Friday, October 21, 2016

The Clarey National Debt Plan

In part because the economy was collapsing, in part because I found it easier to analyze economies instead of companies, I made a foray into currency trading about 10 years ago.  Analyzing companies was becoming boring, not to mention more of a game predicting which government policy would affect which industry as opposed to looking at fundamentals like earnings, debt, and cash flow.  And so, using techniques nearly identical to those I used in commercial lending, I bought some Swiss Francs, Australian Dollars, and Singaporean Dollars.

I did well.

Very well.

And because of the leveraged nature of currency trading was starting to wonder if this wasn't a quick way toward riches and my true calling.  That was until....

the Swiss central bank decided it's currency was too strong and purposely started to pummel it's own currency.  Once again, I would have to predict government policy and not economics or fundamentals as the currency market was no longer efficient, but merely a reflection of government and bureaucrats.

But then it got me thinking.

"Wait, if countries purposely weaken their currencies because there's a benefit (in this case, their export industry doesn't lose business or jobs because their goods are in higher demand overseas), then there must also be SOME kind of benefit to having a strong currency as well.  In other words, in a "equal but opposite force"-type-law of economics (that I truly believe exists) what would be the benefit of a country with a strong currency?"

And then I made the connection.

Purchasing power.

I witnessed this the more I traveled overseas and realized in Mexico, Jamaica, the Bahamas, even Canada, countries would gladly accept greenbacks, saving me and other American visitors the pain of converting currencies.  I also remember a John Stossel episode where he could more quickly hail a cab in Russia flashing US dollars (and cigarettes) than the local Rubles.

But then it really dawned on me.

If a country were to have a very strong currency, if it were to adhere to free market economics, then it wouldn't weaken its currency to protect it's export base.  It would let its citizens buy world goods AND INVESTIBLE ASSETS on the cheap.

This made me wonder "couldn't the US immediately after WWII just printed off a couple billion dollars and buy all the world's productive assets in 1945?"

Which makes me wonder, "Couldn't we do the same today?"

And this is the underpinning epiphany of The Clarey National Debt Plan.

While other people's national debt reduction plans are based on some combination of cuts, fiscal discipline, frugality, and taxation, my idea is much more international and opportunistic.  For while the US may not be in its supreme position it once was back in (the evil, racist, oppressive) 40's and 50's, the truth is neither is the rest of the world.  And poor as our finances are, the world's is even worse.  Alas, we still have the world's reserve currency and we can (and do) abuse the hell out of it.

For example the money supply (using the monetary base as the measure) has increased 350% under Obama.  That should result in inflation of 350%, but it hasn't.  The money has been sopped up in recapitalizing banks, bailing out bad mortgages, and bailing out other bad investments, wherein the money sits on a balance sheet or in a vault, never allowed to circulate (and thus cause inflation) in the economy.  The money has also been used to finance bubbles such as new mortgages, student loans, and corporate buy backs of their own stock where inflation has occurred, but we don't care about it because we like it when "stocks go up," "housing prices go up," and millennials believe "you can't put a price on education."  The third area this money has gone is overseas where countries such as China, Russia, Brazil, and all of Europe are in such WORSE financial shape, our dollar and it's horrible fundamentals are still relatively attractive and act as a "safe haven" investment.

In other words we're like the only girl in Casper, Wyoming with all of her teeth.  Hideous, disease infected, and the mother of 4 from 3 different baby daddies, but we're still the best looking horse in the barn.

I say "why not capitalize on this?"

Since printing money does not (directly or immediately anyway) result in inflation, why don't we avail ourselves of this undeserved purchasing power, print off $22 trillion, and go on an acquisitions binge across the globe?  I say "acquisitions binge" and not "pay off the national debt" because, while printing off $22 trillion to merely pay off our debt is possible, I do believe the global markets and rest of the world aren't THAT dense and they would immediately dump the dollar immediately causing real inflation at home.  But if we instead INVEST that $22 trillion in assets that generate an annual profit not only does that give those $22 trillion in US dollars intrinsic value (and thus hopefully stave off inflation), but the annual profits from these investments could be used to pay down the debt.  And that's the twist to the "Clarey National Debt Plan."

I've ran some figures.

There's $44 trillion in publicly traded global equities of the G20 nations.  These securities on average pay a dividend yield of 3.156%.  You may ask "why would you only print off $22 trillion, why not a full $44 trillion and buy these global equities outright" and the reason why is you don't want the US government becoming majority shareholder of anything.  They'd ruin the underlying investment forcing unnecessary corporate social responsibility initiatives, under-performing minorities in positions of power, mandating carbon footprint quotas, and a whole slew of politically motivated leftist slop that would destroy the profit potential of these firms.  You want the US government to be a silent, non-participatory, non-intervening partner, and ensuring they only own 49.9% (thus the $22 trillion) of these firms is a way to do that.

A 3.156% annual dividend yield on $22 trillion generates $694 billion in proceeds each year.

Assume there's a balanced budget (which is the LEAST likely assumption in all of this theoretical plan, and sadly, I'm not joking), and the national debt is paid off in a maximum of 28 years, probably less assuming growth in earnings (there's technically a way we could eliminate the national debt in a year or two, but I'm not paid enough to consult on these matters).

Now admittedly there's plenty wrong with this idea.

One, printing off $22 trillion (I would hope) would cause the currency markets to crash (indicating there's at least some sanity left in this world).  But here's where the juicy irony lies.  We just almost quadrupled the money supply under Obama/Yellen/Bernanke.

I ask you one simple question:

Where did all that money go?

If you look at the federal reserve balance sheet and the federal budget this newly minted money went to the following places:

1.  Bailing out unprofitable banks
2.  Bailing out other unprofitable financial firms
3.  Bailing out unprofitable people who borrowed more than they could afford
4.  Bailing out people either via welfare, EBT, social security, etc., ie - parasitic people who do NOT produce a net positive economic production
5.  Wars/military (where in once again, the purpose of the military is to destroy things, not make a profit)
6.  Forcing the tax payer to bail out millennials from their worthless, idiotic degrees (oops, wait, that hasn't happened...yet)

In other words, NOT ONE PENNY was an actual investment as you expect to get a positive return on investments.  These were expenditures on money losing operations, money losing people, money losing wars, and the just plain losers, degenerates, and scum of our society.  There was no hope of profits, earnings, dividends, cash flow, or capital gains.  It was simply a pissing away of money.

When you realize this you'll see my plan is INFINITELY more sound, logical, and sane because there's an actual profit at the end of this $22 trillion investment.  And that's the key word - it's an investment.  If markets are as sane as they are now, and consistent, the dollar should (ironically) SURGE compared to other country's currencies because unlike Greece, Japan, Europe, Brazil, and nearly every other country we wouldn't be bailing out our country's losers, but investing in global winners.

This then leads to the second problem - inflated stock prices.

If it were to get out the US government was on a $22 trillion global spending spree stock prices would jump to the point the purchasing price would no longer make this plan viable.  Additionally, as it just so happens, central banks are already doing this just the same.  But while smaller central banks such as the Swiss, Singaporean, etc., might go and take such actions, they're too small to drive prices up significantly on the global markets.  The US is too big.  Ergo, kind of like China, they'd have to do it clandestinely and secretly through unremarkably named subsidiaries and shell companies.  This would take some time to slowly, indirectly, and discreetly amass a $22 trillion global equity portfolio, but in time it could be done, especially if there are dips or crashes in the market.

There are other problems with "The Clarey National Debt Plan," but truthfully it would be a waste of time further exploring what is already an academic, theoretical exercise.  The balls that would be required to execute this plan just do not exist in the US.  While Japan and Australia have the spine to end their worthless degree bubbles, our president apologizes when he states the truth about art history degrees.  And the student loan bubble is merely 1/20th the size of our national debt problems.  However, we can learn something from this intellectual exercise aside from just what a bunch of self-deluding clowns and asshats the central banking/governmental/international finance "authorities" are.  And that lesson is the only source by which national debts can be paid off if through the economic production of the people.

In other words, government is not a solution to anything as it is the underlying people who are the ones with not only the power, but the economic production potential necessary to make good on whatever promises their governments made.  It is cute that today's international economy is so screwed up that the US could just waltz in, print off $22 trillion, and purchase the productivity of the world's productive classes, which would bail out our parasitic and lazy classes, but it doesn't change the fact that when it all boils down to fundamentals, economic production of the private sector is where ALL economic worth, value, and wealth comes from.  And if you really want to build a successful society, civilization, or country, I suggest you found it around this key and vital principle.

In the meantime you central bankers, government bureaucrats, and international bond traders enjoy the decline!
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Anonymous said...

Old man Two-Sticks asks, "did I miss something or..."
never mind, I just realized that anyone w/ the appropriate I.Q. would realize that you meant to say "A 3.156% annual dividend yield on $22 trillion generates $694 BILLION in proceeds each year." ... carry on

Post Alley Crackpot said...

There are some small-volume USD proxies that are interesting to own not because that you'll gain any more money having them, but because they open up other possibilities.

XCD (Eastern Caribbean Dollar) is one of these, and yes, you can buy things with USD in those countries. Most of the American-owned hotels charge you for rooms in USD, charge you for services and meals in USD, and so forth, although if you want a mobile top-up from the corner shop, the "big balla" card (the largest sold) of one mobile operator is only sold in XCD, and it should cost you roughly 20 USD with VAT.

But there's a place where if you're in the local credit union, you can pay a small pittance for local insurance that's good for nearly every serious problem you'll encounter. That's because in that place, being a doctor isn't an upper-class job, it's a middle-class job, and that's also because the people who live there don't have the money for platinum-plated health care.

They offer USD deposit accounts, and unfortunately they'll be part of the 2017-2018 "global FATCA" being pushed down by the OECD's scumbag Frenchie/Eurotard bureaucrats, but you also need an XCD current account in order to sign up for their other services.

So there are "investments at parity" that sometimes work out well enough.

I'm still shaking my head at how you could get caught out by the SNB's "rate peg" decision -- there was so much market sentiment around that time that although it wasn't necessarily obvious what the SNB's decision would be, smart money moved out of the CHF and the EUR as well. If I recall that period correctly, the RUB was also going pear-shaped and the DKK was absorbing a lot of forex trade volume that couldn't find a sink in CHF, SEK, SGD, etc.

My point?

Never underestimate market sentiments being more important than market fundamentals.

Your fundamentals sound solid, but I don't see how you've taken into account market sentiments undermining most of them.

In fact, I'd argue that precisely because of sentiments, you get the pattern of dis-investment into bail-outs that you have described.

Adam Smith's "invisible hand" may sometimes be caught rubbing one out with the help of market sentiments and market romances involving stormy multi-partner relationships with volatile currencies.

Try not to get any of that on you. :-)

CBMTTek said...

Damn you cappy!

Damn you to whatever socialist hellhole would most torment you for all eternity.

When asshats like Krugman, and others of his ilk started talking about just "printing the money to pay off the debt", their arguments were, well asinine. It is an absurd idea.

Now, I read this, and dammit! It kind of makes sense. Seriously. There are, as you admit, risks, etc..., but sometimes you have to take a beating on one front in order to win the war.

I am still pretty sure that keeping the integrity of the US Dollar intact is the smart move, but you have just instilled doubts, and for that... I curse you.

For now.
I will reserve the right to use your brilliance in the future.

Normal Guy said...

694 dollars per year! Oh, screw me sideways... sign me up!

Jokes aside. The problem is that other countries would catch on quick. Leading to either outright nationalisation of these assets and companies or strict taxes to stop the outflow of resources to America.

Furthermore, it's already being done, as you say, by Central banks, which have all but destroyed the stock markets in their own countries, think what this would do.. it would push up these stock prices even further, doing exactly what it is that those who hold over valued asset classes want.. America could be left holding the bag of a bunch of valueless stocks which will eventually be strip-mined of their assets to pay off their debts, thus ensuring America gets 0 back on its investments.

Anonymous said...

There is an (apocryphal?) story about Idi Amin, wherein an advisor approached him to report that the country was almost out of money. "Well, print more!" was the reply.

Perhaps he was on to something.

Anonymous said...

You're missing the whole reason as to why this plan isn't put into action. It would constitute growth. The powers-that-be don't want growth, prosperity, etc.

Anonymous said...

I read the link to the USA Today article. Funny that Rubio chimes in but also has a worthless degree and has yet to contribute anything productive to society just like the Kenyan Gay Muslim Mulatto.

Anonymous said...

And speaking of worthless, take a look at this email chain from the Wikileaks.

Delong's son is another worthless SJW parasite who is looking to get a cushy DC job advocating to cheat us of the right to bear arms. When can the revolution start so we can execute these people?

j said...

When the government prints a dollar and spends a dollar where does that dollar go?

Into someone's bank account where it is multiplied by, say, ten and set out on loan.

Spend that same dollar in the equity markets and you lose the multiplier. Not saying you are wrong, just saying there's no free lunch.

JamesD said...

BOJ is already doing this.