EquiShare Homes -- A new paradigm for housing in America.

A product of almost forty years of evaluation and evolution, of fifteen plus years of adaptation and research, and the past few years of late nights and best efforts, I have created an initiative that offers the promise of aggressively addressing, and potentially — to a surprising degree — resolving the affordable housing crisis in America.

The following is a brief synopsis; like any good iceberg, the visible is a fraction of the mass. The program is fleshed out now, and ready to defend then execute. The question that I offer is this:

What if I’m right? What if I have an important and urgent answer to millions of struggling Americans, then citizens of the world? What if the decades of work and research bore a fruit that can make that big a difference?

What would you do if you believed?

If you have any thoughts, questions or comments on what’s below, or if you’d like to learn more about it, please either leave a comment below, or contact me at gary@equisharehomes.com.

Thank you, and God Bless.

EquiShare Homes, Inc. Synopsis

A novel concept designed to provide homeownership opportunities for all economic classes, EquiShare Homes creates dynamic partnerships in home equity and housing sustainability. Operating entirely within existing market structures, EquiShare Homes requires no government subsidies or involvement, no charitable contributions, and promotes housing as a human right and economic driver. 

EquiShare Homes creates financial relationships between prospective owner-occupants and profit-motivated investors, providing access to capital that bridges the gap between income and cost of property. A dynamic support system ensures that ownership remains with the owner-occupant regardless of circumstances or interruptions, creating financing that will never default, property that will never see the auction block. For every stakeholder, the benefits are demonstrably sustainable and projectable.

The owner-occupants using the program have titled ownership of their property, make their own lifestyle decisions and reap the equity appreciation that has been a generational hallmark of American prosperity and financial resources. EquiShare Homes opens the door to home ownership to low- and moderate-income households in almost every geographic market, so that every working household can establish crucial roots and stability. 

The program asks some very poignant questions of America: 

• What would change if every household could own the space where they lay their heads, where they raised their children and where they enjoyed their later years in dignity? 

• How would our nation be different if families, neighborhoods and local governments benefitted from the engagement of stakeholders rather than constant turnover and transience? 

• What would be the impact on trans-generational poverty if the vast majority of households participated in the economic benefits of appreciating property values and the financial buffers they provide? 

The opportunity is real. Execution requires only that existing market forces profit as they always have, and that we accept the eradication of a hurtful, often divisive and oppressive paradigm: that ownership and control over one’s home is reserved as a privilege of only the wealthy, only those who have historically been granted access to the system. Remove that prejudice, creatively reconstruct the relationships, and the benefits are universal and irrefutable. 

EquiShare Homes is nothing less than the disruption and equitable reconstruction of our national housing infrastructure, and the evolution of a broader, more participatory economy. It is one step towards the healing of centuries of segregation and denial, one step towards a more just and fair America.

EquiShare Homes is ready. The only remaining question is whether we, as a society and a nation, are ready as well.

A Very Basic Economics Course -- What You Need to Understand Now

I am not a professional economist. It has been 35 years since someone paid me for my opinions about the economy or to project or interpret economic trends, and the world has spun too many times since then for me to claim relevancy. I am an analyst by nature and by practice, and that capacity does not require a paycheck to remain valid. 

The following may be a bit deep, but if you’ll bear with me, you’ll have a far greater ability to understand what is being done in your name, and how it will affect you, your retirement and your children’s life. In many ways, you’ll better understand something that affects the national security and defense as much as the tanks and ships do, or perhaps more.  

America finds itself at the doorway of a complicated maze, with the options distorted by the context and timeframe that you choose. Getting through the next six months? There are challenges that can be met rather easily through massive infusions of capital, an assumption of debt, and the provision of credit facilities dedicated to the moment. Surviving the next five to ten years? Very different choices indicated, and a question of how much short term pain can be acceptable in order to prevent long term suffering later. Worried about the next generation? We’ve probably already missed that window, but if not, the answers are entirely different and even more unpleasant. 

From the public discourse, I can confirm that the vast majority of the population, the media and yes, our political establishment are not particularly well versed in economic theory, or for that matter, logic and critical thinking. For those who have had better things to do with their free time than to argue whether Keynes is dead or just dormant, I’ll go through a couple of important basics before suggesting some things worth considering. I will, to the extent that I can, be brief and keep things simpler. It is not necessary to understand nuances here; the current impacts are of the sledgehammer variety, and we’re operating with the bluntest of instruments these days.

Fiscal and Monetary Policy… What Are They, and Why Care?

First, we need to understand that there are two distinct economic drivers that are in the control of the government (or quasi-government, in the case of the Federal Reserve). The first is “fiscal policy”, which breaks down to the ability of the government to receive revenues (mostly through your taxes) and to then spend them, generally in accordance with some form of budget. This is the responsibility of the Treasury Department in conjunction with Congress. The second is “monetary policy”, which is the responsibility of the Federal Reserve, our central banking system, what you see called “the Fed”. Monetary policy has to do with the control of how much money is in the system, a measure that is used to influence or decide things like interest rates, inflation, the value of the dollar, and other things that have a direct impact on the economy. 

Historically, those two elements have been largely separated. The reason is interesting: fiscal policy is in the hands of politicians, whether in congress or the administration, who are always interested in keeping their immediate jobs. Congressman have two year terms; Treasury secretaries serve at the pleasure of whoever is chosen President every four years. Given a choice between economic measures that will help them get re-elected, and those that will help a future generation, it is assumed that they will follow their own interests and always deal with the immediate situation. Budgets are created and adjusted every year, often in response as much to the prior year’s problems as those of the coming year.  

Monetary policy is different. Economic cycles, the movement between recession and growth that strains at both ends, are not annual events, nor do they coincide with political terms. The movements are often calculated for longer periods, and the influences of policy are more subtle. For that reason, the appointments to the Federal Reserve often pass over multiple presidential changes, with the governors of the Fed being appointed to 14 year terms. While the chairs of the Fed have four year terms, they can (and often do) serve multiple terms. For example, Alan Greenspan was appointed by Ronald Reagan in 1987, then served H.W. Bush, Bill Clinton, and George Bush before leaving in 2006. George Bush appointed Ben Bernanke, who served most of Barack Obama’s two terms before leaving in 2014. Political parties have largely been irrelevant to the Fed chairman, who has historically seen his or her responsibility as larger than the moment or any transient political ideology. 

Politics for Fiscal Policy, decisions made in the moment to please the population; longer term controls by Monetary Policy, decisions made to influence rather than to directly create outcomes. The combination of those two forces, differently organized and empowered, have been responsible for the evolution of the American economy for most of the last 100 years. Reasonable people have strong opinions as to whether the process has been effective, or whether there has been too much authority given to one side or the other… but at the end of the day, America has become the strongest and most important economy in the world during that period of separated responsibilities. Something seems to have worked.

How Does That Affect Us?

One consistent result of both fiscal and monetary policy is the accumulation of debt by America. You’ll often hear references to two similar sounding issues that are, in fact, entirely different: “debt” and “deficits”. The simplest explanation is that deficits (or surpluses) are the annual difference between the money taken in by the government, and the money spent… if the government spends more than it receives, it has a deficit; if the government has money left over, then it has a surplus. When it has a deficit, it needs to borrow money to cover the difference; when it has a surplus, it can use that money to pay down its outstanding debt. Debt is the accumulated amount of money that the government owes, the results of all of the prior deficits and the costs of maintaining that borrowing.

The theory is that governments can control their spending, and choose whether to run a deficit; that is the theory behind the frequently mentioned Balanced Budget Amendment, a legislation intended to restrict the government to spending only what it has. As simple as this may appear, the practical nature is somewhat complicated: governments are often bound by commitments made by previous administrations, such as programs like Social Security, or military contracts that are for many years to develop a new aircraft or ship. 

Remember -- budgets and taxes are political outcomes. The temptation is always for governments to give to the people what they want in order to stay in power; more spending and less taxes. That is why the last time America generated a surplus was in 2000-2001, during the last budget of the Clinton administration, who benefitted from a series of fortunate circumstances. Since that time, it has been a question of how much the government misses by each year, with the necessary borrowing adding to the second equation, the “debt”. 

Therefore, the debt rises every year. That is not an academic issue; the money that the government owes is paid back with interest, and since the government has no money to retire that debt, the interest that it owes has to come out of the next year’s taxes. When things are going poorly, the government has less tax revenues and it needs more money to help out the people; during the past two decades, there have been two serious recessions that have needed a great deal of borrowing in order to reduce suffering and keep the country from moving into a depression. Similarly, when the nation goes to war, it needs to spend a great deal more money to fund the military, increasing the debt as well. Since 9/11, the country has been at war in both Iraq and Afghanistan as well as multiple other fronts, spending trillions on those engagements. 

Those massive spending surges have created a similarly enormous obligation by the country. In 2001, prior to the terrorist attacks, the nation owed $5.8 trillion dollars despite the budget having produced a surplus. Since then, events have driven the debt to levels that require attention: 

The debt during the 2001-2007 period rose from $5.8 to $9.0 trillion as we financed the wars.

To deal with the Great Recession, the debt rose from $9.0 trillion in 2007 to $13.5 trillion in 2010. 

Disappointingly, during the elongated recovery the debt continued to expand from the $13.5 trillion to $19.5 in 2016, at the end of Obama’s second term, and then from that $19.5 to $22.7 trillion in 2019 despite a by-then recovered economy during Trump’s first three years. 

And What Does 2020 Mean to All of This?

To deal with the pandemic, the increases have been even more substantial: from $22.7 trillion to something over $28 trillion in just a single year, with substantially more trillions on tap when the next stimulus package is confirmed, most likely early next year. Current estimates for the ultimate debt by the time the country recovers from both the disease and the resulting recession range from lows in the $31-$33 trillion area, to highs approaching $40 trillion, depending on the decisions made over the coming months. This is, of course, uncharted territory: the nation’s GDP is only projected to reach between $20-21 trillion during the coming fiscal year. 

The only time in the last century that America’s debt previously exceeded what it produced in a year was during WWII, when the country threw everything it had into winning that war. We are on pace to vastly exceed that, and there are definable prices to be paid for that enormous obligation. It is here that the choices are, and will be, critical. The next administration will cast the die for a generation to follow, if not more.

The argument often made, specifically by the current administration and Steve Mnuchin, the Secretary of the Treasury, is that debt isn’t a problem given the historically low interest rates. Remember, that’s the head of fiscal policy defining his policies by the actions of Jerome Powell, chairman of the Fed and the keeper of monetary controls. The level of present day spending being determined by the long term results of the Federal Reserve’s programs.

The nominal rates of interest, as being carefully restrained by the Fed, are presently close to zero. The government borrows money by selling various forms of Treasury bills and bonds, and is responsible for paying those investors off at the interest rates that the market asks them to yield. Today, the yield on the ten year Treasury note is slightly under 1.0%, one of the lowest rates on record; this sounds great, and reduces the present interest rate… but remember that the money comes due in ten years, and that the country will either need to repay the amount borrowed then, or issue new notes at the interest rates offered at that time. 

For now, even with those historically low rates, the interest paid on the national debt appears to be about $523 billion for last year. For reference, the entire revenues of the government for last fiscal year appear to be about $3.4 trillion, so the interest payments represented 15.4% of everything that the country brought in in taxes. For 2020, with reduced tax revenues and increased debt, that number will escalate significantly, meaning that debt service may well represent a quarter from every dollar that is paid in taxes.

Another way of looking at it, is that we spent $690 billion for the Defense Department, versus $523 billion just on making payments on our debt. That amount means that we will continue to run deficits each year, increasing the debt accordingly, and adding to the cost of that interest. As the debt continuously increases, interest rates increase, and these bills, notes and bonds come due for repayment (or more likely, refinancing) those numbers will increase greatly, to where even modest increases will crowd out critical programs in education, defense, infrastructure, Homeland Security, etc. 

Ouch. What’s Next?

If we attempt to keep interest rates this low for the long term, there are other prices to be paid. For example, the single largest buyer of treasuries is the Social Security program, who owns almost $3 trillion in special treasury obligations. As the program continues to spend more than it takes in each year, it requires the interest earned on those obligations to offset the difference; lower interest rates compress that ability. Also, artificially lower interest rates may make it more difficult to find buyers for the expanding debt; that in turn would force interest rates higher or else reduce the revenues available to the government. 

It’s not an easy equation. Spend now in order to ease the terrible burdens on so many, and make the future far more austere and difficult, to the extent of closing or reducing government programs that support so many of the elderly, the poor and the disabled. Control spending now, and still have a difficult future as the present is intolerable. Damned if you do, damned if you don’t. 

There seem to be some obvious answers. What if we simply don’t pay the obligations that we have to China, for example? Well, first of all, while China is the largest buyer of our treasuries, they “only” own about $1.1 trillion of them, less than 3% of what we will have outstanding. If we stiff China, that will also make other countries less interested in buying our treasuries, less trusting that we’re good for the money… which will increase our interest rates and the cost of our debt service. Overall, it will cost us more than the money that we would save.

What if we simply print more money? The Fed has been moving trillions of dollars into the system this year; why not just have them print another few trillion and begin retiring the debt? As silly as that sounds, some have also been advocating for it. There is a basic logic flaw there, and it relates to an existential question: if money can be created without cost or penalty, then what is that money worth? If we can increase the amount of something without cost, then doesn’t each piece of that something have less value? That is, after all, the classic definition of inflation; that money is worth less, so it buys less stuff. 

Most would argue that to not be the case, and base their arguments on the recent past. We’ve been pouring money into the system over at least a couple of decades, without apparent inflationary pressure. We’ve been able to keep interest rates close to zero by expanding our debt enormously, and we haven’t paid any real price yet for that… or have we?

The case is somewhat open. On one hand, we have both expanded the amount of money while controlling inflation for an extended period… that is positive. On the other side, we have had two once-in-a-century recessions in fifteen years, and have created a bubble of national debt that we haven’t had the bill come due yet for. The U.S. and global economies are in fully uncharted territory, with changes coming at a pace and scale that economists never imagined possible before now. 

We have no idea what the ultimate cost will be, only that math remains math, and there will be costs. We have seen unprecedented use of the word unprecedented, and it remains the only way to describe what we’re facing now; what we will need to be is awake and aware, because whatever is coming is likely to be an unpleasant surprise. 

Some sources for the information in this blog:

https://fraser.stlouisfed.org/timeline/federal-reserve-chair

https://tradingeconomics.com/united-states/government-debt-to-gdp

https://www.statista.com/statistics/187867/public-debt-of-the-united-states-since-1990/

https://www.cbo.gov/publication/56335

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

https://www.brookings.edu/policy2020/votervital/how-worried-should-you-be-about-the-federal-deficit-and-debt/

https://www.thebalance.com/fy-2020-federal-budget-summary-of-revenue-and-spending-4797868

If Racial Inequality Does Not Move Your Heart, Will You Feel Your Wallet's Pain?

The shadow of endemic racism in the U.S. is long and dark, depriving light to tens of millions of American citizens, and over more than four centuries of our national history. It casts that darkness still today, across the nation painfully and often violently.

It is hard for most of white America to understand the abject denial that is present in so many neighbors and countrymen, often including friends and family, even as they grapple with its stubborn presence within their own hearts. Perhaps it is the combination of the passing down of historical prejudices and mythologies, along with the attention provided to recently emboldened fringe elements within parts of our media; perhaps it is an intellectual laziness that prefers to believe anything that appears to elevate one's own status at the expense of another's.

Whatever the cause, the desire to object to aggressive responses in addressing racism’s impacts on fully one eighth of American citizens remains intact, and even flourishing today. Appeals to the immorality of the practice, references to the inconsistency of people who profess faith in seeing one hue of God's creation being somehow less worthy than another, have failed to create the seemingly logical outcome of repudiation. Racism persists, endures and painfully appears to be even growing in boldness.

Perhaps this will matter to those whose hearts have not been moved. Citibank has just released a massive economic study demonstrating the rank cost of racism in America. In the 104 page report, “CLOSING THE RACIAL INEQUALITY GAPS The Economic Cost of Black Inequality in the U.S.” the exhaustive report demonstrates that the economic cost of racial inequality has been some $16 trillion dollars over just the past 20 years, and threatens to deprive the American economy of another $5 trillion dollars over the coming 5 years. 

To put that into perspective, the GDP (Gross Domestic Product) of the entire U.S. is estimated to be $19 trillion in 2020, meaning that unchecked, racism will reduce the total production of our economy by some 5% per year. It will cost America an equivalent to one third of what the country takes in each year in taxes. It will represent an economic loss equal to the entire GDP of all but 15 countries. 

Enough?

The simple logic is, as I state in my book (shameless self-plug here) “The Insufficiencies of Reparations” indisputable: 

“There has never been a profit to be made in turning down a paying customer at a diner seat, never a benefit gained in not hiring the person most able to do a job. In actively denying equality in development and engagement, America has deprived itself of the inestimable contributions of fully one eighth of its citizens, and critically handicapped its progress and success”

It is a rational, human wish that the motivation for a universal response to racial inequality and inequity was just the sheer rightness of it, a repulsion of the predatory and inhumane treatment of fellow travelers on this fraught planet. It has been proven that, for far too many and far too long, that is insufficient. 

In not finding justification in our hearts and souls, perhaps we will finally find it in our wallets. At this point in our national evolution, even a bad reason for good acts feels like progress.

Hooray for America!! Our Debt Is No Longer A Concern... Spend Away!!

In an article in the New York Times, assorted fund managers, economists and just plain reporters opine as to the irrelevancy of the ballooning national debt. The focus of the article is that for many years, it has been assumed that there was a final tipping point — when the debt that America owed exceeded its annual GDP. By most measures, we passed that point in early June of this year, compounding the overage ever since. As the article points out, that occasion was not met with the end of the world often predicted, but with a shrug.

This is wonderful news indeed.

Now that we finally know that debt no longer matters, there’s a host of things that we should take care of. Let’s start with poverty… there is simply no excuse for it any more. We can provide a basic living wage to everyone in the country, and end poverty within days. Hunger? Done. You farmers and producers, just get to work. The government will cover you at fine prices. Health care… zero cause for that to be a problem. Free health care for all, whether it is single payer or not, should be mandated immediately. Military? Just give us a list of what you’d like, and it’s yours… nothing is too good for our men and women in uniform, costs be damned. Education? Free tuition for all, forever, and teachers are about to get a major raise, thanks to government subsidies.

Too much, you say? We can’t afford all of that? Of course we can. Deficits and debt are no longer relevant; we have printing presses, and we’re not afraid to use them. Send the bill to the Fed, and don’t concern yourselves with the final tally. Powell, Mnuchin and their friends have you covered.

If you want to argue that any of this is ridiculous, then you’ve got some work to do. First of all, you have to explain why.

If your argument is that we don’t have enough money, then what do you base that on? Is there a limit to what the Fed and Treasury, the arbiters of Monetary and Fiscal policies in our country, can provide if asked? If so, what is that limit? How high is up? According to Mnuchin, the trillions that we’ve added to the debt are basically irrelevant… according to Powell, there’s plenty more where that came from. Putting another two or five or ten trillion dollars into the mix doesn’t seem any more difficult than the last $10 trillion that we’ve done, so what’s your point? Where is the top?

Here is what passes for reality these days. The U.S. has an anticipated debt burden of about $28 to $29 trillion as of now, with projections for it to rise significantly over the coming months. The statements that it is “only” $21 trillion or so ignores the $7 trillion that is currently held by the Federal Reserve on its balance sheets, which are either good treasury obligations, or we have an entirely corrupt system and money truly doesn’t exist.

That amount is so new, that it hasn’t affected anything yet. A year ago, the debt was over $10 trillion lower, for about a 60% increase. No budget has been written by Congress that allows for the payment of interest on this new debt. No stock or trade market has been free of manipulation through the Fed and Treasury policies of extreme stimulus; every major company has access to unlimited credit, and the stock market has reflected that largess in its record setting prices despite the actual economy. No country has been in a position to exploit our own weaknesses, and we still represent a safe harbor for investment, even if only in relation to the rest of the world.

To pretend that we are in a normal economy is foolish beyond words. Nothing about today counts, nothing can be extrapolated into any sustainable future. The world is presently operating on a fully artificial form of life support, ignoring everything except the urgent need to exist.

Let’s talk about sustainability for a moment.

There is a conceit by too many “experts” that the present artificially suppressed interest rates will magically last for years, if not forever. The raising of interest rates by even a percentage point from current levels would have dramatic impacts on the cost of servicing our debt, but the Fed has assured that there are no upticks in our near future.

Let’s remember how the Federal Reserve maintains those zero interest rates. To simplify the process, the Fed goes into the market, buying Treasuries and in so doing, inflating their prices (it’s that old supply and demand thing; the more of something is bought, the more upward pressure on prices). In a fixed interest instrument like a treasury bill, note or bond, the higher the price the lower the interest yield… so by keeping the prices of those instruments elevated, the Federal Reserve maintains lower rates. That process requires the Fed having funds to buy those bills, notes and bonds with, and they have only one source: produce more money. Trillions of it. The Fed has always been concerned with doing this, but no longer; now, they brag about the infinite supply.

OK, so there’s a bunch of new money. Big deal… it’s an expensive world, we’ll use it all. That may be true (it’s not, but that’s another column), but look at the end result — the Federal Reserve now owns more treasuries. A bunch more, and all of them are obligations of the government. All of them add to the money that comes out of the budget each year in the form of payments. In cash. Sure, but it’s the Federal Reserve. They belong to us. They can just give that money back to the Treasury, so it washes out.

It’s not that simple.

First of all, the Fed doesn’t belong to us, not really. It is a strange sort of blended private entity, but to the extent that anyone owns it, it is the member banks. There are twelve regional banks, and the stock in them is held by an assortment of banks around the country. That stock isn’t particularly like the shares of Apple in your retirement account; they offer some voting rights, but no participation in profits. In point of fact, the Fed isn’t allowed to make a profit, but has to return excess funds (after expenses, dividends and a balance for future expenses) to the Treasury.

Great, that solves everything! The money goes from the treasury to the fed, then back to the treasury… no harm, no foul. Settled, you say.

And I respond, agreed. The buying of securities by the Federal Reserve is irrelevant, and therefore unlimited. It can, and should, buy another $30 trillion of securities back from the market, and retire that silly national debt once and for all. Every year, the treasury can cut a check for the interest on the $40 trillion the Fed is holding, and the Fed will send that check right back. Next year, we’ll get around to the whole poverty, health care, military, etc. thing, and add another $10 trillion to the pot. Amazing that we never thought of that before, but now that we have, done deal.

Hmm… wait a second. That sounds too easy, too obvious. Why haven’t we done that before?

Well, since you asked.

In order to make those purchases — both the ones that we have already recently completed, and those that we’ve just suggested — the money to pay for them has to come from somewhere. That somewhere is, as we’ve discussed previously, the thin air, since the Federal Reserve cannot have any retained profits. Thin air in this case is basically new money, money that didn’t exist before. The money required to purchase those many trillions of bills, notes and bonds would be added to the economy, vastly increasing the amount of dollars in circulation.

This leads us back to the question of capacity. Conventional wisdom says that when you create more money, the existing money becomes worth less, potentially much less. When dollars are worth less, it takes more of them to buys stuff. That is called inflation, and if the inflation is severe enough, it’s referred to as hyper inflation, a condition where money becomes so worthless that it destroys the economy and the government that allowed it to happen. In other words, a very bad thing.

There is an argument that is often made that the escalation in money supply (the amount of money in circulation) has already been extreme, and despite that, inflation has remained at historically low levels. This is somewhat true — the money supply has grown excessively, though at levels far lower than it is growing now, and inflation has not jumped up. Again, we have to look at the artificially manipulated nature of the economy, and the question of sustainability.

During the last economic crisis — just a dozen years ago — the Fed began the process of acquiring massive amounts of assets in order to stabilize the economy. Starting in 2008, the Fed accrued over $2 trillion in treasuries, an unprecedented supply. Then Federal Reserve chairman Paul Volcker testified that the purchases were temporary, and that he would look to divest them over the coming years. Congress nodded, and everyone went back to work on the recovery.

A funny thing happened. Volcker found that he couldn’t divest without triggering the market, so instead, the Fed bought more in order to maintain stability and control. By the middle of the next decade, they were up to over $4 trillion, and the pressure was being felt. An aggressive program of selling allowed the total to fall to about $3.5 trillion before it could do no more. As the current crisis began, that total was pushed upwards daily, to where it now stands at $7 trillion with expectations of considerably more to come. So far, current chairman Jerome Powell hasn’t bothered to pretend that he’ll be able to sell what he’s bought; the upward pressure that such actions would create for interest rates would be obviously ruinous to the economy, and besides, if Volcker couldn’t sell a couple of trillion, what would make anyone think that Powell could sell multiples of that?

So, let’s put that all together. The massive and growing debt of America hasn’t caused damage yet because it hasn’t had to be paid for yet. The interest rates that define how large those payments will be are being artificially suppressed by creating ever increasing amounts of new money, which in turn is being funneled into the system without restraint. The Federal Reserve balance sheet is swelling far beyond what was ever imagined, and there appears to be no means of relieving the pressure without jacking up interest rates, which in turn would magnify the cost of the existing debt. There appears to be a day of reckoning coming, but we’ve held that at bay for now by throwing ever more money at it, making the eventual payment that much worse.

The solution apparently embraced by many in the administration and the market is to simply not worry about it. We can’t repay what we owe already, so why not owe a bunch more? Ok, I get it… but there’s a corollary concept coming at you right behind it. If money really doesn’t matter, and it can’t unless we’re lying to each other, then we have no reason to withhold spending on American deficiencies, to solve all of the American problems that plague the least in our nation. We should live finally in paradise, a just and fair expression of our great national wealth.

Let’s listen to the response when we demand it.

But if we are lying to each other; if the motivation for the extreme positions being expressed by the powers behind trillions of dollars of stocks and bonds is the maintenance of their vast and rapidly expanding personal wealth, then let’s all take good notes. If they are lying now, then when that day of reckoning comes we will know exactly where to look for compensation and recapture. We will know the truth, and that the wealth that was given under such false and cynical circumstances needs to be returned.

It can only be one way or the other — money either matters or it doesn’t — and I contend that the answer is knowable today, even if the New York Times doesn’t care enough to know it, or to report it.

The Fed is Sending a Message To Us All… Time To Listen

Let me get this straight… the Federal Reserve announces a series of restrictions for major banks, noting that the most recent stress tests have shown that they are approaching critical points in their reserve accounts. The suggestion is that was the economy declines below anticipated levels, the banking system might find itself with insufficient funds to clear their obligations, which is a very bad thing.

Volcker Rule

At the same time — literally, the same day — the Chair of the FDIC announces that she wouldn’t mind seeing banks take greater risks with the money that they hold for depositors. The memo makes it seem like a minor correction to the technical definitions in order to facilitate more funding for businesses; in conjunction with the actions taken over the past year-plus, it represents an almost total gutting of the “Volcker Rule”, a critical element of the Dodd-Frank legislation enacted after the last time the banks almost led us into the abyss.

Oh, yeah… the Volcker Rule? That was the last shred of restraint left from the government’s reaction to our last encounter with impending doom. That whole never-again thing is soo 2008…

So, let’s tally this thing up. The Fed announces that it’s happy to print as much money as is needed and to give it out at zero interest to every major company or financial institution with a pulse. The Treasury announces that it doesn’t mind a few trillion in new deficits and that we shouldn’t pay any attention. The FDIC suggests that banks roll the dice more than they already are, specifically noting that some high leverage gambling on derivatives and startup companies seems like it might make sense right about now… and the Fed quietly notes that maybe the big banks might be a little light in the wallet.

Wall Street is shocked — shocked, I tell you — that the virus hasn’t gone away with the arrival of summer, and despite the virtually unlimited support from the Fed and Treasury, it bounces around like a leaf in a tornado every time anyone with a lab coat reminds them of the numbers. The opening of the economy is going about as well as Fauci said it would, and the big boy politicos (California, Texas, Florida) that were so smug a month or two ago are starting to make little coughing noises whenever they see a microphone or camera.

The Senate and the Administration have gone from saying that the recovery was going so well that additional stimulus would be gilding the lily, to waving wads of bills at the restless populace. Congress can’t get their calculators clicking fast enough, and the once dead, now assumed next stimulus bill picks up another trillion every day or two. The polls are suggesting a lop-sided November the wrong way for the Administration, and the new kids running are routing all the old guys. The volume and nature of the movement in the markets suggest that the usual patsies are jockeying like they always do just before the rug is pulled out under, and with every revision of economic recovery, the justification for optimism is getting weaker.

Americans Spending Dollars

Oh, and the EU doesn’t want us dirty Americans spending dollars in their countries, because, well… while they are all doing great at this pandemic thing, our charts look a lot more like Brazil’s, and that’s not a good thing.

Hmm…

Could it be that Powell, Mnuchin, FDIC Chair Jelena McWilliams and the rest of the powers that be are looking at all the information in front of them, and quietly burying some cash in their backyards? Every message sent says the same thing: that light ahead is not the other end of the tunnel, but a really big onrushing train. It’s not particularly subtle.

Ask yourself this: How likely is it that the doomsday decisions being made by the Fed, the Treasury and Congress are just an overabundance of caution, and part of a brilliant, long term, economic plan?

How much do you really trust a market that overreacts to every day’s news flash, and professes surprise at what’s in front of their face? A market that has been given infinite resources, and still needs more and more? How safe do you feel about a banking system that also has the benefits of an open checkbook, and still can’t balance its accounts without increasing the risks that it takes with depositor funds?

That big flashing sign standing in your way is using simple words now. It’s possible that we’re fine, and that everything is under control. It’s possible… but as for me, I’m looking for a mason jar and a shovel. I’ve got a hole to dig in my backyard, and I may not have much time to dig it.

Wall Street vs America, And The Rout Continues

On January 1, 2020, there were already some beginning signs of an overheated economy, but it was hard to see them amidst the drumbeat of economic muscle-flexing. Ten years into the longest economic expansion in U.S. history, there was good news almost everywhere for economists to cheer.

Unemployment was running at 3.6%, the lowest since the 1960s. American businesses were riding a sugar high of massive deregulation, huge tax cuts and an accommodative Federal Reserve, artificially managing interest rates at 1.5%. Crude oil was stable, trading at 68.91 a barrel, and capital was flowing into and through the markets, leading to record profits and cash hordes for virtually all major corporations.

There was a little grumbling about the deficit — the prior year it had topped $1.1 trillion, far and away from a record for a year in a growing economy, and pushing the debt above $23 trillion — but that was considered nit-picking with interest rates so low and profits so high.

In the midst of the continuing prosperity, the stock markets reached all-time highs. The Dow sat around 28,624; the S&P 500 was 3,234 and the Nasdaq had jumped to 9,092. Investors were having a field day, and the party showed few signs of breaking up.

Fast forward 160 days.

The Coronavirus has stopped the country in its tracks, taking over 110,000 lives from almost 2,000,000 infected. The nation closed uptight, with some 40 million filing unemployment claims, and the unemployment rate reaching levels not seen since the Great Depression. Hunger stalked middle America, as 17% of all households reported food shortages. The cracks in national health care and chaotic political response to the twin crises of the pandemic and accompanying economic collapse crippled the country, while across the globe our key trade partners grappled with the same or worse.

The government, attempting to stave off the worst of the damage, pumped uncounted trillions of dollars into the markets, the business communities and the people’s pockets. Deficits exploded, and the final tally will likely see this year’s deficits easily exceed those of any five year period in our history, with the national debt approaching (or topping) $30 trillion.

As summer approached, people of good conscience in all 50 states recoiled at the brutal killing of a handcuffed man by Minneapolis police. Millions of people took to the street, most peaceful but some not, and the nation was torn apart by the protests and riots borne of long-standing grievances and systemic injustices.

Just 160 days into 2020, the picture has changed indescribably from that New Year’s Day. A traumatic pandemic; an economic collapse of historic proportions; an eruption of civic unrest and an unknowable future for all three crises in a society exhausted by pain, tragedy and discontent.

And the Dow sits at 27,572, marginally behind that January 1 figure.

The S&P rests at 3,233, identical to the start of the year.

The Nasdaq has rocketed to 9,924, a record high and 10% above where it was that New Years Day.

While Main Street is boarded up and limping to an uncertain tomorrow, the largest corporations are hopefully planning for their next surge forward. As tens of millions of Americans scrape to find the money to keep afloat, Wall Street has not had as much as a hair goes out of place. The government grumbles about passing along one more $1,200 check to support those struggles while bragging that the trillions available for the major enterprises are unlimited and that unprecedented deficits are irrelevant.

There has never been a dichotomy as blatant, as definitive as the one that is presented today. The contest between Wall Street and America was over before it began, and it was a rout.

How did we get here? How do we get back?

The first how was simple. The government prioritized the provision of resources — both existing and created — for the preservation of the entities that comprise the Stock Market. Experts carefully sculpted the stimulus outreaches to bridge corporate finances from their previous prosperity to a replication of the same. Both fiscal and monetary forces conspired to remove the ugliness of reality from the balance sheets of the giants. Massive capital flowed to where it was needed at literally zero interest; the usual burdens of reporting, compliance and tax payments were suspended to avoid embarrassing revelations, and the market looked into a future of unlimited support with growing optimism and expectations of continued largesse.

Stripped of their usual more localized competition, the goliaths romped freely; Walmart, Amazon and others saw enormous growth and increased market share, gains that may well be impossible to recover by whatever eventually emerges as the survivors from the devastation below them.

Simple. A “Transition to Greatness” indeed…

For America, the road to recovery is diametrically opposite. Obstacles to rebuilding are mountainous, as small businesses struggle to replicate what in many cases took lifetimes to build, constricted by a halting and uncertain customer base and slowly emerging permissions. The government cavalry was late, hard to find and in almost all cases, insufficient in size or conditions. Plagued by logistical failings and often exclusionary terms, the first batch of assistance was thin gruel, indeed… now, the limited elements of further prospective stimulus are being debated and condemned in the Senate.

Contrary to the cornucopia presented to the Fortune 50, the financial institutions and their captains, there is suddenly a renewed profession of fiscal responsibility and a misguided assessment that the struggle is over, and help no longer required. The basis for the idea that all is well in America? The stock market recovery, and the hopeful trend that the unemployment statistics have improved for a month from gut-wrenching to merely horrific.

The pain of the nation is not nearly enough; politicos are asking for evidence of the trauma worsening before they consider doling out some medicine.

The protests of the past two weeks came from a deep well of righteous anger, a demonstrable centuries-old imbalance in our country that was further thrown in the faces of minorities and the poor in the disproportionate punishment imposed by the pandemic and the economic disaster. The complaints are beyond justified, the demands merely a starting point towards balance and fairness.

But there is a “but”…

But in the energy of the protests, the government has had free reign to divert attention from the other imbalance, the other war of unequal dimensions. The lines at food banks have not diminished; the strains of main street businesses not eased; the hospitalizations and deaths from the virus not abated. In celebrating the temporary decline to what is an over 16% unemployment figure, the leaders mock the historic masses of jobless families. In

As some hospitals breath a sigh of relief, others are taking their place in full ICU’s and exhausted EMT’s. At last count, some 28 states were watching their COVID numbers rising, many to new highs without a flattened curve in sight. Major companies, flush with newly minted cash, continue to announce wholesale layoffs, and when the funding from the PPP program expires this month, millions of jobs that have been held on to by that thread may well be forfeited.

Relieved of the pressure of media and voters, the Administration has pulled in their efforts to respond to the cries of the country. Behind his newly erected barriers, the President has pronounced victory over the pandemic and a renewed economic rebirth. With the voices of the corporate lobbyists chipper and sated, the Senate leadership has plugged their ears against the complaints of the unimportant.

Mitch McConnell’s desk

The next chapter in the Care Acts, written in the House, is slowly dying of neglect on Mitch McConnell’s desk, and there’s no oxygen left in America to resuscitate it.

That second how, the way back, will be far more difficult.

The Black Lives Matter movement, and the urgently needed changes being discussed and debated, has waited too long for this moment for it to be diverted or diluted. That said, surely the media can remember — even for a few minutes per broadcast — that much of the country (including so many of the same victims) is being forced to endure other hardships as well. Indeed, the politicians who are not wholly invested in protecting the richest can remember that the poorest and the sickest are being lost to their neglect. Surely the nation’s leadership can acknowledge the need for a radical redressing of racial inequality on the same day that they resolve the urgent need for sharing a few chunks of Wall Street’s bounty with the men and women of the main street and beyond.

The problems of America are real, and will not go away through neglect or avoidance. The leadership has lost its excuses of insufficient capital and bureaucratic ineffectiveness; having revealed its infinite capacity for preserving the largest, it must now stand before the rest of us and answer to our calls.

The Battle of Wall Street vs Main Street

Tallying Up Winners and Loser, in the dizzying whirlwind of programs and promises, the government is pushing trillions of dollars out through dozens of vehicles in an effort to keep what could easily be a depression at bay. Federal Reserve chair Jerome Powell has promised to create an unlimited supply of freshly printed money to make sure that the wheels of big business keep turning; Secretary of the Treasury Steven Mnuchin has hundreds of billions of dollars sent there by Congress to discretionarily juice corporate America balance sheets and paper their transition to recovery.

Aggressive Tactics

This unprecedented flood of cash and credit may well do what it has been intended to do, and shift what would almost certainly become a depression into just a recession, much as the remedial measures taken in 2008 likely accomplished the same. In fact, the reactions to the last economic crisis are serving as the rallying cry for the far more aggressive tactics this time around; the thirst for a faster, stronger recovery has lifted the constraints imposed a dozen years ago. Perhaps most stunningly, it has led to the radical pronouncement of Secretary Mnuchin — a Republican — that deficits are irrelevant, a statement that would have led to open revolution by that same party not a decade ago.

In the midst of all this largesse, it is easy to lose track of what changes are being wrought by the unprecedented actions taken by the government. There are fundamental changes to the role of our financial governance, including the merging of fiscal and monetary policy in ways unimagined just a few months ago. There is the coming reckoning of levels of the federal government debt piled far beyond any economist’s fevered nightmares. The value of money, the freedom of our markets, the acceptable levels of manipulation of our currency and key interest rates are all questions newly opened up, seemingly without forethought or debate.

The New Expectation by the Markets

There is, perhaps least understood, critical precedence being established for Congressional and Reserve responses to future crises, a new expectation by the markets and the marketplace of future government intervention and support. How will a future government reasonably claim limits on their ability to react and to provide resources; the actions of today’s government have forever proven that any limits are imaginary.

Some of these issues have been addressed in my previous articles; others are yet to happen or be understood. They can often feel academic as if they are abstract concepts and not something tangible; when we hear numbers in the trillions, can they even resonate with us? Certainly, for most people, the idea of a $1,200 credit to our checking account is far more real than the concept of a $30 trillion federal deficit, even while the cash will be gone in a moment, and the deficit will impact our lives for generations.

It is in this brave new world that a critical battle was waged and immediately decided. Perhaps it was a foregone conclusion, but the results may well determine much about how we live, where we work and what we buy. It was, and is, the battle between the stock markets and what we consider to be the general economy, a choice between Wall Street and Main Street.

To end the suspense, Wall Street won. It wasn’t particularly close.

To oversimplify matters, we can consider Wall Street the amalgamation of our largest corporations, those that are traded publicly and that we often refer to when we say stocks. On the other side, we can consider Main Street the massive proliferation of small businesses: the storefronts, the restaurants and hotels, the producers and services that we engage with daily.

In addressing the economic crisis, the government had — as they proudly acknowledged — truly unlimited assets and resources to devote to their solutions. The Federal Reserve and the Treasury determined to dedicate several trillion dollars in providing unlimited capital at zero interest rates to major corporations, and the stock market roared upward in appreciation. On March 23, as the Dow Jones Industrial Average bottomed out around 18,000, the government announced a variety of programs and new facilities. This led to a rally of 3,000 points over the next few days, and over 6,500 points in the next few weeks. The stock market went from a bear market to a bull market literally overnight and continues to point upward.

Paycheck Protection Program

On the other side of the ledger, the relatively tiny Paycheck Protection Program was set up to support small businesses. Funded with $250 billion, a wholly inadequate sum, it ran out of capital within hours, and the hastily thrown together distribution system collapsed under the weight of millions of applications. In a terrifically damaging PR moment, a portion of the funds from even this program was siphoned off immediately by larger and publicly held companies, at the expense of the businesses it intended to help.

Most notably, the terms and conditions of the funds were so mismatched to the needs of those that it was meant to support, that once they understood the drawbacks many businesses began rejecting the loans. By the time that Congress authorized addition funding, the appetite for the money had largely dried up.

So, the big guy wins, and the little guy gets punted. Nothing new there.

Perhaps there is. Take the example of Walmart: during the first quarter of this year, Walmart set a record with some $4 billion in net income, led by its e-commerce section jumping 74% for the period. Armed with unlimited capital for expansion, and an expanded engagement with on-line shoppers, Walmart is poised for a period of rapid growth and an increased presence in the consumer playbook. We have seen the impact that the previous expansion of the chain has had on Main Street in normal economies; this time, with those small businesses trying to dig out from under the rubble, Walmart will have an open field to romp.

Critical Innovations and Solutions

Or, take Amazon, whose earnings rose from some $59.7 billion in the first quarter of 2019 to $75.5 billion in the same period this year, an increase of about 26.5%. Throughout America, the winners of this period have been the largest companies, the best-funded and most omnipresent. With the consumer landscape laid bare, and the small businesses devastated, there is a chance for a meaningful take over of Main Street by Wall Street.

That might seem like a curious statement. After all, small businesses are, well… small. Reality is that the small business universe is enormous, just composed of millions of small pieces rather than the monolithic entities of Wall Street. Small businesses, the majority of which have less than 20 employees and are privately owned, account for about 45% of all economic activity in America. Various studies have claimed that up to 80% of the new jobs produced in the United States over the past decade have come from this sector, as have critical innovations and solutions.

In the battle between Main Street and Wall Street, the two sides are fairly matched in size and economic impact. Despite that, the funding provided for Wall Street, and the effort of the government to support it, could not have been more disparate. While trillions are being pumped into large corporate coffers, small businesses — those on the front line of the shutdown — have received a couple of crumbs, and even those have been expensive and difficult to access.

Risk of Bankruptcy

It is suggested that as many as 7.5 million small businesses are at risk of bankruptcy today. The almost assuredly undercounted unemployment totals are approaching 40 million, well over a third of our participating labour force. Hunger is a presence in at least one in four households, and states and cities are facing dramatic and painful decisions over what cuts to make to the heroes of the time: hospitals, medical professionals, police, firefighters, teachers and public servants of all stripes.

Wall Street is doing quite well, thank you. Despite earnings that will surely decline for most, and plunging consumer spending and confidence, it sits at a level close to where it was just a few months ago. Optimism for a rapid recovery for those companies is rampant as investors worry about missing out on the next rally, and analysts predict new record highs in the coming year. The first battle was over before it began; Wall Street had champions throughout the government, the Treasury and the Reserve. Main Street had some human interest stories on the evening news, and little else.

There will be a price to be paid eventually, of course. The massive deficits will create their own existential crisis as they come to roost. The diminution of a strong entrepreneurial presence will destroy important industries in commercial real estate and construction. The concentration of purchasing power in fewer and fewer hands will cause producers to struggle with lower margins and continue their consolidation. The unemployment numbers will improve from here, of course, but will not recover as the distribution of jobs is skewed.

The face of America will most likely change, at least for a while. The vibrant colours of independent food, art, clothing and products will be muted as the omnipresence of the chains and dominants crowd out the singular and the experimental. Innovation will come more from the labs and focus groups, and less from the crazy with a dream. That is the path that the government has chosen, and that’s what will come.

American Entrepreneurial Spirit

The American entrepreneurial spirit is not that simple to defeat, however. History promises that the obstacles that this period presents will be met with the resilience and creativity that has marked this nation’s ascension in the world. There will be green shoots, then saplings, then trees that emerge in whatever grounds are left to plant. That, too, will come.

This battle went to Wall Street. It wasn’t a fair fight, and there is reason to worry that there was so little debate, such a lack of negotiated terms of surrender. The scars, the costs of this battle are yet to be understood or paid.

The war is a much longer thing, and the victor then is likely to be the same side who just lost, the people of America. We can still move the nation in that direction, through paying attention to the policies and positions of the next wave of politicians. We have the one weapon that neither the Federal Reserve nor the Treasury can wield or redirect: we can vote.

And so, we must. We can, and must make our too-quiet voices loud now. We can, and must rebalance the scales. We can and must take control of the direction of our country and its economy. We can, and must defend Main Street, and in so doing, save Wall Street from their own shortsightedness and appetites.

We can, and we must win this war.

The Crucial Battle Between the Market and the Economy - Whose Side Are You On?

There is a temptation to equate the stock market with the economy, to consider a rising market synonymous with a strong economy. The urge to do so is entirely understandable; the economy is a complicated collection of statistics, surveys and predictions, while the market is a single number, with a convenient arrow next to it pointing either up or down. Even within what we call the economy, there are any number of differentiations and angles to view it from. The market? Pick your index, and it’s continuously updated during the day.

The present difference between the market and the economy has not been more significant, or more meaningful, in our lifetimes. Understanding that difference is critical, to understand the value of legislation, the impact of pronouncements from the government, and our expectations and plans. The following is a brief definition of the various terms, followed by a discussion of their practical application.

In This Corner, The Stock Market

The stock market is a generalized term that we use to define representations of the aggregate value of companies that are traded publicly, those companies whose stock can be purchased through financial institutions. The stock market is commonly measured by the Dow Jones Industrial Average, an index that is a compilation of thirty of the largest companies represented on U.S. exchanges. While most analysts prefer other, broader indexes, it is the 125-year-old Dow that the media refers to when it claims that the market went up or down. Presently sitting at around 24,500, the Dow is within a day’s movement from where it was a year ago before the coronavirus turned the world around. Other indexes, notably the NASDAQ, have recovered from the initial shock even further, matching levels seen as recently as early December of last year, just shy of its all-time high.

In a world where we are still in the middle of a pandemic, where tens of millions of American’s are unemployed, and where much of the economy is even shut down or open on a limited basis, the idea of the stock market being so close to its record best numbers seem irreconcilable. In reality, it’s relatively straightforward: the stock market primarily measures expectations of future individual corporate profits and health, rather than the present experiences and suffering of citizens.

Superficially, the stock market sees corporate financials being temporarily held up by meagre borrowing rates and massive government support; in the coming months, it considers an economy in recovery, perhaps not entirely where it was when everything came crashing, but close enough to keep up the previous optimism. It appears to discount any constraints on consumer spending, considering that such limits will be offset by a release of pent up energy when the country reopens. With its path through transition papered with new money, the stock market is looking past whatever the next few months bring, and is assuming that the virus will be tamed by either a vaccine or a treatment before there is too much more damage.

And in the Other Corner… the Economy

When the media refers to “the economy” it usually is referring (in general) to our unique system of moving goods, services and assets from one person or entity to another person or entity. The U.S. economy can also be seen as who is doing what, for whom they are doing it, and how much of it they are doing for what resulting gain. Neither of these descriptions encompasses the totality of the term, but they can help differentiate the term “economy” from the term “market” for these purposes.

When the virus hit America, it demanded everything. We retreated behind our walls, closing down most of our businesses, shuttering our schools and remaking our society overnight. Our economy, specifically the Main Street, consumer-based aspect of it, contracted wildly and reorganized away from proximity purchasing and towards online commerce, a direction that had been trending for years but never so fully exclusive. The movement of human bodies, whether for business, pleasure or shopping, ground to a complete halt.

The closing of American businesses left an unprecedented number of workers on the outside looking in. Some 39 million have filed for initial unemployment claims, a number widely considered to underestimate reality based on systemic delays in reporting and confusion by prospective claimants. That number, disproportionately including workers on the lower end of the earnings spectrum, meets or exceeds the level of unemployment last seen during the heights of the great depression, representing about 37% of the usual workforce. The reported unemployment rate of 14.7 is already outdated, showing a snapshot of a month past; most economists estimate the real number in the low to mid 20’s, another historically high level.

A whole cast of winners and losers have emerged not from some natural evolution, but from the immediate impact of the disease on that economy. Legislative solutions had a very limited effect, as the compromised logistics and fears of infection have complicated every attempt to help. Unlike the stock market, which is perched near its historic highs, the level of economic activity is approaching depths not seen in almost a century.

And By The Way, How Does This All Relate to the GDP (Gross Domestic Product)?

The GDP is a specific measurement of the value of everything produced, made and sold in the country over a given time period, usually measured in annual terms but reported quarterly on an annualized basis. There are a number of different ways to compute it, but it is a useful mechanism for understanding whether a national economy is moving forward or backwards. When the media discusses the economy, they often use the movement in GDP the way that they use the Dow, but they usually are referring to elements in the economy that are only tangentially related.

One of the limitations of using the GDP to evaluate this period is that it doesn’t necessarily incorporate the real effects of unemployment; while employment does create a movement of value and breadth of services, a smaller workforce that is more productive, and engaged in higher-value production, can create a higher GDP than a larger workforce that is less productive, and less engaged in high-value work. There are dozens of nuances, but for this purpose, we’ll leave it there.

When we use the term recession, the specific definition is two consecutive quarters where the GDP declines, rather than grows. That definition means that — despite the economic carnage — we are not officially in a recession yet. We have one such quarter in the books — as the first quarter of 2020 came in at a - 4.8% negative growth — but we won’t have confirmation until after the second quarter (including April, May and June) is reported. It is widely assumed that we are in a recession.

As for depression, the inference is for a very deep and prolonged recession; a period where the GDP contracts for an extended time and by significant amounts. The Great Depression generally is considered from August 1929 to June 1938. a period where the GDP declined by a little over 50%. While some of our indicators (such as unemployment and business failures) are similar to that period, we lack most of the factors of a depression… so far.

Why Should We Care About the Difference Between the Market and the Economy?

In the current case, the difference is everything. The market doesn’t directly care about employment, quality of life, personal success unless or until it is represented in the profitability of the various companies. That’s why we see this scenario so frequently, in good times and bad: Company XYZ announces that it is laying off 20,000 workers. The stock goes up because the analysis is that the reduction in operating costs will result in greater profits for the company. The economy registers 20,000 added to the unemployment rolls, and the impact on the GDP is likely — but not definitely — negative.

The definitions of the economy that we tend to care most about are the parts that affect us directly. Are there jobs available, or is there a struggle to employ most of us? Are businesses opening or closing, are prices rising, are wages improving? When the evening news says that the economy is doing well, it’s all too often a statement that reflects something irrelevant or undefinable, such as a news report that a company announces a new plant opening; a positive sign, perhaps, but not nearly broad enough to matter.

So, Back to Our Opening Question: Economy or Market?

For the average person, the impact of a stock market rally is limited to an increase in the value of their retirement accounts. The loss of a quarter of the country’s jobs is a matter of some more relevancy; even if they aren’t affected directly, most will see some impact in their lives or their families. The differences to our lives between the two are not subtle.

There are other issues that reflect in the government responses in balancing the market and the economy. Far-reaching ramifications result in almost every decision made by the Treasury and the Fed these days, and in what the Congress creates and enacts. it’s critical that we interpret those choices being made on our behalf properly.

For Main Street, for rank and file America, the choice seems fairly obvious — policies, legislation and activity that supports the economy carries far more real value than those prioritizing the stock market, particularly in the short term. Both are required in the current situation, but the balance (and who benefits) can and should be reasonably questioned.

In choosing to support major corporations and financial institutions at the levels that they were before all of this, the Federal Reserve and the Treasury have potentially changed the face of our economy for a generation. The impact of this pandemic is being felt most severely by small businesses and independent contractors; storefront businesses across the nation were either closed or crippled, while some major retail entities were able to shift their focus and marketing to their existing online platforms or reduce their overhead by laying off their workforce and riding out the storm.

The Walmart Example

This is most evident in the recent financial releases by Walmart; Walmart earnings actually rose during that period compared to the prior year, reaching $4 billion; their e-commerce sales expanded 74%. Contrast that result with the estimated 7.5 million small businesses estimated to be facing bankruptcy across the country, and consider the likely outcome.

Walmart will consolidate its marketplace, growing into the vacancy left by the struggling storefronts. Their expansion will impose another obstacle to the recovery of those businesses, and will ultimately replace the entrepreneurs who owned those storefronts with minimum-wage employees at Walmart. Walmart stock will go up, lifting the market. In fact, Walmart’s shares have increased from 104 on March 23 (when support for the market began) to 125 on May 20, a rise of over 20%.

As the Walmart scenario plays out, taxable incomes (as store owners are replaced with Walmart associates) and capital investment will decrease, adding to the existing contractions in the commercial real estate marketplace. Millions of independent producers will lose their local or specialized outlets, and if they cannot successfully relocate to the internet, vanish. Out in the countryside, the largest agricultural and manufacturing enterprises will be incentivized to continue their recent consolidations, in order to service the greater percentage of the market controlled by fewer buyers.

Broader still…

While the storefront businesses will struggle for survival, with many losing that battle in the coming months, larger chains and dominant presences will emerge stronger and consolidate markets. Independent restaurants will be replaced by expanded franchises; many speciality shops and local markets will be driven online, assuming that their product or service permits. Investment in commercial properties will continue contracting, providing a prod to the ongoing deconstruction of our distributed retail presence.

It is widely recognized that small businesses have fueled much of the growth in the U.S. economy over the past two decades. Small businesses, the majority of which have less than 20 employees and are privately owned, account for about 45% of all economic activity in America. As many of those businesses close, others will move from physical locations to online outlets, expanding the value of companies like Amazon and the market value of shipping companies.

Ah, That’s Right… How Does Amazon Fit In Here?

Amazon, like Walmart, has benefitted greatly from the arrival of the pandemic. The obvious point — a nation forced to order much of what they need online — is a perfect storm for Amazon’s business model, and their recent numbers confirm it; revenues for the first quarter were a record $75.5 billion, an increase of some 26.5% over last year’s $59.7 billion. More importantly, Amazon is a smart company; rather than simply enjoy the flood of business and new customers, they’ve committed to reinvesting this quarter’s profits to upgrading their response to the coronavirus, improving employee safety and completing internal testing facilities.

This is not a public relations ploy — should the virus resurface this fall, as is widely anticipated, Amazon may very well be the last man standing in their area, and by that time capable of dealing with the crucial Christmas period effectively. Towards that end, Amazon has completed its ambitious 175,000 new hire program and is now set.

Like Walmart, Amazon’s massive capital base has allowed it to use this period — and the accommodative nature of the Federal Reserve and the Treasury — to expand and consolidate its position in the economy. They, along with other dominant companies, are living their best life right now, in the midst of the pandemic.

The government has set aside several trillion dollars to prop up the biggest companies in the world and to preserve the capital markets that they depend on daily. It has opened doors that in previous periods would have seemed like a dream — loose, fast, historically cheap capital without strings or size limitations. Main street businesses are being offered billions of dollars, but in formats and with restrictions that are causing many, particularly those in the hardest hit of industries, to painfully decline the offer. The government has made its choice — it has chosen the market over the economy.

If the Battle’s Over, What Does It All Mean?

It may well be too late to rebalance the scales. Already, Congress is stalling on the next stimulus package, one with much-needed capital for states and municipalities, setting up what promises to be an ugly and protracted negotiation. Meanwhile, the trillions that are already committed are locked and loaded, ready to be employed if things (read that, the stock market) struggle going forward.

The final tale, the reveal that will end the conversation about market versus economy, might come in the next few weeks. If the stock market holds its recent gains, and move up from this level, watch if certain government mouthpieces declare that the economy has — at least for now — survived its crisis, and is bouncing back. If that declaration is not accompanied by massive repatriation of unemployed; if the rationale is based on the new hires of the largest of companies; if the states and cities are told to fend for themselves, and small businesses pass without notice, then we’ll see the impact of the market’s victory.

The next chance that the rank and file of America will have to make a difference comes in November. Listen carefully to the programs and policies that your representatives support, and hold them to this simple test: do they help the stock market, or aid the main street economy?

Then vote.

The Fed’s Frankenstein Monster Is Ready, We’re Just Waiting for the Lightning

This blog (and the more complete one in the Requisite Blog section) is about some important impacts on our economy that you may not have seen, but which may well have a very dramatic impact in the next few years. For especially my younger friends, this is a critical part of your future... it's well worth learning about and having opinions on. I hope that this helps start you in that process. -- Gary

The Federal Reserve, working directly with the Treasury Department, has created a new initiative for the purchase of corporate debt, municipal bonds, and ETFs. They have done this despite the law that created and governs the Fed — the Federal Reserve Act of 1913 — giving them no legal authority to do so.

Their solution? A shell corporation, managed by Black Rock Financial and funded by the Treasury cash (remember the $500 billion in the CARES Act that was allocated for Mnuchin’s discretionary use?) and a couple of trillion dollars of new money provided by the Reserve for leveraging the purchases.

By establishing this separated entity, the Fed can direct the buying of various debt instruments that otherwise it wouldn’t be allowed to through Black Rock, and establish a deep support system for the corporate credit markets. To expand the range of their influence, the Fed is going to purchase bonds down to BB- ratings, which are commonly referred to as Junk bonds, in cases where the underlying company was rated higher prior to the current struggles.

Traumatic Economic News

If you’ve been wondering why the stock market has been strong in the face of such traumatic economic news, consider this: the values that you see represented by the Dow, the S&P, and the NASDAQ reflect the perceived financial health of the publicly held companies. The Federal Reserve (along with the Treasury) has essentially promised that it will commit an unlimited amount of money to ensure that corporate America will have as much cash as it needs on very good terms for the foreseeable future.

This “new” money will come from expanding the amount of money in the system by trillions of dollars, along with those hundreds of billions of taxpayer money from the CARES Act. The power of this promise led the stock market to recover from its low of 18,000 on the day that the program was announced to its the current level of 24,000.

While this appears on the surface to be a good thing — supporting the ability of companies to access funds while the market is in turmoil — there are significant issues that have potentially dire longer-term consequences, as well as raising important questions about the role of the government in capital markets. My larger article of the same name provides the history and reasons for those concerns, but among the now possible outcomes include these:

• A federal debt that costs well more to maintain in interest payments than the government can reasonably tax, leading to accelerating deficits that are ultimately unmanageable

• An avalanche of new money into the system, dramatically increasing the present inflated amount and establishing the historical parameters for massive inflation and market instability

• A Federal Reserve system that holds and controls substantial amounts of all of the corporate debt outstanding, giving it significant influence over many of the country’s public corporations

• A Treasury that is committed to maintaining hundreds of billions indefinitely to protect the Reserve from market risk, providing direct access (and influence) of the federal government into both money supply and corporate America, two places where its participation has long been precluded

Financial Market’s Expectations

The decision to substantially alter the role of the government in our “free” market system has already been put in place and incorporated into the financial market’s expectations. Historic separations of Monetary and Fiscal policy, assumed for well over a century and having definable benefits, have been torn down overnight. Enormous critical and limited resources have been allocated to the preservation of near term corporate profitability, with an open-ended commitment in amount and duration.

The choices made appear extreme, a panicked focus on today without a stated program for dealing with tomorrow. In the absence of a national dialog, legislative evaluation, or oversight, the American economy has been launched into a new world that will have important impacts far after we have gained control over the virus and its economic impact.

The Fed and the Treasury have conspired to create a monster, a patchwork aggregate of their respective responsibilities and resources that was never intended to exist. It was created outside of nature and the law, but it is unquestionably about to rise from the laboratory table and do what monsters do.

It may well appear to be benign, perhaps even helpful… but we have the ability (and obligation) to see its true nature. In properly recognizing it for what it is, we can prepare for its emergence, and look to find the best way to contain its damage.

Ultimately, it will be necessary to decide whether to destroy it (if in fact it can be destroyed), or to attempt to reconfigure it into something more appropriate… but regardless of the response, it cannot be ignored, or given reign to roam free… and most importantly, it should never be allowed to come into existence again.

Money, Motivation and the Future of our Nation

The economic challenges of the moment are significant and complicated. As a people, we are being confronted with existential questions that we’ve never anticipated or planned for, most notably (and publicly) the balance of our health and our individual solvency. In the discussions regarding these questions, there are any number of false equivalencies and projections being offered by either side, making the analysis by those most affected even more problematic. There is more to share about these questions than one blog could reasonably hold, and I hope to address many of them in the next few writings.

There is one problem — perhaps the most critical challenge of all — that is being largely ignored and unspoken: how can this country manage the current crisis without creating an equal or greater one tomorrow? The nation faces a critical balancing act in responding to the present needs against caring for the future solvency of our economy, and by extension, the preservation of our national identity.

It is a question that is not being openly discussed, or even raised, within the national discourse.

What Has Been Done So Far

The predicate of the problem has already been established. In response to the pandemic’s arrival, the government has closed down the economy and consigned the population to a period of isolation. That decision was likely inevitable since the alternative was projected as the deaths of millions, and an accordant collapse of the economy as a result. The immediate price of that decision was the closure of much of the economy, the sudden elimination of tens of millions of jobs, and a decline in the various stock market indices of some 30% or more. The prescribed remedy was the infusions of trillions of dollars, loosely assigned and apparently without oversight. The CARE act (at around $2 trillion the most significant financial bill in history) was cobbled together in a matter of days, and overmatched by the infusion of trillions more into the banking system by the Federal Reserve.

The intent of this urgent capital was… well, it’s not exactly clear. In a general sense, there are sections intended to provide a safety net for those whose jobs were forfeited through no cause of their own — extensions in unemployment qualifying and duration, provisions for covering testing, and treatment of victims of the virus — but these constituted a minor portion. There is a loan program nominally designed to preserve small businesses that retained a high percentage of their workforce through the shutdown, but those funds (some $350 billion) ran out in a few days in the midst of questions and revelations of major corporations raiding the till. There is a direct stimulus program, sending out checks to some 150 million Americans, for a bit less than $200 billion. Direct aid intended for Main Street businesses and workers to date will end up less than $750 billion including the various loans and stimulus payments.

Then there are the larger payments, for the major capital organizations. There’s a $500 billion fund, theoretically for general aid for larger corporations, and more funds being directed to specific industries, but none of those allocations are publicly revealed, so we truly don’t know their destinations (there’s a six month waiting period before we learn their recipients). There are as yet un-tallied numbers for bailing out the airlines, the hotel industry, even the cruise lines. There are potentially trillions of dollars allocated to the Fed’s asset purchase programs, widened in an unprecedented fashion to permit purchasing of not only treasuries but municipal and even corporate debt from the open market.

With the additional half-trillion dollars or so being bandied about for replenishing the loan program, and the states and various industries needing help, we can expect a total bill on the cash side in excess of $3.5-4 trillion before the dust settles, all of which will be added to the existing trillion-dollar deficit that we accrued in a period of unprecedented corporate success… and again, that is assuming that the Reserve’s actions all come out in the wash eventually, and that the dramatic expansion of money in the system is somehow without cost, or that it fails to create inflationary pressure.

The First Questions

The response to all of this accrual of debt is unanimous — a call to spend whatever it takes to protect our businesses, to save our people, to battle this “invisible enemy”. Noble and acceptable rationales, and at the risk of wading against the river of sentiment, I have some questions to pose, first about the large capital side, which we’ll assume at about $1.25-1.5 trillion, but which will likely end up considerably higher: what are our actual objectives? What are we saving, exactly? And at what cost versus the benefit?

The pandemic arrived with the economy doing well — not spectacularly despite pronouncements from the administration but maintaining a GDP growth rate of plus or minus 2.5%, with projections for a slight decline in those numbers in the coming year. By most measures, the economy sat at near full employment. Despite that growth, the federal government was running up record peacetime deficits and showing no inclination to address them. Corporate America was sitting on unprecedented amounts of cash, with several industries reporting epic levels of profitability, aided and abetted by lowered tax payments and historic levels of regulatory relief. These companies have been hurt, without doubt, but is it the responsibility of the U.S. taxpayer to restore them to the same record levels of profitability and solvency that they enjoyed prior to the virus, or merely to provide a backstop against their demise?

The stock market is an imprecise measurement of our economic wellbeing since so many of the defining corporations are global in nature… but it is a not unreasonable yardstick for corporate health. The most commonly referenced index is the DJIA, which as of this writing is sitting at 23,650 in the midst of the chaos. While this level is some 6,000 points below its recent high watermark, it is important to realize the current level is less than 2,000 points, or about 8.5% below where it was just eight months ago, and higher than it was about a year and a half ago… how high is it necessary to bump it up to?

The Unrecognized Future Costs

The general mindset is that the country should spend whatever it takes, then address the damage afterward. After all, borrowing rates have been held to historically low points, so the cost of handling a few trillion dollars of additional debt is relatively minor, isn’t it? There is this permission from the Treasury Secretary, Steven Mnuchin, who emphasized that lawmakers shouldn’t be concerned about the deficit.

“Interest rates are incredibly low, so there is the very little cost of borrowing this money,” he told reporters. “And as I’ve said, at different times we’ll fix the deficit. This is not the time to worry about it.”

Harvard economist Jason Furman, who served in 2009 in the Obama White House, suggests that Congress will have to spend another $1 trillion this year to resupply the small business rescue program, further, extend unemployment benefits and provide another round of checks to households… and another $1 trillion could be needed next year if unemployment remains high. Those numbers don’t include corporate funding, but there’s little to indicate that the flow there will stop while there’s an argument to be made for a compromised economy.

So, at the end of the day, here’s the big question: Is there any limit to the money that the U.S. can print? Does debt even matter any more? If it is decided that our objective is to preserve corporate America at unprecedented levels and to run up another $7-10 trillion in the process over the next 12-18 months, should anyone care?

We, the people should, and must.

The True Costs of Unrestrained Debt

Mnuchin’s reference to low-interest rates reflects his stated intention to finance the debt with relatively short term instruments, particularly 10-year treasuries. He is correct superficially; at current rates, the interest payments on the soon-to-be $30 trillion is “only” about $200-225 billion per year. To understand that in perspective, the United States spent $676 billion on defense, coming out of a $1.3 trillion dollar discretionary spending budget. Federal revenues from all sources last year totaled $3.5 trillion, a number that already was $1 trillion less than we spent, despite the strong economy. Adding another $200+ billion to that picture is hardly meaningless… and that doesn’t reflect the fact that in ten years, that new $7.5 trillion comes due, along with some portion of the other $22.5 trillion of debt that the country is rolling forward.

Let’s look at what that means. What if the Fed doesn’t artificially hold our interest rates down to these unprecedented levels for another decade, and rates move towards market norms? A 3% rate (which was common only two years ago) on the next bonds would be about $900 billion a year in interest payments. Move that to 4%, which has been crossed in the last dozen years, and you’re talking about $1.2 trillion per year just in interest payments.

In an environment where the government has been consigned to paying twice as much for interest on the debt than it pays for the military, are we still the nation that we believe that we are? What compromises are we forced to make in order to slow, let alone stop, the annual accretion of additional debt to the picture, a death spiral towards insolvency? What services and commitments do we abandon because there is no money left to pay for them? How, exactly, do we “fix the deficit”?

The Price of Printing Money

While we’re here, let’s factor in one more idea: inflation. The Federal Reserve chairman, Jerome Powell, stated in an interview that the funds that the Fed would bring to bear to preserve the economy were “unlimited”. Under any rational scenario, the printing of more money would cheapen its value, the buying power of the existing dollars… when you have to spend more dollars to buy the same goods, that is inflation. For more than a decade, our financial leaders have assumed that the laws of monetary physics no longer apply. They have printed record amounts of money, and yet inflation has remained historically low. They assume, therefore, that inflation no longer exists, and their actions in printing money are without consequence.

This is wonderful news, but vastly underused. Since there are no consequences to expanding the money supply, my worries about the deficit are irrational. Let’s flood the economy, pay everyone a monthly stipend to improve their lifestyle, and consume more goods, and let’s have a party. When the bill comes, we’ll heat the presses and pay with crisp new bills. Constraints are for suckers… we’ve got a magic press, and we’re happy to use it.

Sarcasm, you say? Then help me to understand why. If the premise is that printing more money has no impact on the value of that money — the standard theory at present — then why would we not merely write our way out of whatever debt we accrue? Ah, there are limits you say. Only so much money is protected from the corrosive impacts of inflation. Despite the difficulty in defining that — inflation is inevitable, but only under certain circumstances — how do we know when we’ve reached that mystical threshold? Is there a book with columns and charts? Or, more likely, will we know it when we trip over it and fall on our faces?

If inflation is the result of our compiling of this unimaginable debt, what will that cost us? First and foremost, one of the unavoidable consequences of an inflationary period is the elevation of nominal interest rates. So, in an inflationary period, we’ll find that the payment on the debt that we’ve accrued will be markedly higher. During the Carter years, interest in the ten year Treasuries exceeded 10%. At that level, the service on $30 trillion would be about $3 trillion a year. Remember, all of the revenues that the government took in last year totalled $3.5 trillion, and discretionary spending was limited to $1.3 trillion. To limit the cost of debt to “only” the total of all of our discretionary income, it would take only a little over that 4% that we mentioned before, a number lower than the average yield on those bonds just a decade ago.

Motivation Versus the National Interest

The scenarios are uniformly frightening, and the impact on the economy — on the nation — in a decade or so are impossible to quantify. This brings us to two questions: why is this not a more significant part of the national discourse, and what should we be doing.

The first question is related to the nature of our politics and our systems of wealth. Let’s ask a critical question: who in the realm of influence and power is motivated to worry about the future? Politicians are creatures driven by their clinging to their office, a charge which limits their concerns to the next election. In a country where terms are short (2, 4, and 6 years) the motivation is to govern to the end, not to the existential benefit of the nation… history is littered with the few political forces that chose to sacrifice their careers to unpopular champion causes. The leaders of industry? We long ago abandoned judgment of their success or failure — and most importantly, their compensation — on the long term success of their companies.

Consider this question: I offer to pay you $10 million a year for ten years, but at the end of the ten years, the country will experience depression. Your evaluation would have to include this: in that decade, you’d have amassed $100 million, enough to insulate you and everyone you love from the ravages of that depression, and to get you to the other side in excellent style. Would you decline that offer? Or would you feel compelled to accept, knowing the impact that it would have on those that you care about most?

Culture of the Marketplace

Business leaders have that offer on their table in these times, except for a lot more than $10 million. Push for the government’s money to insulate their companies today, and reap years of rewards… future debt is the next one-ups’ challenge. Do we expect them to forgo current success for a future award when their financial motivation is opposite, and the culture of the marketplace offers them no rewards? We cannot… and our leaders of industry are inexorably drivers of our policies and political positioning.

There is no constituency in our country that is motivated to confine instant success for future solvency. As Mnuchin said — dealing with the debt will wait. Now is not the time to worry. The portion of the populace that will pay the most significant price (potentially, all of the vital part of it) will be the various layers of the economy from the bottom to the middle, and a bit above… a population that has little voice, little control over the discourse that permeates the halls of government and the superficial media.

A Call To Action

This leaves the second question: what should we, the future victims of today’s excess and greed, do about it?

The pandemic-based crisis that we face today is not imaginary, and it is lethally real. There are several critical functions that we must attend to, and they will create more difficulties in the future. We have a moral obligation to protect the tens of millions of workers that our choice in treatment has disenfranchised. We have an existential need to attack the virus aggressively, and to bring about long term solutions to its presence. These are necessary, expensive, and immediate.

What we cannot do is to pretend that money is a construct, a thing without substance or meaning. We have to consider — publicly and transparently — what our priorities are when it comes to the support of the economy, the marketplaces, and financial institutions. We need to do what is necessary for the good of the country, but we need to be vigilant about those significant dollars in a time of swirling numbers and a stricken populace.

Now is the time to solve a problem that has reached our shores uninvited, but it can also be the time that we create a similar, unsolvable problem for the next generation and beyond. We must be vigilant, demanding, and attentive… and we must remember that virtually all of the motivations that are in place are pointed towards decisions that will destroy much of what we value.

We can counter those motivations by remembering our powers: we vote, and we can make those who ignore our interests irrelevant by removing them from office. We watch, and we can support those in the media who bring these issues to light and share our concerns. We buy, and we can choose to spend our capital where it aligns with our beliefs. Individually, we have only a small voice… collectively, we can balance the scales and save our country’s future.

The Message Matters

The U.S. is still, at least by conceit and label, an economy that is based on capitalism. The form of American capitalism is a complicated hybrid, incorporating a national desire to create public “safety nets” and to affect commercial outcomes (industry and corporate-specific subsidies, tax exemptions and regulations) but generally speaking, the government does not produce goods or services for commercial purposes, leaving those for private industry and providers. Therefore, the government does not create capital; the capital that it uses to provide services is derived from the mandated contributions by the producers of that capital. In that way, all provisions of the government are forms of redistribution as it takes in revenues and applies those revenues in an ever-changing formula. This an obvious oversimplification, but will serve for these purposes.

Against that backdrop, a seemingly insignificant action by the administration — supported by peripheral comments and assertions — has a meaning far beyond what it appears to be, and should be understood in context. In an unprecedented decision, the President’s name will be affixed to the stimulus checks being distributed by the treasury to some 80 million recipients.

Brief History

Some brief history: the checks being generated by the recent legislation are not novel. Several other times in the nations’ history — most recently in 2007/2008 during the financial crisis — has the government determined to use direct payments as a form of stimulus for a compromised economy. In each of those circumstances, the checks that have been issued were signed by a relatively minor government official, as was necessary… and as is necessary for this event, since the President’s signature is inappropriate. To be clear, the President will not be signing the checks; his name will be affixed below the memo line on the left side of the check.

So, why care? In an election year, the President desires a little publicity… it doesn’t affect the check’s utility, the cost to the public of the addition is minimal, and there is no apparent law against it. The reason for concern is best explained by the premise touted by President George Bush, who declared that these types of funds represented a return of the people’s money to the people. In a world where there is consistently a separation between the people and the government that serves them, implications that the government (and by extension, the administration) is the originator of the capital that it allocates is another distortion. The implication that President Trump is the originator of the funds is false on any number of levels — the governing legislation was developed in the House and Senate with sufficient approval as to make a potential presidential veto moot — and the administration’s initially stated preference was not for this form of stimulus, but for a cut in payroll taxes.

Rank Politics

This begs the question: why would the President’s name be affixed to the checks? The only reason available — rank politics — is the obvious answer and one that on its own should disqualify the action… but the result has a nuance that is more disturbing: the intended emphasis on the government as the provider, and the President as the grantor of that largesse. This upsets the constitutional order — where public servants are the stewards of our money and are in fact the employees of the nation’s citizens — and suggests that we the people should look to carry the President’s favor. This perspective is frequently supported by other language cues, notably the President’s comments regarding his perceived lack of “appreciation” from state officials, from the press, and from organizations of every stripe for what he “does for them” or “gives them”.

The inference is consistent and dangerous, the message important and wrong. Our constitution and all of the supporting narratives and laws were created to preclude an authoritarian ruler, a king of any kind in word or action. It is only such an authoritarian ruler who could represent their control or ownership of a nations’ assets and finances; a constitutional presence would acknowledge their role as administrators, not as originators, and would transparently allocate resources based on an analysis of the nation’s best interests, not by some individual choice or preference.

To be clear, the aggregation of power and the elevation of the executive branch hardly began with the current president; it has been accruing for decades, and any current representation is merely the culmination of that trajectory. Where we must tread most carefully is the slide towards a crossing of the final line — the righteous demands for a democratic, representative government versus the gradual acceptance of an autocratic leadership that professes to control and possess the assets of our nation. That watch begins with the power of language and language of power; its ultimate impact is determined by our collective reaction to the messages that we receive.