Thus spoke Alexander

My buddy J Scott’s shares these great long form economic posts on Facebook, but this week he announced he was taking a break. So I thought I would write a story of my own and share it.

I have a different approach towards this topic. J likes to explain economics with data and I prefer narratives. Both are bullshit and the whole of economics is a giant waste of time peddled by clueless circle jerking idiots who want to think of themselves as smart, but narratives are more fun

I shall name this narrative:

“The economy is dead. The economy remains dead. And we have killed it. How shall we comfort ourselves, the murderers of all murderers? What was holiest and mightiest of all that the world has yet owned has bled to death under our knives: who will wipe this blood off us? What water is there for us to clean ourselves? What festivals of atonement, what sacred games shall we have to invent?”

Our story starts in 2008

The great recession brought banking collapse, General Motors goes bankrupt, the stock market dropped 50%, the US economy was purging 600,000 jobs per month, housing valuations plummeted, and all invested money had run from the market. Everyone panics. The political drama at the time pretended that the capitalist republicans wanted to let the banks fail and the socialism democrats wanted to bail the country out. This would later prove to be complete bullshit, but from this split was born 2 movements - Occupy Wall Street, and The Tea PartyAfter much arguing the government issues a 900B bail out to save the “too big too fail” banks and GM. This was not the first step towards our economic collapse, but it was a big one. We created a culture where corporate America could take normal capitalist risks and then get socialist dollars for salvation when things broke. The financial burden was hoisted on the tax payer in the form of federal debt.

As I said this wasn’t the first error, by 2008 the federal debt had already ballooned to 10 trillion dollars - much of which originated from when we invaded 2 innocent counties in 2001 and 2003.

But the 900B was the headline, what really happened was far worse

No one is absolved of the fault for the 2008 collapse. Borrowers were taking loans they could never pay, banks were issuing them and putting leverage on them, and rating agencies were creating fraudulent risk ratings. We fucked up. From top to bottom we created a culture of frivolity and arrogance, and when the bill came due - instead of paying for this bad behavior we summoned a form of economic black magic to try solve the mess with no repercussions…

The federal reserve dropped interest rates from 5% to 0% in 2009 and kept them there until 2017 - this created an entire generation of people who are literally addicted to a debt subsidy, and it was embarrassing how fast even traditionally fiscally responsible Americans gave up shitting on welfare queens to become them.

It gets worse from there.

It wasn’t enough to issue 900B in debt on the taxpayer and annihilate any semblance of a fair market for interest rates they decided to unleash an unholy trinity of economic calamity by also adding “quantitative easing”

QE is the American government buying financial assets (bonds, mortgage backed securities, etc) to pump up prices and increase confidence of investors. 

The problem with these actions are time and complexity. Most citizens don’t know or care how rate subsidies and quantitative easing will affect them, they don’t realize these decisions will cause them immense pain in 10, 15, or 20 years from now, long after the decision makers are gone and the news cycles have moved on, but these actions are like an economic parasite, they are in your body and you don’t feel it but they are slowly growing and eventually they will fucking kill you.

I know I know, I’m a downer, and no one wants downer news

Especially not politicians, so the years following 2008 brought a PR campaign through American media where Timothy Geithner, Ben Burnanke, and Hank Paulson sold millions of thick well written books about how they “saved” the US economy and if they hadn’t done their difficult and noble service things would be so much worse.

They didn’t save the economy, they kicked the can down the road. They paid for a debt collapse with more debt, and they subliminally convinced 350 million people that they don’t have to be financially responsible. This was a dick move. 

Are you still with me?

Let’s jump to 2019.

The federal reserve rate had only started to rise 2 years prior and was at a measly 1.75%.  Americans have become addicted to low interest rates and have completely lost sight that we are living in a giant subsidy. They think this is normal. Did we at least learn our lesson and become financially responsible so that doesn’t happen again? Obviously, not. The federal debt is at an all time high with a deficit that increases yearly! Meanwhile Americans are arguing about whether or not Donald Trump should get credit for how great the economy is. 

In March of 2020 we brought the economy to a dead stop (Voluntarily… but at least it was for only 2 weeks right?). To avoid calamity the government looked to the last time something like this happened, 2008, and what was the prescription? Drop rates back to zero, enact QE, and print a ton of money.

Instead of giving money to the banks they gave cash straight to the tax payer and in total added an astounding 3T(est) to the money supply in one year. Everyone survives, asset prices skyrocket, real estate goes bananas in a way I still to this day can’t fathom. The world seems saved… right? 

Which brings us to today

This is the economy you currently exist in:

We hold a 2T dollar per year deficit, and it’s growing. The federal debt is the highest it's ever been by total and by % of GDP. It’s so outrageous that news outlets are trying to argue that the debt doesn’t even matter. The interest payment alone on our debt is the 2nd highest obligation of the government - meaning the government spends more on debt INTEREST than they do on defense (...bruh).

Have you been feeling this little inflation problem? This is not happening because of the short but potent 2021 surge of money supply, this is because of 15 years of inflationary subsidies. So settle into the discomfort, because this is not going away for a while. As of today the current federal reserve rate is 3.75. The fed has announced further hikes and my estimation is that the reserve rate will likely get up to 5 or 6% and stay there, which is going to take a while. While inflation increases and rates stay high, you are going to get squeezed like a motherfucker. It’s going to hurt. 

As this happens, asset prices will rise, so asset owners (the rich) will continue to get richer and debt holders and non asset owners (the poor) will get poorer.

There are no politicians trying to solve this. In the past political parties would run on financial responsibility, now they run on bribery (paying off student loans, or stimulus checks). We have bred an entire culture who only knows how to kick the can down the road.

I’m pretty sure this is why gambling has become so prevalent. If a person doesn’t believe the economy works, then you might as well roll the dice and win your way out of the shit. This has also permeated culture to the highest levels in the form of a presidential crypto pump and dump scheme.This leaves us with the most important part: assigning blame!!!

A country is not a head of state dragging an unwilling populous behind them, it’s a group of people who all believe and act in accordance with the same values.

People used to believe they were the property of the king and the king believed he was divine, we called it monarchy

When a culture believes that frivolous debt is ok, they will raise kids who do think the same, and those will get voted into congress.

If you worship reality TV shows for 20 years, you will get the best reality TV show of all time to rule the county

The point is, we allowed this to happen, and we continue to allow it. The average American has voluntarily loaded themselves up with back breaking debt just to have a slightly nicer car or brag about an overpriced degree. Until we fix ourselves, in mass, we can not expect those in government - our peers - to be better than we are. 

In the Brothers Karamazov, the principle idea of the books is (spoiler alert) that each person is individually responsible for everyone else. 

“There is only one salvation for you: take yourself up, and make yourself responsible for all the sins of men. For indeed it is so, my friend, and the moment you make yourself sincerely responsible for everything and everyone, you will see at once that it is really so, that it is you who are guilty on behalf of all and for all. Whereas by shifting your own laziness and powerlessness onto others, you will end by sharing in Satan's pride and murmuring against God.” - Father Zosima, The Brothers Karamazov

What can you do about this?

Well, our economy may very well die but you will live just like most people lived through the Civil War, the Soviet Union, and the Great Leap Forward. You will do this through radical self responsibility. You have to be more responsible than even those in charge. You have to live on less than you earn no matter how much sacrifice it demands, you need to pay off and hold zero consumer debt, you need to become financially literate, learn how to save and invest into the future, and be so great at it that you become a beacon of example for others. 

Or, try to ignore it. Maybe you’ll hit it big on Kalshi, keep using debt to fuel pain numbing consumerism, keep hoping a responsible politician will come into office and be your savior. 

I wish you way more than luck 🙏