Take the Pain

So, let us check in on the health of the patient. Yes, everyone's health is truly a snapshot - you have a cold today, perhaps a fever - and then you recover tomorrow. It is a truism that in order to stay alive, your body has to fight every illness and win - a single loss, and you're history. It is often said about medicine and the "healing arts" -- "the trick is to amuse the patient while nature does the healing." For untold ages, quacks and witch doctors have been selling their nostrums and chanting their weird mumblings in an effort to impress their patients as well as their snookered, overly eager-to-believe and pay relatives.

So what has changed? As a simple spectator on the presently proffered cures for modern life (the cure just happens to be the disease) -- more cheap and easy money to rescue us from the era of cheap and easy money -- I am reminded of the old Keynesian quip about how it is better to bury money and hire people to dig it up, than simply let the economy work on its own (yes he really did write that). If spending money is good, why is it better that somebody spends my money for me on something that I don't want -- or that money I don't want to borrow -- is borrowed for me that I will be required to pay back? And if saving money is a good thing, why not let me save my own money -- in an amount that I deem prudent for myself? Although we can always whimsically look back at the past and create a mythic golden age in our filtered recollections -- there was a better day and age when credit cards were the exception and not the rule -- revolving credit loans were not prolific and easy – people only borrowed for necessities -- not big screen tvs, computers, atvs (yes, I know these things didn't exist in the way back) -- and debt was something that you only considered for a necessity -- something that you could manage and afford -- and if, in the end you failed -- and whether you were an individual or an institution NO ONE BAILED YOU OUT. Ah, yes, the great golden age of the 1950s -- no, not a perfect world, but a world of higher minority employment than today (yes, check your history books), very few children born out of wedlock, thrift was important and people didn't expect someone else to rescue them when you messed up and you found yourself in a pickle because it was your own damn fault.

At that time, Government as a percentage of GDP was remarkably much lower, and when JFK became president at the conclusion of that golden decade, military spending was close to half of the federal budget -- not because war and guns are cool -- but because government was small and everyone understood that the government was limited by its constitutional functions -- one of which is maintaining and army and navy (yes, the constitution says nothing about a marine corp and an air force -- that is at least why it used to be called the army air force, I suppose). No, I don't want to go back to the fifties -- after all, I would have to be in bed by eight pm and living under parental tyranny -- as opposed to governmental tyranny – (the former I couldn’t fight, the latter I can – although neither it seems could I ever defeat). But I do want to return to those principles.

Yes, I am nostalgic for a better and simpler -- and more understandable world -- where people invested for value, people worked hard and saved - the only lottery was the Irish Sweepstakes -- there were no Indian Casinos, few credit cards, there was far more social responsibility -- and two parent households were the rule with both parents concentrating on raising good kids rather than abrogating their responsibility and unleashing little monsters onto the world. Yes, I would rather Leave it to Beaver, rather than Big Brother.

So, how do we get there (metaphorically)? I can’t answer all of that except for the financial part. I have come to the conclusion that we need to take the pain – at least short term – and that we break the fever. Please don't get me wrong -- I am no fan of populism - and the mob is almost always wrong. But the present opinion of the man in the street - whether he be assembled in a mob or not -- that propping up and, thereby, rewarding bad behavior in the end only creates more bad behavior - is right on. I am all for making people (individuals, business and government) pay for their mistakes. Well, does that make the rest of us suffer too if things get "really bad" (whatever that means) if we don't keep empowering the idiots and institutions - public and private that brought us here? Perhaps. But the best way -- and I maintain -- the only way to heal a market is to let it clear -- all on its own. I am very tired of smart people -- the self-appointed best and the brightest -- who claim they can see beyond the horizon and who are able to tell us the consequences of not doing something they have engineered. These painless society people are the problem. Rather than running on a slogan of "Change," the real truth seeker in the last election should have been holding up another one word sign: "Pain." Yes, I am all for "Pain we can believe in." The only way to get through this is to let inefficiencies die out, run their course and let the truly smart people (including the former smart people who have perhaps become rehabilitated and learned their lesson) step forward and reassemble and reignite that great dynamo called capitalism – a world in which everyone takes care of themselves and suffers for their own mistakes -- and where charity, not a welfare bureaucracy takes care of the rest who cannot effectively participate. That world has existed in the past and it could exist again.

At least that was the perfectly imperfect world of a once-upon a time America.

So, I end this where I began.

Take the Pain.

Doug Foley

Kiss Me First

So here we are. Possibly going into a 30's style depression. This week's polls show 51% of Americans think so. Unbelievable. Most Americans I think understand that this downturn is to a degree self-fulfilling. That if I spend less, then businesses I patronize take in less; and then they lay off workers; and then workers go on unemployment; and the government extends unemployment benefits with money it has to borrow; and government debt goes up; and the government spends more money that it doesn’t have digging holes and stuff to replace the money that’s not being spent by businesses and individuals; and the government debt goes up; and the world loses faith in the government to repay the loans and quits buying our debt; and then inflation goes up because the government has to print money to pay back the loans because they dare not raise taxes enough to pay them.

What I think most American’s don’t understand is that we either pay for the government's overspending with higher taxes or higher inflation. There is no other way. When uncle prints more money to pay debt then there are more dollars in circulation chasing the same amount of goods. That’s what causes inflation. Someone called inflation ‘the cruelest tax of all’. Maybe they did so because taxes on spending, in the form of higher prices, are paid disproportionately by the little guy. Little guys spend all their money on housing, goods and services; fat cats only a small percentage. Income taxes are paid disproportionately by the fat cat. So wanton government spending and borrowing hurts the little guy more than the fat cat unless the spending is paid for with higher taxes. Does anyone in the asylum believe that this government is going to raise taxes enough to cover the trillion plus annual deficits in this and coming years? If you do, you better put that pitchfork back in the shed and go back and get that G.E.D. you never completed. (And don’t forget to put your tooth under your pillow)

But the real reason inflation is called the cruelest tax is that it’s a tax on the stupid, on the unknowing, on the uneducated; those who don’t even know their paying it. It’s an invisible tax. When the cost of living goes up even 1% per year more than your after-tax wages, in 10 years you’re making only about 90% of where you started, even after all those raises. And it all happens so gradually most don’t even notice. Anyway you cut it, huge unpaid deficits ultimately lead to a lower standard of living for everyone. The future of democracy and the world’s prosperity depends on whether governments realize that there’s a limit to how much they can tax capitalists and investors before they take their ball and go home, either materially or spiritually.

So why do 51% of the American people think we’re going into a depression? Maybe it’s because they viscerally understand what they might not be able to articulate; that we individually and collectively owe and spend more than we can ever repay and whether we choose to raise taxes or print money to pay it, we’re screwed either way. We know it, but our government doesn’t know it. Scary.