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  • Writer's pictureJG .

Whack-A-Mole


As we came out of Covid during which the government was obligated to pass several multi-trillion-dollar spending bills to protect laid-off workers and rescue failing companies who had been thrown into dire straits by the government-imposed lockdowns, the only prudent fiscal approach at that point was austerity by our legislature and President. Since we were forced to overspend during Covid to keep our economy from completely imploding because of the lockdowns, we had to do everything possible to bring some level of fiscal sanity back to the country. But the exact opposite happened. In 2021, the Democrats who now controlled both houses of Congress and the White House, decided to go on a spending spree. The Democrats motto is “never let a crisis go to waste” and they were sure as hell not going to allow the Covid crisis to go to waste without exploiting it for their own purposes, so they passed two unnecessary multi-trillion-dollar spending bills in the first year of the Biden administration which were essentially paybacks to their wealthy political donors who handed Joe Biden the White House.


When that much money is spent in such a short period of time by the government, the fed is forced to print an inordinate amount of dollars to help limit the explosion of the national debt. Printing as much money as we have over the last three years caused inflation to spike to over 9%. So, in response to this government spending induced hyper-inflation, the fed drove up interest rates in 2022, hoping to bring inflation under control. Printing money out of thin air like we have done in 2021 and 2022 devalues our currency, making each dollar is worth less and less, so driving up interest rates increases the cost to borrow money which brings value back to the dollar which helps tame inflation. But this strategy is not without real life consequences as we are witnessing with the collapse of the Silicon Valley Bank (SVB), the largest bank failure since the Great Recession and second largest bank failure in history.


SVB had much of its holdings in bonds and treasuries which they had purchased when interest rates were at historic lows. The reason why interest rates were that low was because the government has been engaging in massive deficit spending for years, so driving the interest rates down was an attempt to reduce the servicing on the ballooning national debt to as low as possible which means the government could borrow more money with less consequence. Treasury Secretary Janet Yellen has indicated that the Government may be willing bail out the SVB depositors who are losing millions and millions of dollars in bank’s collapse. She said, “We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound. We are concerned about depositors and are focused on trying to meet their needs.” Meeting the depositors' needs will require a massive amount of government spending which is the root cause of many of the financial problems which helped tank SVB in the first place. So, the short-term solution is to engage in the monetary practice which is the root cause of the problem that they are trying to fix.


All these problems stem from the massive deficit spending that the government engages in. And the different attempts to rob from Peter to pay Paul to fix the problems artificially shifts the market which creates ancillary problems that forces us to borrow from Billy to bail out Bob to fix. The key to thriving in this environment of government fiscal and monetary tinkering is to anticipate the consequences of governments action. SVB failed because of the government fiscal policy, but also because it did not anticipate the consequences of government’s actions and policies. So, SVB which had bought billions of dollars-worth of government debt at the low interest rate, saw the value their portfolios drop dramatically because bonds and treasuries lose their value when interest rates increase, and their value bottoms out when the fed increases rates as dramatically as they have over the last 12 months. For example, if you own a bond with a 2% rate, and the fed increase rates to 4%, the value of your 2% bond is cut in half.


Low interest rates were designed to keep the government’s payments on their debt as low as possible which reduces the impact of deficit spending, but when government engages in deficit spending to the point that they must print new money that increases inflation, it triggers the fed to increase interest rates which then increases the payment the government owes on its original debt, so we are back to square one. All these little economic and monetary “fixes” ease the current problem in the short term but create new problems in the long term which will require another short-term fix that creates a new long-term problem. It’s a never-ending game of financial Whack-A-Mole. In the arcade game, Whack-A-Mole, the object is to whack down the moles who pop up on the board with a mallet, but every mole that gets whacked causes another mole to pop up that needs to be whacked down, and you spend the entire game whacking down moles that pop up, but never get to a point that all the moles are whacked down into place.


The government meddlers never offer permanent solutions. And that is what deficit spending is, a short-term solution creating long-term problems. Kevin McCarthy announced that the interest payment on our national debt has reached $1 trillion per year. If we had been fiscally responsible in the past, we would have an extra trillion dollars to spend every year, but our payment on the debt is essentially throwing us a trillion dollars further into to debt every year. We are like a married couple who have maxed out all their credit cards and have $100,000 of revolving debt and are only able to make the minimum payment on each card every month. That is not a financial strategy to create long term sustainable wealth; it is a strategy for permanent financial disaster. And that is where we are headed.


All of these government geniuses who think they can fix our financial problems better than the natural will of the marketplace fail because they are unable to see the spider web of ramifications that their tinkering creates. The main problem with this massive government meddling into the economy is that nothing is real, everything becomes fake. There is no inherent value independent of government policy. So, the fundamentals of the markets are not fundamental, because they are held hostage by government policy. They are not valuable on their own, independent of government intervention. So, value arises in the ability to influence government policy. The government becomes the value because the government dictates value, not the market which is the sign of bad times to come. This is why Wall Street and big business invests hundreds of millions of dollars every election cycle. Campaign contributions are not donations, they are investments. They are buying the politicians that bring artificial value to their part of the financial industries through the policies they enact, and that creates new problems which require a new fix which creates another set of new problems requiring a new fix, and so on and so on until there is no such thing as authentic value anymore, just more and more government intervention. I have seen our future and it’s the Weimar Republic.


Judd Garrett is a graduate from Princeton University, and a former NFL player, coach, and executive. He has been a contributor to the website Real Clear Politics. He has recently published his first novel, No Wind.

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5 Kommentare


Adler Pfingsten
Adler Pfingsten
13. März 2023

I am less focused on the obvious ‘How did we get here?’ and financial forensics than a comprehensive solution that has the potential to reverse the cycle of debt…and ironically JG touched upon it by mentioning Weimar; the post WW1 German Republic that was deeply in debt and suffering hyperinflation. The only tangible wealth is commodities extracted or grown on the only real wealth; land which was eventually used to back the German currency. The largest landowner in the United States is the United States government and it can be leveraged in a creative way with American Family Homestead Act.


"I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so…


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tom hofstetter
tom hofstetter
13. März 2023

Our government morons couldn't run a hot dog stand. They have given us a financial system built out of toothpicks and school glue. We are well and truly painted into a corner. It cannot end well because REALITY BATS LAST. Leftists hate reality as much as they hate American individuals.

Pray...

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Jack Hiller
Jack Hiller
12. März 2023

Bingo--" they passed two unnecessary multi-trillion-dollar spending bills in the first year of the Biden administration which were essentially paybacks to their wealthy political donors who handed Joe Biden the White House. " First move of corrupt Brandon and the DemoRats is to pay their buddies and themselves from spending the public wealth.


Re SVB investments in US bonds, if they were heavily invested in long bonds as the fed signaled it was raising rates to constrain the inflation (caused by the Brandon Administration's spending money raised by borrowing), that would have been financial insanity, so I doubt that. If they had mainly short term treasuries, while they go down in trading value, their principle is fully recovered as they…

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Jack Hiller
Jack Hiller
13. März 2023
Antwort an

Here is the explanation for SVB's financially imprudent behavior from WSJ--it thoughgt it was politically protected by following DemoRat policy:


"Regulations require banks to hold high-quality liquid assets, and these can be categorized as available for sale (AFS) or held to maturity (HTM). With AFS investments, unrealized gains and losses don’t hit a bank’s profit-and-loss statement, but they do affect capital. Booking bonds in HTM prevents gains and losses from showing up at all. SVB booked $91 billion out of $120 billion in the most favorable HTM category, and only $26 billion as AFS. Why would the bank hold only $26 billion in AFS when it knew it had a concentrated, high-risk deposit base?

SVB intentionally decided not to hedge…

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Carlos Danger
Carlos Danger
12. März 2023

I've never seen it laid out so clearly, but we are heading for trouble. And with our financial state in such trouble the government focuses on the trivial.

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Judd Garrett is a former NFL player, coach and executive. He is a frequent contributer to the website Real Clear Politics, and has recently published his first novel, No Wind

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