Are you a deflationist? Or an inflationist? No matter which way you believe the wind will blow, the truth is this: it’s up in the air. But, as Jim Rickards explains, there are things you can do to cover your assets, no matter which one wins the tug-of-war. Read on…
There are two things you shouldn’t do this Election Day: one, vote; two, buy gold. Why? Chris Campbell explores this and more in today’s Laissez Faire Today. Read on…
America has about 4% of the world’s population, yet houses 25% of the world’s incarcerated. What’s going on here? Chris Campbell digs deep into the industry to figure out the truth. While many blame the private prison industry, the real culprit, says Chris, begins right outside your door. Read on…
“While I heartily subscribe to your premise of pursuing one’s dream,” one reader, Donald J., wrote, “there are alternate perspectives worth considering.”[We’re listening… go on.]“Some wiseguy once said that life is what happens to you while you’re waiting for something better to come along. Milton put it a little more poetically in one of his […]
Want to get rich? Don’t listen to financial “gurus,” says Chris Campbell. In today’s Laissez Faire Today, Chris shares a Zen proverb and shows how understanding it is the only real way to get rich (and live a rich life). Read on…
Where do great investors come from?I’m not sure what the hurdle rate for greatness is, but Guy Spier has put up impressive results. His Aquamarine Fund has returned 463% since inception in 1997, versus just 167% for the S&P 500 (a broad proxy for the market). Put another way, $1 million invested at inception is […]
Ben Franklin once said, “An ounce of prevention is worth a pound of cure.” In today’s Laissez Faire Today, you’ll learn about one FREE website that has the potential to not only keep your family safe – but also open your eyes to what’s happening in your own neighborhood. Chris Campbell has all the details. Read on…
All over the world, power is dying. The dictators and tyrants of the world are no longer able to wield it like they once used to. And they’re losing it to the “little guy.” Chris Campbell shows you how to be the king of your castle by taking advantage of this fact. Today, you’ll learn how to grab “power gaps” in the market and channel them into your product idea or project. Read on…
The fireflies along the tidal rivers of Malaysia show "feats of synchrony that occur spontaneously, almost as if nature has an eerie yearning for order." Chris Campbell tells you where else this might occur in the world. Also, new technology may revolutionize the agriculture industry and what we think of as a farm.
Jeff Davis is running for Governor in Hawaii and has an interesting campaign strategy. Also, what motivates hackers is revealed and the findings might surprise you. Finally, Ferguson is discussed in a new light. Chris Campbell has more...
Next year is the 65th anniversary of the Peanuts comic strip. And Charlie Brown, Snoopy, Lucy and the rest of the gang will appear in their first full-length feature film in 35 years.One small company has the license to the Peanuts brand. The cash flow due to this company could be enormous. In late October, […]
When the government pumps trillions of dollars into the economy, they’re not actually printing the money. It enters as digital entries in banks across the country. It’s made the system fast, responsive, and, unfortunately, vulnerable. Now our money is no longer something we hold in our hands, but something that exists on a very susceptible network.
The so-called recovery is only built on debt and printed cash declares our own Byron King. In the long term, the only option for the government to continue financing it's operations is to print too many dollars. Money printing has it's limits, however. It's Byron's opinion that at some point, perhaps very soon, the government will have to turn to more desperate measures. Namely, capital controls. In the following featured essay, Byron outlines 4 probably ways the government will take your cash and one play you can buy through your broker to prepare today. Read on...
Americans expatriate because they want to get out of the country. Corporations expatriate for similar reasons. Clem Chambers explains...
In a 2009 article, the Huffington Post went into considerable detail about the number of people with PhD degrees in economics employed by the Board of Governors of the Federal Reserve System. This is the government’s branch of the Federal Reserve. It is not one of the 12 regional Federal Reserve banks, all of which […]
Who can forget Robert Louis Stevenson’s Treasure Island? That map, marked with an “x,” is the stuff of high adventure.There is a modern-day equivalent of a treasure map, and it is just as coveted by those who seek reservoirs of oil and gas. It’s called seismic data.What are seismic data? In essence, they’re collected from […]
The U.S. dollar is the dominant global reserve currency. All markets, including stocks, bonds, commodities, and foreign exchange are affected by the value of the dollar.The value of the dollar, in effect, its “price” is determined by interest rates. When the Federal Reserve manipulates interest rates, it is manipulating, and therefore distorting, every market in […]
The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance or the get-rich-quick adventurer. They will die poor.– Jesse Livermore, How to Trade in StocksThe trouble with capitalism’s guardians is that they have no […]
John Foust, a Democrat running for the 10th congressional seat in Northern Virginia, is — like Gov. Terry McAuliffe and other state Democrats — gung-ho to expand Medicaid. His wife’s position is, shall we say, a bit more nuanced.Foust has slammed his opponent, Republican Del. Barbara Comstock, for her opposition to expansion. He has spoken […]
The midterm election season is upon us, and it’s a tossup whether the Republicans will win the Senate, or if President Obama, seemingly oblivious as conflict flares up around the world, will, through his continuous campaigning, keep Harry Reid in his majority leader seat.The only thing we know for sure is that sociopaths will be […]
I bet you use different kinds of money all the time, sometimes without even realizing it.In various online accounts, I currently have: some dollars, some pounds, and some euros. I have some air miles from two different credit card companies. I have some supermarket rewards points from three different companies. And I also have some […]
Alexander Hamilton was America’s first Secretary of Treasury under President George Washington. When he first entered office in 1789, America was an agricultural nation of just 4 million still broke from its financially costly victory over the British Empire in the Revolutionary War.The states had accumulated relatively massive debts to finance that war, which mostly […]
A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
Fifty years after the 1929 crash, a group of money managers and investment thinkers put together a collection of essays looking back at that experience. The result was a distillation of some pretty fine investment wisdom. Timely, I think, to review now.One of the contributors was Arthur Zeikel, then with Merrill Lynch. The title of […]
Although the mainstream media have turned its attention away from the wreckage of Obamacare, don’t think for a second that all is well.As the politicos in D.C. focus their attention on the midterm elections in November, now is a great time to study, prepare, and seek out the most affordable, accessible, and highest quality options […]
I’m sure you’ve seen the news. As if recent, past U.S. policy fiascos in Libya, Egypt and Syria were not enough, the wheels are now coming off the proverbial bus in Iraq, site of so much blood and treasure spent in the last decade.Radical Islamist armies are marching toward Baghdad, slicing through Iraqi government troops […]
Turn on the tube and economic ignorance seems to be everywhere. There is constant shilling for more government. Business is demonized. Man is said to be trashing the environment. “Workers and women are oppressed” is the constant mantra.And members of the clueless media nod their heads in unison.Only John Stossel has provided the fresh air […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
In the minds of many people around the world, including in the United States, the term “capitalism” carries the idea of unfairness, exploitation, undeserved privilege and power, and immoral profit making. What is often difficult to get people to understand is that this misplaced conception of “capitalism” has nothing to do with real free markets […]
Some people are saying it is just what the doctor ordered. Others are saying that the cure is worse than the disease.The Affordable Care Act? Reengagement in Iraq? Tea Party bullying in the GOP?Not this time. Just as protracted in the corridors of Congress and the White House is the debate over the proposed reform […]
In 1995, American agriculture underwent a profound, dangerous change.In that year, Monsanto and other companies pushed through approval for a handful of genetically modified (GM) organisms. These included canola oil tweaked to improve its flavor, potatoes modified to resist pesticide dousing, and tomatoes gene-spliced to delay ripening.“About half of all the crops planted on American […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
People jacked up about income inequality can find a new hobby. The 1% are victims of a doomsday machine, and the countdown is ticking. Machine, thy name is “family.”This came to mind as I was reading a preview of Columbia Professor Andrew Ang’s forthcoming, must-read book on Asset Management. Ang is that oxymoron, an exciting […]
I am often asked, “How can anyone not see the problems of growing debt in the U.S.? Why can’t we get a consensus to change?”
Part of the problem is that too many in power just don’t see the impending crisis that you and I see, or at least they don’t see the need to act now. That is changing — or so I thought, until I read a most inexplicable statement by the billionaire entrepreneur mayor of New York City, Michael Bloomberg.
This is the sort of thing that causes me to despair. Here we have a supposedly (well, relatively) fiscally conservative politician, someone who is no stranger to financial circles, giving us these off-the-cuff remarks last month, commenting on whether sequestration will affect the NYC budget:
“‘It depends on how long,’ Mr. Bloomberg said on his weekly WOR radio show with John Gambling. ‘If it lasts a few weeks, no. If it [lasts longer], yeah. We get 10% or 12% of our budget from the federal government. Not all of that is going to be cut back, but there would be effects — not good effects. But in the context of, “Is anything going to change tomorrow? Are we going to run out of money tomorrow?” I’m sure I’ll get that question at the [next] press conference. No.’
“Furthermore, while saying the federal deficit does indeed need to be curtailed, Mr. Bloomberg argued that the United States could owe ‘an infinite amount of money’ and there is no specific amount that would cause the country to default.
”’We are spending money we don’t have,’ Mr. Bloomberg explained. ‘It’s not like your household. In your household, people are saying, ‘Oh, you can’t spend money you don’t have.’ That is true for your household because nobody is going to lend you an infinite amount of money. When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money… Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more. It’s the old story: If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that’s a problem for the lenders. They can’t stop lending us more money.”
I am not sure what his understanding of the word “infinite” is, but I am pretty sure he is not using the word to mean “limitless or endless in space, extent, or size; impossible to measure or calculate.”
In the few times I have met him, he has seemed quite reasonable and in command of the English language. I think he was speaking in a metaphorical sense, as in there is (to his mind) no practical limit. I certainly hope he was.
I am reminded of former Vice President Dick Cheney’s comment that “deficits don’t matter.” He is right if the U.S. deficit never grows past the rate of the growth of the country (nominal GDP). It might not be wise to approach that limit, but it would not necessarily be a disaster.
And to be charitable to Cheney, I’m sure it never occurred to him that the U.S. could run a deficit close to 10% of GDP. Such a notion would have been preposterous to him. Unthinkable. The U.S. government would pull back from anything even close to that. And that remained true — until it happened and we didn’t pull back.
And that is the problem. Too many of our leaders do not yet think we have approached the limit — hey, we’re not to infinity yet! The political and economic repercussions of restraining ourselves are just too difficult for some of us to resist pushing the limits a little further.
Too many in the current administration appear to truly believe that even minor spending cuts (and I mean just cuts to the increase in spending, not actual cuts!) will bring about calamity.
Spending cuts will, indeed, reduce potential GDP in the short run. And for most politicians, the short run is the world they live in. But at some point, the short run gets longer, and as infinity approaches, the bond markets get very antsy.
Greece protested against the austerity imposed on them. But what choice did they have? If they did not cut their budget, the rest of Europe would not fund the new debt they needed. It is not a God-given right for Greeks to expect Germans (and the rest of Europe) to fund their lifestyle.
So the bond markets simply stopped funding Greek debt. If the Greeks had not agreed to austerity (known in some circles as “reality”), the budget cuts would have been far larger, as Greece cannot print its own currency.
The rest of Europe gave Greece money to avoid the potential debacle of a disorderly exit from the euro, but they did extract a price. The object of the process was to get Greece back to a place where it could fund itself with a smaller government budget.
Austerity is not fun. Ask any teenager whose parents have set limits where previously there had been few or none. Tantrums ensue. It is kind of like the five stages of grief: denial, anger, bargaining, depression, and acceptance. Except that when you are talking about seriously overindebted governments, the depression (pardon the pun) can last a lot longer than any other stage.
Bloomberg and those who think like him project our current experience to extend into the far future. “Look at interest rates,” they say. “They are telling us the markets are just fine with the levels of U.S. debt and the deficit.” And they are right; there are no bond market issues now. But those of us with an eye on history know that is not unusual.
Bond markets are typically sanguine right up until the “BANG!” moment. Then they are not. Bloomberg is right to say there is no specific amount of debt that would cause the markets to cease funding us.
Would that there were some convenient, unmistakable line we could see as we approached it. But the experience of over 250 debt crises over the past few hundred years tells us that there is no specific point at which the markets lose confidence in a government’s debt. When it happens, though, it is ferocious in its intensity.
That is why I and others are so deeply worried about Japan. The level of denial is majestic. The newly nominated governor of the Bank of Japan, Haruhiko Kuroda, has openly espoused the printing of money and monetization of debt.
And Kikuo Iwata, one of the government’s nominees for central bank deputy governor, said the Bank of Japan should buy longer-term bonds to help it reach a 2% inflation goal.
They both suggest that the monetization planned for 2014 under the old regime could be accelerated into the present. As if to reinforce the perception that Japan can borrow an infinite amount of money, the yield on Japan’s 10-year bond has fallen to 0.585%, the lowest in a decade.
If the bond market is so compliant in the face of imminent massive monetization, what could possibly go wrong? The amount of debt Japan has amassed has now topped 1 quadrillion yen. Not trillion with a T, but quadrillion with a Q, which letter coincidentally also begins the word questionable. You can see for yourself how confident bond buyers are in this chart:
Infinite means without limit. If Japan can borrow such sums at a 240% debt-to-GDP ratio, the thinking surely goes, the U.S. can borrow a few trillion more — or perhaps even an infinite number of trillions. And we have such a long way to go before we even get to a quadrillion!
I warned in Endgame two years ago that the markets could lose patience in 2014 if they do not see a serious attempt to curtail the U.S. deficit. The recent gold standard for a bearish mindset, my friend Nouriel Roubini, told me he thinks I am being too pessimistic — we can probably get through to 2015.
If we do indeed see some movement toward deficit reduction, then our date with destiny can be postponed for quite some time. If, over time, we can bring the deficit back to below nominal GDP, a true debt crisis can be averted.
If pressed, I am sure Mayor Bloomberg would now express regret at using the words “infinite” and “debt” in the same sentence. I doubt he actually believes what he said; rather (I generously assume), he was trying to make the point that the current sequestration will not bring on a debt crisis.
Until we get enough leaders to press the point, leaders like Simpson and Bowles, et al., we will dig an ever-deeper hole for our children; and if we don’t stop digging pretty soon, we will find ourselves in that hole. Past performance is not indicative of future results: It is not preposterous to think there might be limits.
Originally publishing in The Daily Reckoning