Bank™ is engaged in “plunge protection” where money is strategically pumped into the stock market to keep it from crashing. That’s generally accepted. But now? The Federal Reserve© has been, for the first time in history, buying corporate bonds.
Bonds are really just loans. A company, say, Apple® decides it wants have more slave labor camps factories built in China. So, it calls up the Chinese partner, and says that it will pay. But since the cushions in Steve Jobs’ couch have been raided for quarters already, they decide to borrow money. You or I would have to go ask someone to borrow money from them. But Apple™ sells their debt in the form of bonds, or promises to pay the borrowed money back, plus interest.
When James Bond was offered a sandwich, he had a choice of ham or turkey. Of course he chose bacon, not bird.
Normally, Apple© would sell those bonds to places like pension funds and 401k’s. But in 2020, the Federal Reserve™ buys them. Yes. One of the most profitable companies in the world gets its debt purchased by the Fed®.
Why?
The stock market needs to be propped up, and so does the bond market. And after hundreds of millions of loan payments haven’t been made. Which of those loans are good? Where is the cash to pay the lender coming from? No one knows. No one wants to take a risk. Money is like me on a vacation day, it just sits there.
Markets are freezing up because the money isn’t moving, because the economy is freezing up. What the Fed® is doing is artificially injecting money into the market because the market has ceased to work. It’s like my can of dehydrated water – there’s really nothing in it. The joke is that you can add a gallon of water to the contents of the dehydrated water can to make a gallon of water.
The Fed® is adding billions of dollars to an empty economy and pretending that nothing’s wrong, that they didn’t just make an economy out of nothing. “Hey, instant economy. Just add money.”
Planes are different than an economy. Planes only crash once.
My prediction is that the extra $600 a week won’t go away, unless Congress wants the economy to crater even more before the election in November. Why? Since giving away money to people and companies that haven’t earned it is literally the thing Congress loves most in the whole world, I think they will. And I think they’ll ultimately manage to extend it. Probably for at least 100 weeks.
We’ve borrowed more in the first quarter than we spent in 2011. What’s a few more zeros on the national deficit?
But when I wrote that first post about the crash, I was (more or less) assuming we’d be done with the economic mess associated with COVID-Forever no later than July. I thought that people would, as much as possible, not go licking all the doorknobs that they see and the disease would run out of people to infect. Yay, normal summer. And given that, I still predicted at least five years to recover, but more likely a decade.
Nope. States are re-locking down right now. States that never experienced the devastating deaths caused by the nursing-home stuffing Governor Cuomo set up in New York are seeing cases rise.
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When large segments of the economy simply disappear, you can’t simply replace them with money. In the end, money has real purposes in the economy:
- Money provides incentives for good behavior, like starting successful companies and saving. Blowing it all on Three Stooges® videos from Amazon™ is probably not the best investment strategy I ever had.
- Money provides an allocation of resources throughout the economy without central planning – it’s a way to allocate the productive energy of the economy without a team of Central Politbureau Commissars picking and choosing winners and losers. Congress hates How can you get votes if you don’t mismanage the economy?
- Money provides ways for people to trade for “stuff” without bartering. I could trade your (for example) a vast quantity of Beanie Babies® for a pickup truck. But then you’d be stuck with all of those Beanie Babies™ and have to trade them for the goat milk and pantyhose that you really need. Unless you can milk Beanie Babies© and then use their skins for leggings?
She was upset when the prices crashed. I tried to tell her she’s not worthless – her kidneys are worth a lot on the black market.
But money isn’t the economy – money only has value if everyone believe in it. You can’t just give everyone money and expect that good things will happen. At some point, people need to make things. And people need to believe that money has value.
You can’t grow plants with Brawndo©, you can’t fight crime with a macaroni duck, and you can’t rehydrate an economy with money.
But the Fed© is trying to do that. Not grow plants with Brawndo®. But make an economy work by sprinkling money on it.
The next phase of our economic crash, however, is default. Unless the Fed© keeps rehydrating, eventually people will stop paying back money – it will be a Cashpocalypse – borrowers won’t have money, and lenders won’t get paid. But that’s okay, we can simply have the Fed™ just shower the money onto both of them?
The French, of course, had to jump on the Cargo Cult bandwagon, so they called it “Special Cargo Cult”, or S-Cargo for short.
In the 1940s, massive amounts of men and material flowed into the South Pacific so that we could beat the Japanese back from Australia so it could be handed over to the Chinese in the 21st century. Several cults known collectively as “Cargo Cults” formed. One speaks about their deity, John Frum, or, as I prefer to think of it, John From Wilder’s house. (Seriously, they think the name of John Frum came from “John from America”.)
The idea behind these Cargo Cults was that if the natives built symbolic airstrips and symbolic airplanes out of bamboo (or whatever they had) then the flow of cargo that the American and British armed forces brought in would resume. Then? Perfect prosperity. Hurray!
The Fed™ has become infected with the idea that the economy can be summoned. That’s the definition of a Cargo Cult.
Sadly, I have bad news. It won’t work. It can’t work.
You can’t make an economy by rehydrating it with money. But you can regress an economy. And you can destroy the belief in the money you’re flooding the system with.
Just because it’s gone exactly the way I’ve thought it would and told you it would, don’t mind me. In all seriousness, I could be wrong.
But I could be right. What then?
Have some water on hand?
One big
Loved the wit. Wonderful writing. Your points are generally well taken. But how dare we put our own limitations on the mighty Federal Reserve. Just because something wouldn’t work for us, doesn’t mean the Fed won’t have the power. I’m building a landing strip now Already I hear those cargo planes circling overhead!
A house of cards.
Don’t know how long the municipal governments can hold out without laying off thousands of people. Something has to give.
In the meantime while there is still time to plan I would recommend people to start thinking about forming social networking groups to provide the things private business and local governments will no longer be able to provide because of either bankruptcy or just plain being broke.
These new formed groups of people 200 to 300 strong could form co-ops that provide school for children, daycare, thrift shops, kitchens & dining rooms, repair shops, and most important barter groups within their organization to provide needed goods and services.
It just seems like the coming crash is really going to be devastating to the extent that many will be like deer in the headlights of an oncoming vehicle and be flattened.
Never seen anything like this in my lifetime. Stock market going up while millions become unemployed and 100s of thousands of businesses closing down. All seems calm right now but for how long before the real crash hits with full effects?
All I can do is prepare and hope others are preparing too.
Bravo!