Invest or Die!
This is the second article in a three part series.
The first part is here.
The third part is here.
The fourth part is here.
If you suffered through my last post, Part I of Cash is Trash, you may have thought I was being a little overly dramatic. You wouldn’t be wrong… I consider it a gift!
It's also possible that you've yet to fully absorb just how much money the federal government has injected into our money supply (called "M1") in the past 12 months to compensate for their crushing lockdowns. Allow me to share a graph from their own website.
If you’re unable to interpret this chart, don't worry- I'm a genius and I’m here to help! This shows that 35% of All U.S. dollars in existence were printed in 2020. As of mid-March, it's now up to over 40%. And I sincerely doubt we're suddenly going to stop using Uncle Sugar's credit card anytime soon. By the end of the year, based on what's already been signed into law, we'll be over 50%. That's bananas. Today, that means $1 out of every $3 in your account was produced out of thin air. We didn't become more productive, we didn't earn it, we didn't even borrow it. Dollars were just produced out of thin air, in what people used to call counterfeiting.
Take a moment to absorb that fact, because this is a crucial turning point in civilization for you, the economy and this series. For now, let’s just agree that 18,000 Billion dollars is a LOT of money. Hopefully we realize this does not represent a sustainable long-term path for success. Furthermore, it's also useful to remember that when Speaker Pelosi agreed to give US Treasury Secretary Paulson a few hundred billion dollars in 2009 to save the global economy (whoa, that was almost a trillion dollars!), it was meant to be a one-time generational crisis emergency injection. Well, we all know how that played out... a lot like a first-time crack smoker (I'm told).
You're probably not an expert on Quantitative Easing. That's okay, it's just a $5 word for "Don't Ask / Don't Tell." Let's just say it's the money supply incline in the above chart between the grey line (representing the last recession) and the yellow line (representing 2020). If we removed 2020 from this graph, the chart would reset and the growth in money supply in the previous 12 years would appear much more dramatic and preposterous. A lot of people like me were afraid it represented a new road to perdition, but it turned out this was just the "on ramp" to a much bigger superhighway of financial degeneracy that we didn't know existed, and with no idea where it would lead us. Now we know.
What's so tragic about this new stimulus money is how little went to actually help people who truly needed it- as defined by me as those who "spent [it] on essentials" (less than 1 in 5 in the chart below) compared to those who saved it or gave it away, presumably because they did not need it (about 40%). In regards to the 1/3 of recipients who used it to pay down debt, I will go way out on a limb to suggest that the debt these households paid in April 2020 probably pre-exited the pandemic that started in February 2020. Call it a hunch.
My only regret is that this chart lacks insight on how much of that 'savings' was invested in GameStop stock and Bitcoin.
To me, this third chart below is the most disappointing, showing how long the initial stimulus check lasted for those that truly needed it- gone in a month or less, hardly enough to replace a job that the lockdowns may have permanently eliminated. Such job insecurity is almost unfathomable to someone like me- imagine publicly supporting lockdowns out loud and on social media when you yourself were still getting paid in full without interruption. To me, it always struck me as borderline sociopathic to support the destruction of someone else's life when I could more easily take accountability for my own life by wearing my own mask and maintaining my own social distancing, and not beg the government to take protect me at the expense of others, implement my own lockdown and be just as safe, if not more so.
It's like insisting that other people do outrageous things that are almost certain to be looked at as ridiculous through the long lens of history (for instance, wearing two masks, hiding inside my house for months on end, avoid the clean air and sunlight when it's obvious those are net-benefits, listening to unelected bureaucrat's opinions about what other should do for me) when I can't even run a mile without stopping. If my healthcare burdens have already screwed over multiple generations of children and grandchildren, and knowing that my poor personal lifestyle choices- which are are 10x more impactful than any other factor in catching COVID- I could never dream of criticizing others who's decisions are not even on the radar of risks (and not even conclusive to the experts). That's a level of delusion and incompetence that is beyond my grasp.
But I'm admittedly an odd duck, a Jocko Willink kind of guy (apparently not the only one). It's abundantly clear to me that we've largely become a nation of children. When you view our culture through that specific mantra, it makes everything a lot easier to comprehend- the riots, the cancel culture, the entitlement, the fear and paranoia, the self-absorption. These are traits of 13-year olds and when you arrive to that point, the next challenge lies in asking: Is that true or false? Where is the evidence? How did this happen? And who is to blame?
When you identify how a nation of children in adult bodies comes into being, it's very uncomfortable. Political (= personal and philosophical) ideologies that drive our thoughts, behaviors and actions manifest. We're then required to view our views in the context of an honest assessment of how well we are doing in the other spheres of our life (physically- our bodies, mentally- our college degrees and adult education, professionally- our vocations and the compensation from them, financially- do we have the minimum of 20 x (current age - 21) in liquid investments?, spiritually - our walk with God, personally- are our kids crushing it in life, domestically - marriage strength and track record of relationships. Lastly, we can look at our personal life - is last week's calendar - the 16 waking hours x 7 days (= 112 hours) something I am proud of? Or should I realize I'm really not that successful in my life, in no position to judge anyone, much less provide my opinion to anyone out loud?
I know I'm not. I think the key is to be asking. Most of us don't ask good questions, we just respond instinctively, like teenagers.
But I digress.
My point is that the evidence below suggests that these checks aren't effective. For one reason, they're not meant to be, that's important to understand. Secondly, they're not solutions. It's important to ask why.
If you’re a client of mine, that means you’ve probably achieved some above-average degree of success in your life and finances. Because even investing $1 practically puts you in the Player's Club in modern America...
Maybe the bigger problem is not money, but how to manage it. And to think this survey was pre-pandemic.
Yeah, I didn't believe this chart either at first. It's chilling. And it seemed a little dubious. But then I cross-referenced against the government's own surveys...
Even with these stats, people still criticize the need for professional financial advice. Maybe our greatest domestic threat isn't young white men or Russians, maybe it's personal financial suicide.
Some might argue that you can show anything with statistics, and that is certainly true. But the problem is this graph reflects the percentage of people's disposable income. That's the income left over after fixed expenses like food, utilities, shelter and transportation. Like their day planner (time), I can tell you almost everything I need to know about their current state and their future potential of almost anyone just by looking at their checkbook (money). The fact that most people have neither day planner nor budget is the problem, not the lack of government cheese.
As a brilliant investor, you already know that money (more accurately called currency) was originally conceived as a medium of exchange for one’s labor. It typically works best when it’s sound, stable and backed by something tangible. Most importantly, you understand it should be a reliable storage of value. If you go to the grocery store next week, your goods should cost roughly the same as this week. This is something modern Venezuelans no longer take for granted.
You're probably also aware that producing more currency, without a corresponding increase in something to back it- be it gold, military force or greater economic productivity of a population- weakens its value. Because when you make more of something without any of the above, the value of the foundational economic unit tends to decrease in similar proportion eventually, in a legitimate system and all things being equal (as they rarely are!)
Lastly, most people understand that fiat currency (i.e. not backed by anything tangible) like the US dollar can compound the effects of inflation, and thereby financial stress. My older clients frequently regale me with their recollections of the Carter and Reagan administrations when inflation ran wild, home mortgages went as high as 18% and they could purchase short-term CDs paying 20%! I admit that I’m old enough to have lived through that era, but also acknowledge that I was only loosely engaged in domestic economics at that time. I often joke that if rates ever returned to the same 6.75% I paid in the mid-2000s, Millennial borrowers would be jumping off of one-story buildings (fortunately surviving, of course- but with lots of micro-aggressions to share in their Instagram stories.)
When a currency is unstable- like cybercurrency is today, for instance - faith usually erode gradually over time (and then suddenly). More importantly, when it becomes clear the people and organizations supporting them are untrustworthy, the full faith and credit of those people – like a unethical salesman- also declines at a roughly proportional pace. Ironically, that's cyber-currency's best and most popular attack against the dollar, and it's valid.
In my experience, people are acutely aware that there are few “free lunches” in life. Nothing is completely free, there is always a cost (often non-monetary). You usually (and eventually) get out what you put in. And while "money for nothing and checks for free” is a cool song lyric, it's also a recipe for disaster. When people achieve some version of instant wealth, I can pretty much predict the outcome and so can you. Unfortunately, this strategy still seems intoxicating to a lot of people. It's also almost a universal truth (at least in my office) that humans perceive and spend money very differently when we earn it than when they we don't. We are ALL susceptible to this and anyone who’s had the misfortune of knowing a ‘trust fund baby’ understands that dynamic all to well.
In my experience, many clients are unaware of the most likely results of inflationary catalysts- for instance, three stimulus programs in a single year, each larger and more pork-laden than the combination of all previous ones in history combined. It's starting to resemble some grotesque financial orgy, with the helpless citizens (and not so helpless states and cities) expecting a bigger hit every time to maintain the same sense of entitlement. ("Well yeah, my city needs to be bailed out. We're struggling...") Americans alive today are fortunate to have never lived through such an environment and as a result, we are all at least somewhat unfamiliar with how and why the aftereffects transpire, or what to do about them. That is likely because- by and large- most of our ancestors were less permissive of elected politicians engaging in the levels of monetary abuse we're observing now.
I always try to remind clients when reviewing these concepts not to feel embarrassed or intimidated if some of them are confusing or unfamiliar. It’s unknown to many of our leadership as well! Having worked with many hundreds of households over the past two decades, and studying politicians at an almost "person of interest" level, I can assure you that many of my clients know far more about finance and economic concepts than their local representative. Some of these politicians are at best knowledgeable on political science, law or may even have spent some time working for another bureaucrat. Oftentimes, their primary skill was being well-connected. They sometimes lack an even rudimentary grasp of basic economics and finance.
Many candidates struggle financially before entering office, with a body of knowledge that extends only about as far as what their largest donors want them to know. As someone that gets asked to run for local political office annually, I realize it would be difficult to compete in more than a few elections without staunchly adopting views that align with your most powerful 'friends.' Or at least that's what's been told to me on multiple occasions.
In fact, I am often at a loss trying to ascertain exactly what some of our representatives do have expertise in, besides winning elections. And given that most are little more than blatant propaganda campaigns targeting the lowest common denominator and least discriminating voters, this is hardly a skillset worth elevating. Has anyone watched a recent political ad? They are more entertaining than attorney commercials and less condescending than professional wrestling.
I am similarly amazed that so many attach a degree of intelligence to our elected leaders by default. Thinking, "they must be smart, they're on TV and they got elected by a majority of voters in their voting area." That's akin to saying, "Lebron James can dribble an orange rubber ball, was famous for his lack of formal education and came from a broken home.. he must have above average knowledge on geopolitics. I should care what he thinks."
Similar to professional spots, intelligence is rarely a necessity for a successful career in politics either, and as evidence I submit to you... well, the year 2020. I guarantee if our leaders in either party truly understood economics and the long-term impacts of their current decisions, they would back the truck up. Nor would they probably still be in office either for that matter. Because if you are serving in the highest level government leadership in 2021, your future looks particularly grievous right now.
It’s no accident that the kinds of political and monetary maneuvers we are observing in Washington DC could never have occurred while the Greatest Generation was in charge. It is precisely because the Baby Boomers that run our country today and represent the largest and most influential voting block were not around the last time we faced a similar national crisis (namely, the Great Depression and World War II) that they are more amenable to this strategy.
Now it's important to acknowledge at this juncture that I am by no means ‘casting shade’ on Baby Boomers- serving them is my life’s mission and I wake up every day blessed to work for- and interact with- them. In fact, if I was forced to only work with the rest of you hooligans in Gen X and younger, I would probably resign tomorrow. (Or worse!) I literally could not even fathom a career where I couldn't engage and learn from Boomers every hour on the hour. Their jokes are more humorous, perspectives more nuanced and political correctness less politically correct. They also happen to be incredible clients because they're the generation that actually worked and saved, and I also know where my bread is buttered. I am the most old school person I know, and was telling damn kids to get off my lawn back in the 90s.
All generations are uniquely flawed, however, and there is little doubt that the ascension of Baby Boomers to power (I think there was only a single GenX candidate in the 2019 election?... Slacking and blaming others is our superhero skill!) in this era of tremendous social and economic disruption is no more accident. It's practically preordained, It's also explained in lucid detail in Generational Theory- namely, Fourth Turning prophesy that affirms that we find ourselves in this time and place of upheaval specifically because it's been more than 80 years since America's last major economic crisis, the Great Depression.
You see, eighty years is roughly the span of a healthy human life, and when that wisdom exits the stage, we are almost chronically doomed to repeat the same mistakes as our elder's elders (or a close new facsimile). You've probably noticed that strange coincidence as well. The Greatest Generation, defined by the two most tragic events of the 20th century- had to pass away for the old, failed ideas that they so roundly and soundly rejected in the 20th century to be resurrected and repackaged as edgy and bold in the 21st century. Same as the Civil War more than 80 years prior... same as the American Revolution more than 80 years prior. That's not an accident, that's a constant and a generational curse. It really has all been done before.
Regardless of your political persuasion, and regardless of it's ultimate success or failure, it's fairly well-documented that the ObamaCare we know and love today was simply a rebrand of the HillaryCare healthcare plan that the Greatest Generation rejected in the 90's. What's old is new again, but for a new, less discerning generations. The same ones that consume- and therefore dictate- the music, art and entertainment industry that we are all exposed to through their exceptional taste.
"Lack of transparency is a huge political advantage. And basically, call it the stupidity of the American voter or whatever, but basically that was really, really critical for [ObamaCare] to pass. If CBO scored the [individual] mandate as taxes, the bill dies. If you had a law that made it explicit that healthy people are going to pay in and sick people are going to get subsidies, it would not have passed," "
- Obamacare architect and Massachusetts Institute of Technology Professor Jonathan Gruber
What is so interesting to me is that the next Fourth Turning was predicted to occur roughly on or around ... wait for it... 2008, the eve of the Great Financial Crisis (GFS). Fortunately for all of us, Baby Boomers Paulson, Pelosi and Bernanke engineered the historic, unprecedented, last-minute, multibillion dollar TARP stimulus and the rest, as they say, is history. Hours away from global economic destruction, a crisis was thereby averted, and we've enjoyed a prosperous golden age ever since.
The Kids Are Not Alright
Children and grandchildren of Boomers (GenX, Millennials and Zoomers), whom they worked so hard to shield from the toughest realities of modern life for the majority of our existence, lack exposure to the incomprehensible misfortunes and atrocities of our
professor's favorite theories, thoughts, behaviors and actions. Like peanut allergies, it's theorized this sheltering has led to our aversion and displeasure to those threats that would prove most valuable to know, understand and avoid.
I suspect this is also why so many historic statues are now being torn down (Abraham Lincoln), schools renamed (Thomas Jefferson), books banned (Dr. Suess) and history rewritten (1619 Project and Critical Race Theory). Because once you remove anchors to the past, especially ones that were superior to what we have now. you can more easily rewrite a new and different history more accommodative to your modern views, in a script straight from ISIS campaigns and Saul Alinsky's playbook, Rules for Radicals.
This is one reason why socialism and communism have become so popular among today’s youth (and not so youthful). They know virtually nothing on the topic except what they have been indoctrinated to at very young and impressionable ages. When I ask about Mein Kampf, The Communist Manifesto or The Gulag Archipelago, the conversation proceeds about how you might expect. As humans, we often lack an accurate assessment of our own blind spots and ignorance, especially with many influential entities working fervently to maintain them. People who haven’t read a nonfiction book in a decade (or longer) are frequently the first to espouse their certainties on social media, unaware that their posts are like bumper stickers in the real world, a scarlet letter communicating exactly the opposite of what they intended.
I'm always enamored by how few denizens of social media realize that behind every social media "like" is almost certainly two dislikes and five "you are my least intelligent friend, the smartphone was the worst thing to ever happen to you, but I keep you in my feed out of sheer amusement at your incomprehensible incompetence." (Or maybe that's just me.) Our self-reinforced, technology-enabled echo-chambers serve only to amplify our misguided and damaging perceptions and opinions. We become addicted to the pithy and incomplete at the expense of thoughtful and nuanced. A hundred years ago, we'd just be some nut on a porch spouting to the sky. Now, we shut down organizations and ruin people's lives because we can.
Compromised adults in influential positions of power and authority recognize and abuse their ability to condition young minds toward these false narratives. With two working parents, households often lack enough time or influence to combat this indoctrination, resulting in our most impressionable minds falling victim to nonsense wrapped in delusion inside a falsehood. After two decades of constant exposure in government facilities- run by people who are increasingly unqualified to be around kids, much less teaching them - we then introduce these young scholars to propaganda masquerading as cable news and mental dysfunction posing as political ideology.
When I travel, sometimes I'm exposed to CNN or Fax News and I am in complete awe that people swallow this dribble, it's not even news anymore, it's just opinion wrapped in commercials for people who don't read. We silence any and all opposing viewpoints and shield our students behind safe-space in centers of learning and corporate offices, oblivious to the reality that we only grow stronger and more resilient specifically from the presence of conflicting strikes and not the absence of them.
Finally, we allow for replacement of in-person interaction and complex debate for the far more profitable technology and social isolation. We then sit back and wonder why we have such large swaths of
four three new generations lacking in critical thinking skills. We thought 2020 protests were about police brutality and social justice, oblivious to the fact that it's all class warfare and dysfunctional upbringing underneath it all. We know the outrage is being manufactured because when it "springs up overnight" but all across the country, that's not how true grass roots movements work. And our coddling of increasingly larger portions of the voting base has now come home to roost. We have failed them, and now they in turn fail our country, It's a cruel generational karma.
These new generations heave from side to side through early adulthood (really, delayed adolescence) with obscene student loan balances hanging around their necks like an albatross, tragically unaware of who is truly to blame for their dysfunction. They become intoxicated by any well-dressed candidate who assuages them a.) it's not their fault and b.) s/he can promise future recompense and indemnity for their past decisions, if they will only support their fight for 'equality of outcome.' In a culture steeped in self-absorption, techno-narcissism and generational scorn, JFK's appeal to "ask not what this country can do for you" is a relic of a bygone age and certainly no match for the inner voice affirming that the best path is "what's best for me."
Instead of lashing out at the parents, schools, government, media, entertainment and corporations who enslaved them with this unquenchable debt, cultural delusion and moral disability, these young Americans are understandably apathetic. Paying back their unearned gift of a taxpayer-financed education and fulfilling the generational contract of all Americans older than their parents, is a capricious concept. They should be thanking us, but instead they blame us.
Perhaps it's no surprise to this math- and civically-challenged coalition of the systemically-oppressed, printing more debt to get out from under theirs seems pretty dang reasonable and fair. So many are convinced it's not their fault and blame the patriarchy. But no one asks me. (After reaching this far into my series, you probably understand why. You can bet I'm fun at parties!)
Of course, with our past monetary history long since deleted or twisted; these new, emotional and impressionable voters lack the anchoring concepts of sound money or providence, and become like Lenin's useful innocents- equal parts malleable and excitable. To them, the money wasn't earned so it's not real to begin with to them. Destroying money to escape their debt slides into that popular and well-worn grove of easy answers and quick solutions, carved into our psyche over an entire (extended) adolescence, soon becoming an idea too intoxicating to ignore, as in all other historical debasement campaigns. After so many successive waves of debt-serfs enter the voting booths, it seems the time for monetary shenanigans is nigh. But who has the power to feed these fantastic lies and accomplish these historic feats?
A New Theory
If you’ve ever taken a basic economics course (or majored in it, as in my case) or made it to adulthood - or both!- you already know there can be predictable and dire consequence for printing too much currency into existence without backing and distributing it indiscriminately- both acute (short-term) and chronic (long-term). This is debatable by almost no one. Well, except maybe Alexandria Ocasio-Cortez and Bernie Sanders- currently the most well-known and popular promotors of Modern Monetary Theory (MMT), the most important economic model you've probably never heard of, but which looks poised to become the next economic framework for America.
It’s well beyond the scope of this series to explain this complex and unorthodox new school of financial thought. But at its core, MMT argues that governments who control their own currency do NOT need to tax citizens or issue debt to finance their operations anymore. They can simply print money whenever they want to pay for their various programs. Discipline is like so 20th century... MMT argues that deficits not only don’t matter, they aren’t even relevant anymore. Many classical economists find it to be a very kooky ideology, one that could only fester in fantasy worlds like American universities and internet listservs that are sheltered from the outside world by design.
MMT should not be mocked, however, because its exploding popularity and intoxicating theories promise to undermine and reset almost everything you thought you knew about money and currency (and many things you took for granted.) While the two political parties try to distinguish themselves on the issue of its merit, the truth is they would love for it to be true and possible. The idea that they could promise anything to their constituents, but this time actually fulfill the promise, is like a dream come true. They would serve in the Congress for life, because there would be no consequences to their ineptitude. They only object when they lack the authority to do something about it, after their side gets blown out in elections.
The good news is that I believe today’s leaders will soon be held accountable for their recent transgressions and replaced. It's always darkest just before the dawn. If we’re lucky, the consequences of their actions (and ours) will be remembered and used as a potent lesson for generations that follow us and will fuel our future prosperity and America’s return to greatness. Students of Fourth Turning are already intimately familiar with how this plays out in the end, and if you are not I would strongly recommend additional study. In the near-term, aggressive money printing can and probably will have unpredictable and disruptive results for any American that is unprepared and lacking in trusted financial counsel who can steer them around visible road blocks towards safety and prosperity. But it doesn't have to be an adverse outcome- you really can thrive in such an environment, if you simply understand it and act accordingly.
As mentioned previously, Congress lacked the ability to print money the way we do now until the mid-70's. The Federal Reserve that buys much of our debt has also only existed for a little over a century, as famously documented in The Creature from Jekyll Island. Their coordination is a relatively historical anomaly (even if the underlying behavior is not.) Fortunately, there is historical precedent outside of our country that can provide us valuable insight, key indicators and useful guideposts through this era of economic disruption. I aim to cover all that and more in Part 4of Cash Is Trash. But next, we will explore the immediate impacts that we can anticipate in the next few years.
In Part I of this series, we discussed the background of out current situation
In this Part II, we covered the COVID pandemic and the actions taken by the government immediately afterwards .
In Part III, we explain the impacts we've already felt and could soon experience in the aftermath of the crisis.
In Part IV, we offer commonsense principles and investment tips for an inflation environment