A Fish's Perspective

Marshall McLuhan once commented that if you asked a fish to describe its environment the last thing it would mention is the water.

Yes, I went on a little bit of a rant Saturday, but it seems to me that most people. like McLuhan's fish, do not see the water. There is a general unease about the situation, but no real concern to make changes.

One symptom is the crazy interest rates.

The interest rates in Spain and Italy are crazy, they are too "high." Paying around 7% with the high debt load is cutting into the budgets of these countries. This leads to more budget cuts. This leads to more economic troubles. This leads to less revenue. This leads to more budget cuts. I am not sure how these countries can get out of this cascade of negative feedback.

However, the reason for these high rates is the justified perception that these governments will default. Because of the risks, the "high" rates may in fact be too low.

Some countries have crazy low rates. Germany, Canada, and the United States actually have negative interest rates on very short term debt.

Since we are swimming in the low interest rate water, we do not think about what it means.

On a recent trip to Branson I was at the bank. An older man was there complaining. "Over one hundred thousand in the bank but the interest I get is less than one thousand." He is being stolen from by the Federal Reserve's low interest rate policy. Savers are penalized and borrowers benefited.

If we assume that the inflation rate reported by the government is correct, interest rates are very negative. The inflation rate is actually much higher than what is reported. If this is correct, then interest rates are very, very negative once taxes and loss of purchasing power is factored in.

Once you have a reserve for an emergency, pay down debt—savings in the financial market is making little sense right now.

Do it now. Pre-buy consumer goods. “Forever” first class stamps are an example of what I am talking about. It is not that I expect empty shelves. I don't. But the current financial markets are so fragile that one of the best investments you can make is consumer goods. If you have junk and clutter you aren’t using, have a yard sale or garage sale (if you have a garage) and sell that stuff. Then pre-buy food and consumer products with the money from the sale. Be sure to only buy stuff that you actually eat or will use. I have blogged about this before. You can't go wrong, as you can use or eat your investment.

Don't be like a fish. See the water and act.

Here is a discussion of interest rates by Marc Faber on the show Capital Account.

Concentrate Your Mind

"Depend upon it, sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully."

Boswell: Life

This is the exact situation we find ourselves in. The West is pedaling madly toward an economic cliff, yet no one is focused on it. 

The Democrats are acting like a drunken sailor on shore leave who has just been paid. No, wait, that is not fair to drunken sailors. When drunken sailors run out of money they stop drinking. Spending more money will not help. 

The Republicans think that in an era of 1.3 trillion dollar deficits we can cut taxes, and continue to pay Social Security, without reform, for those over 55. We can continue to spend more on defense than the rest of the world combined, they say, ignoring the effect of a collapse on military spending. 

Libertarians, and some Republicans, think that instead of reforming Medicaid, they can take the money that the federal government is currently spending on Medicaid, and give it to the states in a block grant. Of course they do not say where the money will come from for the states to pay the benefits as health care continues to grow at unsupportable rates. The Libertarian party favors open immigration, yet neglects to say how the free health care will be provided. The Libertarian platform is better, but it still ignores important issues and pretends. 

Economically, we are all about to be hung.

I look at the churches in my tradition. The conservatives think they can repeat the successes of the past without adopting the techniques of the future. The "progressives" think they can, by their superior seamanship, sail their ships to success. Can a rowboat survive a demographic tsunami? 

Both groups just seem to get older and older. When I visit such a church I am one of the younger people there. I am 58. 

Religiously, we are about to be hung. Our carcasses will lie in the desert, but there will be no one to burn the dead. 

Am I pessimistic? Yes, yes I am—but not necessarily on a personal level. We can prepare economically for the economic earthquake ahead. Make yourself the best employee at work. Serve your customers, fulfill their needs. 

As I have put it to many in my church tradition, regardless of the situation, each of us needs to soldier on. Serve and love your neighbor, what you sow will be what you reap. 

I feel that my mind is as concentrated as it has ever been since I see the hanging coming. 

Do you see the barbarians at the gates? 

Currency Collapse

I have been reading from Currency Wars by James Rickards. It is an interesting history of the recent currency troubles of the last century. One of the worst episodes was in Germany in the 20's. Here is what he said about that crisis:

In one incredible five-year stretch from 1977 to 1981, cumulative inflation was over 50 percent; the value of the dollar was cut in half. U.S. citizens in this period made the same analytic mistake as their counterparts in Weimar Germany had in 1921. Their initial perception was that prices were going up; what was really happening was that the currency was collapsing. Higher prices are the symptom, not the cause, of currency collapse.

Is the United States headed for such a collapse? I doubt it. But it is not impossible. Obama may “get religion” and start cutting the deficit. Romney may be lying to us now for the election, but he actually has a plan to save us. Maybe Glinda, the good witch of the North, will cast a magic spell and give us ruby slippers to solve the transportation crisis. As my son Daniel used to say when I would tease someone outrageously, "Anything is possible."

I would not rely on Glinda or magical ruby slippers.

What do I expect?

I expect that inflation will be 10 to 20% and so will unemployment.  At that point whoever is President will be forced to act like Reagan did and appoint someone like Paul Volker and we will have a few rough years but eventually come out of it a smarter nation, but no longer the only superpower in the world.

This makes me an optimist. God help us.

The Great Recession

I thought I would post this video because it describes my view of how we got into the economic mess we are in, and how to get out of it. I do this in spite of the fact that a large portion of the documentary is in Spanish with English subtitles. And in spite of the really annoying guy in the rocking chair rocking back and forth rapidly.

"fraud. why the great recession" (official version) from amagifilms on Vimeo.

Jesus and the Bankers

I mentioned Saturday one group of people that Jesus was displeased with—the religious bureaucratic hypocrites. But there is another group he was not too happy with. Matthew 21 tells us of one time that Jesus was in the temple. This is from the translation The Message:

^12-14Jesus went straight to the Temple and threw out everyone who had set up shop, buying and selling. He kicked over the tables of loan sharks and the stalls of dove merchants. He quoted this text: 

   My house was designated a house of prayer; 

   You have made it a hangout for thieves.

Now there was room for the blind and crippled to get in. They came to Jesus and he healed them.

 ^15-16When the religious leaders saw the outrageous things he was doing, and heard all the children running and shouting through the Temple, "Hosanna to David's Son!" they were up in arms and took him to task. "Do you hear what these children are saying?"

   Jesus said, "Yes, I hear them. And haven't you read in God's Word, 'From the mouths of children and babies I'll furnish a place of praise'?"

 ¹⁷Fed up, Jesus turned on his heel and left the city for Bethany, where he spent the night.

In this case Jesus made the religious leaders, the religious bureaucracy, upset. Why were they upset besides the obvious fact that their offices were in question by the popularity of Jesus?  

There were several rules designed to implement the principle that when one offered a sacrifice, the animal should be without blemish. So you would select one of the better animals of your flock to sacrifice. The priest would then examine the animal to determine if it was suitable.

For some reason, in the time frame we are talking about here, the second temple period, the animal was usually “not good enough.” That meant if you wanted to offer a sacrifice you had to then purchase another animal.  Naturally, right there was the solution! You could sell your lamb and buy a dove, right there in the temple. How convenient! The religious leaders really cared for their "flock."

Not exactly. Since there was limited space at the temple, who do you think got the space to sell the doves? The answer is, whoever gave the biggest bribe to the religious leaders. Of course this meant that an approved animal was a lot more expensive than it should have been. The public was being ripped off by their leadership. As Jesus noted, they were thieves. 

While I like the translation in The Message, I feel that the term “loan sharks” might be misleading. I am sure The Message wanted it to be clear that they were crooks, but no loans were taking place. What was happening was that if you wanted to make a contribution of coins toward the temple you could not use the normal coins of the time. They were “dirty.” You had to use special coins from Judah's past. So you would go to the "loan sharks," the money changers, and exchange money. Naturally the cost of the special coins was greater than the value of the normal coin in precious metals. So this increased the cost of making an offering. Naturally, as the temple bureaucracy had no need for the special money, they would sell it back to the money changers, and so the process continued with each side getting their cut from the faithful. As Jesus noted, they were thieves. 

Jesus was not happy with these bankers, as they were crooks. 

I do want to make one thing clear. There is nothing wrong with the supposed banking model. (I say supposed as the traditional banking model is not used by the big banks.) A well-run bank is designed to be an intermediary between savers and borrowers. I have known, and continue to know, reputable bankers. But our large money center banks have long abandoned that model. They live only to plunder. They fix rates. They sell securities they know are trash. Then they retire to warmer climates. Yes, they may very well be headed for a very warm climate.  

So there are two categories of people Jesus has been known to get angry at—the religious bureaucrat and the crooked banker. I do not think I would want to work for the Vatican Bank!

Here is one cinematic interpreation: