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Central Planners At Work

Consumption without Production

“Every man is a consumer, and ought to be a producer”, observed 19th century philosopher Ralph Waldo Emerson.  “He is by constitution expensive, and needs to be rich.”

Ralph Waldo Emerson (May 25, 1803 – April 27, 1882), who inter alia opined on consumers and the need to not only consume, but also produce. The latter activity has recently become even more severely hampered than it already was. And yet, government is spending like a drunken sailor. [PT]

These days Emerson’s critical insight is being taken to its extreme.  Consumers, many whom lost their jobs due to government lockdown orders, no longer produce.  Yet they still consume.  They are expensive.  Not rich.

What’s more, this consumption is not funded through personal savings.  Nor is it funded through government transfer payments.  Rather, it is funded via the printing press.

Emerson, no doubt, was lacking in the unique perspective we are presently granted.  He did not have the special opportunity to watch his government destroy the economy in short order.  Perhaps if he had, he would have penned a neat axiom to distill the essence of what happened.

The world today looks nothing like Emerson’s day.  The 19th  century was an age of honest money.  Central bankers did not roam the land.

Printing money to buy bonds and stocks, and to sprinkle on people, would have been quickly dismissed.  The experience of the Continental Congress during the American Revolution, and their over-issuance of paper “continentals”, had shown that resorting to the printing press was an act of suicide.

 

Promises, promises… “not worth a continental” became a saying after this early experience with paper money. [PT]

 

Currently, printing press money is considered enlightened central banking policy.  Inflation targets, zero interest rate policy (ZIRP), direct bond purchases, twisting the yield curve, unlimited credit.  This is merely a partial list of the trouble central bankers are up to.

…click on the above link to read the rest of the article…

 

The Hidden Revelation

The Hidden Revelation

The current government shutdown (the longest in history) comes with a hidden revelation: Millions of Americans are financially unprepared for the next economic downturn. Worse, they are highly vulnerable with few protections.

10 years after the financial crisis the economic recovery has left millions behind with little to no savings and the government shutdown serves as a preview for what will happen once unemployment rises.

Within just a few weeks into the government shutdown people are struggling to cope. We hear of stories of people turning to food banks to feed their families during the shutdown. We hear stories of people who are in dire straights because they can’t get loans and of people who can’t pay their mortgages as payments come due. That’s not even a month into the shutdown.

Why do a few weeks of no pay turn into a crisis for many families? Simple: Nearly 80% of Americans live paycheck to paycheck. That’s a problem when you have little to no savings. In fact it’s akin to playing financial Russian roulette.

And the problem is terrifyingly pervasive. According to a recent GoBankingRates surveyonly 21% of Americans have more than $10,000 in savings with nearly 60% having less than $1,000 in savings:

This savings free game of complacency works as long as people have a steady paycheck coming in and as long as rates stay low. But they are not staying low even though the Fed may stay patient again this year as they have proclaimed in recent days.

As a matter of fact the cost of carrying debt, especially the revolving credit card type have exploded higher since the Fed started slowing raising rates. Think I’m exaggerating? How about this: Interest rates on credit cards by commercial banks are now as high as they were in 2000:

 …click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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