Tag: US Debt Clock

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Striking A Balance

Posted on by Econogal

Striking a balance is a key to life. One that seems to be sorely missing at this moment in time. In economics we call this balance an equilibrium. If you believe in the philosophy of Adam Smith you think a system which is out of whack will correct itself. Eventually. If you are a fan of John Maynard Keynes, your belief runs toward giving nature a helping hand through intervention. Usually government intervention.

To be honest, I tend to favor Smith over Keynes. (Although neither is my favorite.) The biggest problem with Smith is that nature can take a long while to correct itself. The biggest problem with Keynes is thinking man has the discipline, and the knowledge to strike and maintain a balance. Striking a balance is quite difficult. Maintaining one, perhaps impossible.

Debt

From time to time I link to the Debt Clock. I have already asked you to click here once this year but please do it again. The overall number is eye-popping. Over 25 trillion as I type this. But dig down deeper. Look at family savings, student and credit debt. Take a further look at household and national debt. Finally take a look at the M2 money creation.

The Federal Reserve is following a Keynesian path and pumping money into the monetary system. This chart from the St. Louis Federal Reserve office shows the steep increase in M2 since the start of the year. The Federal Reserve has deeply cut the interest rate on the funds loaned out. The rate currently stands at .25 down from 1.75 earlier this year.

From both the Debt Clock and the M2 chart one can discern the attempt at striking a balance the Federal Reserve is trying to make. It is not this action I disagree with. Instead I worry about the unwillingness for re-balance in good times. Why, were interest rates low to begin with when we were at all time market highs the first months of the year? Shouldn’t the rates have been at 3, 4, or even 5 %?

My fear is the inability of governmental entities in striking a balance. Keynes’ basic philosophy will work but only if humans can put aside for a rainy day. I have seen little of this in my lifetime.

Managing a Pandemic

Public service is difficult. I have had some personal experience on a local level and the job is tough. Making decisions for the public is not easy. A crisis makes it even harder. Dealing with Covid-19, while not unprecedented, is proving to be the greatest challenge many will ever face. This holds true on a personal as well as public level.

I think the problem will be most apparent in countries that have enjoyed more freedom for citizens. But I think people everywhere will struggle with striking a balance in fighting this pandemic. Individuals in countries that practice preparedness will do better than those who live in places where a just-in-time philosophy extends to households as well as production facilities.

There have been a multitude of agencies as well as people that have not responded as effectively as one would hope. Additionally, political leadership has not been on an even keel. But perhaps what disappoints me the most is the divisiveness of the human population. Although, I feel a little better about the split since reading Gina Kolata’s Flu. Apparently a similar split has happened in the past on the best way to deal with an epidemic.

Personal Responsibility in Striking a Balance

Nonetheless, I urge everyone out there to consider the needs of others. A person can look healthy and young on the outside, but suffer from lung conditions such as asthma or cystic fibrosis. Pacemakers are not just operating in the elderly. So for once I am asking you to “assume” something. Please assume anyone you meet, young or old, may have an underlying condition. Give people some space. Further, assume you could be asymptomatic, spreading disease unknowingly. And by all means, if you do have symptoms of Covid-19 take responsible actions.

Striking a balance between public health and public wealth is difficult. We all have a responsibility. As humans, we need to show respect for each other. At some point in the future we will reach an equilibrium. Let’s just hope we remember to repay the funding mechanisms. Otherwise, the difficulties of living through this pandemic will pale in comparison to a future of financial instability.

 

 

Getting Ready for Covid-19-Econogal’s Preparation

Posted on by Econogal

My loyal readers may be wondering about my lack of posts last week. I was getting ready for Covid-19. Actually, I was finalizing my preparation. Over twenty years ago a Mormon friend shared her philosophy of preparedness. She knew I was very active in my own church, but she wanted me to understand the self-reliance component.

I am so glad for Shalah. She moved from my small town over ten years ago. So if any of my local followers are still in touch, please thank her for me. Because of Shalah, I did not join the panicking crowds. While my preparations surely fall short by the standards of The Church of Jesus Christ of the Latter Day Saints, I am hopeful that I will be able to manage a few weeks of isolation if I need to quarantine. No last minute hoarding, no rush for tons of non-edible toilet paper. Just peace of mind.

Covid-19 Readiness

So I had also urged my loved ones to get ready both financially and personally for Covid-19. I am pleased many family members listened. And I have been busy checking in on the octogenarians in the family. The personal visit I made to one of my elders reassured me. Again, no hoarding. Perhaps because farm families always put a little back in case the next harvest is compromised. Or maybe the yearly chance of a High Plains blizzard is always possible. Preparation is second-nature. Regardless, I am thankful and hopeful we can isolate enough to make it through this Covid-19 outbreak.

It did not take much to convince my one offspring with family of his own. That happens once you have a little one to look out for. An overnight visit in early February sharing websites and Twitter accounts across the world convinced the young parents to go beyond the just-in-time supply chain for diapers and baby food. The gratitude I received from them is reciprocal. Since they listened and planned accordingly, they were able to stay away from the hoarding masses at the big box stores in the city. And I did not need to worry about them.

Financial Readiness

The markets across the world are taking a hit. Covid-19 is a lengthy illness even for those not hospitalized. One Twitter account I follow chronicles the progression of the disease in a family of five. For good, unsensationalized information read @richisalsohere the daily tweets are from an American living in Northern Italy.

His account illustrates how productivity and output are directly affected. There will be supply chain repercussions rippling around the world for months. The likelihood of a recession is great. Further, there is a possibility of a depression. Of course that will depend on a variety of factors.

In the two weeks since I wrote the February Wrap-Up where I discussed economic impacts of Covid-19, the U.S. markets have been extremely volatile. Losses, at least on paper, have been great. Much like the financial crisis of the oughts, the younger generations should be ok with a hold philosophy-I believe it is too late to sell.

It is also too early to buy. But I hope we are getting close. Timing the market is impossible.  Although the late Mark Haines did call the bottom in 2009. It may have been a lucky guess.

Buy What You Need

If you have extra dollars right now put them to good use. Buy some groceries-without hoarding. But buy what you eat and know how to cook. It is normal for us to cook from scratch. Even though cooking from the source vs. out of an instant box is not rocket science, it does take practice. For example beans need to soak overnight before cooking. Because we live in an area that grows pinto beans, this is second nature to us. But, the cooking process may be unfamiliar to those raised on canned goods.

If you need something, a new refrigerator, or new tires buy them now if you can pay for them without borrowing. Shop at odd hours. Get prescription refills. Online ordering may become difficult as transportation companies get overwhelmed and potentially understaffed.

Even though the Treasury Market does not anticipate higher interest rates or inflation, I think the long run calls for both. Just my opinion but I am very concerned about the national debt. Click here for the debt clock.

The worst case scenario would be a default. But truly that cannot be our first concern. We need to get through this Covid-19 disruption to life. So, those short on savings need to conserve as much as possible. Non-essentials will need to wait. Belt-tightening begins.

Covid-19 is Serious

I am most frustrated by those who do not take Covid-19 seriously. Perhaps it is normalcy bias. Perhaps the decade long span of prosperity has spoiled us. Maybe they believe preparation ahead of time is not needed in a land of plenty. Nonetheless, I think most are not ready.

This novel corona virus is not just another flu.

I give a lot of credit to the Chinese scientists and medical providers. They issued a warning at the very start of 2020. Additionally, the genetics of the virus were released. I first looked at the structure in January. To be honest it was and remains above my head. I could see the null set as well as the altered strands but that was the limit of my ability. I understand the virus is novel and thus best treatments are unknown. The links following will be of interest to those with a scientific bent.

Mental Preparation

I think the most important preparation at this point is mental. The medical professionals in America are preparing for 96 million cases of Covid-19 with approximately 500,000 deaths. This is a much lower percentage than that forecast by German Chancellor Angela Merkel. And a higher percentage than that occurring in South Korea.

At this point we could veer in either direction. Isolation is difficult. A wide-spread outbreak is worse.

We need to practice social distancing. We need to avoid unnecessary travel. Finally, we need to prepare for long illnesses and the likelihood we will know at least one person who will not survive. I am not sure Americans are prepared for this, but we are moving in the right direction.

We need to stop complaining about cancelled sporting events, conferences and schools. Online learning will blossom. Hobbies need to come to the forefront and media streaming will replace movie theaters in the short term.

I respect the Love Not Fear movement, and I believe preparation is not equal to fear. In fact, individuals attuned to world events can spread the love by sharing such as the residents in Liverpool reported in this article. (Click here to read.) (And here) to read a report in America.

I cannot predict the long term repercussions. I think much depends on if we can self-discipline enough to sacrifice now. In our society of instant gratification that might be tough. One can hope though and I do have hope. In the meantime, I recommend the following:

On Twitter:

@richisalsohere

@onlyyoontv

@peakprosperity

@APHL

@ScottGottliebMD

 

On the Internet:

https://www.ejmo.org/pdf/2019%20Novel%20Coronavirus%20COVID19%20Outbreak%20A%20Review%20of%20the%20Current%20Literature-12220.pdf

 

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30185-9/fulltext

 

https://www.medrxiv.org/content/10.1101/2020.02.29.20027698v1.full.pdf

 

https://journals.lww.com/cmj/Documents/CMJ%202019%20novel%20coronavirus%20disease%20(COVID-19)%20collection.pdf

 

https://asm.org/Articles/2020/January/2019-Novel-Coronavirus-2019-nCoV-Update-Uncoating

 

https://www.biorxiv.org/content/10.1101/2020.01.22.914952v2.full.pdf

https://www.imperial.ac.uk/media/imperial-college/medicine/sph/ide/gida-fellowships/Imperial-College-COVID19-NPI-modelling-16-03-2020.pdf

 

 

Firefighting: The Financial Crisis And Its Lessons Book Review

Posted on by Econogal

Firefighting: The Financial Crisis And Its Lessons is the three person account of The Great Recession and the steps taken to repair the economy. The individuals credited with writing the book are Ben S. Bernanke, Timothy F. Geithner and Henry M. Paulson. The information presented is straightforward. One of the best aspects is the use of the firefighting metaphor to explain the steps taken at the time to mitigate the panic. Furthermore, my own memory of the tumultuous time meshes with the writing. So, the information rings as fact more than opinion.

A Keynesian Approach

Those of you with an economic background can differentiate between a Classical and a Keynesian approach to economic policy. For those of you unfamiliar with the theory, click here for a tutorial. The steps taken during the financial crisis of the Ought’s clearly represent the teachings of John Maynard Keynes. The Federal Reserve led by Bernanke, and the Treasury Department, first shepherded by Paulson during the Bush Administration then spearheaded by Geithner under President Obama, went to great lengths to stop the downward spiral of the economy. Firefighting takes you step by step through the interventions.

I appreciate the book for what I perceive is an honest portrayal of the cause and effect of the crisis. The authors go to great length to posit why some firms survived while others folded.  Since I vividly remember public events as well as personal anecdotes from the time, I feel quite comfortable highly recommending the book.

Firefighting Lessons

In addition to relating the fiscal and monetary steps taken to fight The Great Recession, Firefighting puts forth warnings for the future. The authors have two key concerns. First, the three former public servants are concerned with a loss of power for both the Treasury Department and Federal Reserve. They make a good case for the immediate ability by the agencies to react to future crises.

Second, the authors are duly concerned with the functionality of Keynesian economics. Government intervention in times of crisis is only one-half of the economic theory. Keynesian economics also calls for replenishing the coffers during expansions. This is not occurring. Instead of bringing the deficit down, our debt levels are increasing. Thus, the authors believe, both monetary and fiscal policy will be hampered in firefighting the next economic downturn.

The argument between interference and non-interference in the markets is central to economic philosophy. The debate between the Classical school of thought and the Keynesian Theory is reflected today in our divided politics. I encourage all to read Firefighting including members of Congress.

One of my favorite websites to share with new students of economics is the US Debt Clock. Visiting this site is eye opening. Similarly, Firefighting will also open eyes. For example, the book acknowledges the public relations nightmare of propping up AIG.

Personally, I saw and was offended by the lavish expenditures of AIG during the height of the meltdown. But I did not know the flip side until reading Firefighting. Grudgingly, I admit the intervention was necessary. Thus my appreciation of the work of Bernanke, Geithner, and Paulson. Both for the book and their many sleepless nights a decade ago.