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What If Credit Tightened By Even 1%?

This week I read an article about a company that offers personal loans to folks who are seriously down and out. One of their strategies involves mailing checks for $2,000 to these people’s homes and if the check is cashed it activates a loan agreement that calls for the borrower/check-casher to repay the loan with interest at the incredible rate of 32% per year. Apparently, this is not uncommon and there are many companies engaged in similar business. Of course, like many, my first reaction to this article was dismay or disgust, thinking that these poor and obviously desperate borrowers are being taken advantage of. Then, I began to think to myself what this says about the health of our financial system. I wondered to myself, if this lending were indeed curtailed, thus depriving these borrowers from access to credit, what the impact on the economy might be. I thought: Is it possible that we NEED these people to borrow and spend, lest the economy not achieve targeted growth rates, whic…
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The Inflation Whipsaw

What gives with inflation? When measurements indicated that it was running below a 2% annual rate the Fed and their fellow economists fretted that it was too low. They become preoccupied with pondering actions that could be taken to stimulate higher inflation, primarily involving manipulating interest rates lower and increasing the money supply in the hope that this will compel people to borrow and spend and companies to borrow, grow, and hire.

Amazon Trumped

Disconnecting upside from downside or actors from the consequences of their actions will always lead to negative outcomes.  Many examples of this have played out in the financial world in recent history and continue to this day. These include the unfortunate history of the government-sponsored-entities FNMA and FHLMC, each of which were publicly-traded companies that for as long as they made money paid significant dividends to their private shareholders and large bonuses to their executives, but when they lost massive amounts of money in the 2008 downturn relied upon the U.S. taxpayer to bail them out. There was no question to those few in the know that the disconnect between those executives and shareholders who enjoyed the upside and the unwitting taxpayers (and their even less witting representatives in government) whose collective guarantee was always on the hook and who thus always were standing in the wings to suffer the downside, would lead to a massive collapse one day. A ver…

Interest Rates & The Trade War

These are the twin bogeymen that the hysterical media will continue to lean on to drive fear into the hearts of men and women and keep them glued to their TV sets for the predictable backwards looking drivel. Here is a different perspective for you to chew on:

Interest rates cannot go up by too much. Our nation has to service more than $20T of national debt and must also maintain a massive social safety net that will increase that debt by a further 50% before Trump’s second term ends. All the rest of the analysis is unimportant.

The Correction

The heavily anticipated correction finally arrived and somehow it caught everyone by surprise. As is the case in any correction, the market seems fraught with panic and confusion. “How low will it go?” What is the cause? These are the questions being asked broadly, and addressed by every so-called expert the media can find. In reality, as is the case in all markets where the investors were ill-informed to begin with and just jumped in because it felt right, nothing the pundits will say could allay their fears, and if the correction isn’t reversed in the early part of this week more selling will surely result.

The Misdirecting Media

I’ve been a lifelong Minnesota Vikings fan, which has meant dealing with a ton of frustration. Last week, after dominating the New Orleans Saints for most of the game the team fell apart in the final quarter, and with only 25 seconds remaining were losing by a point and seemed doomed to add to the five-decade history of sadness for Vikings fans.  But a miracle occurred and the Vikings quarterback, unheralded Case Keenum, led them on a remarkable drive that culminated in a 61-yard touchdown pass as the game ended.

Diffusing the Pressure

Too many Americans are living stressful lives, with no savings and thus no safety net if they hit a bump in the road. I’ve read estimates that fully 70% have savings of less than $1,000.  While it is true that certain key economic statistics have improved in the past year, too many Americans still count on food stamps for their survival and too many are not employed or have been left behind in the move to technology-driven economy. And, while consumer spending has increased of late, which has created the sense of economic health, of concern should be that credit card debt levels are at all-time highs.