As things fall apart, we all have to adjust. I've always enjoyed smoking cigarettes, but if they go out of production, I'll have to make do without. New Yorkers purchase "loosies" (single cigarettes sold illegally by entrepreneurial smokeleggers). It seems to me that Boris used to drive trailer loads of untaxed Canadian cigarettes into New York two decades ago. One hopes that scarce tobacco won't rise to the price of illegal pot in jurisdictions where it's still illegal, if there are any. A report from Santa Cruz indicated that Mendocino pot growers are growing less or hoarding it. One wonders what the price and availability of toilet paper might be later this year. A semi loaded with stolen institutional grade toilet paper was stopped in Maryland a couple days ago, thin single ply that most people despise, suddenly a hot commodity.
I don't worry about starving. I don't know why not. What bothers me most is dog food. I have an old dog who lost half his teeth. He needs soft meaty noodles that might disappear from WalMart any day. I don't think Ol' Roy Soft & Moist is being manufactured now. Maybe he could eat wet generic kibble, but dog food of every kind might be hard to get, probably isn't deemed an "essential service" like electricity or gasoline, which I worry will be rationed, a few hours a day of power, a few gallons of gas per week, unless you have an Essential Need certificate. Government people, mainstream press, and broadcasters will get whatever they want, including priority bandwidth, kicking the rest of America into an internet ghetto with low-res Netflix and YouTube that jitter and freeze, Instagram and Skype unavailable.
All I need is dog food. I can get by without power or web access to upload notes to this blog, which no one reads, not important enough to be censored or deplatformed. I stopped writing books, so I don't need internet to continue the agony of self publishing any more. Yesterday, I received an email from London, a nice review of Partners posted. Maybe R.K. can complete his 7-hr Audible adaptation of Galt's Gulch. No author could ask for better friends.
Dog food. Black market dog food if necessary.
While I have your attention, I'd like to straighten out a few myths. Donald Trump doesn't care whether he's re-elected or not. He knows that it was a mistake to issue guidelines on social distancing and shunning large groups, which led to the unintended disaster of Democrats closing schools and workplaces, a horrible result that threw families into a homebound viral petri dish of young kids, antsy adolescents, sullen teens, and elders imprisoned together, endangering the vulnerable and killing any hope of developing natural herd immunity. The same tragedy unfolded downtown. Suddenly, there were winners and losers, factories and businesses ordered shut because they weren't "essential." Mainstream radio, TV, and anti-Trump spin were essential, thousands of technicians and star personalities dedicated to his embarrassment, constantly plumping Democrat lies and half-truths. Trump didn't care. He gave daily press conferences. He knows that it's wrong to hand out cash or allow the Fed to devalue the dollar. Trump wants to reopen midwest schools and put people back to work in sparsely infected Flyover Country, let freedom ring. Unfortunately, he can't.
Democrat politicians are firmly in charge. The "emergency" is a political godsend, although more people will die from ordinary flu than sexy Wuhan virus. The evil bastards and bitches profit by crushing us into welfare cases, and their toadies in the media are happy to march in privileged lockstep. If it bleeds it leads -- a headline, a news item repeated endlessly on all channels, how many dead, how many infected, how much suffering and medical shortages. No travel, no playgrounds, no visitors, no birthday parties, no church services.
When the $2 trillion Democrat feedbag and $4 trillion of Fed bond payola hits, we will learn the lesson of moral hazard. Helicopter money bids the price of scarce goods higher. Dems shuttered production, forbade people to work, promised to pay them NOT to work. Loans to airlines, hotel chains, and cruise operators are no better, an incentive to mothball their idle assets, furlough idle workers, cut maintenance and marketing. Hundreds of "nonessential" privately held manufacturers and distributors will get no loans, no helicopter money.
No dog food. No tobacco. $100 toilet paper. You know what's really funny? I didn't file a tax return last year, not enough income to report. My cell phone was disconnected, no postal address. I won't get a nickel from the government, a nonessential person.
I wish more people understood monetary theory. There are three separate players, first and most familiar of which is our Bureaucracy (Federal, state, county, city, and sewage districts) who borrow, tax, and spend without producing much of anything. In wartime, governments kill people and break things at home and abroad. In peacetime, they blow big sums on goofy shit like bridges to nowhere, health and retirement benefits for bureaucrats, wars of choice, welfare handouts, regulations, farm subsidies, and so forth. Governments have been deficit financed throughout history. American bureaucrats enjoy the unique status of being rated AAA, the safest borrowers in the world because Americans (We The People) produce a lot of value and can be relied upon to pay taxes. Government insanity, like buying mortgages and selling Mortgage Backed Securities nominally rated AAA, always runs off the rails, results in huge investment bank losses worldwide, because American government securities can be "rehypothecated" (loaned, leveraged with derivatives that strip principal and interest, etc). That's what happened in 2008. Alt-A liar loans and subprime mortgages were mis-labeled AAA debt because the Community Reinvestment Act required banks to lend to low income minority home buyers who defaulted. F.O.B. ("Friends of Bill") campaign contributors like Countrywide flipped billions of dollars of junk on the bonfire to earn fees and commissions. It cost $1 trillion in new AAA public debt to clean up subprime lending and bank failures, about half as much as Shrub & Company wasted by invading Iraq.
Flash forward to 2020. If you add up Federal, state, and local debt at the moment, it's about $50 trillion, plus $200 trillion of unfunded entitlements (Social Security and Medicare) backed by nothing. That's the easy part to understand. Government blows enormous sums of money at home and overseas, burying We The People deeper and deeper in public debt.
The second player, completely unrelated to government, is the Federal Reserve, which is owned by the so-called "money center" banks, who traditionally cleared payments between city and country banks. You write a check on Bank of Podunk, payable to a depositor in East Bumfuck Savings. It has to be routed and cleared by a strong City bank. The Federal Reserve system replaced a somewhat slow, costly, and financially hazardous clearing system with a well-capitalized national system organized in regional and national Fed banks. Until the gold and silver "hard money" standard was abandoned, all Federal Reserve currency and minted coins were backed by physical metal. The NY Fed still has a vault with gold bars that back our transactions with foreign countries, but nowadays the paper money in your wallet and bank account is an IOU -- a Federal Reserve Note or electronic balance that was legislated to be legal tender by Congress. Sure, it was a bad idea, but let's accept it as plausible "money." Milton Friedman rightly taught that money could be sea shells or feathers, as long as people accept them as bankable, tradable monetary units. Pacific islanders used rocks.
The quantity of money in circulation is measured narrowly (M1) as your paper bills + savings deposits + checking balances at banks, credit unions, etc. The broadest measure of money (L) includes certificates of deposit and other contractual instruments like money market funds. How much money exists depends on lending. When a banks lends, it creates a deposit in the borrower's account and an equal bookkeeping asset on the bank ledger, backed by whatever collateral you pledged (a house, a car, or an unsecured "signature" that allows the bank to recover principal and accrued interest from any and all of your assets). Follow? When a bank lends, it creates money. The money you borrow is paid to others, and it multiplies deposits and credit in other banks. A dollar loaned creates two dollars in circulation. Banks have to be careful about lending risk, and they have to maintain adequate capital to guarantee interest on saving accounts, to cover loan losses, and participate in the Federal Reserve System that makes rules about financial institution stability. The safest, so called "Tier One" bank capital is U.S. Treasury bonds, AAA rated, backed by taxation.
Ahem. There is a third player in the United States financial system, independent of the Fed clearing system, ordinary money creation by bank lending, and feckless Federal and state governments who are constantly issuing bonds, notes, promises to spend in the future, etc. This third player is autonomous and arbitrary. It grew out of necessity, because the Treasury is perpetually bankrupt, and the safety and security of our banking system depends on the AAA rating of impossible Treasury promises to pay all debts when its various Government obligations become due and payable. Defaulting on principal or interest would bring down the entire world economy, because "safe" Treasury bonds were bought by overseas banks and private investor groups. Our dollars (i.e., government bonds and Federal Reserve IOUs) are the dominant global reserve currency. Oil, gold, commodities, and IMF debt are priced in U.S. dollars, because America is "the cleanest dirty shirt" in world monetary hokum.
To keep this fragile arrangement from blowing up, the Fed Open Market Committee has various financial tools that it can deploy. We see newspaper headlines about the Fed setting U.S. interest rates, which are mostly meaningless. The bond market moves up or down and Federal Reserve overnight interbank rates follow obediently, adding or subtracting liquidity that vaguely influences American lending behavior. Only in a panic, when the Fed cuts rates to zero, or raises them to 18% to stop all interbank lending, do headline rates mean anything as such. Where the Fed has real power is its Open Market operations in New York, buying or selling Treasury bonds. If the Fed sells, the monetary goal is to inflate (cut the value of) the U.S. dollar. If it buys, the goal is to deflate (boost the value of) the U.S. dollar. Why does this matter? Because Government spends like drunken sailors, sometimes at a gallop, and the Open Market Committee has to intervene to save our bacon. Whether the Fed purchases a few distressed corporate bonds to prop up money-losing boondoggles like GM or Boeing is unimportant. They have to backstop the U.S. Treasury, the only dinosaur that matters.
The situation today is dire but manageable. The Fed's Open Market Committee will buy up something north of $4 trillion of Treasury bonds in the next few months. Is that a good idea? No. When the Federal Reserve soaks up debt and provides liquidity to the bond market, it creates scarcity and shores up the AAA security of Treasury debt temporarily, but transmits inflation to our domestic economy, allowing the Government to get away with outrageous spending. When Congress hands out $2 trillion in "free" helicopter money, paying us not to work, it will result in $100 black market toilet paper. There is no such thing as a free lunch or free helicopter money. Production is down and there will be shortages of commodities and consumer goods. More cash in our pockets is an incentive to bid up prices. Do you know how big $2 trillion is? -- equal to 80% of Britain's GDP. Try to be grateful. Truly terrible bloodshed will explode in South Africa. Millions of paupers will starve to death in India and Bangladesh. I cannot bear to speak of Gaza or Nigeria. Say a humble prayer for Mexico, Brazil, England.
Can you stand more bad news? Big rig truckers don't want to deliver grocery supplies to New York City, fearing exposure to Wuhan virus. Worse, shippers are scanning their temperatures at loading docks, won't let them get out of their trucks to use the toilet. Manifests are thrown in their trailers after they're loaded. No restaurants on the highway. Drivers are quitting. The food wholesalers are deploying box trucks that used to deliver to restaurants. Deliveries are happening at unpredictable hours, days late, drivers refusing to get out of their cabs or goods stacked on sidewalks in the middle of the night. Federal DOT ordered Pennsylvania to reopen turnpike rest areas, so drivers can pull over to sleep. Mens rooms locked. No toilet paper in port-a-potties. Road service, tow trucks, tire and repair shops are shutting down. Helicopter money will have evil consequences, pay people to go home, avoid risk of viral exposure, not just truckers. Grocery store checkout clerks. Burger flippers. Pizza deliveries. Hospital staff. Walk-outs will multiply in L.A., San Francisco, Chicago, Dallas, Seattle. People are abandoning New York and Hoboken, millions waiting to get helicopter money so they can bug out.
Look up "moral hazard" on Investopedia.
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