The inflation siren has gone from a whisper to a scream... And the market's a speculative feeding frenzy. All the while, the Federal Reserve assures us that there's no reason to worry.
DAVE LASHMET COVID Vaccine: Six Months Later
The Fed: Too Big to Succeed
Defund the Police: Paying the Price
TRISH REGAN
BUCK SEXTON
I D E A S T H A T M A T T E R E D I T E D B Y P . J . O ’ R O U R K E AMERICAN CONSEQUENCES
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INSIDE THIS ISSUE
T he Fed’s nonstop printing press has spurred 2021’s post-pandemic summer spending surge... as stimulus-strapped Americans merrily hop back on the carousel of consumption. But meanwhile, there’s financial blood in the water as the encircling sharks close in... The inflation siren has gone from a whisper to a scream... And the market’s a speculative feeding frenzy. All the while, the Federal Reserve assures us that there’s no reason to worry . But I know better... In my feature story this month, I call out Jerome Powell and his cronies’ runaway case of inflation denial, and detail how the old Wall Street adage of “don’t fight the Fed” has now become “don’t trust the Fed.” Editor-in-chief P.J. O’Rourke has a message for Millennials and Zoomers: Your financial illiteracy is not your fault. So, he’s giving a free lesson in free markets. With bitcoin’s price chomped in half, acclaimed financial author Bill Bonner shares a paramount truth about money – when it can’t keep its story straight, it loses all its value. And in writerly terms, the crypto has no there there. Emmy-winning libertarian journalist John Stossel notes that while some Americans consider capitalism a four-letter word, he reminds us that the U.S. would be far more broken without the free market. Executive Editor Kim Iskyan poses a question... What if the world – the global
economy, businesses, stock markets, governments, everything – just stopped growing? And what if he told you that was for the best? On the topical front, Buck Sexton grapples with the impossible stupidity that is “Defund the Police.” But with the Far Left still married to this ideology, will President Biden divorce himself from this faction of the Democrats before it costs his party the 2022 midterms? If you have any lingering political or medical apprehensions about the COVID shot, Stansberry’s biomedical expert Dave Lashmet is here to say that the corona vaccination numbers speak for themselves. And our man-on-the-inside, CRO X , shares that in this post-COVID economy, people will ignore the ever-growing financial storm on the horizon and party like it’s the Roaring Twenties. I mean, what’s the worst that could happen? Because we couldn’t let the Fed get away that easily, American Consequences writer Andrew Amundson has a searingly satirical take-down of our least favorite central bank in the latest Dunce of the Month. And for all the market skeptics, agnostics, and atheists out there, P.J. O’Rourke synthesizes the sage financial insights of one Milton Friedman. Regards, Trish Regan Publisher, American Consequences
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July 2021
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Past Guests include: STEVE FORBES JAIME ROGOZINSKI ANTHONY SCARAMUCCI
CONTENTS JULY 2021 : ISSUE 50
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46
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Inside This Issue BY TRISH REGAN
40 Will the Left Pay a Price for 'Defund the Police' Madness? BY BUCK SEXTON
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AMERICAN CONSEQUENCES
Why Kids Today Don't Understand Free Markets BY P.J. O'ROURKE
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46 Dunce of the Month: Put the Fed to Bed
Editor in Chief: P.J. O’Rourke Publisher: Trish Regan Managing Director: Jamison Miller Executive Editors: Kim Iskyan, Buck Sexton Managing Editor: Laura Greaver Creative Director: Erica Wood Contributing Editors: Andrew Amundson, Bill Bonner, Dave Lashmet Advertising: Paige Henson, Jill Peterson Editorial Feedback: feedback@americanconsequences.com Published by:
BY ANDREWAMUNDSON
14 From Our Inbox
50 Capitalism Makes Us Better Off BY JOHN STOSSEL
18 The Fed: Too Big to Succeed BY TRISH REGAN
56 What We Know After Six Months of COVID Vaccines BY DAVE LASHMET
24 Why a No-Growth World Is Inevitable BY KIM ISKYAN
62 How To Argue In Favor of Free Markets BY P.J. O'ROURKE
32 Bitcoin: All Foam; No Beer? BY BILL BONNER
36 Emerging Realities of a Post-COVIDWorld BY CRO X
68 Featured Contributors
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From Editor in Chief P.J. O’Rourke
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July 2021
LETTER FROM THE EDITOR
Kids! You can talk and talk till your face is blue! Kids! But they still just do what they want to do! Why can’t they be like we were, Perfect in every way? What’s the matter with kids today?
“Kids” from the 1960 Broadway musical Bye Bye Birdie
Now by “kids,” I don’t mean very little kids... Every toddler has a firm understanding of property rights and private enterprise. Indeed, one of the first words spoken by toddlers is usually “Mine!” The kids I’m referring to are defined by demographical experts as “Millennials,” born between the early 1980s and the mid-1990s, and “Generation Z,” born between the late 1990s and the early 2010s. Or – to give a less academic description of this age cohort – “Everybody who doesn’t know how to drive a stick shift.”
Of course it’s a big fat over-generalization to say these kids don’t understand free markets... Some of the more open-eyed and entrepreneurial do. Just as some savvy youngsters can take Dad’s restored Corvette on a date and not come home needing a transmission rebuild and a clutch replacement. But what’s the use of a puny little over- generalization when it comes to writing an editorial? An opinion that can’t stand exaggeration can’t stand the smell test. Blowing truth out of proportion can be entertaining... Blowing falsehood out of proportion can be January 6, 2021.
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Would you rather have an economy where we all own the shovel in common? This would mean a government Department of Shovels to oversee shovel allocation. The federal shovels would go first, I’m sure, to the “shovel- deprived” even if they live on the 10th floor of an apartment building in Manhattan with nothing to dig up but the parquet flooring in the front hall. That’s the basis of an unfree no- market economy. The Millennials and Generation Z have grown up in strange times, times that have muddled free market lessons. For people in their early 30s – the age at which you give up on the garage band, have the dermatologist patch the hole where your lip stud went, and start looking for regular income while dad turns your old bedroom at home into a man cave – economic life began about the same time as the 2008 economic crash. Both the George W. Bush and the Barack Obama administrations insisted that nothing but massive government intervention could rescue the economy. The only way to save the free market was to limit its freedoms. To further confuse that free market “teachable moment,” economic growth (COVID aside) has been steady ever since the 2008 to 2009 investment banking collapse. This was the result – as all economic growth is – of work. But it’s hard not to be tempted into a “ post hoc ergo propter hoc ” fallacy and think, “Because economic growth happened after government intervention, government intervention caused economic growth.” This is like thinking, “Because I got pregnant after the office Christmas party, office Christmas parties are how babies are made.”
Anyway, you know the kids I mean. (Alexandria Ocasio-Cortez, born 1989.) They think wealth comes from the top down... that wealth is distributed from above by benevolent government, by grudging multinational corporations, by random billionaires paying (not enough!) taxes, by philanthropic largess, or – if the kids are lucky – by their parents. They think everyone has more or less the same claim on this wealth... Descending as it does from the mysterious economic firmament, wealth should fall alike on the just and the unjust. Everyone ought to get drenched when it rains pennies from heaven. The kids have no idea that wealth comes from the bottom up. Wealth is not distributed , wealth is made . And the process of making it is called work . Work consists in taking something of lower economic value (a shovel) and using it to create something of higher economic value (a ditch for the Keystone XL pipeline). Except forget that example... The Keystone XL pipeline has been canceled – presumably by the same people who think that crude oil, like money, arrives magically from the sky. But it’s still important to have the right to own a shovel and the right to go to work with that shovel in whatever way is most profitable to you. That’s the basis of a free market economy – whether the shovel you have happens to be an actual call-a-spade-a-spade shovel, a retail business, a restaurant, a skill, a specialty, or an accumulation of capital ready to be put to work.
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LETTER FROM THE EDITOR
midst of a bull stampede, the marketplace’s careful research and thoughtful analysis are abandoned. The guiding force becomes luck. To put it another way, investment has gone Vegas. It’s as if the mob came and took your money manager away and installed slot machines in his place. The payout has been pretty good – so far. But Bugsy Siegel didn’t open The Flamingo Hotel on the Strip in order to enrich you. The kids have no idea that wealth comes from the bottom up. Wealth is not distributed, wealth is made. And the process of making it is called work. Work consists in taking something of lower economic value (a shovel) and using it to create something of higher economic value (a ditch for the Keystone XL pipeline). Money has become not only chancy, but notional. Money used to be a physical bankroll or a book of checks (and balances) that was added to soon after goods or services were rendered and was subtracted from, with careful counting, for goods or services received. You always knew how much you had – an amount known as “not enough.” Now, money is a computer code embedded by incomprehensible means in a microchip or a password key. It goes away without so much
However, there’s just enough truth in that thought to further muddle free market understanding. The government has been having quite an office Christmas party, handing out the cheap champagne of artificially low interest rates. These do stimulate the economy – but in a way that’s probably going to produce a bastard of an economic situation in the future. (A situation Millennials and members of Generation Z have no experience with. For someone born in 1989, that “stagflation” illegitimate brat of the 1970s is as distant in time as the Great Depression is to me.) And permanent low interest rates teach youngsters the exact opposite of common sense: There’s no upside to saving and no downside to borrowing. If you save, you gain no return from it... Your money isn’t working. It’s the shovel on the 10th floor of a Manhattan apartment building. And if you borrow... Well, borrowing is renting money. What if someone told you that you could live rent-free in a 10th floor apartment overlooking Central Park? Yes, someday the landlord is going to come and change the locks. But that’s a long- term problem. People aren’t always good at seeing long-term problems, especially if those people haven’t been alive for a long time. Many other social and financial eggbeaters have stirred mixed-up thinking about markets... The bull market has run for so long that it seems to be all bull... The market part has been left behind and forgotten. In the
American Consequences
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Row? Holding classes only at the Yellowstone Club in Big Sky, Montana (membership initiation fee $300,000), with students arriving by helicopter? Or did climate change cause the ivy at the Ivy Leagues to run wild and grow so fast that it smothered all the professors in the nation? I can find no supply-demand equation that explains the expense of college, so I can’t blame recent college graduates who are carrying a Yellowstone Club membership worth of student debt for being skeptical about old-fashioned ideas concerning supply and demand. At the same time that kids have experienced brutal inflation on campus, all sorts of other things that used to cost them dearly have become strangely, disturbingly, cheap. There once was a considerable cost in money, time, effort, and getting the car keys to a night of hanging out with friends, an evening of entertainment at the Cineplex or Drive-In, or an LP, cassette, or CD of the latest music. And a wooing meant a restaurant, a club, a dance, or at least a drive to a Lovers’ Lane. Now all these are as free as electrons in the ether. Surely the laws of economics have been canceled. So has “The Job” – you know, that thing you used to get when you were young and keep until you retired. Not that there was anything so wonderful about it. You were Dagwood, colliding with the mailman as you rushed out late for work where you’d get yelled at by Mr. Dithers all day and look like a fool in your silly haircut, wearing a bow tie, and having only one big button in the middle of your shirtfront.
as a wave of farewell and sometimes does so automatically. Where it comes from (if analysis of consumer spending and personal finance is anything to go by) is anyone’s guess. Meanwhile, prices no longer seem to be determined by supply and demand. We’ve never had a greater supply of knowledge. Everything that humankind has ever discovered, learned, or thought is at our fingertips. In fact, we don’t even need the plural... One finger is enough to swipe on a smartphone. Prices no longer seem to be determined by supply and demand. We’ve never had a greater supply of knowledge. Everything that humankind has ever discovered, learned, or thought is at our fingertips. In fact, we don’t even need the plural... One finger is enough to swipe on a smartphone. So why have kids experienced a tremendous inflation in knowledge’s price? What’s with the cost of higher education? Why, given such an ample supply of tutorials, do colleges demand such exorbitant tuitions? What are they doing at these colleges? Still writing all the textbooks out on parchment scrolls with goose quill pens? Having the caps and gowns made by bespoke tailors on Savile
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LETTER FROM THE EDITOR
on how to back up when I’m in reverse and mapping my destination when I’m in drive. The car is in charge of me. And even though I purchased the car in the free market, I can’t help feeling that I’m the one who should have been bought for $40,000. But the single greatest factor making it hard for kids to understand free markets is the disappearance of market freedom’s complete opposite. Not long ago, nearly a third of the globe was run by communists, and in the Communist Bloc there were no free markets. Production and consumption operated wholly from the top down – kopecks from heaven, except it didn’t seem to rain very often. I don’t think I really had any idea of the value of economic liberty until I visited the USSR in 1982. The Soviet passenger jet in which I flew had wooden duckboards on the floor of the aisle. Warm water was served by large, angry stewardesses. I traveled to Moscow from the near-empty airport that hadn’t been mopped since the Khrushchev era on a bus that hippies would have rejected as too decrepit to make it to Woodstock. I got downtown at 9 p.m. on a Friday night and the city was... closed. No shops, restaurants, movie theaters, or any commercial activities were visible, not even billboards. There was no traffic. Streetlights were a hundred yards apart. In ranks of gloomy buildings, I could see an occasional window showing the kind of illumination you get from an appliance bulb.
But there were advantages to the 9-to-5 at a single place of employment. You got to see the way the company worked, understand the way it made – or lost – money, and learn how business decisions are made. The “Gig Economy” that replaced “The Job” is opaque... Mr. Dithers is a text message. What does the company make or sell – other than more highly priced shares of its own stock? Where is the company even located? Cupertino? Mumbai? The Cloud? If you go to the water cooler, you’ll be drinking alone. When you’re up in the middle of the night making a Dagwood sandwich, it’s not because you’re off-duty. You’re never off-duty. Working in the gig economy can make it seem as if the free market is free, mainly, to do whatever it likes with you. Or maybe it does come down to not being able to drive a stick shift. My first car, inherited from my grandmother, was a 1956 four-door Ford sedan in an unfortunate shade of salmon pink. A basic point in free market thinking is a sense of agency – you, and you alone, are responsible for getting and spending. You’re in charge. With a feeble six- cylinder engine, a balky “three on the tree,” no power steering, and no power brakes, my Ford showed me that I had to use my own strength and ability to get it to do what I wanted it to do (like not stalling when the light turned green). Now, when I get in a new car, I am greeted with a chorus of beeps and bongs telling me to buckle up, close the rear hatch, fill the gas tank, not wander from my traffic lane, and so forth... plus a set of visual displays detailing every function of the car and instructing me
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In the morning, I wandered through a metropolis that seemed to have been built without the use of a spirit level or a plumb bob. People were dressed the way you dress to change the oil in your car. Not that they had cars... The few automobiles, with their styling 30 years postdated, burped smoke and broadcast rattles. I could have made a fortune – if fortunes were allowed to be made – standing on a street corner with a screwdriver and a wrench, adjusting carburetors and tightening bolts. I’m not picking on kids today for being young and dumb... They’re no younger and dumber than kids definitionally are. The problem is the circumstances they’ve grown up in. This isn’t the first time that American circumstances have led people to hold immature and stupid economic ideas. There was only one department store in Moscow – GUM (an abbreviation of the Russian for “Main Universal Store”). Here, you stood in a line to select an item... stood in another line to pay for the item... then stood in a third line to be told that the item wasn’t available. I was almost crushed by a horde of women shoppers rushing to a particular counter because it had been announced that a shipment of Bulgarian gym shoes had arrived.
The lack of competitive and innovative market forces was evident in the most trivial ways. Tip a Soviet “Cosmos” brand cigarette downward and all the tobacco would spill out... Although, this didn’t matter because the way a box of Soviet wooden matches worked was you’d take a match out of the box, strike it against the side, and the match head would fall off. Then you put the matchstick back in the box because it was just as likely to light when you struck it as the rest of the matches in the matchbox. I wish I could send today’s kids to Brezhnev’s Moscow. But it’s gone, replaced by Putin’s Moscow. This new city is, arguably, as bad or worse than the old one, but much flashier. In fact, Moscow is now so recognizably Vegas- like flashy that I’m not sure a kid could tell the difference, at a glance, between Russia’s evils and America’s errors and inequities. Failing international time travel, my second choice would be time travel of the domestic kind. I’m not picking on kids today for being young and dumb... They’re no younger and dumber than kids definitionally are. The problem is the circumstances they’ve grown up in. This isn’t the first time that American A Joke From the FDR Years MOSES SAID: “Pick up your tools, get on your asses and camels, and I will lead you to the Promised Land.” ROOSEVELT SAID: “Put down your tools, sit on your asses, light a Camel, this is the Promised Land.”
circumstances have led people to hold immature and stupid economic ideas.
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July 2021
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FROM OUR INBOX
Loan Crisis, which cost taxpayers a boatload of money. My puzzlement over how Savings and Loan institutions had been allowed to run completely wild with their lending practices was so deep, that I frankly ran out of nouns and adjectives. The result was, if you’ll “pardon my French,” the following subhead: WHAT THE FUCK, HUH? I MEAN WHAT THE FUCKING FUCK?! Yo PJ, This piece is a spot-on take on what does and does not pass for economic knowledge and thought — and most of my profs were as clueless about the subject, save one who made great take on “the invisible hand.” We’re about the same age and did most of the same things in college in the 70’s. I studied and completed an economics major (note the lower case) and a History major. Did the journalism dance in Jr HS as the editor of the paper and took courses in HS and college. Had a business going years before college and still running same today. There is so much government interference in economies as to be a perverted shell of what could be, but that’s for another talk. Keep them coming — I can shed a tear and laugh at the same time. Thanks for the cathartic moment. – JR in NJ P.J. O’Rourke Reply: Glad to provide a catharsis, JR... As long as it was Definition 2 In Webster’s (“the purifying of the emotions or relieving of emotional tensions”) and
Re: P.J. O’Rourke’s Updated Eat the Rich book PJ, Immense gratitude... I have been reading your material for so many years that it’s almost embarrassing to admit how long. It’s rare to find wisdom, humor, and good prose in one person. Heartfelt thanks. Keep it up, and live long. – Lane S. P.J. O’Rourke Reply: Lane, I’m not sure my family would agree with you about the wisdom... or the humor... or the good prose (especially when I’m mad at the kids or the dogs). But it’s not really the writer who matters most in the business of trying to get ideas across. What’s really rare is to find wisdom, humor, and the ability to tell good prose from the other stuff in one reader . So the heartfelt thanks go to you. Whether I’ve fully earned your praise, I’m not quite certain. But I’ll happily bank it in my ego account! A little coarse at times but best humor I have read or heard in or on current media. Thank you – Patricia S.
P.J. O’Rourke Reply: Thank you for the compliment, Patricia. And I humbly
apologize for the coarseness of my language. Resorting to obscenity is an admission on a writer’s part that “words fail me.” A smarter writer is able describe a situation or an event without injecting profanity. Often I’m not that smart. Years ago, I was writing about the (now nearly forgotten) 1980s Savings and
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There’s a blush for thought, and a blush for nought, And a blush for just begun it. I fall into the “blush for nought” category. If I have any genius (debased with cheap pot metal if I do), it’s a genius for not being one. That is, I try to see things the way ordinary people do. And being quite ordinary, that’s not hard for me. What I do – or try to do – is bring some humor to the often grim subjects I cover. And there’s no genius to that, either. I learned it from having a big Irish family (20-plus first cousins) whose only mode of communication was joking and teasing. That’s how we expressed love. That’s how we expressed anger. That’s even how we expressed grief. My grandfather, J. J. O’Rourke, detested the Kennedy family, as many Irish businessmen did. He had a particular loathing for the shady and pushy patriarch, John Kennedy’s father, Joe. My grandfather died at age 83, two days
not Definition 1 (“purgation, esp. of the bowels”). Most economics professors don’t really teach economics because they are so fascinated by the mathematics of production and consumption – the graphs, charts, and formulae. (After all, that’s how they got their PhDs.) They lose sight of the fact that economics is fundamentally moral philosophy. The first thing an Economics 101 course should teach is that economic freedom is inseparable from human freedom. A government with no respect for economic liberty comes under suspicion of having no respect for liberty at all. Re: Love, Death, and Money PJ is the best... Really, I have most or all of this man’s books on various topics. Unalloyed genius. Am so grateful for the appearance
of American Consequences and a new chance to read his latest stuff as well as to revisit some of his earlier materials like Eat the Rich. Thank you, thank you, thank you. – StanW. P.J. O’Rourke Reply: Wow, Stan, I’m blushing! And to get really random on you, that brings to mind a favorite John Keats poem, “Oh Blush Not So!” There’s a blush for want, and a blush for shan’t, And a blush for having done it;
before JFK was elected, and his funeral was held the day after. I was only 13 and in tears at the service. My grandfather’s sister, my great aunt Helen, took me asides and said, “Don’t cry, it would have killed your granddad anyway to see a Kennedy in the White House.” P.J., Just when I think you can’t get any more fun to read, along comes July 5.
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Thank you! Yup, in 1970, I graduated horribly boring ol’ high school a semester
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FROM OUR INBOX
late – for them or for us. There’s a great lesson in what you say – a lesson I’m sure you practice with your son – keep talking to the kids ! They may seem deaf to reason, but if you continue pouring truth into their ears it eventually seeps into their brain. PJ is a great read. Wish I could remember most of it in conversation with my, presumably, intellectual friends. Those are the ones who think they have it figured out. Please keep the thoughts coming and will continue to try and assimilate... – Jan C. P.J. O’Rourke Reply: Thanks, Jan. And don’t worry about that memory issue. I supposedly make my living by getting cogent arguments down on paper. And then when I argue with my presumably intellectual friends, I completely forget whatever logical thinking I did and just end up yelling, “Damn it, you’re wrong !” Re: America: the Good, the Bad, and the United I am so excited that you are back in the U.S. where did you settle? I am a long time reader and live in the Seattle, Washington area. Are you close? Are you single or have others in your life? Why did you leave? Love and Blessings, Taral S. “Almost everyone wants to come here”, yep but that’s after they tried to go to Switzerland... .Joke aside, being a Swiss living in Cali, I will never go back. Yes, the choices I like and what’s awful in Europe is that everything is always closed, particularly in Switzerland. An example; fitness opens at 9 and closes at 7. It’s closed on Sunday.
early and began immediately at Indiana State U as a (I kid you not) Theater Major. I actually owned a t-shirt with a bullseye and “Official National Guard Target” on the front. Leap forward several years, one son and one divorce later... I went back to school, much chastened and now a math/ Industrial Engineer major. My Dad had unsuccessfully attempted to jumpstart my interest in all things Econ. It came, but it took a loooooong time. It eventually became our most common conversational ground as I grudgingly became more and more conservative in thought and practice – much to his relief and my shock. Nothing like real work to convict you along those lines...
Thanks for all the cool essays, – Angela N.
P.J. O’Rourke Reply: You’re welcome, Angela. And thanks (I think) for the memories. Ah, yes, “the good ole days.” What a mess they were! We complain a lot about kids today (see my “Letter From the Editor” in this issue.) But it would take a lot of doing for them to have more bad ideas about more different things than we had back in the 60s and early 70s. What heartens me is that our generation did get over it (with a few bald-in-front-ponytail-in-back exceptions). Although, as you point out, it often did take “a loooooong time” not to mention that “real work.” The best thing in your letter is that, obviously, you kept talking to your dad. A lot of us hippie types suffered a total breakdown in communication with our parents and sometimes never really spoke to them about the important things in life until it was too
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On Saturday, all the stores are closed at 5pm and closed on Sundays. In Germany it’s worse. I’d like to move out of Cali though. Talking about it with my wife and before it’s too late. – Fabian Why is Kim moving back to bmore? I have followed his projected move to Ireland, from Singapore, with great interest. I’ve been considering a similar move myself. So I was flabbergasted when he recently mentioned he was moving his whole family back to Baltimore. Hoping he will choose to elaborate onWHY as I am reluctant to take a path someone I have read and respected has apparently changed direction on this issue. Thanks so much. Understand it may be totally personable, and he will not be willing to share the reasons... but ever hopeful! – Alliance Member Stacey G. Kim Iskyan Reply: Taral, Fabian, and Stacey, many thanks for your thoughts. I wasn’t initially keen on moving to the U.S., but a kaleidoscope of family factors (school, kids, medical) came together – and in late May we (Taral and I have been married for 20 years and have two teenage kids) decided that it made sense to be in the U.S. Of all the places I’ve visited and lived, I fit in most easily in the U.S. (American accent and passport, and I understand more of the culture and context here than I do anywhere else). That’s a nice change for a few weeks, at which point it gets a bit dull. And the things that I don’t like about people grate on me far more in the U.S. than elsewhere, perhaps because I’m too close to it. Idiots in Singapore or France or Venezuela are interesting to me,
whereas it takes effort to not allow stupid people in America to drive me nuts. I like living elsewhere because I’m always learning and adjusting my model of how the world works. I feel like I’m always learning, and I love that. (That’s not to say that the U.S. is not hugely diverse, and fascinating and challenging and exciting... but it’s all of a flavor that I’m somewhat more familiar with, and given the choice, I prefer new flavors.) At some point I’d really like to spend time in different cities all over the world – get an Airbnb in the smack dab center of town (whether it’s Buenos Aires or Montreal or Osaka or Rabat or...), and spend enough time (months) to get to know the place a bit... have a favorite steak place/coffeehouse/noodle shop... learn some of the language... feel like I understand a bit of it... and then move on to the next place. One thing that I do like about the U.S. (Fabian, to your point) is that so much is so ridiculously convenient. Everything is open and available and at your fingertips all the time. (that’s an overstatement of course... but compared to elsewhere, it feels like that). It’s incredible. And I can see how people (and cultures) can get spoiled and expect things to work (comparatively) well. Kim, I always enjoy your columns... dont always agree with your politics... give Trump
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TOO BIG TO
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July 2021
By Trish Regan
SUCCEED
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American Consequences
American Co s quences
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real inflation in the U.S. economy. S
peaking to lawmakers in a congressional hearing last month, the Fed Chairman repeated his now-familiar refrain… doubling down on his view that there is no
“I graduated from college in 1975,” he told inquiring lawmakers. “I had a front-row seat,” he said, referring to the devastating inflation that plagued the U.S. economy during the Carter years... “I don’t expect anything like that to happen,” he told them, adding that the double-digit price increases of the 1970s would be “very, very unlikely.” Powell explained that recent inflation has everything to do with “this unique historical event that none of us has lived through before” and nothing to do with inflation spiraling out of control. And this is the reason he’s watching employment measurements instead of inflation measurements to determine when we need to raise rates and when he needs to scale back on his $120 billion per month bond-purchasing extravaganza. You got to give Powell points for his consistency if nothing else... He repeatedly keeps telling us that this inflation is just temporary. It’s amazing how wedded our Central Bankers can become to a particular viewpoint. It may be this conviction to a belief system (in this case “no inflation”) that causes them to repeatedly fail the American public by over or underreacting in almost every economic challenge. The Fed has a nasty habit of being a day late and a dollar short... For example, former Fed chairman Alan Greenspan was late to loosen rates ahead of the disaster that became the
systemic financial crisis of 2008. This move (or lack thereof ) exacerbated the problem, as overly generous liquidity in the prior years left interest rates too low for too long, creating an easy money environment that led to overly aggressive lending strategies. This signature Fed move is par for the course for the central bank, and savvy investors learn to take the bad with the good and vice versa – after all, the Fed is only human... And on the plus side, since this mess began unfolding in March 2020, the Fed did an excellent job stepping up to the plate in a major way. It lowered rates and began a liquidity program by purchasing bonds, thereby helping to keep rates low. In sum, the Fed – along with multiple rounds of coronavirus stimulus checks and generous unemployment packages – helped to mitigate a full-on economic crisis that could have, if left unchecked, devastated the economy for years to come. A round of applause is in order... a standing ovation, even. But now, it’s time for everyone to sit down. The coronavirus crisis in the U.S. has come and gone. We fought the war with COVID-19, and we won. The economy has reopened and there are “help wanted” signs on just about every street corner.
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Meanwhile, there’s the real, hard evidence of actual inflationary pressures, that you’d think would convince Powell and his team of Fed governors of the need to focus on inflation. At present, the U.S. economy is facing higher food, higher energy, and higher housing prices. And the prices of most commodities are going up, up, and away... The realist in all of us should remember that the Fed has failed, over and over again, to get this right. Instead, it has a tendency to both under and overreact. Food prices are up 2.2% year over year and are expected to move higher. General Mills (GIS), the company that produces giant food brands like Betty Crocker and Cheerios, recently sounded the alarm, telling investors it anticipates inflation of roughly 7% this fiscal year... along with higher input costs including labor and logistics. Consumer prices on most goods are up 5% annually, according to the most recent read on the Consumer Price Index, and still climbing. (The read on the “core rate”, which strips out food and energy is up 3.8%, its sharpest increase in nearly three decades.) Oil, as I predicted in January, is at $75 per barrel and expected to move higher. And this has an effect on prices for everything else. The price of coffee beans, for example, recently escalated because of the shipping costs associated with transporting the beans
So, why is the Fed still printing money via bond-repurchasing programs and low rates? It’s a fair question and one Powell can’t quite answer... other than to tell us that we need to look at new metrics like employment to gauge the health of the economy. Let’s take him at his word. Let’s assume he’s right and employment is the only way to truly measure whether the U.S. economy is “back in action.” If so, then, even by those metrics... the economy is looking quite healthy. Last month, we added 850,000 jobs to the American economy and the unemployment rate came in at a healthy 5.9%. Keep in mind that this is despite the lengths to which the administration is going to effectively ensure that the those who are unemployed need not go back to work until at least September, when the benefits are set to expire. As I’ve always said, Americans are realists, who, when presented with the opportunity to make as much money, or almost as much money, staying home as they would be going to work, well, naturally, they’ll stay home... I mean, can you blame them? A check from Uncle Joe sure beats washing dishes... and in many cases, it’s that simple a decision. As such, the growth of 850,000 jobs in the latest month should be the kind of improvement needed to encourage the Fed to get back into the tightening game before it’s too late. Because, when it’s too late... well, it’s just too late. We saw that with Greenspan – and I don’t know about you, but I’m not in the mood for a repeat of 2008.
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to their end markets. At the start of June, the futures benchmark in New York for the high- end coffee bean arabica hit a four and a half year high of almost $1.70 a pound, up almost 70% from a year before. Yet, despite this reality, the Fed seems quite determined to downplay inflation. This inflation is just “transitory,” Powell tells us. And again, Powell is so not worried that he says he’s not even reading the inflation tea leaves, just the employment data. Is he burying his head in the sand like an ostrich? It certainly seems so. The reality is this: Inflation is seeping into our economy at such a rate that it would be an economic miracle if the masterminds at the Fed were actually correct in calling it transitory. And Powell isn’t the messiah. But if he were...? Then all this inflation should dissipate when the economy really starts humming. The realist in all of us should remember that the Fed has failed, over and over again, to get this right. Instead, it has a tendency to both under and overreact. In this case, the Fed is underreacting to inflationary pressures . Its refusal to move on both its rates and its aggressive bond-buying programs will have long-lasting effects... courtesy of... (drumroll please) 1970s style inflation. Consumer and producer prices are all higher, and there are more than 9 million jobs currently open... imagine that!
IS THIS ALL JUST LIP SERVICE? Meanwhile, as wedded as Powell and company seem to be to their ideas, the old tale of “don’t fight the fed” now has a 2021 reboot: “Don’t trust the fed.” Take everything you hear from the Federal Reserve with a grain of salt... an inflated one at that. These academics, thanks to political pressures, have gotten into the poor habit of telling investors exactly what they think investors want to hear. Think about it... Just a few months ago, it was “We’re not raising till 2024.” (Who actually thought was even conceivable?) Then, when the economic data improved, it was...”We’re not raising until the end of 2023.” And then we heard from one Federal Reserve governor talk of 2022. And now, some Fed governors, including Mary Daly of San Francisco, are pushing to taper in 2021. So, which is it, guys? I would bet money the Fed has no idea. But they’ve got this story of inflation not being a problem, and so far, they’re sticking to it. So, as investors, we need to remain nimble and ready. If the Fed does hike in the relatively near future (as a normal, rational person might assume they would, given the positive economic indicators and inflationary reads which show consumer prices growing at a 5% annualized rate), then the economy and
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I would bet money the Fed has no idea. But they’ve got this story of inflation not being a problem, and so far, they’re sticking to it. So, internal politics may also be playing into Powell’s positioning – a lousy thought, but nonetheless a potential reality as we try to understand the Fed’s backwards thinking. for Yellen. (Keep in mind, the Yellen we’ve seen as Treasury secretary is far more aggressive in her desire to tax the world than we ever saw at the Fed... so much so that she’s responsible for the 15% worldwide tax proposal.) The bottom line is this... inflation is coming. And at some point, the Fed will need to react. When that happens, you’ll want to be prepared... Capture the momentum on the upside by being invested in markets as they move higher. Consider diversification into some hard assets (gold or real estate) if you haven’t already in preparation for any challenges. And keep a little cash on hand to be ready to buy some stocks when the pullback in the market happens. And remember, don’t trust the Fed... Make your own judgments, knowing that sooner or later, the Fed will have to react if only to taper its bond buying, and that – in the long run – it will be healthy for the markets and the economy as a whole.
markets may suffer the consequences. If they don’t raise – and increasingly, the smart money is making that assumption – then the party lives on... until it ends. Badly. I’m convinced that we need, and the market would indeed even welcome, some more responsible rhetoric from the Fed and even some near-term tapering with a promise to look at all the data in case it needs to move on interest rates. Is it too much to ask that the Fed review all the data? That’s exactly what Powell should have told Congress in his most recent hearing. He should have said he would remain vigilant and watch all the signals and data points – from employment reads to producer prices and consumer prices and everything in between. When Janet Yellen was Fed Chair, she was quite good about promising to read all data in real time. So what happened? Some think that Powell’s job might be on the line... and that he’s speaking to an audience of one – his former boss at the Fed – now secretary of the U.S. Treasury, Janet Yellen. His term is coming up, and some anticipate that she may want to replace him. And, why not? He was “Trump’s” guy... liked by former treasury secretary Steve Mnuchin, and Powell effectively replaced Yellen herself. As such, she may feel more comfortable putting her own guy, or gal, into the spot. Lael Brainard, a friend of Yellen’s, could easily fit the job and might be a preferable and friendly alternative
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AND THREE REASONSWHY THAT ISN'T A BAD THING WHY A NO-GROWTH WORLD IS INEVITABLE
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July 2021
By Kim Iskyan
What if the world – the global economy, businesses, stock markets, governments, everything – just stopped growing?
the American economy rebounds from COVID-19, featuring waiting lists for used Corollas, unanswered ads for $15/ hour dishwasher jobs at Denny’s, and parking lot overflows at the local Target. The International Monetary Fund forecasts that the U.S. economy will grow 7% this year – which is a very long way from zero growth. And meanwhile, much of the rest of the world will likely in coming months enjoy a post-COVID bounce at least as vigorous as that of the U.S. But looking past the post-COVID recovery,
Growth has become so ingrained in the human psyche that it’s practically a part of our civilizational DNA... Bigger is better, more is good, forever . To thrive, to survive, to succeed, we need to grow, and to stay in one place is the worst kind of failure. The notion of no growth is like stripes with plaid, petting the cat against the grain, ketchup with filet mignon... It’s contrary to our most basic instincts, a violation of our very (economic) humanity. Right now, the notion of no growth seems all the more impossible and remote as
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A NO-GROWTHWORLD IS INEVITABLE
The notion of no growth is like stripes with plaid, petting the cat against the grain, ketchup with filet mignon… It’s contrary to our most basic instincts, That’s not to say that change won’t happen, or that innovation will end: If anything, the pace of evolution will accelerate, as the scramble to find and create new markets and gain share in a flat market intensifies. Parts of the economy will grow, while others will shrink... But though the ingredients of the global economic goulash may change, there won’t be any more of it. make no mistake: We’re moving toward a no-growth world, where stock markets return 0% in a good year... economies stay the same size... companies struggle just to keep what they have... and everyone has a frame of mind that isn’t about growing and bigger and expanding. Instead, it will be focused on keeping things like they are – at best. To a global economy that genuflects before the gods of growth, this sounds like atheism. And the adjustment – in terms of politics, perspective, people, and paychecks – won’t be easy. But it’s not all bad... And there are three big silver linings that we – or, more likely, our kids and grandkids – will come to appreciate, as growth goes the way of tipping 10%, communism, and the Oh Henry! candy bar. First, though... growth – and why it’s going away. a violation of our very (economic) humanity.
SISYPHUS AND THE GROWTH OBSESSION
“Without continual growth and progress, such words as improvement, achievement, and success have no meaning,” Benjamin Franklin said. It’s a sentiment that the global economy – and America’s in particular – has taken to heart. It’s never good enough to make as many cars... write as many lines of code... harvest as many apples... or sell as many talking refrigerators, as last year, quarter, or month. As Mr. Franklin implies, without growth, there is no progress... And without progress, there’s stagnation. And there’s certainly no improvement, achievement, or success. Last December – in the midst of a global pandemic – retail sales in the U.S. declined by 0.7% compared to the previous month. So for every 1,000 Vitamix 5200 Blenders that were sold in the earlier period, 993 were sold in December... If there were 1,000 Lego Millennium Falcon kits sold in November, 993 were bought in December. In many realms of life, that kind of change isn’t even perceptible... It’s a rounding error. If I take 0.7% fewer steps today than yesterday, I wouldn’t notice. Speak 0.7% fewer words? Wouldn’t notice. But in the weird universe of markets, it’s a catastrophe. That decline in retail sales last December, according to one economist quoted in the Wall Street Journal on January 15, was “an absolute disaster.”
Growth means to do, sell, produce, manufacture, cobble together, write –
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'Without continual growth and progress, such words as improvement, achievement, and success have no meaning,' Benjamin Franklin said. Growth in productivity in the U.S. has been slowing over the past 50 or so years, except for the decade starting in the mid-1990s. And over the past 10 years, it has been increasing at only 1.3% per year. Much of the rest of the developed world has suffered a similar deceleration in productivity. from a combination of factors. This last element—often measured simply as the increase in output that cannot be explained by increases in labor or capital—is attributed to better technology, better management, and better institutions. That’s been partly a function of the law of big numbers: It gets more difficult to grow – whether it’s jars of peanut butter sold, sales forecasts completed, iPhones assembled – as the baseline level increases each year. Selling those additional 10 Vitamixes (after selling 1,000 already) to post 1% growth this year becomes more difficult each year – in the same way that being just that tiny bit more productive each year becomes a more Sisyphusian challenge each year. And the one-off bump in efficiency thanks to the rise of the computer age has mostly run its course. While there will always be some new technology to improve efficiency (digitization, the cloud, artificial intelligence... take your
everything that we did last time during the period... and then do even more. It’s that even more that matters, without which we’re an utter failure. And growth means that we have to do that this year... And then restart the growth clock the next year. And then do even more the following year. And so on. It’s Sisyphus, the Greek mythological figure condemned to roll a boulder up a hill for eternity – and every time he got close to the top, it would roll back down, and he’d have to start all over. Put through a modern growth prism, if Sisyphus didn’t get a little bit closer to the top this time – well, he’s a total failure. Soon, though, we’ll have to get used to the “failure” of not growing. That’s because the two key drivers of growth – productivity and people – are running on fumes. HOWMUCH MORE PRODUCTIVE CANWE BE? Productivity is a reflection of the efficiency of an economy’s workers. If more people in a country are doing economically productive things like making widgets, frying French fries, or selling mops – and they’re doing it more efficiently than they did in the past – the overall economy will grow. As think tank Brookings explains... [Productivity growth] can happen because workers become more skilled or more educated (increases in human capital), because workers have more physical capital to use in their efforts, or because of an overall increase in productivity
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