Letter to my Econ Minor Son
As an Econ minor, if you only left with one thing, it needs to be the core differences between Keynesian and Austrian policy. In short, Government run (aka manipulated) vs. basic free markets.
The problem is Keynes would roll over in his grave if he found out the debt incurred was never paid back...as his theory said. So today we have 'modern Keynesians.'
It's so bad it's turned into the government doing very stupid, and dangerous, things to keep the lie afloat. It's like a Ponzi scheme in the sense that in the end, there's no way to keep it up.
The best metaphor is heroin addiction. We (Govt) don't want loved ones to go through the incredible pain of withdrawing. We can't stand the screaming all day! So we give them a shot just to ease the pain (and shut them up) for a bit. In this case, the bankers are the dealers/users/addicts and the people are the user/addicts.
The Keynesian Cult Has Failed: "Emergency" Stimulus Is Now Permanent
But the heroin is running out AND it's taking more and more heroin to keep from slipping back. The heroin is 'Government intervention.' ‘Running out’ of heroin means banks can already borrow from the Govt at 0.5%, but how much lower can rates go?
The banks and Government are so hard up the only thing left is negative interest rates. That means the banks charge people to hold their cash. The Feds assume that will force people to spend $$. But they won’t.
As you can imagine, people will just withdraw their cash from the bank. So the banks will want to outlaw cash and make it a check/debit card society.
The Govt is buying bonds to keep rates artificially low. Get it? If they let rates float to true market levels, mortgage rates would soar to what...7%-9%?? Who knows. But the juice isn’t working anymore!
Fed Is Losing Its Influence Over the Bond Market
People will say “Why should we pay $1,800/mo on a home that is worth $50,000 less than what we owe?" Home values would collapse. People will do 'jingle mail' aka send keys back to the bank and say "Screw it. Keep the home.”
While prices go up slowly, they can do a Wile E Coyote in a deflationary spiral.
Here's where it gets nasty. Banks have been playing musical chairs for many decades. The music skips and they all look down to see how many chairs are available. For every 10 bankers there might be only 5-7 chairs. That means 30-50% of the banks in this country go under! That is a real deflationary spiral.
The items tied directly to loans get crushed the worse: housing, autos, RVs, and even college tuition. Why tuition? If fewer student loans are offered, colleges will have no choice but to lower tuition.
I’d pay real money to know what tuition would be like if the Feds never got into the student loan business. I guarantee you it would be a lot lower than today thus allowing more to attend college. Let that sink in.
This is when Keynesian dies...for at least decades. Why that long? Because it took all the depression babies to die off before we can repeat the history. The depression babies were wise enough to tell us 'that won't work!' But they're all gone. The current generations think they were old fools...but they weren't.
As soon as we forget their lessons, it happens again.
'Those who cannot remember the past are condemned to repeat it.'
The good news is while many will default on massive debt (as is already happening with student loans), the wise people will have little debt, real skills to get employed, and some cash on hand. These people will be 100% in the driver’s seat.
Sidenote: In the depression 1/3 of people were unemployed. If/when it happens again, don’t buy into it. 2/3rds are employed so be determined to be in that group!
And it's hard to describe to people how incredibly 'valuable’ cash will be.
The Cashless Society is almost here. “If the cashless society is ushered in,” writes Patrick Henningsen of Global Research, “they have near complete control over the lives of individual people.”
People will be selling $40,000 cars for $15,000...or less. Why would they take that loss? They are desperate for some cash. Even wealthy (former) bankers might have a million house and three cars, but they need some cash. So they dump assets.
Art Cashin' quote about when everyone needs cash at once:
"If you can't sell what you want to sell, you sell what you can...including your grandmother's necklace."
Cash equates to the musical chairs. Everyone is diving for the chairs at the same time. It's called "a Sammy" after a guy named Sam who, while playing musical chairs at a party, did a hip-dive for a chair and knocked this larger lady on her rear in the process.
This happened at a Church Christmas party no less. Now while this story was all in fun and a true accident and cause by the lady not having enough cheek on the seat, the irony of this is how will Christians act in a time like this?
I've told numerous friends to have two weeks of food, supplies, and cash ready as stores and gas stations might close. Bank ATMs will be empty.
Not rhetorical: Does your Mom and I loan them our precious cash after we've given them numerous warnings? Can't we buy some things we need (or want) with that cash? If we do let people onto the proverbial ark, how many get on? Who gets on? Remember, we have no idea how long before we see land again! (It was 380 days for Noah).
Sidenote: None of these linked articles were searched for. All three came up in two days. They clearly confirm my theory.
