R.I.P. Buck

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Photo Credit: Image by Wolfgang Eckert from Pixabay

What can ever replace him?

My friend Buck passed away and I feel terrible that I cannot determine the exact time and date of his passing. Most of the world is unaware he is gone and I have heard there are some who claim he is still with us. Was Buck a friend? Yes. Could every man relate to Buck? Absolutely.

Admittedly, Buck’s past was a little checkered. His ancestors were not always considered savory. His great uncle, x3, the Continental, was roundly dissed. This uncle was considered worthless, without backing and susceptible to being copied.

Buck’s more recent ancestors were numerous, and from 1793 to 1861, his forbearers were printed and circulated by numerous private banks at the state level. Buck’s ancestral history can be found in a nifty publication: History of United States Currency.

Buck’s family crest, $, was adopted in 1785. In 1791, Buck got his permanent ancestral home when his great, great, great godfather, Al Hamilton, established the first U.S.  bank. The Buck most of us know and love, the first paper currency from the U.S. Treasury, was finally born in 1861. While he changed his look over the years, everyone wanted to be his friend, to have more of him. Everyone desired his presence, to be more than close. Time passed, and as banks started making credit available to Buck’s admirers, desire for Buck continued to grow.

Why was Buck so popular? He enhanced the lives of those who possessed him. Spending time with Buck was mostly satisfying, as was spending a little time with him. When Buck came into your presence, it was rewarding. You know Buck was as solid as a rock, always hanging around with his longtime partner, Gold.

Buck had rough spots throughout his life, but many old timers say that Buck’s demise started around 1972, when Buck was separated from Gold. Many wondered what would happen to Buck, but he was tough and seemed to have survived the separation. In more private moments, however, Buck would confide to me that he felt less valuable after his separation from Gold, felt like he was becoming worth less.

Years passed and Buck’s reputation grew. He was the official currency of the world’s strongest economy. Everyone wanted him and he was invited into banking systems the world over. Buck began to feel more confident, that he could be everyone’s best friend, anywhere in the world. His admirers always compared him to his cousins Peso, Yen and Ruble. Buck always was given a seat at the head of the table.

So, what finally happened to Buck? As I become more acquainted with Buck, I noticed that he started to seem thinner, somehow more “stretched.” It depends upon with whom you speak, but I believe that Buck’s boyhood competitor, Inflation, finally got the best of Buck. Some will disagree with me and for those who do, I’ll refer you to 1945.com’s Desmond Lachman. Lachman, in an excellent article, chronicles the differing opinions about Inflation from a former and current U.S. Chairman of the Federal Reserve.

Inflation is also a worry:

From a Friedmannian perspective, among the more striking characteristics of the Powell Fed is its seeming total disregard for the way in which its policies are causing a U.S. money supply explosion. In particular, the Fed seems to be unfazed by the fact that over the past year the Fed’s highly aggressive bond-buying program has contributed to a 30 percent increase in the broad money supply. That is the fastest pace of U.S. money supply increase in the past sixty years by a multiple of around 3.

For Milton Friedman, such a money supply explosion would be a sure sign that inflation was around the corner, especially if the Fed were to continue to finance the U.S. government’s largest budget deficit in peacetime history by printing yet more money. By contrast, for Jerome Powell, who expects inflation to remain well contained, the unusually rapid money supply increase seems to have no real meaning.

Another surprising aspect of the Fed’s current policy mindset is its determination to wait until it sees very clear signs of inflation before starting to even think about raising interest rates or tapering its $120 billion a month bond-buying program. Never mind Milton Friedman’s warnings that monetary policy acts with long and variable lags. The Fed in its wisdom seems to think that nowadays inflation can be turned around on a dime and that there is no policy need to anticipate inflation from a likely economic overheating until actual inflation comes knocking at your door.

All of this does not bode well for the U.S. economic and financial market outlook.

So there you have it – my perhaps premature eulogy for Buck. Some will say, ‘Hey Richard Edward, Buck’s still around, he just doesn’t buy as much as he used to… and dude, even if Buck is a little weaker than he used to be, his cousin Benjamin is still here.’ I don’t know much about that. Benjamin was always running with a much higher dollar crowd than my own, so I haven’t seen him for quite some time.

Those who disagree with me also say ‘Richard Edward has family members living on fixed incomes, so he is just obsessed over the possibility of inflation making his dollars’ worth less, even worthless.’ Who knows, maybe they’re right?

If you think Richard Edward is overly concerned with inflation becoming an American Crisis, please leave a comment below and share your thoughts.

—  Richard Edward Tracy

Buddy, can you spare a troy ounce? How to Prepare for the Inevitable Inflation Ahead

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My mom is an octogenarian who still works two to three days a week and loves what she does.

She tells me that she just sent her invoice off for the current billing period and was excited over the prospect of a big paycheck. She then turns to me and asks the dreaded question:

“Son, I’ve got xxx dollars in my savings and 401K accounts.  What should I do with all that cash?  I most likely won’t survive to spend it all and I’ve heard you talk about inflation and how our dollars might be devalued, so what do you think, should I buy something, like real estate?”

Do I think she has far too much fiat currency in the bank?  Do I think she should move it into a different asset class to hedge against inflation and preserve some of that ‘wealth’?  Am I risk averse with the disposition of my own ‘fiat currency’? Do I put some of my saved ‘fiat currency’ where my mouth is (precious metals)?

Absolutely yes, to all of the above.

At the end of the day, will my 88-year-old mom, a product of the Great Depression era, let go of any amount of the ‘money’ she has in the bank to invest in a hedge asset to preserve her wealth?  Absolutely NOT.

When you spend a lifetime working for a living, constantly repeating the mantra of “saving up for your retirement, don’t buy on credit, a penny saved, etc.,” you don’t easily embrace the idea that the thing you have worked for all of your life is becoming more and more worthless by the day.  I am old enough to have the same reaction when my sons ask me about investing in that newfangled thing, Bitcoin.

However, if money becomes worthless, what do we do?

I tell her that President Biden has just signed a bill that injects $1.9 trillion (with a ‘T’) of additional debt into the economy – which our liberal friends refer to as stimulus.

This new debt will be added to the already massive amount of U.S. debt. The Associated Press reported this week that the “The U.S. government’s budget deficit through February hit an all-time high of $l.05 trillion for the first five months of this budget year [October through February], as spending to deal with the coronavirus pandemic surged at a pace far above an increase in tax revenue.” This represents an increase of 68 percent from the year earlier period.

According to the Associated Press:

It easily surpassed the previous five-month deficit of $652 billion set in 2010 when the government was spending to try to lift the country out of the deep recession caused by the 2008 financial crisis.

The Congressional Budget Office has projected that the deficit for the budget year that ends on Sept. 30 will be $2.3 trillion. However, that estimate does not include the cost of President Joe Biden’s $1.9 trillion COVID relief measure, which cleared Congress on Wednesday.

Not only is the new stimulus, in and of itself, an enormous amount, but it turns out to be a dog’s breakfast of drunken-sailor spending.

Now, Mom is the kind of person who has always managed to balance her checkbook, so she really doesn’t appreciate that the U.S. government cannot do the same.

I didn’t have the heart to inform her of the following news from Fox Business News’ Megan Henney, who provides a closer look at some components that you may be surprised to discover were included in the relief bill:

$500 million for museums and libraries:

Roughly $500 million will go toward doubling the budgets of the Institute of Museum and Library Services and the National Endowment of the Arts and Humanities.

About $200 million in the bill is set aside for The Institute of Museum and Library Services, an independent federal agency that provides grants to libraries and museums, and also helps to fund policy development and research. Its budget in fiscal year 2019 was about $240 million.

The relief measure also allocates $270 million for the National Endowment of the Arts and the Humanities, an institute that had a budget of $253 million in fiscal year 2019.

“The legislation would appropriate $480 million for grants to fund activities related to the arts, humanities, libraries and museums, and Native American language preservation and maintenance,” the Congressional Budget Office said in its analysis of the proposed measure.

$5 billion for ‘disadvantaged’ farmers:

Introduced by Sen. Raphael Warnock, D-Ga., the $5 billion Emergency Relief for Farmers of Color Act, which is part of the stimulus bill, will provide direct payments to Black, Hispanic and Indigenous farmers.

It also includes $1 billion to address systemic racism at the U.S. Agriculture Department and provide legal assistance to farmers of color.

I can see the latest screed from the mainstream media now: “COVID devastates American agri-business, farmers of color hit hardest.”

Affordable Care Act expansion:

It will fully subsidize ObamaCare subsidies for people earning up to 150% of the federal poverty level and unemployed individuals. The measure also makes Americans earning more than 400% of the poverty level — about $51,000 for one person, and $106,000 for a family of four — eligible for subsidies for the first time and will cap their premium costs at 8.5%.

The subsidy boosts, which Democrats have sought for years, will only last for two years, through 2022.

Sure, only last two years, wanna bet?  Remember, they don’t think its YOUR money they are spending.

So, now what do I tell mom?

I tell her about physical silver and gold, one more time. “Just buy a little and protect the rest of those ones and zeros you have in the bank from the inevitable inflation.  Mom, you don’t want to have to take a wheelbarrow full of greenbacks to the market to buy a loaf of bread when too many dollars are chasing too few goods and services.  Democrats (okay, Republicans are guilty too, but to a lesser degree) are only going to add to the problem.”

Regardless, at some point, someone will have to pay for this unchecked spending.

I then try to explain why gold and silver can inflate in value, keeping pace with inflation, as more and more dollars in circulation will need to be supported by something other than the full faith and credit of the U.S. government.

She understands, but it’s a tough sell. In her world, ‘money’ in the bank is all you need. “Who will buy my gold or silver,” she asks. I tell her that if worst comes to worst, the grocery store and the gas station will take an ounce or two when she goes to shop. Understandably, this rattles her. To be honest, it rattles me, too.

Are metals the best way to protect your dollars? My bank thinks that while gold might have a decent future, it doesn’t pay dividends and has other ‘headwinds’ against its (value) price.

Business Insider’s Carla Mozée wrote last month:

A decline in physical demand for gold by central banks has been a challenge for gold, says Bank of America…

Jewelry sales have been disappointing as the COVID-19 pandemic suppressed customer activity…

A “lack of interest” from investors in buying gold has also been a pressure point for the market…

Yet, out of the other side of their teller cage, comes the following prediction: Gold prices traded around $1,790 an ounce on Wednesday. Bank of America still expects prices to average $2,063 in 2021, a forecast it set last year.

Hence, the age-old question: What’s a mother to do?

Personally, I am going to keep asking her to buy some precious metals, hedge a little of what is in her bank accounts and spend the rest of her stash on Hawaii cruises and excellent wine.

Is this huge addition to our national debt for COVID relief necessary? Some, but not all.

Our economy is on life support and many of our neighbors aren’t making it. We do need to reach out and help them. But that ‘other white meat,’ pork, seems to appear far too often in the bill’s line-item details. It is, after all, OUR money.

Let’s help those who need it, but only those who need it.

If you think our government’s excessive spending, money printing and growing national debt, under the guise of a COVID bailout is an American Crisis, leave a comment below.

— Richard Edward Tracy