Saturday, October 27, 2018

When Will the Currency Collapse Come?

As of the first quarter of this year, federal indebtedness was $21.1 trillion, while GDP was roughly $19.8 trillion, so the ratio of GDP to debt is 107%.   Nobody knows how the constellation of relationships in the current world economy will play out.  For instance, the dollar is the global reserve currency.  Other countries absorb and make use of the dollar.  However, as with all psychological delusions--whether faith in a tribal rain dance or faith in the integrity of the Federal Reserve Bank-- sooner or later reality intervenes.  The economy of Greece collapsed at a debt-GDP ratio of 170% or so.   The US has additional cushions, so there is not likely an impending crisis, but it is unlikely that indebtedness will do anything but grow.

There are three ticking debt clocks:  First the Social Security unfunded liability of $13.2 trillion over 75 years may require a benefit cut of 17%. Second, the unfunded liabilities of Medicare, which are unknown, may be as great. John D. Shatto and M Kent Clemens, actuaries for the Department of Health and Human Services, write that there is “substantial uncertainty regarding the adequacy of future Medicare payment rates under current law.” Third, student loan indebtedness is currently about $1.5 trillion.

If you add the hard indebtedness of $21.1 trillion to the unfunded liabilities and the student loan debt, the sum is in excess of twice GDP.

In part because the unfunded liabilities are not salient, international investors continue to accept the dollar as the global reserve curreny. As with any bubble, this will continue until it doesn't. The amount of US currency in circulation overseas is at least equal to the amount at home. 

There will be political pressure to devalue the dollar, both from Millennials who spent $100,000 each on college and never found a job and from senior citizens who do not want their Social Security benefits cut because the government claimed for 85 years that Social Security is an insurance plan rather than an at-Congressional-will welfare plan.  As well, depending on the course of technology and health care costs, Medicare can easily become the biggest problem of all.

There will thus be significant pressure to devalue the dollar in order to dupe Social Security recipients and to devalue the Millennial's unproductive student loans.  In response, there may be a global run on the dollar; alternatively, an internationalist authority like the IMF might step in and offer to substitute a global currency like special drawing rights as a substitute for the dollar.  As a result, bank dollar holdings and cash may be reduced in value.

Knowing this, I hypothesize that a portfolio allocation of 10 to 20 percent to gold and silver is wise. At the same time, gold could go back down to 2001 levels before it rebounds. As Keynes put it and my financial adviser reminds me,  "The market can stay irrational longer than you can stay solvent."  As well, trusting in the wisdom of the federal government and the American people is foolhardy.

The Self-Evident Logic in Support of Universal College Education

Here is the logic:

(1) It was once difficult to get into college, so only smart, elite youngsters could attend.
(2) Attending college makes a youngster smart and elite.
(3) Therefore, all should attend college so that all can be smart and elite.

According to Student Loan Hero, the average student loan debt for 2017 graduates was $39,400. Moreover, Americans owe $1.48 trillion in student loan debt, almost double total credit card debt.

An eight-year-old study by Arum and Roksa found that half of graduates earn less than the national median wage.  According to, the average college dropout owes $13,000 in student loan debt.

Students with the worst prospects for finding jobs are in the fields that are most politicized: the "studies" fields like women's studies, the social sciences, and the humanities.

Friday, October 26, 2018

How High Can the VIX Go?

stock chart
VXX over the Past 10 Years. Chart Courtesy of

The VIX measures stock market volatility.  Over the past ten years, it has declined from over $14,000 to about $35. That is due to the masseuse skills of the Federal Reserve Bank, which is lightening its deep tissue, shiatsu, and Swedish massage.  The VXX is up 6% today according to Yahoo Finance.  Stock market declines are usually short, absent government intervention as occurred under Franklin D. Roosevelt's administration, but steep. They are, of course, difficult or impossible to time.

Wednesday, October 24, 2018

The Real Reason They Hate Trump

David Gelerneter, a computer science professor and businessman, has written a brilliant op-ed for the Wall Street Journal Quoting his lyrical piece, which reads like Jack Kerouac:

The difference between citizens who hate Mr. Trump and those who can live with him—whether they love or merely tolerate him—comes down to their views of the typical American: the farmer, factory hand, auto mechanic, machinist, teamster, shop owner, clerk, software engineer, infantryman, truck driver, housewife. The leftist intellectuals I know say they dislike such people insofar as they tend to be conservative Republicans.
Hillary Clinton and Barack Obama know their real sins. They know how appalling such people are, with their stupid guns and loathsome churches. They have no money or permanent grievances to make them interesting and no Twitter followers to speak of. They skip Davos every year and watch Fox News. Not even the very best has the dazzling brilliance of a Chuck Schumer, not to mention a Michelle Obama. In truth they are dumb as sheep.
Mr. Trump reminds us who the average American really is. Not the average male American, or the average white American. We know for sure that, come 2020, intellectuals will be dumbfounded at the number of women and blacks who will vote for Mr. Trump. He might be realigning the political map: plain average Americans of every type vs. fancy ones.

Tuesday, October 23, 2018

Why I Support Republicans in 2018 and Trump in 2020, and Why I Oppose Sissified Democrats

Last year Tom Ross wrote a piece in the Examiner in which he quoted William Weld, the former governor of Massachusetts and the 2016 Libertarian Party vice presidential candidate, as claiming that data showed that 75% of LP voters would have voted for Trump rather than Clinton.  As a result, Trump would have won a net majority in the absence of minor parties.

I am one of the culprits who did not vote for Trump. Until recently, I tended not to vote in presidential elections. When I did, I supported the Libertarian candidate. However, I served on my county Republican committee, worked for the Republican Party locally, and voted during the three nonpresidential years. I have opposed the evident corruption in the GOP both locally and nationally, but I have also contributed to GOP candidates.

As a libertarian, there were three features of Trump's candidacy that turned me off: his proposed wall, his animus toward immigration, and his suspicions about free trade.  These are anti-libertarian positions, and I still oppose them.

However, there are two areas in which Trump has demonstrated valuable instincts:  his attitudes toward political correctness and the media.  Political correctness is a polite name for the totalitarian control and authoritarianism that have always been associated with socialism, communism, and the left in general. One does not advocate a strong government because one is shy of control; one who desires control is as likely to desire it with respect to civil as well as economic matters.

The left's thoroughgoing and consistent authoritarianism is seen in its rationalization architecture. Scholars like Adorno call all who oppose left-wing authoritarianism "authoritarian"; meanwhile, Herbert Marcuse advocates intolerance.  A movement that claims to be intolerant in the name of opposing authoritarianism is a spinning top capable of anything. Indeed, the left, when it gains power, has accomplished every horror imaginable, beginning with mass murder in the nine digits.

Accelerating left-wing totalitarian patterns have been evident to me since I entered higher education in the early 1990s, and they continued to escalate up to the point when the Obama administration began to prosecute professors for expression of views that had no connection to teaching or the campus.  Laura Kipnis was accused of creating a hostile environment at Northwestern University simply because she wrote two articles in the Chronicle of Higher Education.

These rules have now changed. The Trump administration is the first in my lifetime to reverse the march toward totalitarianism in American universities. The exclusion of Republicans from leading universities, which I have studied, is symptomatic of Democratic Party-subsidized groupthink. In turn, the subsidization reflects a historical impetus from corporate-linked foundations, which were eager to homogenize education and eject Christianity from American colleges in the late nineteenth and early twentieth centuries.

The media has a similar history.  It was consolidated by investment banking interests, and the centralization and left orientation received subsequent support from the Democratic Party, which censored libertarian positions during the New Deal.  The centralization and homogenization of higher education and journalism converge on the needs of large financial institutions and one of their twin handmaidens, the Democratic Party.

Trump is the first elected official to threaten the status quo. Perhaps this was a ploy to gain votes--but perhaps Trump understands that the media, the universities, the so-called deep state, and especially the Democratic Party have interests that are as really aligned with the interests of ordinary Americans as the interests of Septimius Severus were really aligned with the ordinary Romans who received free bread.

By coincidence I have recently been listening to a lecture series about Roman history, and the thought occurred to me that a parallel might be made between the decline of Rome and the sissification of American culture, especially in the Democratic Party.  I googled a related combination of words and came across a series of news items that tell a story similar to the dumbed-down attacks I have suffered at the hands of the fake-news media.

In 2011 the Italian historian Roberto de Mattei, based on a lifetime of study of Roman history, concluded that the decline of Rome was caused by a parallel process. De Mattei, who was head of the Italian Research Council,  was treated to threats and calls for his sacking by Mussolini's fascio descendants, the Italian left wing.

America's dumbed-down journalists are tools of globalist financiers who delight in American indebtedness, decline, authoritarianism, and socialism.  The delight about the indebtedness part ends when Republicans follow the same destructive policies as the Democrats, but it holds when the Democrats are in office

American journalists worry endlessly about their supposed freedom of the press, which is constrained to the point of zero by centralized credit, centralized financial controls, regulated cable television monopolies, regulated airwaves, and dumbed-down journalists, who are economic and historical illiterates trained by ideological, totalitarian institutions.

The Internet, which was originally thought to be a decentralizing force, is increasingly concentrated on social media that has proven even more authoritarian and subject to centralizing control than television.

Trump's use of Twitter turns this dynamic on its head. Bless him.