Is It Doom Scrolling – or is it just Doom?

Starting to get that queasy feeling again, not for myself or for Erik, but for the younger generation. I’m pretty sure we’re just like those mouse communities in NIMH experiments that only managed to survive about a year. Huh, you ask? OK, here’s a link to the article, so if you want to read it you can. But I’m going to tell you what it says anyway, so knock yourself out.

There are now lots of ‘meta’ articles about John B Calhoun’s Experiments in Universe 25, as it came to be known. At first, it was the effects of overpopulation when Paul Ehrlich and his ilk were giving us Malthusian doom scenarios. That lasted about twenty years – until we started to understand how oversimplified the notion of the ‘population bomb’ was. Now it’s concluded that ‘excessive social interaction’ caused the mice to die out. Gee: doesn’t that make you feel calmer? Right.

Calhoun put a bunch of mice in a uptopian setting where all their needs were met and there were no predators. Things went along quite well – for a while. But soon there was ‘trouble in River City’. Fewer babies were born and mothers stopped tending to those that were. Was it urban decay? That never made sense to me. My sense was that ennui set in. Is that all there is? Is this as good as it gets? Do I even have a future in this place?

That’s what life around me feels like for young people. They can’t afford to buy a house. They can’t get ahead because rent, food and child care eats up all their money. So Emily’s generation sees that and says, “nah – no marriage or kids for me. I’m livin’ for just me.”

And that’s what happened to the mice. The stronger mice made the weaker ones congregate but not engage in reproductive activities. The females got confused and stopped caring for the few young that were left. Goodbye utopian citizens.

Now back to today. Let’s blame the media for telling us all about the evils that beset us. So if they don’t, will those evils go away? China has stopped publishing the percentage of 18-24 year olds that are unemployed. Will that find them jobs? You know the answer to that.

My adorable Adam Tooze has jumped into the discussion, comparing two theories proposed about China’s woes. One is that harsh government is the root evil. The other is that China has effectively fallen into the middle income trap. What is that? We’ve talked about it before, but it’s been a while. So here it is again. Per Wikipedia, “a country in the middle-income trap has lost its competitive edge in the export of manufactured goods due to rising wages, but is unable to keep up with more developed economies in the¬†high-value-added¬†market.” (blue font theirs). But sociologists add an extra point: income disparity contributes to the problem with the wealthy wanting the struggling lower classes – i.e. workers – to keep toiling away to keep them in their expensive cars and good schools for their kids.

I was watching a documentary called Ascension on this very topic last night. I had to stop watching it, as I wasn’t sure whose life was worse in China: the workers doing repetitive, mind numbing work, or the children of the wealthy staring at their video screens while cigarette ash falls on their chests. Terrifying – yet familiar.

OK, so now you’re doom scrolling by reading this post. You might ask, “What’s your point? Or maybe more importantly, “How do we fix this?”

That gets at the conversation we had with Robin and Colter on Saturday relative to housing. They can’t afford to buy a house in Palm Beach County. They could build a tiny house, but we’re talking 400 square feet. The County will let us build what they call a accessory dwelling unit (ADU) up to 1,000 square feet. But it has to only have one bedroom. That wouldn’t work. In addition, they wouldn’t own the land: the owner of the land has to own the unit. So the only way it would work for them is for Erik and me to die and Robin inherits the house. But what about the other two kids? That’s when we all get stuck.

The solution to this particular problem is to sell this house, move closer to Erik & Tiffany in Maryland and give money to Robin & Colter to help them buy a house. To do anything else is wrong. We are helping Kirsten at the moment, and Erik is pretty much set. It’s time to move on. We’ll let Kiernan finish fifth grade at Allamanda, then everybody moves north. Maryland has a lot of advantages. Erik the Younger thinks Colter can find a job up there that pays as well if not better than Pratt. That’s worth exploring. Housing is possible there. We just need to decide to do it.

Does that help the youth in China? No, but hey: they’ll have to figure out the solution to their own problems. No more doom scrolling, OK?

Review, nay Rewrite: I Am Homeless if This is Not My Home

Shame on you, Lorrie Moore. You chickened out . Or did you get editized? We’ll never know. But here’s the reality: it coulda been better. It shoulda been better. I’ll make a stab at making it better.

What the fuck are you talking about, darling? The latest book from Lorrie Moore is entitled “I am Homeless if This is Not My Home”. The title is a riff on a sign affixed to a homeless person, reading “I am not homeless. This IS my home.” She moved the “not” and added an “if”. First question sister Sharyn asked: What has the title to do with the story? Hmm..beats me..guess I could make something up, but that’s hardly a worthwhile effort. Instead, let us plunge in.

Now: if you want to read the book and haven’t yet, stop reading this post. If you’ve already read the book and hated it, as some will, you can read on and we can debate the changes. If you read the book and loved it the way it is, ditto – that last advice. If you never intend to read the book, why are you reading this post?

OK, ok, get on with it you say. What’s it all about, Alfie? A guy, a girl. Hmm..novel start. They were together; they broke up. The guy’s brother is dying. The guy – Finn is his name – visits his brother and has awkward conversations with him. The brother seems unaware that he is dying. He knows he has cancer and thinks he needs to leave where he is to get chemo. But his is a lost cause, and he’s in hospice.

Oh wait, it really starts with a letter from someone called Elizabeth to her sister. So far, we have no idea why we have an American Civil War era letter kicking off this tome, when it is clearly about a guy with a dying brother and a lost, suicidal love. Is that fair? Hell, no. Then why did you keep reading? Because…because she – Lorrie Moore – writes very witty prose.

Witty prose? Witty like how? Hmm…like The English Patient, but less formal and much more up my alley as an older female. Clear the author knows a lot about a lot. References to opera. According to a British interview, I think, her family was into opera when she was a kid. OK, check that box.

Back to the story. When in NY visiting the brother, Finn gets a message from the wife of the headmaster of the school where he teaches saying he needs to get in touch. Now Finn has been suspended for two weeks for teaching outside his subject. He gives his kids math lessons for ten minutes in his history class. But the real reason, he suspects, is because the wife of the headmaster – the same wife now messaging him – was hitting on him and he spurned her. How does the wife of the headmaster know about Lily, the girlfriend? Hmm..felt like an invented connection, maybe suggested by the editor after that turns out to be a loose end, or maybe wasn’t there at all at first, and was introduced by another character who then disappeared? Maybe..anyway, ANSWER: they are in a book club together.

So he finds out from spurned wife of school headmaster that Lily has died, committed suicide in the loony bin by drowning herself in the shower with lax supervision due to prurience about a naked woman in a shower. Even though she’d already tried to kill herself before exactly the same way. So Finn gets angry. Wants to know where the grave is. Spurned wife says it was a green burial, no marker. OK, so la di da, more discussion – move on. OK. Finn goes to graveyard to find greenly-buried Lily. Who is there..as a shrouded, uh – well, a zombie. OK. Not a ghost, but a dead person who walks and talks and sorta looks right but isn’t. Now there’s lots of fodder for interesting description of what an unembalmed body would look like over time. Over time? Well, yes. Lily says she wants to ‘contribute something’ by being one of the dead bodies at the cadaver farm in Knoxville, Tennessee. Yes, it is a thing. You can check it out.

So, road trip! Finn and Lily traveling by Subaru from NYC to Knoxville. Long enough trip for lots of dialogue and arguments about failed relationships, especially theirs. Why was she so suicidal all the time? Why was he always so clueless about how it feels to be suicidal all the time? Why can’t they just forget the past and move on? Talk about clueless…

That’s when we must quote Dylan. Wait – segue. Lily points out that two mass murderers were called Dylan. She doesn’t add this next factoid, it’s me adding it. Klebold and Root. I had to look up Klebold because I forgot his name. I remembered Root.

Gee this is getting long. OK. Quote Dylan. “Things fall apart”. He says it at the end of the CD soundtrack from “Masked and Anonymous”. A terrible movie but a marvelous collection of Dylan covers. Back to the story. The ending. Lorrie, honey, you missed. Or got editorized. Who knows.

There’s an incident fairly early on when Finn’s car goes into a slide on an icy road and hits a dirt bank. A sheriff is called who calls a tow truck and the car starts and he’s back on the road. Really. No kidding…hole here. Opportunity here..but nope. That’s what happened.

Along the way, they stop at ‘motel’ for the night and it’s the place where Elizabeth – remember Elizabeth writing the letter? Did I call her that? One second – scroll up – check. Yes I did. Elizabeth writes letters to her sister and has ambrotypes on a window of civil war amputees looking sad. That’s the clue that helps us realize that Finn and the dead Lily are at the same place talking to a woman who is like Elizabeth, but obviously isn’t. He finds the letters bound in a book on the shelf in the room they rent at this sorta motel.

Whew. Now: Elizabeth the Civil War era writer describes how she killed one of her boarders – a guy she calls Jack, who has tights in his luggage, wears capes and spouts Shakespeare to her. Get it? Jack – nickname for John..Shakespeare? Christ almighty, it’s J. Wilkes Booth! There’s dialogue about conspiracy theories in the story. How the things we call conspiracy theories today aren’t, they’re really just bullshit. A real conspiracy theory is that J. Wilkes Booth didn’t die in that fire in the shed, that he went about his merry way and ended up in India or something. Well, in this story, it is surmised that Elizabeth sorta knows it’s him, with references to young Yankee soldiers stopping by her rest stop in Kentucky and crying when they hear on Easter Sunday that Lincoln has been shot. There is even dispute about the ‘sic semper tyrannis’ part, which was allegedly added later for emphasis. This Jack character even has a wooden leg, even tho’ Dr. Mudd – you know, the guy eventually locked up at Fort Jeff on the Dry Tortugas? That Dr. Mudd set his leg, didn’t amputate it. So who knows about that part?

God this is really getting long. So OK. What we have here is a ghost story that should have been Finn is killed when his car slides off the icy road, which occurs before he picks up zombie Lily. Their quest to go to Knoxville should have been revealed at the end to have taken place in the bardo. She mentions the bardo. George Saunders’ “Lincoln in the Bardo” beat her to that reference, something she mentioned in that British interview, and reviews have also mentioned it. But Lorrie didn’t use it properly! Finn and Lily are both dead, trying to reconcile their relationship in the afterlife, but cannot. Simple. Not unlike Lincoln going to son Willie’s tomb and trying to reconcile himself to the loss of his marvelous child.

Maybe Lorrie changed it because George beat her to the punch? Didn’t want readers to say, oh, you got this from George, even though she was working on it when George’s work came out? That’s a pity. It shoulda been better. Because it really doesn’t work this way. It ends with Finn at his brother’s funeral. Doesn’t fit. Doesn’t work. Should have ended with Finn’s funeral, and the announcement that he wanted to be donated to the cadaver farm, but there was a mixup and he ended up in the same green graveyard as Lily. Now that is a perfect ending. Think about it, relative to the title: “..if this is not my home. Not my final resting place, that green graveyard..so I – dead body Finn, dead body Lily..are homeless in the bardo. Problem to fix throughout book. So obvious. Lorrie..why? Explain yourself, woman.

Final thought: two terrific writers are channeling something very similar. Lincoln..the Bardo..loss..reconciliation. They both tapped into the cosmic consciousness after having been tasked with talking about it to enlighten readers about something that must be known. Hey, it’s about the multiverse again (see last post below). I have not written on that particular topic, but I have delved into something similar in writing something for Aunt Jopie about her brother Clemmie. I’ve described it, but haven’t put it out to anyone other than her. After she goes, I’ll put it out as a two part story. Apparently, this stuff needs to be said for skeptics who don’t get that it’s all just quantum mechanics. We have so much to learn as humans. Hope we figure it all out before we become obsolete via climate change and AI.

Writing and the Multiverse

Writing is a microcosm representing the Multiverse. A writer creates a story with an ending. In the end the protagonist dies. The writer re-writes the story. The protagonist lives. The writer writes a sentence with three adjectives used to describe the appearance of the protagonist. The writer edits the story, changing the adjectives to their opposites. The protagonist is completely different now.

In the Multiverse, every possible outcome of every situation everywhere occurs. The enormity of such a thing defies understanding. But so does the universe defy our true appreciation because of its enormity, and the fact that every second it grows larger. Think about that for a second, and all of a sudden, the Multiverse seems tame..relatively speaking.

So every writer is a participant in the Multiverse..verse..poetry..Hmm. I create a story, with characters who believe certain things and behave in various ways. That is a multiverse within the Multiverse, ad infinitum. Wow..now that’s something to think about. Pictures with mirrors showing pictures with mirrors. Infinity as a concept, both philosophically and mathematically. Divide anything by zero and you have infinity. Divide zero by anything and you have zero. That’s the mirror picture..the multiverse in the Multiverse.

What’s the point? Trying to understand everything. But you can never achieve that understanding..it’s a limit as x approaches infinity. You’ll never get there. So stop trying? That is death. Can you effect (not a typo – to implement) how you die? Only if you commit suicide. But they’ll call it an accidental shooting or an unintended overdose. What if you leave a note? That’d do it. But some embarrassed family member would destroy the note, and it would revert back to accidental. It’s awkward having a family member commit selfiecide. Makes the family feel like failures. Upsets the natural balance in the universe.

So what’s to be done? Avoid politics. The definition of woke is irrelevant when defined by a fascist. It’s just the false narrative to be opposed, no matter what “it” is. Solve algebraic equations, preferably trinomials. Unsatisfying, you say? True..unless you get out your graph paper and draw them. That feels like taking back a bit of control, doesn’t it?

Lunch is always good. Try something tasty and different, not the usual sandwich or salad or soup and salad or sandwich and soup or soup and salad combos. How about crab on a split roll with a dab of a lemony homemade mayo? Love alliteration in all its cozy familiarity.

Find the comfort of madness. Whoever said you had to be sane ALL the time? I like the idea of leaving to someplace else where you can make up the rules as you go along. But avoid using drugs to get there. There’s a boomerang effect that makes it most unsatisfying. Like one of those equations that, when you graph it, has two legs, one on the negative side and then it curves and goes straight up on the positive side. Why? What does that represent in nature? Sometimes nature is bizarre that way.

I was looking at four blue jays pecking away at the bird seed Erik scatters outside the sliding glass doors. I looked to see if I could distinguish one from the other. They moved too quickly for me to study them. Maybe if I took their picture, I could see subtle differences. They must know who’s who in that milieu, right? More alliterative multiverse.

This thinking foray was brought to you by the eternity of rain we’ve experienced over this past week. It’s starting to be annoying. But it wasn’t raining in Africa. At all. I’d be happy to share some. Aren’t you glad you’re not in Khartoum at the moment?

Adam Tooze, I Love You

Would you agree with the premise that we are meant to see and hear that which we are meant to see and here? Perusing the iPad this morning, saw a reference to a podcast involving Adam Tooze. It came from an interview from Berlin.

Adam said he insisted on talking about the debt ceiling “default crisis” and got to the topic after an agonizing 15 minutes or so of small talk about learning German in his upbringing. And from the mouth of this very brilliant historical economist (the best kind there is!), came the words “it’s no big deal, even if they default a little bit.”

That surely explains why the markets have been so calm, despite the brinksmanship going on, even as we speak, in D.C. Because the dollar is so well entrenched as the global reserve currency, the impact on a brief, albeit scary default will be nil on the world economy. Well, that’s a big ass relief! But that’s not what I came to talk about.

I want to talk about inflation instead. After his words about the default, I suppose by way of explanatory detail, he talked about the relationship between the strength of the dollar, oil and inflation. This is the first time anybody has put those things together for me. After hearing what he said, I practically slapped my forehead. Of course!

So what is it, you ask? Geez..irony. I’ve been talking about this stuff for the past decade, but I never connected the dots. Here’s the story. Back when we were net importers of oil – say up to earlier in this decade – there was an inverse relationship between oil price and the strength of the dollar. Think about it. A stronger dollar means we could buy more oil per unit than if the dollar weakened. That makes each one cheaper. Makes sense.

Conversely, weaker dollars meant the money paid for oil imports would push the unit price up. OK, that’s not so straightforward. But if the dollar is the reserve currency that everybody trades in, what would affect the US would also affect those other countries paying dollars for the oil they import. Like Japan. Or Sri Lanka.

Sri Lanka, you ask? What have they got to do with this? I’ll get to that in a minute. Keep your shirt on. OK. Where was I? Oh yes – something changed. This decade. Fracking. The logistics solved of exporting our abundant LNG – liquid natural gas. When the Russians cut off Western Europe in the leadup to their invasion of Ukraine, who stepped it to fill the breach, foiling Vlad the Invader’s ignorant plans? Yup – we did.

OK, still not following. Back to Adam Tooze, my hero. He points out that now the US is a net EXPORTER of petroleum products. So now when the dollar gets stronger, we are selling oil in dollars. More expensive oil. So countries that import lots of oil (cue Sri Lanka) had a tough time finding the money to pay the tab. So they tried to reduce imports to save money. What happened? Rioting in the streets when people couldn’t cook their dinners because there was no fuel. So what did Sri Lanka do? They defaulted on their debts.

So that is a real default. What Washington is playing around with I’ll start calling a ‘political’ default. It’s not real. In fact, the moderator pointed out that JP Morgan said AFTER the default, Treasuries will increase in value. Talk about your law of unintended consequences. Adam didn’t dispute the suggestion; it led to the facts discussed above.

But hey, you point out, you said you wanted to talk about inflation, not oil, reserve currencies and Sri Lanka. Yeah. Right. Let’s talk about inflation relative to all of the above. The basics. Emily, please recite. “Inflation is too many dollars chasing too few goods.” We’ve talked about that before with respect to Covid. Then there were too few goods. Now let’s talk about this oil and the strength of the currency. The more oil we sell, the more dollars flow into the coffers of the country. Yes, you say, but those are private companies, not the government. Economies don’t differentiate. Record profits for oil companies. Google what Exxon paid in income taxes for the past two years since Covid. See how private dollars turn into public dollars? All that money means too many dollars chasing the same number of goods or less. Inflation. So the Fed raises interest rates, like this was 1971 and the problem was labor. Stupid – no, not stupid, political again. Must do something to protect the brand called The Government, even if it’s the wrong solution that will make things WORSE for its citizenry. Like Sri Lanka defaulting made things worse for its populace.

So now, let’s take a step back and analyze. The much touted need in previous years for ‘oil independence’ status has had the net effect of making everything you buy more expensive, coming after the effects of a global pandemic. What’d a predicted that?

“The Troubles”

We watched several episodes of a show on PBS about Northern Ireland back in the day when the residents of that pitiful area were hell bent on killing one another. It surely did bring to mind our current situation here in America. Let me ‘splain.

Per the documentary, it was the fight for Civil Rights in America that was the start of the troubles in Londonderry, Northern Ireland. Catholics were deprived of their civil and economic rights by Protestants. It led to significant income inequality, always a dangerous element that precedes serious woe with accompanying violence. Marches led to confrontations with police, and ultimately deaths of marchers and officers. At some point, the clashes turned from marchers versus cops to Catholics versus Protestants when fear took hold and the Ulster Defense Association got involved. There was an Evangelical minister called Ian Paisley that became the face of opposition to Catholics, among other sins like homosexuality, civil rights and The Good Friday Agreement that stopped the violence. Sinn Fein was the political arm of the violence sect of Catholics known as the Irish Republican Army. It was made up of the descendants of the same folks who tried to separate Northern Ireland from Great Britain during World War I.

With all that as background, think about life today in these good old States United. Evangelical support for Donald Trump. January 6th uprising at the capital. Guns everywhere with accompanying massacres. States passing legislation allowing open carry of weapons. These are all the elements in common with “The Troubles” as the natives in Northern Ireland came to call the civil war there. So are we actually already in a civil war here?

The most interesting part of the documentary was the testimony of people involved on all sides: Protestants, Catholics and police. All of them were effectively brainwashed to believe in their ’cause’, just as left wing Democrats and right wing Republicans have been. In the case of Northern Ireland, nothing was going to stop the violence until, in my opinion, it had effectively run its course and everyone was ready to compromise. George Mitchell, the Senator from Maine, helped negotiate the agreement. It took an outsider to make it happen.

Women had tried in the early 80’s, but the hatred was too strong and they were still in the tit for tat phase of war that ultimately lasted for 30 years. It was unlikely that women could bring about peace, given the misogyny on both sides of the dispute. So that’s a lesson in how to address our current difficulties. It likely won’t be women who will change things in this country. And the fact that it took 30 years to run its course says to me we won’t see ultimate resolution for quite some time here. It also says things will get much worse before they are resolved.

Northern Ireland was too small a space to have much effect on anyone outside their own back yard and eventually assassinations of members of the Royal Family and attempted assassination of the Prime Minister, Margaret Thatcher. That is where our situation differs from theirs. Our troubles will affect the whole world, given our status in political and economic terms. Today is the 26th, and still there’s no agreement on raising the debt ceiling. Default will be another chink in the armor of reason in the US. All we can do is watch and wait to see what happens next. I am not encouraged.

Bayesian Analysis

What is it? According to the website Stata, “Bayesian analysis is a statistical paradigm that answers research questions about unknown parameters using probability statements.” OK. In English, please?

There’s an equation, if that helps. No, don’t have flashbacks to flunking Algebra. This is pretty user friendly. Here it is.

The formula is: P (A|B) = P (B|A) x P (A) / P (B)234. Here, P (A|B) is the probability that A occurs if B occurs, P (B|A) is the probability that B may occur if A occurs, P (A) is the probability of event A, and P (B) is the probability of event B234. The formula is most often used to calculate what is called the posterior probability, which is the conditional probability of a future uncertain event that is based upon relevant evidence relating to it historically.

Doesn’t help much, huh? OK, the trick is in defining A and B. P obviously stands for probability. Let’s try it this way. Call A the probability that the Democrats won’t make a deal. Then, logically, B would be the Republicans say No to a deal. So let’s plug that in and discuss.

P(A/B) = 0.95 x (0.5/0.75) = 0.63

So according to my calculations, there is a 63% likelihood of both parties failing to make a deal. Where did I get this?

The likelihood of Republicans walking away if the Democrats refuse to deal is 95% – there’s no way McCarthy can blink, right? The probability of the Democrats refusing to deal is 50%, still fairly substantial because of the politics of increasing work requirements with Medicaid amongst liberal Dems. The likelihood that Republicans refuse a deal is higher at 75%. Duh. Do the math and you get 63% likelihood of a default. That answers my question posed in my dream diary. It was 40% a while ago, so that number feels about right to me. Unless something major changes (like the market crashes or the government runs out of money before 6/1), odds are we will default. That is not very encouraging, is it?

What happens then? Already talked about that, so no need to beat the dead horse. Ouch – just watched The Godfather for about the sixth time last night, so dead horses images are vivid right now.

When there is no immediate response from the world financial markets, there will be a miss in Social Security payment – one check late. Can you hear the howling? Can you picture the media frenzy? All the while, real stuff is happening in the world that we aren’t paying any attention to. That is foolish, if not downright dangerous.

What do we need to turn this around? Ganas..desire. Somebody has to stand up and say enough is enough and stop this madness. Who will do that? I am a small voice in the wilderness, but I feel like I’ve been the Cassandra in the room. How ’bout you?

UPDATE 5/21: Did another quick analysis yesterday. The odds are now 75% that the government will default. Things are getting worse. Playing with fire. Check it out

Thanks to the Washington Post for the Cartoons of the week, source of the image. Says a lot, eh?

Three Trillion Dollars

According to Axios yesterday in a short note, they reminded us that banks in the United States are holding three trillion dollars worth of Treasury bills in their vaults. Here’s the thing: if there’s a default, what will those Treasuries be worth? Let’s discuss that.

Thought experiment. It’s June 12th, and there’s no lifting of the debt ceiling. Addlepated Joe won’t invoke the 14th Amendment or claim a platinum coin to continue payments. I suspect he vowed after the Republican Senate lowered taxes for the rich under Trump never to negotiate with terrorists called R people again. That wasn’t very well worded, but you get the idea. So the game of chicken will go to the end. But who is Ren and who is the bully? Recall from Footloose, Ren, aka Kevin Bacon, Five Degrees of Separation man, got his Converse sneaker shoelace caught around the gas pedal and couldn’t jump off the tractor. He looked brave, but instead he was stuck. I think that’s, ironically, the other Kevin, aka McCarthy the hapless. If he blinks, he loses his speakership. If he stays the course, he’ll try to blame AJ, aka Addlepated Joe. So that makes AJ the bully who will end up in the canal across from his overturned tractor .

This is what you don’t want.

So back to my point. The United States, for the first time in its history with the exception of a few technical defaults, will declare itself closed for business and shutter the payment window. At first, there should be no discernable impact. Gee, must be ok. A week goes by. Now it’s June 19th, 2023. On the 14th of June, we will not have received my Social Security deposit. Others like me but more dependent on that money, will be subjected to a barrage of requests for profile from the likes of CNN, New York Times and The Washington Post. We’ll be shaking our fists, or moaning about not being able to pay our debts. Axios will profile the blame game from D.C. My Home Depot store will be practically empty. A few contractors will buy a little paint here and there, but customers will cancel the work because they aren’t sure if they will be receiving their Social Security, Veterans Retirement, and all the other payments that go out from the Treasury. That affects 52% of Americans. Not a small number.

What happens next? Those in the rest of the world who hold the bulk of Treasuries will sell them – at any price. 80% of that is held by two countries, China and Japan. China at $870 billion can afford to do that, and they wish us harm. Japan at a trillion dollars can’t afford to do that, their leadership isn’t strong and they will worry about their balance sheet more than our ability to protect them from China. So the price of Treasuries would drop to near zero. That makes interest paid on those remaining go up – way up. Inflationary? You betcha. But what about those $3 trillion in Treasuries in the vaults of those banks? Nothing has really changed about the bank’s holdings in real terms. But on paper, their ability to pay depositors their money has disappeared. Result? Massive run on banks that will make Silicon Valley and First Republic failures pale in comparison. Now we’re talking Citibank, Wells Fargo, Bank of America and Chase. Shades of 2008 all over again.

So will smart bankers start to slowly sell their Treasuries even before the default, having done a similar thought experiment to mine? If they do, same result over time. So even the anticipation of a default could be inflationary. This is a most dangerous game being played in D.C. It is very similar to my previous post about Weimar Germany wanting to get out of reparations, and violating the Versailles Treaty to do it. Bruning and Schacht. The impact from that poor decision was a significant continuation of pain in The Great Depression. It wouldn’t surprise me if we see a similar outcome here.

So what is one to do? Since half the country will be in the same boat, it is very difficult to say. When this is over, inflation will be soaring. That will make the value of my house go way up, and my credit card debt will be devalued. But here’s the thing: what happens to my reset mortgage in September when interest rates are 20%? I’d have to sell my house. But who will buy it at those levels? Nobody. That will apply to everyone else in my situation. Oh, but wait. Think about all those people who refinanced when interest rates were near zero during Covid? The banks won’t be getting enough income to offset interest rate increases. Another hit to their holdings. Ouch. In my case, Wells Fargo will have to settle for something less in a monthly payment. Real estate market frozen all over the country.

Depression coming. This is what I sensed over the last few weeks. So we’ll keep talking about it. Strange times.

Weimar Or Less?

Yes, I’m back to talk about the same topic I’ve been beating to death over the past six weeks or so – the economy and whether we will be able to add a default on the debt to the elements of disaster equation. That’s a reference to the Air Disasters metaphor I invoked a few entries ago.

Heinrich Bruning - ain't he a cutie?
Heinrich Bruning – Ain’t he a Cutie?

But now I want to talk about historical precedents, specifically that of Weimar Germany in 1931. A guy named Bruning was the chancellor and another fellow called Hjelmar Schact was in charge of the German reserve bank. If you recall, reserve banks came into being between the late 1800’s in Germany and in 1913 in the US.

Without going into excruciating detail, let me describe what happened in Germany that led to the end of the Weimar republic. No, it wasn’t the early inflation in 1923. That was relatively short-lived, and got fixed pretty rapidly with the Dawes plan. It wasn’t just the Versailles Treaty alone that destroyed the republic. It was human error. Vanity? Hatred? Yes, and perhaps a fundamental lack of understanding of the potential for disaster brought on by the actions of Bruning and Schmidt. More detail, you ask? Well, OK, if you insist.

In ’23, the Germans were having trouble with reparation payments to Britain and France. When they were late delivering some telephone poles (I’m not kidding – really!) France invaded the Ruhr valley, which was akin to the old ‘cutting off your nose to spite your face’ kind of move. That started a tit for tat between the two countries, leading to more economic pain all around. And that inflation previously mentioned. Big inflation – you know, the wheelbarrel full of Marks to buy a loaf of bread inflation. Like Zimbabwe.

Wall Street Crash

After Dawes, everybody bumped along for a while, mostly on borrowed money for Germany. Borrowed American money. Then came 1928 and the boom market in the US. Many Germans put their life savings into American stocks – you know, adding to the musical chairs players at the end just before the music stops. And stop it did, in October of ’29. Then Germany was in big time trouble. Nobody could pay anybody back. So by ’31, Bruning had had enough of trying to repay reparations. He wanted them gone. So with Schact’s blessing, he made a customs union agreement with Austria. Well, that really set things off with the French, as it was in direct violation of the Versailles Treaty. What little money was left in German and Austrian banks went elsewhere. First the Austrian banks failed; then the German banks. Since Germany wasn’t paying the money back it had borrowed from the Americans, American banks started to fail. The French franc was in trouble too, since trade stopped when nobody had any Marks or Dollars.

So the so-called Great Depression was not a seamless event caused strictly by the Wall Street crash in October of ’29. Things got worse after 1931 because of the guys in charge doing really stupid things. Kinda like today. You know – the default on the debt?

Some estimate the likelihood now at 60%, a big jump from previous expectation. The Reps are gonna try to pass some legislation this week intended to force Dems to negotiate a spending cut. If we’re on our way to a recession, does a spending cut make sense? Not if you’re a Keynesian economist, which the Reps are not. This is just another wide swing of the economic pendulum that will result in, by one estimate, the loss of a million jobs.

World Wide Depression – Not Pretty

Where will those jobs be lost? Travel and hospitality. Housing. Home improvement – oops, hitting close to home for me there. In other words, anything that isn’t absolutely necessary for survival. Will that bring on a recession? You betcha. Will it go too far? More than likely. This is a global economy after all. Britain is already in trouble. France can’t get their people to agree to work another two years before retirement. And Germany? Who knows. But it’s a safe bet when there’s a run on banks in America, Britain and France, Germany will feel the pinch. And what about China? Russia? Instability everywhere? That’s a post for later on as the pinching spreads. But it doesn’t bode well for any of us, economically or likely politically. That will have to wait for another post as well. Will it bring Trump back? Depends on how healthy Joe Biden stays. Scary, huh?

But There’s More

Add in the effect of the Covid pandemic on people staying home to work. This is now a ‘thing’ and the ramifications are significant to one additional problem in the financial sector. What might that be? Commercial real estate and the loans taken out to pay for those buildings. Who’s hurting most? From a cursory glance, it appears commercial real estate in large Texas cities have the most vacancies. Why is that? I thought everybody was moving from California to Texas? Let’s check that out.

Empty Office Space in Houston

I’m back! The answer isn’t clear from a quick Google search. But this is my sense: commercial real estate vacancy rates in these large Texas cities have been high for quite some time – likely since the crash in ’08. Oil prices dropped below zero at one very fluky point. That had to have an impact on that commercial space in those big cities.

God knows how these developers have hung on as long as they have. Low interest rates probably helped. But that’s not the case anymore. There’s talk about turning older commercial buildings into residential housing, so I suppose that means there’s no going back. Oil will likely range in price between $70 and $80 a barrel for a long time to come. No wonder Texas is crazy.

One of Erik’s and My Favorite Shows

But I digress. To summarize: the country’s financial situation reminds me of those episodes of Air Disasters on The Smithsonian Channel. It is always at least three things going wrong that cause airplanes to crash. How does that apply to the economy? So now we see interest rates rising leading to regional bank failures with high commercial vacancy rates, negatively impacting commercial mortgage backed securities and the crazy Republicans in Congress threatening to default on the debt. That’s four factors. Looks like a perfect storm for crashing the economy to me.

Impact Time

Here’s what I’d ask: if we’re gonna crash, can we do it before September? That will help my interest rate scenario previously discussed if the Fed starts cutting rates. Who ever thought I’d be hoping for a crash? Sorry to be so parochial, but hey: it’s every man (or woman) for himself/herself now. Don’t say I didn’t warn you.

Still on This Topic

I’m sorry if I’m beating this poor horse to death, but I feel compelled to get it down in bits and bytes, if for nothing else than posterity. It’s the Economy Stupid, the smartest thing ever said by a redneck named James Carville way back in the Clinton Era. It’s always about the economy, forever and ever, world without end, Aaahhhmmen.

James Carville – I wonder if he realized how smart he really was when he said this?

Right now I’m sort of noodling, as the future in the next three-four months will be opaque, but of the utmost importance. So indulge me a bit as I try to parse through this thing.

Here we go. Money right now is flowing to safety and to higher interest. Per Axios today, half a trillion (yes, Virginia, I said trillion) dollars has flowed out of banks and into treasuries and money market funds since last April. Why is that time frame and the receiving institutions significant? It’s when the Fed started raising interest rates. After twenty some odd years of low rates, now we’re in the stratosphere, relatively speaking. Another quarter point increase from the Fed this past week. Three bank failures in the past three weeks. Result? Treasury prices are up, which means interest rates are down. Is this a good thing or a bad thing? It depends.

The Infamous Debt Ceiling

Interest rate hikes make borrowing more expensive for everyone, including the federal government. That adds to the deficit. Treasuries, or T-bills as they are called, are used by the federal government as a means to borrow money. If the interest rates are going down, that’s good for keeping the deficit numbers in check. Does any of that matter? We shall see this summer when the Republican-led Congress has to vote on increasing the debt ceiling. Let’s talk about that a bit.

The chair of the House Budget Committee is a Republican named Jodey Arrington, a man who thinks it’s a good time to default on the debt by not raising the debt ceiling. This is to pressure President Biden to cut spending on social programs. But not raising the debt ceiling means Social Security checks would not go out. That’s 44% of our monthly income. Ouch. I’ve already alerted Emily that she needs to be hoarding her paychecks for the next three months, just in case. There’s another issue for us. Our variable rate house mortgage with Wells Fargo will reset to a 15 year fixed rate mortgage in September. This will triple our mortgage payment. If we cannot refinance with them or another bank, the impact to our budget will be significant. So all this noise regarding the financial system, Congress and banks really hits home with our personal budget. Right now, the odds of the government defaulting on its debt are around 11%. Each month that goes by without an agreement increases those odds and lends more instability to the system. So with money flowing out of the banks within this unstable financial system, the logical next step is for financial institutions to cut back on lending.

The Trillion Dollar Question

So the big question for us, is: what will interest rates be on mortgages come September? It’s anyone’s guess at this point. But I’ll be watching closely. I’d advise you to do the same.