This month, we look closer at the possibility of a debt "jubilee"... why everyone likes spending... three ways to deal with credit-card debt... longer-duration U.S. debt... whether Puerto Rico might be the first "test case"... Kamala Harris' chief of staff... what if everything was free... how to protect yourself from a Jubilee... why "social justice warriors" love economic crisis... and talk with Shark Tank star Kevin O'Leary.
A $37,000 Question for Kamala Harris’ Chief of Staff
A Conversation With Kevin O’Leary
How to Protect Yourself From a Jubilee
AMERICAN CONSEQUENCES
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
EXPLODING PERSONAL DEBT... NATIONAL DEBT... GLOBAL DEBT...
What could possibly go wrong?
NOVEMBER 2 0 1 7
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CONTENTS
NOVEMBER 2017 : ISSUE 5
LOST? CLICK HERE
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Editor in Chief: P.J. O’Rourke Editorial Director: Carli Flippen Managing Editor: Steven Longenecker Contributing Editors: Todd G. Buchholz, Peter Byrne, Doug Casey, Turney Duff, Dr. David Eifrig, Alex Mayyasi, Buck Sexton, Justin Spittler Newswire Editors: Scott Garliss, John Gillin, Greg Diamond Assistant Editor: Chris Gaarde Creative Director: Erica Wood Cartoon Director: Frank Stansberry Contributing Cartoonists: Hank Blaustein, Paul Noth General Manager: Jamison Miller Advertising: Sam DeCroes, Jared Kelly, Jill Peterson Editorial feedback: feedback@ americanconsequences.com AMERICAN CONSEQUENCES
4 Inside This Issue
37 A $37,000 Deal Does Matter BY PETER BYRNE 40 FREE: Debt-Free?... BY P.J. O’ROURKE 46 Real Portfolios: How to Protect Yourself From a Jubilee 52 2020 Visions: The Next Presidential Campaign BY P.J. O’ROURKE 58 Why Social Justice Loves Economic Crisis BY BUCK SEXTON 62 Of Money and Morals BY ALEX MAYYASI 70 A Conversation With... KEVIN O’LEARY 78 Read This 80 Featured Contributors
BY STEVEN LONGENECKER
6 Letter From the Editor BY P.J. O’ROURKE 10 What Moved the Market 12 What Could Possibly Go Wrong? 14 From Our Inbox 18 Easy Come, Easy Go BY TURNEY DUFF 22 Three Foolproof Ways to Deal With Credit-Card Debt BY DR. DAVID EIFRIG 26 $63 Trillion of World Debt in One Visualization 28 Monty Hall’s Lesson for the U.S. Treasury BY TODD G. BUCHHOLZ 32 Will Puerto Rico’s Debt Be the First ‘Jubilee’? JUSTIN SPITTLER INTERVIEWS DOUG CASEY
American Consequences | 3
INSIDE THIS ISSUE
I n our November issue, we’re looking deeper into the idea we introduced last month – a “Debt Jubilee.” Editor in Chief P.J. O’Rourke is looking back... way back... at the origins of the “Jubilee.” It may not be a worthwhile action (for many, it’s terrifying), but the moral reasoning that underlies it may be a good basis for thought . There are some people who like to save, pay down debt, and re-invest wisely... Unfortunately, I was not one of them. Turney Duff " Then, bestselling author Turney Duff shows that even on Wall Street, everyone likes spending more than paying down debt. (One guy put a mini Fenway park in his backyard.) Retirement expert Dr. David Eifrig shares three ways that anyone can use to deal with credit-card debt. The founder of Visual Capitalist created a fantastic infographic on global debt – one guess who leads the world as “biggest debtor.” And economist and former hedge fund director Todd Buchholz shares why the U.S. should issue longer-duration debt... and soon... to keep deficits from blowing up when yields jump back to normal levels.
Justin Spittler interviews legendary speculator Doug Casey on whether Puerto Rico might be the first “test case” of sorts for an American Jubilee. Investigative reporter Peter Byrne follows up last month’s profile on Kamala Harris... this time looking at whether her chief of staff cashed out some $37,000 more than he should have... and if he worked on Harris’ campaign while getting paid by the California Department of Justice to do his job. Then P.J. weighs in on the only thing better than debt-free... what if everything was free? And we’ve rounded up seven experts... including Jim Rogers , David Tice , and Raoul Pal. .. to get their thoughts on how to protect yourself and your assets in a Jubilee. And P.J. wonders... if a Jubilee is going to take place, what other kind of promises can we expect from politicians in the 2020 election? National radio host and former CIA analyst Buck Sexton shares why “social justice warriors” love economic crisis... Alex Mayyasi has written an excellent look at how moneylending – once a sin – is now respectable... and we end with a conversation with businessman, venture investor, and Shark Tank star Kevin O’Leary . Enjoy the issue... And tell us what you think at feedback@americanconsequences.com . Regards, Steven Longenecker Managing Editor, American Consequences
4 | November 2017
50% OF SILICON VALLEY BILLIONAIRES NOW PREPARING FOR A CRISIS? While middle class Americans are pouring money into the stock market… Some of the richest people in Silicon Valley are doing something that is pretty much the exact opposite.
I’m talking about folks like: Peter Thiel (founder of Paypal) Steve Huffman (founder of Reddit) Mark Zuckerberg (founder of Facebook) Tim Chang (of Mayfield venture capital) Larry Ellison (founder of Oracle) Reid Hoffman (founder of LinkedIn)
If you care about your family… your money… and your future, I strongly encourage you to find out what these folks are doing… And why it might be important for you to do something similar… right away. Everything is explained on my research firm’s website, right here… P.S. Most Americans don’t know there’s one simple and very inexpensive thing you can do to protect yourself. Learn more here…
From Editor in Chief P.J. O’Rourke
LETTER FROM THE EDITOR
JUBILEE – AWORTHWHILE ACTION? MAYBE NOT... BUT AWORTHWHILE THOUGHT FOR SURE
B iblical exegesis is not my strong point. I’m not even completely sure what “exegesis” means. (Looked it up: “explanation, critical analysis, interpretation.”) If our parish priest – kindly man though he is – caught me doing that with the Bible, I’d probably be saying “Hail Marys” and “Our Fathers” until the Holy Virgin and God got tired of listening. Nonetheless, I’d like to weigh in on something the Bible says about the theme of this American Consequences issue: Debt .
You’ll find a few general warnings about the dangers of debt in the Bible... Psalm 37:21 The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth. And one very specific “solution”... Individuals, private businesses, corporations, countries, continents, and the whole damn world are now so overburdened with debt that we may be facing a “ Jubilee ” – a rare and dramatic event where some or even all debt is canceled.
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6 | November 2017
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The slate is wiped clean and everybody gets to start over. It’s a nice idea.
The Jubilee has its basis in the book of Leviticus, Chapter 25. The Israelites were instructed that every half century there should be a reversion of land to its original owners or their heirs, a general forgiveness of debt, and a manumission of bond-servants. Leviticus 25:13 In the year of this jubile ye shall return every man unto his possession. The slate is wiped clean and everybody gets to start over. It’s a nice idea. Never mind that The New Oxford Annotated Bible contains the following footnote: “there is no evidence that the jubilee program was ever carried out”... At one time or another, most of us have wished for a Jubilee (involving both our financial and personal affairs). But the imposition of a Jubilee on a credit- integrated, globalized, 21st-century economy would (will?) be a disaster. And I don’t want that disaster to be blamed on ancient tribes of wandering Israelites... Their Torah was committed to writing early in the first millennium B.C. And it was about events that took place a thousand years before they were recounted. Things have changed since then. Of course, right and wrong haven’t changed. The Ten Commandments remain carved in stone just the way they were in the movie of the same name starring Charlton Heston.
But social rules and religious observances do change. For example, a few chapters earlier in Leviticus... Leviticus 1:5 And he shall kill the bullock before the Lord: and the priests... shall bring the blood, and sprinkle the blood round about upon the altar... O’Rourke though I may be, I’ve been to temple for bar mitzvahs and bat mitzvahs and have never seen anything like that. Plenty of things are extant in the Bible that today’s observant Jews and Christians frown upon – slavery, polygamy, child marriage. God gives us rules according to time and circumstances. God did not speak through Moses to tell the ancient tribes of wandering Israelites, “Thou shalt not look upon thy iPhone at the dinner table.” The Jubilee – from the Hebrew word yobel , meaning “ram,” hence “triumphant blast of a ram’s horn” – has its basis in the particular circumstances of the Israelites in the 2nd millennium B.C. The most important circumstance was that the Israelites lived in a zero-sum economy. They were farmers and shepherds. They were dependent on land. There was (excluding a brief parting of the Red Sea) a fixed amount of land. Land in the possession of someone
American Consequences | 7
LETTER FROM THE EDITOR
else was land on which you couldn’t plant or let your flocks graze. And if all the land was in the possession of someone else, you and your family starved. Many primitive agriculturalists make some sort of provision for equal access to land. Julius Caesar, in The Gallic War , mentions that among certain Germanic tribes it was not “permissible to remain dwelling in one place for more than a year.” The zero-sum nature of land is the opposite of the modern economy, where we can make more of everything. We can, in effect, make more land by vastly increasing the agricultural productivity of farms and fields. We can, in actuality, make more land by piling up the landings in skyscrapers. Worthy of note in Leviticus Chapter 25 is an exception to the Jubilee redistribution of land. Leviticus 25:30 ... the house that is in the walled city shall be established for ever to him that bought it throughout his generations: it shall not go out in the jubile. People with their home in a walled city are presumably not farmers or shepherds. They’re making a living from services, crafts, and trade.
Services, crafts, and trade are not – and never were, not even back when Moses was floating down the Nile in his baby basket – zero-sum endeavors. The other circumstance that the Israelites faced was predatory lending. I’m talking about something much worse than payday loans. With payday loans there is, at least, a payday. This wasn’t always so among primitive agriculturalists. The crops and herds of the second millennium B.C. were hit-or-miss. One too many lions lying down with your lambs and you could be wiped out. The land of milk and honey may have been, climatically, a little sweeter and milkier than it is today, but it was still grievously prone to droughts. Farming is by nature credit-dependent. Income arrives once a year. Sometimes it’s bounteous and can hold you through the next harvest. Sometimes it’s nil, and when planting time comes, you’ve eaten your seed corn. The predatory lenders of the time were like the Mafia loan sharks of today. They had no commercial interest in you getting out of debt. These lenders wanted the “vigorish.” They wanted the “juice.” (Literally, if you were growing grapes or olives.) Worse, they wanted you to fail to pay the vig, so they could move in on your business. These were coercive loans. When you ran out of resources to repay, you’d have to “lease” your land to the lender. When you ran out of land to lease, you’d have to lease yourself and become the lender’s bond servant.
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The zero-sum nature of land is the opposite of the modern economy, where we can make more of everything.
8 | November 2017
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The same thing is going on in rural India to this day... and in plenty of other dark corners of the globe. But here and now, in the developed world’s sophisticated conduct of business, industry, and commerce under the rule of law and the light of transparency, there should be no need for a Jubilee. And yet... and yet ... Maybe, as we’re pondering “Jubilee,” we should be considering how many of the probably never-to-be-paid debts that modern people have incurred are, in fact, the result of predatory and coercive lending practices. There are, after all, other kinds of predation than financial. And there are other kinds of coercion than brute force... • What about politically predatory loans made by government agencies looking to score populist points by luring poor people into impossible mortgage debt and suckering the young into gigantic student loans? • What about strategically coercive loans made by rich nations to poor nations to keep those poor nations in thrall? • What about World Bank and International Monetary Fund loans made for the sake of “political stability” to keep predatory and coercive dictators in power? A Jubilee in the Biblical sense might not be the best basis for action. But the moral ideas that underlie the Jubilee remain a good basis for thought.
These lenders wanted the “vigorish.” They wanted the “juice.” (Literally, if you were growing grapes or olives.)
Among those thoughts is that we are only temporary visitors to the Earth and our job is to take care of it in the short term, make it fruitful, and avoid permanently ruining the place... not only for our own sake, but for the sake of the posterity that we’ll never meet. Leviticus 25:23 The land shall not be sold for ever: for the land is mine; for ye are strangers and sojourners with me.
Paul Noth/ The New Yorker Collection/The Cartoon Bank. Used by permission.
American Consequences | 9
WHAT MOVED THE MARKET THE BIGGEST STORIES THAT MATTERED FOR THE MARKET LAST MONTH...
Global-manufacturing data demonstrate growth. Global-manufacturing data showed
Shinzo Abe re-elected. Japan re-elected Prime Minister Shinzo Abe after extending term limits in March. The Tankan survey – a comprehensive litmus test for how Japanese businesses are faring – increased more than forecast, which propelled stocks up 5.9% for October. The Federal Reserve unwinds. The long-awaited unwind of the Fed’s balance sheet went off without a hitch as $6 billion of maturing treasuries and $4 billion of mortgage-backed securities were not reinvested. U.S. economy posts growth. U.S. GDP growth came in at 3% versus an expected 2.5% rise. Economists expected hurricanes Harvey, Irma, and Maria to have an impact, but this concern proved to be unwarranted. This also marked the first back- to-back quarters of 3% growth in three years. General Electric cuts its dividend. General Electric (GE) was fraught with speculation ahead of its earnings report on concerns the dividend would be sacrificed to save cash. When the company didn’t cut its dividend and was adamant about trying to preserve its payout, the market was optimistic... But it didn’t last. The day after earnings, Wall Street was back to taking GE out behind the proverbial woodshed. And weeks later, the company finally acquiesced.
synchronized growth, and the bulk of the large global corporations had reported by month’s end. Year-over-year earnings growth was 13%, developed markets were up 2.6%, and emerging markets tacked on 3.9% for the month. Oil rallied, inventories declined. OPEC production cuts held, the dollar was weaker versus the major currencies, and inventory results showed a drawdown in crude. Quantitative easing continues. The European Central Bank (ECB) extended its QE program for nine months and announced monthly purchases of €30 billion through September 2018. 19th CPC National Congress held. The Communist Party of China held its 19th National Congress and addressed qualitative measures to enact reforms, and maintained its 7% GDP growth target.
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John Gillin Greg Diamond
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10 | November 2017
November 22 The release of the
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This was only the second time since the Great Depression that it had lowered its dividend, and the move brought into question the credibility of the new management team. GE is one of the country’s most widely held stocks, and the only remaining charter member of the Dow Jones Industrial Average. In light of the asset sales and dividend cut, questions are mounting as to whether it will remain in the Dow. In Summary... The major U.S. stock indexes all reached all- time highs in October. Unemployment is at 4.2% – a 16-year low – and median income levels continued to grow. Earnings as led by the “FAANG stocks” (Facebook, Amazon, Apple, Netflix, and Alphabet/Google) were stellar, and tax reform proposals were met with optimism. Home sales and retail transactions were at a two-year high, and consumer confidence jumped to its highest mark since 2000. The global reflation trade remained vibrant. Leadership from financials, technology, and industrials never wavered. Our resilience after the devastating storms was a testament to the vitality of the American spirit, as many of the affected towns restocked their stores and rebuilt their infrastructure.
scanned very carefully for any clues on its interes-rate plans going forward. November 23-24 Markit global preliminary Purchasing Managers Index data for November. This will signal the health of the global economic-growth picture. November 27 – December 8 The Senate is expected to vote on its version of the tax bill. December 8 China releases its trade data. China is viewed as the world’s growth engine, as many of the goods sold around the globe are produced within its borders. The export data in particular are considered a sign of global economic health. December 13 Fed policy decision announcement. The markets will be expecting another 25-basis-point increase to the federal funds rate. December 14 ECB policy decision announcement. The markets will be looking for an update on the growth picture.
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American Consequences | 11
WHAT COULD POSSIBLY GO WRONG?
Financial follies and disaster in the making
And most notable, the same 59% of Americans polled – which include folks who lived through World War II, the Vietnam War, and 9/11 – believe “this [to be] the lowest point in our nation’s history that they can remember.” As you might expect, folks pointed to a variety of reasons for their concern: the cost of and access to health care, declining trust in government, and rising crime. And many of these worries are connected by a common, underlying thread – economic hopelessness . A huge number of Americans have borrowed more money than they can ever dream of repaying. They have little of value to show for it. They have no way out. And they have no hope that things will get better. So what you’re seeing on the news is just the tip of the iceberg... Tens of millions of angry Americans increasingly feel they have nothing to lose. Sooner or later, the U.S. government will have no choice but to appease these folks. They will wipe out these debts and redistribute trillions of dollars in the process, and the debt cycle will begin anew.
Something is wrong in America...
If you’re like us, you can’t open a newspaper or turn on the evening news without feeling as though the fabric of civilized society is tearing apart. And a brand-new report from the American Psychological Association (“APA”) confirms it. Most Americans agree that something is terribly wrong in our country today . According to the APA’s 2017 “Stress in America” survey, nearly two out of three Americans (63%) cite concern about the future of the country as a “somewhat significant” or “very significant” source of stress. Nearly as many (59%) point to “current social divisiveness” as one of their biggest worries.
59% of Americans polled – which include folks who lived through World War II, the VietnamWar, and 9/11 – believe this is “the lowest point in our nation’s history that they can remember.”
12 | November 2017
Make no mistake... a “Debt Jubilee” is coming. Click here to read an American Consequences feature contributor’s take on how to protect yourself from this terrifying “solution.”
Tax cuts? Not so fast...
Last month the Republican-led House of Representatives released more details of its proposed tax plan, the Tax Cuts and Jobs Act. On the surface, at least, the plan seems like a net positive for individuals and businesses alike. But the bill also appears to include a hidden tax increase on the middle class ... It includes a change to how income thresholds are adjusted for inflation. Under today’s tax code, inflation is indexed via the consumer price index (“CPI”). Now, CPI is a poor measure of real inflation. It only tracks the prices of a specific basket of goods and services. It ignores the prices of assets like housing, stocks, bonds, etc. This is how the Federal Reserve and other central banks can print trillions of dollars of new money, while consumer prices remain relatively subdued. There has been inflation... It simply hasn’t (yet) flowed into the areas that the CPI is tracking. Still, as bad a measure as the CPI is, the new measure – “chained CPI” – is even worse . It measures the same specific basket of goods and services. Then it adjusts for what the government calls “substitution bias,” which assumes consumers will switch to cheaper alternatives when prices surge higher. It’s a bizarre and deceitful argument that only a politician or government economist could make. And if included in this new tax plan, it would likely amount to a stealth tax increase in coming years as real prices rise faster than income thresholds are raised. What could go wrong?
Is the U.S. on the verge of war?
Speaking at a national-security summit in Washington, D.C. last month, Central Intelligence Agency director Mike Pompeo said he is “deeply worried” that North Korea’s nuclear capabilities are growing quickly... and warned that the country could be just “months away” from reaching targets in the U.S. “We ought to behave as if we are on the cusp of them achieving that objective,” he said. “They are so far along in that, it’s now a matter of thinking about how do you stop the final step.” Later that day, U.S. National Security Adviser H.R. McMaster echoed that sentiment, and went even further. “We’re not out of time but we’re running out of time,” he said. “Accept and deter is unacceptable.” This is a big deal. We now have two of the most senior U.S. security officials in public agreement that North Korea must be stopped... and soon. We certainly hope we’re wrong – but it sure looks to us as if the government is laying the groundwork for war. And with President Donald Trump and Kim Jong-un trading insults, it may only be a matter of time. If you’d like to read more... we published “ North Korea’s Inevitable Nuclear Threat Is Here ” in our August issue.
American Consequences | 13
FROM OUR INBOX
Re: A Lottery No One Wants to Win Great article. Send it to Federal Reserve and White House. They should seriously consider your arguments. – Ivona George Porter Stansberry comment: Maybe they should. But you can tell from Trump’s latest appointment (Jerome Powell to Fed Chairman) that there’s very little chance that any meaningful reform of our financial system will occur, or at least not change that’s initiated from the government. The mob might change everything whether we like it or not. Why must the wealth hoarded be taken from pensions? Why couldn’t we just set a limit on the individual wealth that can be hoarded? Awealth hoard ceiling. I suggest $7 million. Control of all wealth hoarded beyond that could be transferred to another person or it will be taxed at 100%. – David Henry Porter Stansberry comment: The problem with spending other people’s money is that you quickly run out of it. If you limit wealth on the individual level, you’ll quickly limit wealth in our economy. You might have noticed that every effort to equalize financial outcomes across economies Our inbox this month was flooded with questions, concerns, and suggestions about the idea of a Jubilee. Some were for, some were against, others were plain ticked off...
leads to famine. Usually within a decade. If you want to turn the U.S. into vast wasteland, like Mao’s China or Stalin’s U.S.S.R., this is a proven way to do it. On the other hand, if you want our nation to become wealthier, then encourage individual fortunes. It should be obvious that we want people like Jeff Bezos and Bill Gates to have access to as much capital as they can earn. They can only consume a tiny, tiny fraction of the wealth they will create. Everything else will vastly enrich our nation. So, they’re coming for “us,” eh? And who do you mean by us, sir? Do you mean people who’ve voted in politicians who’ve off- shored jobs? Politicians who’ve already redistributed so much wealth from the lower economic classes to the upper 1% and continue to seek its completion? Politicians who, as you noted, bailed out GM, other corporations and banks and who, when the “social safety net” of programs needs funding continually seek ways to deny it? People who not only condoned but actively helped to build a government owned by corporations and the rich and powerful? If the people who’ve caused this, who’ve benefited by all of [this] immorality and theft are going to be the ones targeted, then that’s what I call justice. They’re the ones who allowed the usurious enslavement of the youth of this country. If it’s going to be hell, it’s a hell of their own making and well deserved. – Leonard Figorski
14 | November 2017
talks about... you might have noticed that just about everything you buy isn’t as good as it once was. Like the size of a Hershey bar. Or the thickness of the cloth in your Brooks Brothers shirt. Or, one of my favorite examples, the quality of America’s passenger airline fleet. To grow profits, companies have had to focus on making their products cheaper and cheaper. That’s one of the many hidden signs of the big problem with America’s financial system. I’ve never seen any country in the world actually become wealthy without building a nicer and nicer passenger fleet. Look at Singapore Airlines. Or the new carriers in the United Arab Send us a message, question, or criticism at feedback@americanconsequences.com
Porter Stansberry comment: Well, yes... I’m sure the changes I believe are coming will threaten the powerful in Washington and in New York. But, trust me, the “swamp” will protect itself. The wolves will feast. Just as they profited enormously from the bailouts of 2009, by knowing how policies are going to change they will front-run the country. Meanwhile, the sheep will be sheared. Me? I’m just trying to be a good sheep dog. But I already know that most sheep won’t listen. My opinion? This growth in debt is a “band- aid” to keep the consumer economy humming while wages are racing to the bottom. Obviously not a sustainable scenario. When the implosion occurs, it will make the housing market collapse look like a hiccup. – Rodney Roberts Porter Stansberry comment: Wages haven’t kept up with productivity gains but profits have. How? You’re pointing to one very important factor: leverage. Both consumers and corporations have used debt. Consumers use it to buy the things they need, like housing and college. And businesses use it to grow their profits even as returns on assets declines. And there’s another way that corporate America has managed the relative decline of worker’s incomes. It’s a factor that nobody
Hank Blaustein | © 2016 Grant’s Interest Rate Observer. Used by permission. www.GrantsPub.com
American Consequences | 15
FROM OUR INBOX
Re: Our Newest Readers Weigh In
Emirates. Meanwhile, flying in America today reminds me of the local flights I used to take in China 20 years ago. Or Central America. It’s like we’re becoming a third-world country. I think you are right. We have just enough people out there that feel they are entitled, but don’t want to work for their money. But also, people who feel desperate and ready to get violent because it’s the easiest thing to do. – Sherrie Maynes So what’s the problem? Damn the torpedoes of debt – forgive and let there be a new day in America. The result can’t be much worse than the consequences of carrying on with it. – Neal Brown Porter Stansberry comment: Oh, I wouldn’t bet on that. Governments never let a good crisis go to waste. Companies have been going for the lowest cost labor for decades now... [and] income gains have NOT kept up with productivity gains. Median income has been falling and wealth is being concentrated among a very few. Couple that with the rise in education costs (especially for-profit schools) and health care costs as two examples. With declining “real” median incomes, people cannot afford to purchase things (consume), and the American economy is now based on consumption. It is my impression that Corporate America is trying to replace declining wages with “easily” obtainable debt that can not be paid down. This debt allows low-income people to continue consuming.
Good to see you in rare form again. I’ve been reading you on and off since Harry , and can tell you’re having fun. Even a letter FROM the editor like in the old Lampoon days, but if I see another installment of the ongoing debate between radial and bias belted tires, I’m gone! Best wishes for success, looks like you’ve a decent writing crew on your side here. Kind regards. –Eric Lundquist P.J. O’Rourke comment: Eric, you win the reader loyalty award! (A free toke of medical marijuana at the retirement-home dispensary.) For those “Inbox” readers who weren’t in Baltimore from 1969-1972 (and stoned out of their gourds), Harry was an “underground newspaper” edited by Michael Carliner, Tom D’Antoni, myself, and others. It was one of the few underground newspapers to exhibit any sense of humor, with articles such “ Harry Interviews a Grown-Up.” (What’s with adults today and their strange “square” lifestyle?) The radial v. bias ply tires debate is a reference to my sometimes career as a car journalist for Car and Driver and Automobile where such matters were indeed discussed at great length. And, darn it, I still maintain that under certain circumstances – such as drag racing – bias ply tires are superior. Eric, here’s to another 48 years! (P.S. the writing – and design – crew at American Consequences is better than decent – they’re indecently good.)
16 | November 2017
Re: This Month’s Two Worst Political Ideas Ever Doesn’t [universal basic income, or] UBI just simplify most of the current subsidies, reduce the fraud, and greatly reduce the administration overhead? – George “Mo” Mouzakis P.J. O’Rourke comment: Mo, you’ve put your finger on the reason that so many experts whom I admire, such as Charles Murray and the late Milton Friedman, have advocated UBI. In an ideal world, you – and they – would be exactly right. I myself have written that we’d save billions by eliminating our welfare and entitlement system and... just give people the money ! However, that’s in the ideal world. We live in the real one. My worries about UBI don’t have so much to do with the idea, as they do with what I predict would be the real-world legislative and regulatory outcomes of trying to institute a UBI. My bet is that we’d end up getting all the current subsidies, fraud, and administrative overhead that we have already plus a whole new (and very expensive) government entitlement for everyone. And that we citizens would go on to vote that entitlement larger and larger as time went on. This is what happens when good ideas get stuffed into the Cuisinart of practical politics. What ingredients will be added to the good ideas in that blender?
A Lottery Nobody Wants to Win... It’s Called a Jubilee. Click here for the full story.
Controversial White House Agenda The White House has been full of controversy, but there’s a new law that will change retirement for millions of folks. Will it affect you? Learn More.
American Consequences | 17
EASY CO
EASY GO
EVEN ONWALL STREET, EVERYONE LIKES SPENDING MORE THAN PAYING DOWN DEBT
18 | November 2017
E,
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I spent closer to 50% of it since my bonus would be taxed. There are some people who like to save, pay down debt, and re-invest wisely. For those folks, this experience might have been a realization for the next bonus... Unfortunately, I was not one of them. For the next decade, my bonuses only increased – higher and higher. Of course, my spending intensified as well. One year, I treated myself to $10,000 on bedding at ABC Carpet – not a bed, bedding ... $25,000 on my daughter’s first birthday with a yacht cruising around Manhattan... and another $25,000 on my birthday party with Naughty by Nature performing a set. And I was always comfortable carrying some debt because, well, why not? By 2004, I sat alone on the couch in my 2,700-square-foot Tribeca apartment when I called to find out about my bonus. And voilà, I had received a $2 million bonus for the year. I immediately started to figure out ways to spend it... I produced an up-and-coming rapper, bought a race horse, and wrote and executive-produced two short films. The next year I invested a million dollars in casual- dining burger joint Fatburger, and bought both a loft in the city and a 100-year-old home on the North Shore of Long Island. As a Wall Street career progresses, so do the expenses. The spouse wants to upsize the house, the kids suddenly need a private school
I was making $24,000 a year in 1994 as a sales assistant at Morgan Stanley. I was also $10,000 in debt, courtesy of MasterCard and Visa’s generous credit lines. But I had hope because it was December... and that meant Bonus Season was upon us. Excited and nervous, I marched across the trading floor to the big conference room. It was time to find out what my worth was on Wall Street. As I took a seat across from my boss, she told me the firm was paying me a $2,000 bonus. Then she asked if I was happy. I tried to smile, but it was hard for me to catch my breath. That was a lot of money. I wagged my head back and forth trying to get the word “thanks” out. It must have looked to her like I was shrugging her off because she said, “How about three?” so quickly it took the rest of the air out of my lungs. Later that night, I took a cab instead of the subway and I treated five of my friends to dinner. We ended up celebrating at a bar called Café Wha? Round after round was followed by shots of Goldschläger. Then the check came... for just over $900. The next morning, I realized that I’d spent almost 30% of my bonus in less than 12 hours. My second realization was that actually
By Turney Duff
American Consequences | 19
EASY COME, EASY GO education and eventually they go to college, perhaps you’re having an affair with someone in the intern program – all of which means you need more money. And just because you’re making a lot of money it doesn’t mean you don’t have some debt.
STEVEN, currency trader, proud he’s never puked at his company’s holiday party, and big believer in bitcoin and blockchain My expenses were already high because I was carrying two homes, a couple of kids, and a wife with expensive tastes. But this one year I was out on the town with a couple of mates right after we got paid. It was good harmless fun until I got separated from the group. I was bloody drunk and found myself alone in one of New York’s finest strip clubs. At first it was glorious – I was in the backroom with several girls drinking champagne. Then the night got away from me. I think the girls slipped something in my drink because I totally blacked out. It wasn’t until I got my credit card bill that I saw how much I spent – $44,000. There was no way I could expense it to my company, and I was afraid to dispute the charges for fear of my wife finding out. DANIEL, hedge-fund trader, fantasy football aficionado, and thinks his wife secretly hates him (but it’s not a well-kept secret) My wife didn’t speak to me for six weeks. She wanted me to put the extra money towards our house because the value of it has decreased since we had bought it. But I’d always dreamed of having a mini Fenway Park in my backyard, so construction started right after bonus season. It took several months to build, with a batting cage,
It’s hard not to spend money when you get a large cash infusion into your account. Even when you have a mortgage, a home equity loan, and credit cards hanging over you like a dark cloud. When you look at your balance and see all of those zeros, the natural instinct for many is to spend, spend, spend. Here are some of the most unwise financial decisions from financial folks right after bonus season... MICHAEL, sales trader, self- proclaimed lacrosse legend, and claims he only goes to Vegas six times a year When I got my first six-figure bonus, I was ecstatic. I couldn’t believe it. I still had student loans to pay off, but I didn’t care because I assumed I’d make double the next year. So I used half of my bonus to invest at a new restaurant/bar that was opening up in the Lower East Side of Manhattan. The area was hot, so I figured it’d be a fun and a good investment. I loved the idea of being able to say to a group of people “let’s go to my bar.” I invested the other half of my bonus in an independent film that was supposedly a surefire hit. The bar closed before I even got my next bonus and the film was never finished. I didn’t see a dime from either investment.
20 | November 2017
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There are some people who like to save, pay down debt, and re-invest wisely... Unfortunately, I was not one of them.
Turney Duff is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where its founder and several Galleon employees were found guilty of insider trading. Turney rose through the ranks and then fell prey to the trappings of Wall Street: money, sex, drugs, alcohol, and KEVIN, sales trader, worked his way up from the back office to managing director, and loves handing out bonuses to the guys and girls on his desk I was 35 years old when I started making real money on Wall Street. Every December I was expecting close to a seven-figure bonus. It was 2005 and I was still single, so most of my expenses were fairly contained. So I started getting into the real estate game. I was buying and selling apartments all over the city. My bonuses in ‘05, ‘06, and ‘07 all went directly into properties I was buying. But then the financial collapse happened and the credit bubble finally burst. I was long seven properties at the time... And I couldn’t give them away. It took a couple of years to be free and clear, but essentially it was like I didn’t get paid for three years on Wall Street.
full basketball court, and a beautiful Wiffle ball field. And my kids love it – we play all the time. I know some people in the construction business, so it only cost me $50,000. But unfortunately, the value of our home has gone even lower and a real estate agent told us the complex added zero to the resale value. In fact, it makes it harder for us to sell. WENDY, research analyst, big college football fan, and can trade locker-room stories with the best of them (currently looking for a job) When I was 30 years old, I realized I didn’t own anything and freaked out. So I used my next bonus to buy a car and my first apartment. I was stretching the budget a little bit, but the market looked good and I felt like I had job security. Then the next year, instead of paying down my debt, I got a little crazy. I was running with a fast crowd and everyone was flying private... I wanted to join the ranks of the Wall Street elite so I purchased flight time with Marquis Jet. It cost me more than $100,000 for 25 hours up in the air. I had fun flying to Miami and back four times that year, but when I lost my job six months later I really needed that money.
power. Turney chronicles his spectacular rise and fall in his bestselling book, The Buy Side: AWall Street Trader’s Tale of Spectacular Excess .
American Consequences | 21
HOWTO EASE THE BURDEN OF DEBT IF YOU’VE GOTTEN “IN TOO DEEP."
22 | November 2017
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Three Foolproof Ways to Deal With Credit-Card Debt
T
By Dr. David Eifrig
here is no easy way to get out of debt.
Every single method of eliminating debt requires hard work... sacrifice... and more hard work.
Of course, most folks aren’t interested in this method of getting rid of debt. There’s not much personal responsibility today... starting with the folks on Wall Street and in Washington, D.C. Most Americans want the easy way out. Let’s get something straight... Each of us is morally responsible and accountable for the obligations we accept freely. Personal debt is no different. Once you agree to borrow money and pay it off, those debts are yours unless a bankruptcy court releases you from them. But I understand that sometimes well- meaning people get in over their heads. And there are some laws and legitimate strategies for easing the burden of debt.
Before I share these methods, you need to understand the purpose of debt... Debt is simply a way for you to own and control more than you can currently afford from your savings. When you take on debt, you are agreeing to use future earnings to pay for something you want now. In general, if it’s something consumed – like a car, clothes, or airplane tickets – all you’re doing is stealing from your future to satisfy your present desires or needs. Eventually, it will not work. For example, with Thanksgiving “Black Friday” sales and then Christmas and the holiday season in December, this is the time of year that many folks spend more than they expect.
All you’re doing is stealing from your future to satisfy your present desires or needs. Eventually, it will not work.
American Consequences | 23
Three Foolproof Ways to Deal With Credit-Card Debt
According to the Gallup polling company, the average American plans to spend more than $900 on Christmas gifts this year. Last year, they only planned to spend $785. That’s one of the biggest-ever annual increases... and the highest spending projection in a decade. If they put it all on their credit cards... they’ll have to add about $75 a month to their regular payments to pay it off in a year, not including interest. But for the roughly 18.5 million households that report only sending in their cards’ minimum monthly payment (say, $25), it will take more than four years and an extra $400 in interest to pay for Christmas... jacking up the bill for their presents by almost 45%. According to the Federal Reserve, the average American household has about $7,500 of credit-card debt. And although only 34% of American households carry over their debt every month, about 15% only make minimum payments. That leads to large debts rolling over and rising interest payments each month. So what can you do if you’re in too deep and can’t see a way out? First, PROTECT YOURSELF FROM HARASSING COLLECTION AGENCIES. All 50 states set a legal expiration date on credit-card debt. In other words, your creditors have a limited amount of time to collect what you initially agreed to pay them. After that, you can simply tell them to leave you alone. They must obey.
This time limit is called the statute of limitations (“SOL”). And in most states, it runs three to six years. Here’s how it works: If you have debt of, say, $15,000 on a credit card that you have not used or paid off, and if you haven’t communicated about the debt with the company within a certain time limit, then the debt is considered expired. And if anyone calls you up about it or tries to collect on the debt, you just tell them “the debt is expired” and hang up. Voila... For all practical purposes, that debt is gone. Note, I said you haven’t “communicated about the debt” with the company. That’s the catch. The statute of limitations starts running from the date of last activity. Again, the rules vary from state to state (and you should definitely research the laws where you live). But essentially, if you have ANY interaction with the company, the clock resets... If you pay off a little bit, the clock starts over. If you call the company and talk to them about the debt, the clock restarts. So if you happen to be in this predicament and the clock has been running, don’t interact in any way with the creditor. If the company threatens to sue you, ask it for “proof of the debt” as this is the only response that doesn’t reset the clock. Once the SOL time comes, the creditor can no longer sue you for the debt. But as I mentioned, the debt still exists – the creditor simply has no recourse to recover it in the courts. And telling it “the debt is expired”
DEBT EXPIRATION: If you have ANY interaction with the
company, the clock resets
1
24 | November 2017
3
prevents the creditor from contacting you again. This is all by law. No matter your ethical or moral view on paying back your debt, the law protects you from a lifetime of harassment. If you’re in a debt situation where this makes sense, please check with your state laws to uncover the exact time limits. Look up debt online at your state’s website (usually the state’s initials followed by “.gov” – for example, www.md.gov for Maryland) for specifics. If you don’t feel it’s right to renege on your debt, but you still face big debt problems, you can do two other things... NEGOTIATE WITH YOUR CREDITOR. If your circumstances are truly dire – no job, no assets, or no income – you can document this fact. Put together a financial statement, including a balance sheet and income statement. Then have it verified by someone reputable who knows your financial circumstances – a tax preparer, bank officer, etc. Share that with your creditor and explain the likely outcome is bankruptcy. The creditor would get nothing or very little if that happened. Instead, suggest a 50%-or-more cut in the amount of debt you owe. If things have come to this point, you might also have fees and penalties that were tacked on in past statements. Ask for those to be removed, too. Once the company sees you have no income or a negative net worth (your debt is greater than your assets), it may be willing to negotiate a deal.
And one other tip: Be sure to ask it to remove any bad marks on your credit report once you settle, even the one that says you settled for less than what was owed. The final thing to do – and do it right away – is to ASK THE CREDITOR TO LOWER THE INTEREST RATE ON YOUR CARD. A few years ago, I missed a payment with my American Express card due to a travel snafu. My next statement showed the interest rate had jumped up to 33%. I quickly called and told them to change it back to the old interest rate or cancel the card. They lowered the interest right back down. And you can easily do the same thing I did. If you have trouble, be nice and call back until you find the right supervisor to help you make things better. If you’re like the average American with a balance of $7,500, lowering the interest rate by 4%-5% can easily save you a couple hundred dollars a year. And look out for deals of 0% with a balance transfer. Just be sure to pay those off regularly – otherwise, the rate pops up again if you’re late or miss a payment. Finally, if you haven’t done it already, remember to get your free credit report from one of the three credit-reporting services. By law, you can get one from each company each year. I rotate through each of them since they each have slightly different information in their databases. You can get the report online from www.AnnualCreditReport.com .
American Consequences | 25
$63 TRILLION OFWORLD DEBT IN ONE VISUALIZATION I n an ideal situation, governments are just borrowing this money to cover short-term budget deficits or to finance mission critical Together, these five countries together hold 66% of the world’s debt in nominal terms – good for a total of $41.6 trillion. Next, here’s the top five for debt-to-GDP :
projects. However, around the globe, countries have taken to the idea of running constant deficits as the normal course of business, and too much accumulation of debt is not healthy for countries or the global economy as a whole. The U.S. is a prime example of “debt creep” – the country hasn’t posted an annual budget surplus since 2001, when the federal debt was only $6.9 trillion (54% of GDP). Fast forward to today, and the debt has ballooned to roughly $20 trillion (107% of GDP), which is equal to 31.8% of the world’s sovereign debt nominally. THEWORLD DEBT LEADERBOARD This infographic from Visual Capitalist looks at two major measures: (1) Share of global debt as a percentage, and (2) debt-to-GDP. Here’s the top five “leaders” in each category, starting with share of global debt on a nominal basis:
Rank
Country
Debt ($B)
% of Global
Debt-
Debt
t0-GDP
1 2 3 4 5
Japan Greece
$11,813
18.8% 0.6% 0.1% 3.9% 0.4%
239.3% 181.6% 148.7% 132.6% 130.3%
$353
Lebanon
$75
Italy
$2,454
Portugal
$267
While only Italy and Japan here are considered major economies on a global scale, the high debt levels of countries like Greece or Portugal are also important to monitor. Greece, for example, is continuing along a particularly unsustainable path – and external creditors are getting stingier. Most recently, both the IMF and Greece’s euro-area creditors have demanded the country implement a law that automatically introduces austerity measures if a budget surplus of 3.5% of GDP isn’t hit. While Greece has dismissed such demands as “unacceptable”, the country – along with many others around the globe – will have to accept that constant debt accumulation has eventual consequences.
Rank
Country
Debt ($B)
% of Global
Debt-
Debt
t0-GDP
1 2 3 4 5
United States
$19,947 $11,813 $4,976 $2,454 $2,375
31.8% 18.8%
107.1% 239.3% 44.3% 132.6% 96.3%
Japan China
7.9% 3.9% 3.8%
Italy
France
Courtesy of Visual Capitalist . They’re currently putting together their best infographics, charts, and visualizations and connecting themwith one universal theme: what are the fundamental forces shaping the business and investingworld?
Their first-ever, coffee table-style book, Visualizing Change , contains 200 pages of top-notch graphics that tie the worlds of tech, business, and the global economy together... from the “War on Cash” to “The Tech Invasion.” Click here to pre-order your copy .
26 | November 2017
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