I have never had anything to do with cryptocurrency, since to me it was an obvious made-up thing with no real value in its underpinnings. Just a playground for fraudsters and a good way to lose lots of money. So no surprise when this week we see the collapse of FTX, a supposed leading crypto firm, run by a young moron whom only other young morons would possibly entrust money to. Kind of like Dutch tulip bulbs, only at least they would grow into a lovely flower. (If you don’t get the reference, read Extraordinary Popular Delusions, written by Mackay several centuries ago.)
Now some interesting stuff is beginning to come out. This dork was a leading contributor to Dems, over $30 million, including to some Dems here in Minnesota. He must have thought there was opportunity in fake meals. If you think those contributions weren’t designed to keep his scam from being investigated, you are dead wrong. And he was quite successful, as he escaped scrutiny until the very last minute, and then absconded to Argentina with as much of the money as he stole from investors as was left.
I would like to feel sorry for the investors, but really can’t since anyone should have been suspicious about the usual made-up promises of fast and easy wealth. But it puts me in mind of another current Ponzi scheme being run by the federal government in the form of US debt. We have $32 trillion of debt outstanding and adding over a trillion more every year. That is $100,000 for each resident. We had been paying very low interest rates on that debt. Not any more. If the average rate on the debt is just 4%, that is about $1.3 trillion a year in interest payments alone. We counted on foreign countries, like Japan and China, to buy a lot of that debt. Not any more. The rise in rates means we borrow money to pay the interest, adding even more to our debt pile.
We have a spending problem, but we can’t really solve it when we have such high interest payments. During the epidemic the Federal Reserve just bought a lot of the issued debt itself, including some out on the market in private hands. This is a bad habit the Fed has developed of facilitating irresponsible government spending. It should be banned. The Fed is trying to unwind some of those purchases, which only adds to the supply/demand problem for the debt. But if it buys more debt, it also adds to the money supply and keeps pressure on general inflation. The Fed is in a no-win situation and so are we. All these very complicated dynamics are why I don’t expect inflation to decline meaningfully and I expect the economy to worsen.
And the stock market will suffer too, giving many individuals more pain. The Wall Street Journal had an article yesterday about large retailers like Walmart and Target beginning to push back on supplier price increases, which could lower inflation and help consumers. Some of the pushback is possible because supply has increased but also because demand has lessened. But all those suppliers need to make money, and have higher costs they are still trying to recover. Those suppliers are often public companies themselves, and if they get paid less for their products, their earnings don’t look good, and their stock prices decline. They also will then feel pressure to lay off employees and otherwise reduce costs. It isn’t a recipe for large earnings growth that drives stock prices higher.
Meanwhile, voters under 30 preferred whacko progressives by a huge margin. It is these younger voters who kept Dems from being slaughtered, as every other group went Republican. This is the brain-washed generation which can’t read and gets their info from Tik-Tok and Instagram. They literally are ignorant dunces. Wonder what a few years of a dreadful economy will do for them? Probably not much since they seem to think government, and Mom and Dad, will just take care of everything. To bring this full circle, the genius running FTX was one of these young know-nothing babies, but at least he was good at stealing people’s money.
I am very pessimistic for a good reason, we are quite f***ed, any way you look at it.