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The Trillion Dollar coin HALLOWEEN EDITION 2021

Can a trillion dollar coin make the deficits Ghosts disappear?

With the U.S. government running a 29 trillion dollar deficit (USDEBTCLOCK.ORG), with another 157 trillion in unfunded liabilities (debts not due yet but still owed) the additional 1.9 trillion stimulus proposal (the amount changes daily) is being hotly contested in Congress. Washington desperately wants to authorize this additional spending. Opponents of the bill from both parties point to the money already spent during CoVid (about 4.5 trillion) saying another two trillion is excessive and will add even more debt to an already bloated U.S. budget. Now a U.S. default approaches, which is only compounding the problem.

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Where there is a will there is a way, and an idea that was originally tossed about and discarded in last decade is once again up for discussion. The idea is to mint a platinum coin with a face value of one trillion dollars, then give that to the Federal Reserve of United States, who in turn would deposit it into the U.S. Treasury. Then the Treasury Department could essentially cash the coin back at the Federal Reserve to fund one trillion dollars in additional spending. The idea is with the theoretical $1 trillion coin on deposit, the government could pay its bills without additional borrowing, making the debt ceiling a nonissue and, therefore, averting a government shutdown. Since the coin would be legal tender per the original U.S. Coinage Act, it is essentially just making change from the coin to U.S. dollars, which it could then spend.

The idea is being pushed by, among others, Professor of Economics and Nobel Prize winner in Economic Sciences, Economist Paul Krugman. In his latest article (Oct 1, 2021) entitled “Wonking Out: Biden Should Ignore the Debt Limit and Mint a $1 Trillion Coin”, Krugman suggests the coin could provide a respectable solution to the spending plan and not officially increase the deficit. Krugman also suggests the coin does not have to actually contain a trillion dollars’ worth of platinum (that would be beyond huge), but would only have to be denominated as such.

If you find yourself scratching your head and trying to put the pieces together in your mind, you’re not alone. Not only did the Treasury Department and the Federal Reserve nix the idea a few times in the last decade, the logic of it, well, defies logic.

That the coin is being seriously considered by the powers at be makes more than a few of us shake our heads.

More concerning is that the Treasury Department and the Federal Reserve for the most part, not commenting much, nor outright killing the idea like they did way back when. We have to remember different people run these institutions now, and along with many other ideological changes, what seemed impossible a few short years ago is now on the proverbial table of consideration.

Not everyone in Washington is onboard with the idea. Ex-Federal reserve chief now our Treasury Secretary, Janet Yellen, dismissed the of minting a $1 trillion coin as a last-ditch effort to help the United States pay its debt, saying the concept shouldn’t be considered seriously despite its popularity.

Like I said, where a will comes a way. I would ask why stop at a trillion? Why not stamp it 29 trillion and wipe out that nasty deficit once and for all?

Well the “for all” part is probably not going to happen. Wipe the deficit clean is like destroying a beaver dam. Get rid of it and you’ll likely find another in short order. Wipe the deficit clean and do you think they would start running it back up again?

Me thinks so.

In any case, the very concept seems ludicrous. Why bother wasting the platinum? Just print a “one trillion dollars” on a lead fishing weight and be done with it.

Many analysts and economists doubt the coin idea will ever make it out of the concept stage, but if we have learned anything in the last six years or so, don’t bet against putting anything past those that rule us. It can get a whole lot wackier before we come to our senses.

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Vantage Notified 10 31 2021 email

The National Debt UPDATE

The Federal Reserve Building

THE NATIONAL DEBT

How much the U.S. government owes is called the National Debt and to no one’s surprise, it grows larger by the day.

Actually by the second.

For a sobering look as to just how fast and how much, check out the website www.usdebtclock.org.

Our debt is about to hit 29 trillion. This is what we spend (and are spending) that we do not take in from taxes and other revenue sources.

That stunning figure does not include our unfunded liabilities, which are debts we are on the hook for but are not yet due (like an end of the month payment at mid-month).

Unfunded liabilities can only be estimated and by estimation, they stand at 157 trillion by that same U.S. debt clock. Other figures tossed about double that. Like I said, it depends on how one figures it.

It took about 200 years for the U.S. to amass its first trillion in debt. Now we borrow that much debt every year. That is the power of compounding. It can help you when saving money but bite you in the you-know-where if you are on the borrowing end.

Just how much is a trillion?

Measured in time, 1000 seconds is about 17 minutes. Sit down for a million seconds and you can resume standing up in 11.5 days.

Repeat the same exercise for a trillion seconds and you wouldn’t be there anymore, and probably neither would anything else. A trillion seconds ticks off in 31,688 years.

Imagine that.

Well actually, I can’t.

But the over spenders can. Or maybe they can’t. Because if they could, maybe they wouldn’t spend that much.

Think again.

The current spending figures for the CoVid bailout is about 3.5 trillion dollars. Measured at a dollar a day it stands at about 110,908 years.

This does not include another 1.9 trillion in additional spending proposed in the next bill from Washington.

Do we want it to pass?

Guess that is a matter of opinion right? (And no, I am not giving mine).

Considering the amounts, we can assume it is a foregone conclusion the U.S.will never pay off its debt. With 29 trillion on the hook, it’s literally impossible. Too bad for those creditors, which by the way includes American taxpayers.

Reminding everyone about the additional unfunded liabilities, (that figure again is 157 trillion), in years that amounts to “E”, also known as error, as that is what my calculator says when I attempt to arrive at a total.

I’m not real good at carrying zeros so hence the reason I list an “E” as an answer. Whatever my calculator says, it basically should say “N” for never.

With a number so large, does it really matter how much we owe?

In the words of Former Vice President, “deficits don’t matter”.

My opinion is that “deficits don’t matter, until they do”.

If deficits don’t matter, why have deficits brought countless countries to their knees at the moment they did matter?

Better said, deficits don’t matter, until they are large enough, then they will.

The question then becomes how large can the U.S. deficit become before the “it matters” moment arrives.

No one knows. What we do know is that moment will arrive eventually. It approaches nearer and nearer with every dollar we spend.

What will happen when the “it matters”’ moment arrives?

We have countless examples throughout history to draw from:

Inflation gradually accelerates long before the “moment” arrives. Rapidly accelerating inflation will be the next canary in the coalmine. Next will follow rising interest rates, first purposely raised by the monetary authorities, then they will rise on their own uncontrollably. The public bond market will start to convulse and bond auctions (the public markets where debt is sold) will begin to fail. This occurs because interest rates are rising so fast, debt buyers will not commit funds to a fixed interest rate product because rates are rising too fast. The final straw will be lack of confidence in the currency in question, and then, basically, all hell breaks loose.

When the currency has its “Mexican Peso” moment, you can imagine how life will be. Usually governments will then attempt to make a new currency, or get a bailout from somebody. In the case of the U.S., the question becomes is any one entity big enough to bail out the largest economy on the planet?

Let’s not go there.

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Update on housing! September 21 2021

Note the interesting drop off early in the year~

Home Glut or shortage?

I always get a kick out of hearing prognostications for a continued shortage in the residential housing market in Nevada County.

Not only in Nevada County mind you, but in many places in the country.

The high demand is contributing to what I call the “musical chairs” of homebuyers, brought about by a plethora of issues, which includes but are not limited to the Covid work-at-home craze, wild fire dangers and political refugees fleeing perceived party-saturated areas.

In a capitalistic system, there can be no ongoing shortage of anything unless the “thing” referred to is at zero quantity or close to it. Residential real estate has thousands of houses in existence in Grass Valley alone, let alone in the entire county.

So why are so many under the impression the housing shortage will continue?

Simply put, its the ignorance of how free markets operate and the subsequent failure of those responsible for setting the selling price of a home.

Capitalism functions on supply and demand, and the very nature of how capitalism works will eliminate shortages and excesses in short order. Ongoing shortages or excesses only exist through the failure of market participants to respond to what the capitalistic mechanism is telling them. Unfortunately, this failure may be costing homeowners big money in the process, and in some cases, tens of thousands of dollars.

A shortage of something means demand exceeds supply. In a free market, a shortage means sellers can raise prices until such a time a balance of supply and demand is reached and the so-called “shortage” is eliminated.

For a shortage to continue means those pricing the asset (homes) are failing to respond to what the `system` is telling them. Someone once asked me if I could solve the housing shortage after attending one of my real estate seminars. I answered, “yes, I could solve the shortage in one day”.

The answer?
Double the price of every home in Nevada County over the listed current market value.

Wha-la. Housing shortage solved.

In fact, by doubling the price, we could easily have a housing glut. Simply put, shortages in a free market means prices are too low for the demand environment. Shortages in free markets are usually corrected quickly by proper pricing. This means those setting prices are failing to respond to market conditions. They are mispricing homes too low.

Sale prices set too low in relation to demand will continue the perceived (and incorrectly so) the so-called shortage. Quick sales are an indicator prices could be too low.

This failure to price correctly also means sellers may not be getting top dollar for their homes and could be leaving thousands of dollars on the negotiating table.

Whereas a glut of homes means prices must drop, a shortage of homes means prices should rise. That the shortage continues means the mispricing continues. This sadly may be robbing sellers of dollars they could be due.

I always chuckle just a bit when I hear someone rave about their realtor that sold their house in 3 days. Since recent data from realtor.com suggests the median home takes about 65 days to sell, selling times less than probably means prices are too low, and perhaps way too low. Praises that a realtor sold a house in a few days is misguided and its unfortunate for sellers they do not understand market dynamics.

The question is why would those responsible for setting selling prices continue this flawed mispricing practice despite the fact that prices may be able to be raised to meet the imbalance in demand that is causing the so-called shortage?

Either those determining sale prices do not understand free market dynamics or are purposely setting prices too low to facilitate a quick sale. Considering many responsible for setting sale prices are forecasting a continued housing shortage, I would lean more toward the former than the latter. That home sellers are perhaps missing out on much higher revenues from selling their home because of a lack of understanding, or a conflict of interest brought about by a quick sale, is unfortunate.

My suggestion is if you are selling a home, to multiply the suggested selling price by 120%. You might have to wait a little longer, and argue a bit if using a realtor, but in the case of a $500,000.00 initial suggested price, is it worth the extra $100,000.00 to wait a few more weeks?

Me thinks so.

The views expressed are opinions only of Mr. Cuniberti. They do not necessarily represent those of any news media. No guarantees are made as to any claims or statements contained herein. This is not meant as investment advice. Consult a qualified professional for your investment needs. His website is www. moneymanagementradio.com. California Insurance License #0L34249. Medicare agent approved in California (530) 559 1214.

History Rhymes Update 9 11 2021

Hello Money Matters fans,

They say history never repeats but it sure can rhyme.

If that’s the case, I feel like writing some poetry today.

During the first week of February 2020, I was sent photos of an empty city in China by an acquaintance of mine, that city being the now famous metropolis of Wuhan.

As I stared at the empty airport and shopping malls of what would later become, arguably, the birthplace of CoVid-19, my mind immediately connected to the concern I had about the markets and where they were headed due to the Trump tariffs.

With the Dow close to an all-time high, rising from the Trump election in November of 2016, I was already looking for an excuse to move portfolios out of the markets. The fear, at that time, was that the tariffs imposed on China would knock China GDP (total output of the economy) down by more than a percent, and that the markets would sell off on a weaker than expected Chinese GDP number.

Seeing an empty city in the busiest country on the planet due to some virus called Corona, I went back to research the effect a similar event had on Chinese GDP.

The 2003 Severe Acute Respiratory Syndrome (SARS) event sickened about 8,000 people and had a mortality rate of 10%. SARS caused Chinese GDP to back off 1%, and back then, China was only the 5^th largest economy worldwide,

Doing a quick check at worldometers.info/coronavirus/ (an excellent site for CoVid stats), mortality rates were at 3% and the number of CoVid infections stood at 35,000. A shockwave went through me. With the Dow at or near an all-time high, with the tariffs already causing me concern as to their effect on the Wall Street, and now staring at a virus that already had ten times the infections then SARS which knocked off 1% off Chinese GDP, and China now the second largest economy in the world, I penned an article Feb 10^th, 2020 entitled “Corona Virus Effect on Markets”.

The article’s main theme was that investors were not considering the possible effect that an exploding Corona virus could have on markets.

Specifically I wrote:

“Unless Corona is soon contained, a lingering presence could rattle markets long term with severe consequences being possible” (Feb 10, 2020)

“Severe consequences” turned out to be true if not the understatement of the century.

On my subsequent Money Matters radio program I warned the same and announced I had initiated appropriate measures in stock portfolios.

Starting a few weeks after that article, in the first few days of March, the Dow began its historic 38% slide in a record shattering time of only three weeks.

Fast forward to today and I am beginning to get the same feeling as I did back then.

The similarities are striking. The Dow is again pressing up against an all-time high. Bailout packages, unemployment bonus checks, paycheck protection reimbursement programs (PPP) and other subsidy programs have ended or are ending soon. CoVid cases are spiking and in certain areas, exceeding the highest infection rates of the summer of 2020.

We are finding out that the vaccines are not the panacea we thought they were, and in the midst of a massive resurgence of the new Delta variant, much of the U.S. is reopening with a vengeance.

Theme parks are open, football stadiums will soon be packed full of fans, 700,000 motorcycles enthusiasts will soon be arriving in Sturgis for the annual motorcycle rally, and restaurants, theaters and other venues are opening up to record crowds.

Once again, I find myself looking for a reason to sell in an attempt to preserve that which the rebound in 2020 may have given us. Once again, I have installed stops (orders to sell should prices drop) in all portfolio positions.

Although such methods do not guarantee against losses, stops can help eject positions automatically if markets start down hard.

And like a bad dream that keeps coming back, Wall Street investors seem to be ignoring the possibility that once again, as CoVid revisits its assault on the human species, in its doing so, could also once again cause a severe reaction in the markets.

Keep in mind no one can predict market movements at any time and past performance does not guarantee future results. Contains the opinions of Marc Cuniberti only and should not be construed as investment advice or a solicitation to buy or sell any securities, nor represents the opinion of any bank, investment or advisory firm. Neither Money Management Radio (“Money Matters”) nor Bay Area Process receive, control, access or monitor client funds, accounts, or portfolios. California Insurance License #0L34249. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. (530)559-1214

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A breaking economy Update 8 15 2021

Breaking Economy or broken Capitalism?

The basic premise of Capitalism is a transaction between individuals where two parties buy, sell or swap goods or services at a price that is agreeable to both and the value of the transaction is kept by both.

This basic transaction has enabled humankind from the beginning to exist by acquiring what they need from other members of the species.

The economic model of Capitalism is this same mechanism but on a grander scale.

The transaction can be modified with the agreement of both participants. As long as the participants and the only the participants make the modifications to the agreement, a capitalistic transaction still has taken place. Simply put, it is willing transaction between two parties or more to the satisfaction of all without outside interference.

That said, in recent months, I been asking myself if our economy is indeed broken, but knowing that as long as transactions are taking place, the economy is functioning, hence by definition, is unbroken.

It would be impossible to actually break an economy, as people will always need to procure things from one another. However, it is becoming evident, as it has happened so many times before in humankind’s history, that intervention into this basic transactional event can move an economy towards a breaking point.

When interference into this basic transaction occurs, economic distortions materialize that begin to seemingly make little sense. These distortions are caused by intervention into this basic transaction. The intervention can be a natural obstacle such as bad weather, but more often in modern society, it is a third party interfering with the agreement between the original participants.

Examples of third party interference would be forcing one party to accept the terms of the other (think terms or conditions not agreeable to one or both parties), adding or subtracting from values of the items exchanged (think forced rationing or mandated minimums or maximums) , or demanding a subsequent value transaction for every standard transaction (think tax or subsidy).

Obviously, in our modern day society, the basic transaction is laden with dos and don’ts, rules and regulations, deductions, surcharges, fees or taxes. The worth of each transaction has been altered by such additions or subtractions and because of decades of intervention, we may finally be seeing what starts to resemble a breakage of the economy. Some may call it a tipping point.

Examples of these distortions today would be our high unemployment rate while businesses have difficulty-finding workers (this condition persists nationwide), a severe misallocation and highly unbalanced distribution of wealth, and a necessity to manufacture intrinsically worthless receipts (our currency and deficit spending) to address the economic maladies that have materialized because of these distortions. Other symptoms include the necessity of an ever-increasing safety net to constituents (despite improved efficiencies throughout history in manufacturing techniques) a perceived need for ever-increasing regulation and taxation in order to sustain the `system` and increased violence and unrest as a result of these economic distortions that wreak havoc on members of the economy caused by more and more interventions. The more havoc that materializes, the more these third parties feel it necessary to intervene.

Plainly put, what started as a simple transaction has somehow morphed into something that no longer accomplishes its original purpose.

Having attracted intervention by a host of others not part of the original transaction, the simple exchange of goods and services has morphed into something almost completely unsustainable. What started as a working economic model moves more and more towards an unfunctional one. In summary, the Capitalistic economic model is nothing more than people buying and selling at an agreeable price to both, with their needs fulfilled and the value of the transaction kept by both. When man tries and improve on this basic transaction for whatever the perceived reason, the natural economy begins to break apart as the basic transaction is interfered with.

In conclusion, our economy may not be broken, but to this analyst, may have reached a point as to be almost unrecognizable as to its original intent. Despite this, the interventions continue to increase, and the parties responsible for these interventions is growing larger by the day. What comes next is usually more interventions to try and correct the distortions that the previous interventions have caused.

Opinions expressed here are those of Mr. Cuniberti and not those of any bank or investment advisory firm. Nothing stated is meant to insure a guarantee, or to be construed as investment advice. Neither Money Management Radio (“Money Matters”) receive, control, access or monitor client funds, accounts, or portfolios. For a list of the services offered by Mr. Cuniberti, call (530)559-1214. California Insurance License #0L34249 and Medicare Agent approved. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. Email: news@moneymanagementradio.com.

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