Drowning In Your Own Wake!
My first boat was a small 22′ boat with twin outboards hanging off the back.
A total newbie, I took the Coast Guard course by mail. We had a tiny Florida condo on a very narrow canal. Off I went, learning how to drive, navigating the twists and turns into the Atlantic. It was windy and choppy; I needed considerable power to maintain control.
I was uncomfortable and turned back, zooming into the mouth of the channel. The channel was clear for the first 100 yards. I ignored the NO WAKE signs, wanting to get well inside where there was no chop.
When I throttled back, unexpectedly the bow shot up into the air while the stern dug deep into the water. I panicked, yanking the throttle back to neutral. For a brief second, the boat leveled off and then I was hit with a huge wake from behind, sending the stern into the air. I lurched forward, bow plowing into the water.
I’d lost control, closing in on several moored boats. I grabbed the console rail, holding on for dear life, barely missing some boats and pilings. Luckily the family wasn’t with me; they would have been flying around like pinballs. I barely avoided what could have been a bad accident.
Neighbor Charley scolded me, warning how easy it is to destroy your boat, and others, with your own wake kicking your ass. Lesson learned….
Sadly, our country is about to get kicked in the ass with a tsunami-level wake caused by the failed “Great Financial Experiment.” There will be damage, a lot of it.
Where to start?
President Clinton demanded banks write mortgages for high-risk borrowers at the same rate charged to excellent credit risks. Banks had to meet quotas, or they risked losing their bank charters. The increased defaults caused the banks to start losing money.
Ironically, Countrywide Financial filed for bankruptcy shortly after receiving a government commendation for meeting their quotas.
When banks complained, the government pitched in; allowing them to sell high-risk mortgages to government agencies, Fannie Mae and Freddie Mac. The banks, no longer worried about borrower creditworthiness, made millions writing and servicing mortgages, while moving the default risk to government agencies. Bad credit history, no money down – no problem – banks had nothing to lose.
Clinton (assisted by a $300 million lobbying effort) championed the repeal of the Glass Steagall Act, allowing mergers of commercial, investment (high-risk) banks and brokerage firms.
Banks lent money to almost anyone, dumping toxic mortgages on government agencies, or peddling them as investment products to unsuspecting retail investors – while earning fees along the way. Mortgages default, not their problem – until it is….
Soon the game blew up; as famed investor Michael Burry warned. The “too big to fail” (says who???) banks were in trouble. Politics reigned supreme; Congress called it a “crisis” creating the Troubled Asset Relief Program (TARP) program, to bail out the banks.
There was a huge public outcry. Polls showed the vast majority of the public was against a bailout. The banks made bad decisions, why should taxpayers bail them out?
The bill failed to pass. Pressure was applied on dissenting politicians, until it was crammed through the legislature, clearly GOVERNING AGAINST THE WILL OF THE MAJORITY. The regulation forcing banks to lend to high credit risk borrowers remains in place!
Wide open throttle!
The Federal Reserve jumped in, flooding the system with money; interest rates dropped to historic lows, creating trillions in additional liquidity (Quantitative Easing – QE), amplifying the problem further.
Bill Bonner’s article, A race of morons explains:
“The Fed does not print ‘money.’ …. The Fed offers credit, not money. Money is a claim on real wealth, already in existence. Credit is all ‘on the come.’ It claims wealth that may or may not come into being.”
The sequence of events took place at warp speed:
- The Fed floods banks with liquidity, money to lend.
- Banks called in all their high-interest debt, leaving investors with cash and a market paying interest rates below inflation.
- The stock market soars; investors, seeing positive return, had no place else to go.
- Banks, with trillions available, ignored any common-sense lending standards; come one, come all, step right up and get your loan!
- The brokerage arm of the casino-banks underwrote and packaged low-interest-rate bonds for corporate borrowers, anxious to take advantage of almost free money.
- Trillions in low-interest corporate bonds landed in fee-based funds, many improperly rated, marketed to unsuspecting retail investors desperately seeking a positive yield.
- Once again banks earn nice fees with no responsibility for any credit risk.
- The government chimes in, recklessly borrowing and spending trillions while deficits soar.
- Common sense left the building!
When money is borrowed to earn a positive return, is called “good credit.” Corporations calculate the “return on investment.” For example, a trucking company borrows to increase its fleet, justifying the expenditure by estimating the additional revenue it will generate, showing a positive return.
Borrowing for consumption is called, “bad credit.” I detest the TV commercial showing a young woman in the middle of winter, using her credit card to finance a tropical vacation. “You owe it to yourself” is baloney, after the vacation, you owe the finance company.
Individuals, corporations and the government borrowed (bad credit), jumping on the “consumption” bandwagon – from luxury cruises, corporations paying extra dividends and/or stock buybacks (increasing management bonuses), or government spending trillions more for wars, welfare and all boondoggles in between. In today’s slang, the money was pissed away and the debt must be repaid – or there will be consequences.
“This is not just a theoretical matter. A man who spends all his savings is broke. Busted. He has nothing. Too bad. So sad.
But the man who borrows…spends…and can’t pay back is not only a disappointment to himself, but like a soldier who loses his nerve on the battlefield, he’s a danger to the whole army.
Debtors have creditors. The creditors have creditors of their own…and bills to be paid …. and, if they are banks, federal regulators who will shut them down if their accounts are out of order.”
Consequences are happening
Creating trillions in cheap credit, and throttling historic, reckless consumption spending is coming to a head. The inevitable inflation has skyrocketed.
John Williams shadowstats.com shows true inflation (not the phony BLS calculations) is still in double digits:
The Fed, ignoring warning signs, fueled historic public and private debt, and finally was forced to raise interest rates as inflation took off.
When government and corporate bonds mature, they’re either paid off, defaulted or reissued at current interest rates; currently 2-3 times higher. Today it costs more to rent money.
How big is the “debt wake tsunami” descending upon us?
“Right now, based on the historical relationship between output (GDP) and debt, Americans owe about $50 trillion too much. That extra debt is a threat and a burden. It can ruin debtors and creditors alike, taking resources from the present to pay for hamburgers already eaten…investments already gone bad…and vacation sunburn that has already disappeared. With more and more time and money directed towards the past, less is available for the future; growth slows.”
Trading economics reports “delinquencies on consumer loans reached a record high of 4.85% in April of 2009 and a record low of 1.52% in July of 2021.” Loan defaults could easily surpass a trillion dollars.
Martin Young chimes in:
“During the first seven months of 2023, Americans paid a total of $3.3 trillion in personal interest….
- US personal interest payments reached a record $506 billion in July, a staggering 80% increase since 2021….
- These figures do not include interest on mortgage payments.
- Current interest rates in the US are 5.5%, causing borrowing costs to spike for home equity lines, auto loans, and credit cards.
- Economists predict another interest rate hike this year, with rates expected to remain high for longer than previously anticipated.
Americans are drowning in interest.”
Too Little, Too Late
The National Association of Home Builders reports, “Banks expect their lending standards across all loan categories to tighten further over the second half of 2023.”
Ummmm…. Standards should have never been lowered to begin with.
If our government continues on the current path, our culture, way of life and country will be destroyed. Middle class? Gone, while the elite will have even more money and power.
What MUST happen to save our country and culture?
- Politicians must STOP frivolously spending money for “social engineering.” Politicos, in lock-step, protect the elite with phony money and credit. Forcing banks to lend money to poor credit risks, the green agenda, and unlimited immigration is not about helping mankind; but rather enhancing their political power.
- Reinstate the Gold Standard, forcing restraints on government spending.
- Reinstate the Glass-Steagall Act. No bank should be “too big to fail.”
- Congressional Terms Limits – no more career politicians.
Americans face an unfathomable $50 trillion tsunami wake of debt. It will continue to grow until the four points above are enacted.
Despite the Fed’s BS announcements, things are out of control. The best life vest is owning gold, diversification of your assets, throwing the career politicos out, and hang on as best you can.
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On The Lighter Side
We had fun at the Fall Festival last week. Each middle school nominates two 8th-grade students to be crowned king and queen. The interview process is comprehensive; they’re all high-quality kids.
Grandson Brock (young man facing his grandpa’s camera) and Hailey W. (on his right) were selected by the kids/teachers in their school. They finished second in the voting and got to ride on a float right behind all the dignitaries at the Saturday parade. We’re so proud of them – nice to see good kids get recognition.
The half-pot drawing climbed over $1.8 million, with half going to one lucky winner. The West Side Nut Club does a lot for the community and provides thousands in college scholarships to well-deserving young men and women. The money stays within the community and locals appreciate all they do. This is another example of small-town America celebrating traditional American values.
I was saddened to hear that football great Dick Butkus died. I had Bear season tickets for part of the time he played and would take my binoculars and focus on him. He was intimidating and lots of fun to watch. The article said, “He died peacefully in his sleep in his Malibu home.” When our time comes, we should hope to be so lucky.
Quote of the Week…
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” — Thomas Jefferson
My wife Jo sent along some clever sayings for our enjoyment:
- I want to grow my own food but I can’t find bacon seeds.
- This is my step-ladder, I never knew my real ladder.
- My wife said I never listen to her, or something like that.
- Is there ever a day that mattresses are not on sale?
- Don’t burn bridges, just loosen the bolts a little bit every day.
- Made with love really means, “I licked the spoon and kept using it.”
- According to the BMI chart at the doctor’s office, I’m 6 inches too short.
- Inventor of the wind chill factor died at 82, but he felt like he was 64.
- French fries don’t come from France, they were cooked in Greece first.
- I’m on the lookout for #1, my dog isn’t house trained yet.
And my favorite:
- Do race horses slow down when they see police horses?
Until next time…
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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