This will be a longer than usual story. It is complicated, chaotic and complex. Yet I view this story as the most important financial event of 2023. Many others agree.
I’d like to bring you up to speed on the tale unfolding in Congress and the media. I am not trying to frighten you. I am trying to educate you. These discussions may be inconsequential. They may be consequential. Pay attention as the story unfolds. Listen and comment.
Be aware. Be prepared. Act wisely.
Over the summer, our friends in DC will be ‘discussing’ the national debt ceiling. Unfortunately, they are politicians, each of whom have agendas political and personal. They may or may not represent your best interests. Be wary.
These debates have occurred every few years for quite some time. The results are always the same: the debt ceiling is raised after much approbation (fear and loathing). The economy and markets pay attention during the debate, then promptly ignore the results.
My concerns today are for your comfortable retirement. The rest is fiddle faddle…
How will the economy and the markets respond and react to this debate?
There are any number of points to debate - and results to be obtained. Here are eight:
Funded v. unfunded liabilities
IRA v. IRS
Details v. deficits
Media v. facts
Currency v. digital
Plenty v scarcity
We are an aging population. The demographic pyramid has inverted – for us and for most of the world. Very few countries or cultures are replacing their populations. The figure is 2.1. Each paired set of humans has to ‘produce’ 2.1 children each generation to replace those who pass away. They can be produced by conception, immigration or longer lives. America has always done a good job with immigration, particularly today. Yet even our five million ‘new citizens’ won’t replace our generation. We are 65 million. We are aging. We are more than 20% of the population. We are healthy, noisy, boisterous and very opinionated.
Yet the generations below us bear some of the fiscal burden of our support. As well as the support of much of the population. We have paid into SSA (Social Security) for 40+ years and expect a return of our capital - if not a return upon our capital. The SSA Trust Fund is in a ‘lock box’. Or so we are told. These monies cannot be touched except for SSA benefits. Except, there is little in the lock box other than current contributions from today’s workers. We don’t need to discuss why, but these funds are expected to be depleted by 2030-34, depending upon whose numbers are used. That is just seven years away. What to do?
We are ‘conditioned’ to expect our SSA deposit each month into our bank account (digital currency anyone?). We expect inflation increases: 9% for this year. Others are also conditioned: unemployment, disability, food stamps, Medicare. (apparently the soon to be established reparations in CA and perhaps the nation. Add $14 Trillion to our current $32 Trillion debt.) All examples of digital currencies, by the way. These dependencies rarely dissipate; rather, they tend to be augmented with new ‘features’.
Funded v. Unfunded Liabilities
These have costs. Our governing bodies have a few choices here: taxes, debt, printing and MMT. They can tax their residents (not just citizens). They can issue new debt. They can ‘print’ new money – although printing is here used as a euphemism. Less than 15% of our currency is actually printed on cotton these days. Most is digitalized. The Fed now subscribes to the MMT: Modern Monetary Theory. MMT says ‘we are the House’. We print currency as needed. We have infinite resources to do so. It is the global reserve currency. Few others are willing to ‘gamble’ on the Euro, Yen or Yuan. Until now… even those who have been gambling on the USD for decades. Technically, the folks at The Fed have another choice. Gold. But that is another story.
As these choices are exercised by our fearless leaders (I mean the word literally: they have no fear of the future). For the most part, they issue debt and digitalize more currency. As long as the demand is sufficient, the demanders haven’t worried much. These are the global institutions that consume our currency as fodder for their own purposes. Oh, and the Treasury – Reserve Bank. One issues debt and the other consumes it. Can you spell Ponzi?
Most of our liabilities are underfunded or unfunded. They are also growing as we become ‘a caring nation’. Which creates more debt. Which has to be paid interest and principal. Which has historically been about 4-5% of the federal budget. This quarter it is approaching 20%. $856B for the current year in a ‘projected budget’ of about $4T. Pease note that no budgets have been approved by Congress in three years.
IRA v. IRS
We shall sail gently across this political sea. The new House Speaker is marshalling his resources for the coming discussions with the Administration on the budget, the deficit and the debt ceiling. Those resources – other Congress men and women – are expressing strong views. Many want a cap on spending, sunset provisions (time limits on each budget item), removal of a few items from current spending. Which brings us to IRA v. IRS. These people want to drop the massive new IRS spending allowances, including the hiring of 86,000 new IRS ‘agents’. They also want to drop much of the previous year’s provisions for ‘green energy’, DEI and CRT. This was acronymic as IRA, The Inflation Reduction Act. Others in Congress and the Administration have stated these issues are DOA. They will not be discussed.
Details v. Deficits
This is easy to review. If we sped more than we take in, we go into debt. You and I will not do so because we are successful in our capital management. We balance income and expense. Our generation has done an excellent job of saving: we have an excess of income v. expense. Very few governmental or not for profit groups can do so. They don’t subscribe to the same rules. If they need funds, they tax or solicit. I sit on several non-profit Boards and am amused by their constant need for more money and their solicitations discussions.
If a government spends more than it takes in, it prints or goes into debt. As we discussed above. While foreign to each of us, they are equally amused at the concept of ‘living within their means’. ‘Here lie Dragons’ as the maps of Olde said on their margins…
Media V. Facts
We have an impossible task today. How can we separate fact from falsehood, reality from fantasy, truth from fiction? As an author, I know how to exploit this framing. So do the media. Whether right or left, red or blue, or green or black or pink or rainbow, media have a core function and auxiliary functions. Their core function is to report the news. Other functions are to garner advertising, sell subscriptions and promote points of view. I find I must read at least a dozen stories each morning from half a dozen sites to get some semblance of ‘the truth’. Facts are irrelevant to CNN, Fox, ABC or virtually any newspaper or website. Spin. Editorialize. The View. The Five.
Our challenge is to discover in this quagmire some semblance of the truth. Even scientific journals, medical journals and think tank journals are abused of their wealth of data because of back stories and agendas. I have retired journalists as clients. They do not refute these observations, even as they assuage them. It is the nature of the beast. George Washington, Andrew Jackson, Mr. Lincoln and a host of scientists and physicians have each been excoriated for their views. Nothing new here. News is entertainment.
Currency V. Digital
As we have observed, more of our currency is now digital. No cotton was consumed in the production of this money… we are now being introduced to the concept of paperless currencies. What began as a global money laundering event – crypto currency – is now an accepted form of transaction. Governments would prefer to eliminate all non-electronic forms of currency. The reasons are too myriad for this discussion but it is coming. Costs will go down. Illicit uses will decline. Tracking of activities will increase, control of economic data, details and participants will soon follow.
And, we are promised, deficits will disappear. Just ask the man behind the curtain. Follow the electron bricked road. Never never land indeed! You have only to visit China to see this in action. Social currency is in place. You can only spend, go or do as the authorities wish you to do - according to your previous and current actions. Be good little children now and go play on your computer gaming station.
Plenty V. Scarcity
Those of you who have known me for a few decades know of my Pollyanna human instincts. All is well. Humanity is getting wealthier, healthier, wiser and more caring. Even I know this is just a bit much. While the facts support me and I have suggested many books and articles and websites on the subject, facts are no match for fear.
While facts may reign, fear rules. Our Masters use fear to control us. Or try to do so. While humanity has had no serious drought or significant starvation event for a few decades, while the human population is rapidly stabilizing, while women, children and families are accessing better health, education, human rights and environmental consciousness, fear is used to instruct us otherwise.
‘Be afraid. Be very afraid! News at 11…’
The politics of scarcity damns the poor to suffering while sheltering the wealthy (that’s us, folks). Those who can afford it can acquire safety, security and peace of mind. Just put this bracelet on. It will monitor your health and offer peace of mind. Whether a pillow or a pill, a gun or a gesture, a word or a whisper, we shall take care of you.
Dependency is bred into the fabric of society. This is a good thing. We are naturally dependent creatures. We love to give support and to receive it. From our masters and our family and our community and our churches.
My concern is that scarcity will dominate plenty. The conversation about the national debt will be distorted by the media and politicians. By the Fed and the Congress. By those dependent upon federal largess and by international organizations. For their own purposes.
If no debt ceiling agreement can be reached, the federal government may have to reduce or eliminate services. Scarcity.
If no agreement can be reached, the USD will be harmed as a global currency. Scarcity.
If no agreement can be reached each of both political sides will blame the other. Scarcity.
If no agreement can be reached, the old will suffer and the young will demand more. Scarcity.
If not agreement can be reached, dependents upon the federal purse will grieve. Scarcity.
If no agreement can be reached, our debts will be unserved. Scarcity.
If no agreement can be reached, markets and the economy may be devastated. Scarcity.
Do you see where this is going? An agreement has to be reached ‘for the sake of the country’. All parties will agree. Everything will be all right. Just keep walking past the graveyard. Whistling. You’ll be fine…
And we shall remain very conservative in our portfolio design and maintenance during the summer.
I’d rather be faulted for not making you enough than for losing you too much.
At some point, this house of debit cards will crash. The economy will enter a prolonged and severe recession. Revolution will be in the air.
News at 11…
I do hope you can always
Love with Abandon!
John Graves, AIF, CLU, ChFC
The Renaissance Group, LLC
805.652.6942 fax 805.652.6930
199 Figueroa Street, Suite 101A Ventura, CA 93001
CA Insurance License 0689525
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