FDIC Bank Failures: What the Numbers Look Like

Here is a brief illustration of the number of bank failures that I calculated per the FDIC public listing.

This metric is a lagging indicator of economic downturn, as you can see from the years preceding the last Great Financial Crisis of 2008 – 2010. It’s also a lagging indicator when the economy has begun to improve. Said another way, the years preceding an economic downturn is marked by a relatively low number of bank failures; and the years after the economy has begun to improve there is still relatively high number of bank failures.

Price Stability in a Fixed-Money System

This is a follow up topic discussed in a previous post about economic theory with respect to  monetary systems, particularly a fixed-money system. Here is the question that was asked:

How does a fixed-money system limit variability in prices of good, when price variability is inherent to commodity-based, fixed-exchange monetary systems and when the pre-Fed era saw more variability in price?

A fixed-money system (e.g. gold-standard) does not limit price variability of goods. Price stability is not necessarily linked with a fixed-money system (e.g. gold-standard); variability of prices is part of any economy. At a basic level, all prices depend on the law of supply and demand; and that depends on the productive capacity of a society. As output increases, assuming a stable supply of money, then you’d see prices of goods decline (less money chasing more goods). What does this mean? It means the standard of living is increasing.

Now, with respect to the prices of gold, don’t take my word for it, look at this table published by the National Mining Association listing the historical average price of gold (http://www.nma.org/pdf/gold/his_gold_prices.pdf):

Pre-Fed era, price of gold in 1833 = $18.93; and price of gold in 1913 = $18.92.

Post-Fed era, price of gold in 1914 = $18.99; and price of gold today (as of 4/28/23) = $1,999.

Treasury Bills Yields: Why Has the 4-Week Bill Rate Fallen

First, let’s take a glance at the current conditions surrounding the Treasury yield curve. Here are two points in time – March 1, 2023 and April 21, 2023. We compare the spread of the various Treasury maturities vs. the 10-year Treasury

Date	1 Mo	2 Mo	3 Mo	4 Mo	6 Mo	1 Yr	2 Yr	3 Yr	5 Yr	7 Yr
4/21/2023	0.21	(1.41)	(1.57)	(1.62)	(1.50)	(1.21)	(0.60)	(0.32)	(0.09)	(0.05)
3/1/2023	(0.66)	(0.81)	(0.89)	(1.01)	(1.19)	(1.05)	(0.88)	(0.60)	(0.26)	(0.16)

Source: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2023

On March 1^st, the 4-week Treasury Bill rate was 0.66% higher than the 10-year Treasury rate. As of April 21^st, the 4-week Treasury Bill rate was 0.21% lower than the 10-year Treasury rate.

Now, let’s take a look at the trend of the 4-week Treasury Bill rate since March 1, 2023:

 

We can clearly see that after March 31, the trend has been clearly on a downward path.  

Fundamentally all prices follow the law of supply and demand all things being equal, the higher the demand, the higher the price; conversely, the lower the demand, the lower the price. Incorporating the supply side of the analysis, the same demand outcome will occur if supply is either held constant or increased at a slower pace than demand.

At a basic level, what we have seen for the 4-week Treasury Bills is that the demand of loanable fund from the government has declined, but the amount of money that the public has supplied hasn’t fallen at an equal or higher rate. Put another way, while the offering amount (supply) to sell Treasury Bills has fallen, the demand to purchase hasn’t fallen as much. That is, demand exceeds supply. And in the context of Bills (or any fixed income security for that matter), higher Bill prices means lower interest rates. You can see this by looking at the auction amounts from 4/20 and 3/2:

Auction Date	Offering Amount	% Change In Offering Amount	Total Tendered	% Change In Total Tendered
4/20/2023	50,000,000,000	-33.33%	150,597,577,600	-20.56%
3/2/2023	75,000,000,000	-	189,563,268,500	-

In the broader context of total government debt, the total debt held by the public has declined by approximately $24 billion since March 1, 2023; and the total government debt has increased only by approximately $1 billion, which is low, say if you compare the Feb 1 to March 1 period when total debt held by the public and the total government debt increased by approximately $23 billion and $4.5 billion respectively. Currently (4/20) total government debt stands at $31.45 Trillion.

The question then becomes why the decline? The answer lies in the current “debt limit”. By law the government is only able to borrow a maximum of approximately $31.4 Trillion. Currently (4/20) total government debt stands at $31.45 Trillion. The way the government is getting around to continue to borrow is to use what’s called “extraordinary measures”, which it can only legally do for a certain period of time. Right now the government can only borrow those funds that mature. For example, if only $50 billion of 4-Week Treasury Bills are due to mature, that’s the maximum the government can offer to purchase. That is ultimately the reason why the interest rate of Treasury bills have declined (i.e., higher demand and lower supply of T-bills).

Economic Framework to Understand Boom-Bust cycle

Introduction:

The following series of notes represent the outcome from dialogue had with respect to the theoretical economic frameworks. This is important to understand because how we think about economic systems – which all are inherently complex – will help us forecast where it is heading. In other words, having proper perspective of the way things should be and the way they are now helps us frame the present circumstances in such a way that we can understand (or at the very least try).

The following perspective is merely a point of view and do not claim to be perfect. My goal is that it will be taken as a means to stimulate dialogue and thought.

Topic 1. If a fixed-money system limits the boom-bust cycle, why did the more fixed-money systems of the pre-Fed era have so many more booms, busts, panics, and depressions?

Three points on this question:

- First, all man-made systems are imperfect, so no man-made system will prevent “boom, busts, panics, and depressions” from occurring.

- Second, without going into the rabbit hole of precisely defining each term, yes, the pre-Fed era had “boom, bust, panics, and depressions.” But to say that there were more or less, masks some important distinctions: pre-FED, “booms, busts, panics, and depressions” were for the most part parochial, both in location and/or markets (e.g. the railroad investment mania of the 19^th century had little impact on the average person and impacted mostly the investor class). It is not the number of “booms, busts, panics, and depressions” that is germane, what is important is their magnitude. Read economic historian Charles Kindleberger’s Manias, Panics, and Crashes. His classic book goes through the history of manias, panics, and crashes, and then lists the top 10. If my memory serves me right, 8 out of the 10 crashes occurred post Fed era. At the time the book was written, the crash of 2008 had not happen, and most certainly that one would have made the list. Let’s put aside the 2020 crash due to the lockdown, as that was a very unique event in human history, what becomes apparent is that each successive crisis post-Fed era are more pronounced and impact is broader (aka contagion risk).   

- Third, as briefly mentioned in my second point, a fixed-money system would limit the boom-bust cycle, but mainly in the context its broad economic impact. I do not know the exact number of boom-busts in the pre-Fed era, but what I am certain is that you will rarely see a boom-bust, say, in the likes of the ‘Great Depression’ or ‘Great Recession’. What you will find in the pre-Fed era are many localized issues (e.g., bank runs in the specific regions; or investment crashes that would impact the money centers without much impact to the broader population, etc.).

What’s Up and Down with Japan’s Economy

This post is simply to provide a brief explanation of what is currently happening with the Japanese economy.  As recent news have explained, there has been tremendous pressure in the Yen, which has caused it to depreciate relative to the US Dollar. For example, on January 1, 2022, you needed to pay about 115 Yen to purchase $1; and as of July 4, 2022, you now need approximately 135 Yen to purchase the same $1. This means that so far this year the Yen has lost about 17.4% in value relative to the Dollar.  At a basic level, the loss in value has to do with supply and demand issues: people are selling the Yen and buying US Dollars.

Why are people selling the Yen? Because investors have determined there are better returns in an alternative currency (i.e US Dollars). And right now, in terms of investment returns, the US provides an appealing opportunity. Japanese bonds (10-years) are currently paying somewhere in the neighborhood of 23 basis points – about 2.5% less when compared with similar US bonds. Furthermore, with consumer price inflation running hot and as a result the US Central Bank has begun to increase rates, this means that from an investment perspective US bonds are increasing their appeal. As such, people sell bonds and buy US treasuries – which essentially means selling Yen and buying Dollars.

This puts additional downward pressure in Japan for the demand of their bonds. This causes bond prices to fall, thereby increasing yields. On top of this market phenomenon, as part of its monetary policy, the Central Bank of Japan is committed to maintaining a maximum of 25 basis points for its 10-year debt. But as the bond selling pressure increases, the BOJ is doing what they can to assure that interest rates do not exceed the central bank policy target rate of 25 basis points. This means that any excess supply of debt, the BOJ is buying. And when the BOJ buys, it is increasing the money supply, which devalues the currency. It is becoming a pernicious cycle.

How long with the BOJ continue to do this? We don’t know for sure. What we do know with fair certainty is that what the BOJ is doing is not sustainable. Judging from prior history (see Asian Crisis of 1997-1998 to get a sense of what could unfold), we know that this will not end well.

What is the US Treasury Yield Curve saying?

Yield curve inversion occurs when short-term rates are higher than the long-term rates. Historically, this has been a predictor of recessions, which it is normally witnessed within a year after the inversion occurs.

Banks typically make money when borrowing money at the short end of the yield-curve and lending at longer end of the curve. In other words, they borrow at a lower rate than what they lend, netting the difference. An inverted yield curve is generally not good news for banks. 

At the moment, based on the yield curve rates reported on February 14, 2022, I do not see evidence of an inverted yield curve when measuring the difference between the 30-year rate and the 3-month rate. 

What are US Treasury interest rates telling us?

The short answer is a mixed one. 

Let’s take a look at the 2-year Treasury yield from February 11, 2021 and compare it to its yield noted for the latest available data as of February 11, 2022. Last February’s yield stood at 0.11% and it now stands at 1.50%. Based on those numbers, we can say that the upward pressure in rates could come from the inflation premium. 

However, when we look at the longer-end of the yield curve, namely the 30-year bond, we get a different picture. On February 11, 2021 the 30-year yield stood at 1.94%, and it now stands at 2.24%. In addition, the yield was essentially flat during this week – one in which inflation fear spiked after the printed CPI stood at 7.48%.  This tells us that inflation risk has not yet gotten out of hand. It tells us that market participants still believe that the Federal Reserve will succeed in taming the increases in prices. 

Pay attention to the 30-year bond. It will give you a pulse of what the market really things about inflation risk.  

Median CPI for January 2022: Worsening Trend

Today’s headline CPI for the month of January 2022 was reported to be at 7.48%, the highest it’s been over the last decade. In fact, you would have to back to 1982 to find a similar figure. This is what the headline CPI looks like since 1980:

But in order to get a real sense of what is happening in the inflation front, we have to look under the hood. The median CPI gives us that measure. Aggregates measures are inherently imprecise, because it is trying to capture the average consumer, but in doing so it will by nature miss what is happening on a person-by-person basis. At any rate, we need something as a measurement tool. This is what the median CPI (orange line) looks like when compared with other cuts of the CPI:

The trend is obvious. It is upward. It is not letting up. 

Are supply chains the main contributor to this rise? Is the loose monetary policy the culprit? I think both. It looks like the Federal Reserve Bank will be pressured to raise interest rates quicker and perhaps in greater amounts than initially forecast.

Money flowing out of risky investments: What does it mean?

Money flowing out of risky investments: What does it mean?

Money continues to flow out of the riskier side of bonds. Take a look at this chart: 

As can be seen, the amount of money being pulled out from US high yield bonds has been on a downward trend for the last four months. This has not happened over the last year.

What does this mean? For one, the dumping of riskier debt means that investors are growing risk-averse and putting money in safer investments. More broadly, the movement away from high yield bonds could mean that market expectations are shifting towards safety, as general market risk continues to increase. Will the trend reverse? Only time will tell.

Inflation has not reared its ugly head…yet!

This week the Federal Open Market Committee (FOMC), the arm of the Federal Reserve that conducts monetary policy, noted that “[w]ith inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”

During the Press Conference, FOMC’s Chairmen Jerome Powell noted that their aim is not to allow inflation to be entrenched. What he meant by that was that the FOMC does not want higher inflation to be the expected norm. Why? Because once inflation gets unanchored, it is difficult to bring it back under control. 

Although certainly inflation risk is evident, it is not yet entrenched in market expectations. One measure we can look into is to see what has been the trajectory of the 30-year Treasury bond. Long-term fixed income securities are the most sensitive to higher inflation premiums. When the inflation premium increases, the bond yield increases. Conversely, when the premium is stable or low, the bond yield will be relatively flat or declining. The Treasury bond is supposed to the “risk-free” benchmark, therefore, inflation risk would show up in this market. 

This is the current chart of the 30-year Treasury bond since January 2021:

Data source: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx?data=yieldYear&year=2022

As you can see, there is no entrenched expectation that higher inflation is on the horizon. In fact, based on the trajectory the market believes that any inflation we see now is contained and that there is no risk of it getting out hand. When yields are on a sustained increase, say above 3%, we should then seriously consider the risk of inflation rearing its ugly head. 

Central Bankers’ concern that inflation will get out of hand

Catherine Mann, Bank of England policymaker, made the following statement that is indicative of the dilemma Central Bankers from G5 nations are deliberating:

“Going into 2022, current price and wage expectations coming from the monthly decision maker panel [a monthly business survey] are inconsistent with the 2 per cent target, and if they are realised in 2022 are likely to keep inflation strong for longer…It should be a concern that the costs from 2021 are becoming reflected in price expectations for 2022,” she said, adding: “Changing expectations is the first defence against a reinforcing wage-price dynamic.”

2% is the threshold that the most influential Central Banks in the world have adopted in order to manage their monetary policy in the context of maintaining a stable monetary system. When inflation is shoots above or below that threshold, it marks the point at which deliberations must take place to assure price remain stable. Unstable prices produce a lot of uncertainty, which hinders economic growth. When price are increasing at a faster pace than the expected 2% per annum, it means that the Central Bank must conduct monetary policy to the rate within the threshold range. 

However, when expectations from people get entrenched, especially when they look at the past in order to forecast the future, it becomes exceedingly difficult for Central Bankers to re-anchor those expectations. At this time, the market expects that Central Banks will reduce the money supply and be successful in reining in inflation. Why does the market believe this? Because it has worked in the past. The trouble would be if Central Banks fail in execution, which would then possibly lead people to lose faith in their ability to curtail inflation.

Ballooning Fed’s Balance Sheet

When the Fed increases its balance sheet it means that money has been created and pumped into the banking system. The Fed does this when it believes the economy needs some jump-starting or support. When money is pumped into the economy, the Fed will buy securities from the banks (thereby increasing its securities holdings); conversely, when the Fed wants to reduce the amount of money in the market, they will sell securities to banks (thereby reducing its securities holdings).

Since March 2020 the Fed has been increasing its balance in manner never seen before. Here is a quick snapshot of the Fed’s holdings of domestic securities. First let’s look at those holding as of January 8, 2020:

https://www.newyorkfed.org/markets/soma-holdings

Now look at the latest figures for the same holdings:

https://www.newyorkfed.org/markets/soma-holdings

During this period, total holdings have increased from $3.7 Trillion to $8.2 Trillion. And to give you broader historical perspective, the current amount is about 11x greater than what was reported in January 9, 2008.

US Treasuries sell off as markets price in Fed rate rises this year

The 10-year Treasury has been selling off. This is how the yield curve looks like as of January 18th:

An increase in yield means bond prices are falling – hence the term of sell-off when we are talking about fixed income markets.

When we look at the CME FedWatch tool to assess the probabilities of a rate hike this year we can see that this is a foregone conclusion. Take a look at the December 2022 probabilities, which are derived from the Fed Fund Futures contract prices:

We see that there is a 32.8% probability that rates will be within the 1 – 1.25% range; 26.9% within the 1.25 – 1.50% range; and 11.2% within 1.5 – 1.75% range. Adding these probabilities we see that there is approximately 70% chance we will see the Fed Fund rate above 1% by the end of this year (current rate is between 0 - .25%). This tells us that indeed investors are expecting multiple Fed rate rises this year.

CPI vs. Treasury Bonds

On 12/1/2021, the yield on the 30-year T-bond was 1.77%. On 12/31/2021 the yield had risen to 1.90%, and as of 1/14/2022 it further increased to 2.12%. While the trend is up, the yield is still below the peak for 2021, which was about 2.45% back in March. Yield curve rates can be seen here.

This tells me that while the CPI has been increasing, bond investors still do not believe that there are significant risks when it comes to runaway inflation. They likely believe that the Federal Reserve will be able to execute monetary policy effectively to quell the recent CPI increases. Is that a fair expectation? Maybe. It depends whether they believe that what has worked in the past will work in the future. In other words, the past is a good indication of the future.

In addition, what the behavior of the 30-year yield tells me also is that investors are more concern about recession than inflation. In a recession one would expect prices to decline, so the likelihood of mass inflation happening in the immediate future is quite low. Of course, like what happened in the 1970s, we can have a scenario where we have at the same time a recession and rising prices; but again, bond investors are currently discounting that possibility.

Investors bet on loans as Fed readies to lift interest rates

The Financial Times recently describe some of the impact that an expected rise in interest rates by the Federal Reserve in 2022 is having in the market for US loans. 

“I think we may have reached the inflection point. The question is no longer ‘if’ rates will go higher, but ‘how soon and by how much’,” said Jeff Bakalar, group head of leveraged credit at Voya Investment Management. “Every time this has happened, the loan market has become a safe harbour.”

Also, as some Citigroup analysts commented, “Loans provide two much-needed characteristics for investors in 2022 — rate protection and relatively stable performance.”

Here is a broad overview of the weekly flow of money chasing US loan funds:

The article, however, fails to mention both sides of the equation in terms of determining overall profitability. Indeed, an investor in a US loan fund would benefit from a rise in interest rates, presumably because those loans would reprise higher and thus distribute higher cashflows. However, a tight monetary policy would have an effect of cooling of the economy, which increases the risk in some firms to go bankrupt or reduce economic profits, which would ultimately reduce the value of certain funds.

Government Debt: A Potential Hidden Grenade

A recent opinion piece from the Financial Times expressed concerns about the significant built-up of government indebtedness and the potential risks of ballooning costs to maintain it.  The risk is characterized as follows:

“The trigger now may be a lethal combination of rising inflation and financial instability. The difficulty is that central banks cannot take away the punch bowl and raise rates without undermining weak balance sheets and taking a wrecking ball to the economy.”

The concern is legitimate, especially when you look at these two graphs that the IMF included in their April 2021 Fiscal Monitor:

Advanced economies are carrying debt comprising approximately 120% of GDP (Figure 1.1). Given historical low in general interest rates (Figure 1.3), the debt burden (expense) appears manageable at the moment holding roughly about 1.8% of GDP. But what will happen when rates go up? The obvious, of course, is debt expense will increase.    

By any historical standard it is unreasonable to expect that at some point interest rates will not go up. In other words, it is unreasonable to expect the current trend to continue without running into significant problems. The effects of that reversal when compared to the current trend could be consequential, and one which may take a lot of economic pain if not dealt properly. 

Money Multiplier – A Red Flag

Here in this post I give an update to the money multiplier proxy, which helps us get an understanding where prices may go into the future. 

The more money moves, the more money is being multiplied – which means more of it is created. This ultimately puts pressure in inflation, which impacts all markets. The reverse is also true: a slowing down of the multiplier means money creation is slowing. In a debt-ridden market that we are currently witnessing – particularly in equity markets, a slowing down of the money multiplier is not particularly sanguine. 

You must remember that higher prices as measured by the popular CPI will put pressure on the FRB to hike interest rates. This would lead to higher interest costs, which would not be great for the housing market or government finances.

As we see below, the money multiplier continues to slow down, the trend is obvious. This means that if this trend continues we should expect some meaningful correction (minimum 10-15% drop) in equity prices. When? I have no idea, but probably sometime before year-end 2021.   

Source: https://www.federalreserve.gov/releases/h6/current/default.htm

Pay No Mind to Consumer Price Inflation…Sort of

The FT reported today that “US inflation rose 4.2 per cent in April over its level a year ago…[and] is the biggest rise since 2008 and a significant leap compared with the 2.6 per cent reading in March.”

While the metric does look ominous – and I have no doubt that inflationary pressures are going to continue to mount up – this measure of headline inflation is misleading. The Consumer Price Index (CPI) has a lot of assumptions included in its calculation that make it subject to imprecision. Not that the metric is wrong, but rather it may misrepresent the spending habits of the average consumer. 

As such, a much better indicator of inflation is the Median Consumer Price Index. This index omits outliers and is therefore a more precise indicator of underlying inflation trends. 

As you can see from the graph and chart below, although there is a small tick upwards in the Median CPI, it is not yet at an alarming level. The data source of the graph and chart can be seen here.      

Percent change, past 12 months

Date	Nov-2020	Dec-2020	Jan-2021	Feb-2021	Mar-2021	Apr-2021
Median CPI	2.2	2.2	2.1	2.1	2	2.1
16% trimmed-mean CPI	2.1	2.1	2	2	2.1	2.4
CPI	1.2	1.4	1.4	1.7	2.6	4.2
CPI less food and energy	1.6	1.6	1.4	1.3	1.6	3

After Massive Government Intervention, Here’s How It Ends

After reading this article from Bill Bonner (original here), I am reminded of one of Ronald Reagan's quote, "The nine most terrifying words in the English language are: I'm from the Government, and I'm here to help."

We must look back at history. It is replete with disaster after disaster at the hands of "the Government". At some point we must ask ourselves if whether what we have been taught to believe about "the Government" is true. We must start with our sources: where did we get that knowledge? what evidence is there that challenges that knowledge? 

It is the art of asking questions. Keep asking why, and you will get closer to the truth.

******************************

People make mistakes. The private world of win-win deals routinely corrects them. Death, divorce, default, destitution – many are the ways it sets things right.

But the public world… the world backed by tanks and armed police… the world of wars and sanctions… regulations and money-printing… uses its considerable might to resist correction.

No matter how stupid… no matter how wasteful or harmful to the public weal – government programs are rarely and reluctantly discarded.

The Definition of Eternity

Dear readers who doubt this is true are invited to recall the real nature of government. It is an organization that has only one real goal – to protect and promote the people who control it.

And as we’ve seen, illuminated by the great Italian economist Vilfredo Pareto, it is always controlled by a small segment of the society – the elite.

We’ve seen also that the “investments” made on behalf of the public most often benefit only the elite. And, protected by their beneficiaries, errors persist and accumulate.

Even the most temporary and woebegone government agency becomes eternal. Crises – forgotten by the public for decades – still trouble the sleep of well-paid agents of the federal government.

Programs that should have been a source of shame and embarrassment continue indefinitely, while the people who put them in place – who should have been bankrupted… run out of town on a rail… or at least had the good grace to resign from office, or like German general Erwin Rommel, to accept the cyanide pill – stay proudly at their posts year after year.

Elections are supposed to “throw the bums out.” But apart from a few headliner acts, the show remains little changed… with the same clowns, misallocating the same resources, over and over.

How It Ends

And yet, as American economist Herbert Stein remarked, things that can’t go on forever must come to an end.

But how? When? Those are our questions for today.

And we won’t beat around the bush. The answer is this: Deprived of regular hygiene, public life gets dirtier and dirtier… until finally, we all “take a bath” on the feds’ bad investments.

We pause to back-fill…

Errors – even in public life – are usually limited by money. The feds may want to spend $2 trillion on infrastructure… or on climate control… but they lack the means.

This forces them to make trade-offs… hard choices – cutting here to spend there… raising taxes… or borrowing.

Raising taxes tends to upset those who pay them, imposing a barrier that politicians are reluctant to cross.

And even when Congress passes a tax increase, it doesn’t mean that the feds will actually collect more tax revenue. People duck and dodge. Even without cheating, they change the way they do business and how they spend their money.

In the end, tax revenue, as a percentage of GDP, tends to stay fairly constant, as tax rates rise or fall.

And borrowing brings its own problems. First, a dollar must be earned before it can be saved. Then, it must be saved before it can be borrowed.

This century, federal deficits have far outstripped GDP growth and savings rates, which is why the feds have had to resort to the printing press.

Besides, even when there is money available from private lenders, borrowing by the feds will “crowd out” private borrowers, driving up interest rates, depressing the economy, and putting voters in a sour mood.

It is only because our fake-money system permits the feds to spend so much, without depleting savings or raising taxes, that they can make so many bad “investments.”

(An important note: As prices begin to rise, the Federal Reserve will come under pressure to “taper” off its money-printing ways. Most likely, next month, as higher inflation rates are reported, we will see some fireworks at the Fed… and in the markets… Stay tuned.)

Extraordinary Scrubbing

In addition to the bad investments on existing wars – against terrorists, poverty, recessions, bear markets, and drugs – the Biden Administration has proposed an additional $4 trillion to do battle against temperature changes and viruses… as well as allegedly improving the nation’s families and its infrastructure.

Some of these proposals will be adopted. Money will be misspent. Debt will increase. And the grime will grow thicker and greasier than ever.

With no routine way of cleaning it off… an extraordinary scrubbing will be needed.

Wars, revolutions, economic collapse – the ways in which elites are finally punished… and their bamboozles eventually corrected… fill the history books. They’ve been explored by historians and catastrophists such as Edward Gibbon, Arnold Toynbee, Oswald Spengler, Joseph Tainter, Peter Turchin… and many others.

Each has his own theory… his own “spin”… on the issue. Some emphasize foreign competition. Others focus on the degeneration of the elite themselves. Some lay the blame on economic mismanagement or resource depletion. Others insist the real problem is a moral failure.

Joseph Tainter put forward the idea that governed societies are fundamentally problem-solving organizations. Each problem requires a solution. Each solution adds costs… and increases the complexity of the organization.

Eventually, the complexities and additional costs become unbearable; the society collapses.

Parasitic Living

Another way to look at it is that the elite is fundamentally parasitic, living off the labor of others.

As time goes by, more and more people naturally wish to join the elite. They learn to speak the language of business schools and The New York Times. They send their children to college.

And then… the college graduates feel entitled to an elite lifestyle, and take their places on Wall Street, in the government, a university, or a non-profit organization.

Thus are more and more people turned into quasi-rentiers, contributing little to the real wealth of the society, while relatively fewer remain to make the plumbing work.

Here at the Diary, we pretend no precision. Our analysis is broad-brush… like a barn door painted by a blind man.

During our own lifetimes, America’s elite has degenerated greatly. Funded with almost unlimited fake money, it has become arrogant, corrupt, and incompetent.

And now… caught in an “inflate or die” trap… its “investments” become more desperate and less productive than ever…

And since the elite controls both soap and water… the dirt builds up.

And then, we all get hosed.

Regards,

Bill