Wednesday, March 22, 2023

The Myth of Libertarianism

As she sipped her latté, the woman announced with pride that while she was conservative, she was certainly not a Republican. Perhaps hoping that nobody would call her out, she confidently proclaimed, "I'm a Libertarian."

I can't help it. Sometimes I'm just in a mood, and sensing her millimeter's depth of political knowledge, I couldn't resist asking her exactly what being a Libertarian entailed. To be candid, half of me really wanted to know, but to be completely candid, I really sniffed an incoming crock of bat dung coming my way. I was not disappointed.

"And what," I inquired, "makes you a Libertarian?"

She took a thoughtful drag on her cigarette and striking her most intellectual pose, began her treatise. "I'm just not aligned with any political party. After all, they're both really the same. I'm of the view that people should be able to act independently as long as they don't hurt anyone else."

Well, that sounded simple enough. She prattled on a bit more, tossing her word salad with phrases such as laissez-faire and anti-statism. Before long, it was clear this woman was the human equivalent of a poorly trained myna bird, with almost no understanding of any topic at all. "I think people should be left alone, without any government interference," seemed to be her favorite platitude.

That's when I stopped her in order to ask a question: "What about abortion?" I figured I'd start with the toughest example and ease up from there.

"What do you mean?" she asked. "Well," I began, "Seems to me that if you're pro-life, you'd be against abortion." She disagreed with that. She insisted that preserving a woman's right to an abortion was consistent with the Libertarian rejection of authoritarianism. "Interesting," I responded. "If you were truly LIbertarian, wouldn't you leave the decision up to the baby, rather than inflict your authority over another person?" She didn't like that.

"Another thing puzzles me," I continued. "Legally, if a woman chooses to have the baby, the father is on the hook for child support. He has no say as to whether to abort or not, correct?"

"Correct," she replied. "Okay," I replied. "But if that's the case, if she makes the decision against the father's will, is she not imposing her will on him? And wouldn't that fly in the face of Libertarianism?" She had no response to that one, but it didn't matter. I was just getting started.

"Further," I queried, "Libertarians believe taxation is theft. But they also believe a minimal government is obligated to defend its country. How is a government supposed to pay for the military and law enforcement if it doesn't levy taxes?" She answered that one with another, long, silent drag on her cigarette.

"And that's the fallacy of Libertarianism, "I lectured. "It's purely selfish and completely amoral. It kicks fiscal realities down the road and leaves moral and ethical questions unanswered. Whether you like it or not, the question of one's liberalism or conservatism isn't one of politics; it's a question of ethics and morality. That's why conservative people tend to be religious and theist, while liberals and Libertarians tend to be areligious and atheistic. Libertarians reject all forms of authority in favor of self-centered individualism. But a society of individuals is not a society at all. A society, especially a free one, is glued together by common values, ethics and morals. And that's why Libertarianism is myth. No society or country can survive as such."

I stepped off my soapbox feeling pretty good about myself. "So which are you -- liberal or conservative?" "I don't know," she mused. "I'll have to think about it."

"And that," I smiled sincerely, "is the wisest thing you've ever said."

Monday, March 20, 2023

Sound as a Dollar

At the time of this writing, if you listen to any media, you're convinced that the world is about to end and that the United States -- as we once knew it -- will cease to exist.  Pundits the world over are selling clicks and ads as they conflate a myriad of events that in reality, seem to suggest that everything is inextricably tied together through cause, correlation or both.  Front and center is the usual conclusion that "this means the end of the dollar as the world's reserve currency."

But is really? As I've mentioned so many times previously, I'm just a brand strategy guy, but throughout my career, I've managed to untangle some of the worst commercial spaghetti in order to get a clear view of what's happening and more importantly, what's not happening.  So how about we take a giant step back and look at the situation from the 100,000 foot level, high above the media spin of manufactured crises?

At the time of this writing, we've seen a bunch of really stupid banks make really stupid decisions, resulting in their being dissolved and their assets being sold off at bargain prices.  Bad news for them, good news for the buying banks, who are buying healthy, performing assets for as little as 20¢ on the dollar.  Believe me, if I could walk through life doing that, I'd be building houses out of gold bars.  Another result of the Biden incompetence is that the previously artificially inflated Fed rates have dropped like a brick, so while not as low as they once were, at least some home and car loans are more affordable.

So what does that mean for the good old U.S. dollar?  If you listen to the media, they'd have you believe that China, Russia, the Middle East and just about every other not-so-friendly region is taking advantage of the situation to destabilize the dollar as the world's reserve currency.  Really?

For the those unfamiliar, the phrase world reserve currency means that  no other country on the planet trusts the value or stability of any other country on the planet. So when France does business with Zmibabwe, they both agree to conduct the transaction in U.S. dollars.  There's more than one reason for that, but among the top few are:

1. The United States of America is the most politically stable country in the world.

2.  The United States is the most physically secure country in the world.

3.  The United States is the most economically powerful country in the world. 

If you find those hard to believe, ask yourself why virtually all the gold reserves owned by virtually every other country is stored in the United States, either in the New York gold depository or Fort Knox. Transferring hard assets like gold is not like breaking up with your girlfriend -- you don't just show up with a pick up truck to move your gold back home.

And if you haven't been paying attention, the sworn mortal enemy of the United States, the Chinese Communist party, has been dumping their ill-gotten gains into American real estate for years. And they're not doing it to have a nice summer home.  They're actually overpaying for the opportunity because they know their currency is an unstable as a propped-up currency gets.  That's why they buy dollars and then dump them into real, tangible performing American assets like real estate.

Additionally, let's add in the notion that the United States is really, really difficult to invade.  It's bordered by two expansive oceans and two "friendly" weak nations who depend on us for their existence. Every other non-North American country is bordered by at least one other country of whom they're suspicious, if not downright hostile toward.

So where does this leave us? Well, this is the brand strategist talking again, and here's the long play as I see it:

In the short term, China, Russia, the Saudis, North Korea, the entire continents of Asia, sub-Asia and Africa will rattle their sabers as they mock the Biden impotence. But if history is any indication, that won't last long. OPEC has been brought to its knees more than once. Embargoes usually fail. Alliances get undercut by backroom chicanery. And through it all, the United States remains the land of plenty.  Plenty of energy, food, and natural resources for a self-sustaining economy.

So after the kids are finished and the adults take the wheel, everyone will come running back to the dollar as the world's reserve currency.  And old Uncle Sam, if he's smart, will re-establish domestic industries and programs, and will have learned the simple lesson that even Dorothy had to learn from experience:

There's no place like home.

Monday, March 13, 2023

Messy Hair & Busted Banks

As is so often the case, I found myself in a political conversation.  This time with someone who was expressing her dislike for former British Prime Minster Boris Johnson. "Ugh," she grimaced, "I would never support him.  He's awful."

I found that intriguing. "And which of his policies, "I queried, " do you find so objectionable?" My question was followed by stunned silence. I waited.  And waited. After a minute or so, I couldn't resist:

"You have no idea of ANY of his policies, do you? You just don't like that he's fat and his hair is a mess."

Her sheepish grin indicated I was right on the money. She's an American. She doesn't follow British foreign or domestic affairs. But she does watch American mainstream news, which displays large, bright publicity photos which constantly confirm that Boris Johnson truly is one unpleasant-looking man. But no matter how disheveled he appears, can it be that people really form their opinions on such little, irrelevant information?

Sadly, the answer seems to be yes. Too many people don't take the time to understand what's happening or why it's happening. They simply eat what the mainstream news serves up -- which is often painfully misguided.  And nowhere is this more true than the latest (March, 2023) banking turmoil afflicting the United States (and echoing around the planet). 

Allow me to explain, because no doubt, you're going to find yourself in a similar situation, where you have to educate and explain about banks and their failures:

The first thing people need to know is how the American banking system works, which is unlike anything you and I practice as private citizens. American banks make profits by lending out money. They lend the money their customers (depositors) entrust with their savings. The banks pay the depositors, say 2% interest on those deposits and they charge 6% to borrowers for loans.  That's a 4% profit margin, right? 


As private citizens, you and I can't lend out more money than we have. But thanks to government reserve requirements, Federally chartered banks can lend out up to five times the amount of money they possess.  That's right, banks need only 20% of the money on hand to lend out five times that amount in loans.  Multiply the aforementioned 4% by five and now you can see why banking is such a great business. The reasons why this system is in place are as follows: 

First, the system relies on creditworthiness of borrowers to pay back loans, so nobody really is taking real cash out of any accounts.  They're making promises to pay the loans back and they usually do -- or suffer harsh consequences.  Second, as long as the creditworthiness holds out, lending five times as much money as you have accelerates economic growth:  more loans to more businesses means more people do more business -- generating more taxable revenue. Third, the Federal government tries to assuage depositors' fears by insuring each account's total deposits up to US$250,000.

As precarious as it may sound, most of that works just fine -- most of the time.  Every so often, however, bankers may be greedy or just plain stupid -- or both.  And that's when things go south very quickly.  This aptly describes the geniuses at Silicon Valley Bank (SVB), the piggy bank of some of the most reckless tech investors in the world.  Here's what happened:

If you didn't know, SVB is centered in the heart of the most woke, left-leaning, well-monied community in the country. These are people who, like my friend above, donate and support political candidates pretty much based on what little they know politically.  They're the same with their investments. And most of the time, it works for them.  

Remember that 20% reserve requirement? Well, like so many other bankers, the masterminds at SVB decided that simply holding that 20% in cash seemed awfully tempting.  After all, that 20% represented billions of dollars and it seemed a shame not to invest it.  So like other banks, when interest rates of Federal Treasury notes (bonds) started inching up from zero to 1.9%, SVB scooped up as many as they could find, telling depositors that these were safe, low-risk, government bonds.  To anyone not paying attention, that probably sounded like a smart move after so many years of interest rates being near zero.  

And that's where the problems started.  It sounded like a smart move. Because nobody knew enough to question it. The big secret about "safe" bonds is that nobody holds them to maturity. They buy bonds hoping future rates will go down, making their bonds more valuable to sell at a profit.

But this time, it didn't:  Because within a few months, all those bonds paying 1.9% were eclipsed by bonds paying well over 3%, which rendered those 1.9% jobs practically worthless.  SVB couldn't unload those bonds to anyone, because everyone was busy buying higher rate bonds.  Pretty soon, when SVB customers tried to withdraw cash from their accounts, there was no cash was available. Not for bills, payroll, or anything else.

Some people were told not to worry, because the Federal Deposit Insurance Corporation (FDIC) insured their accounts up to US$250,000.  That was all well and good until the bank revealed that only 2.5% of deposit accounts were valued at US$250,000 or less.  The rest of the depositors' accounts -- some 97.5% --  far exceeded that amount, ranging into the millions and even multi-millions.

Poof.  Gone. And that's when the state and the Feds closed down the bank.

At the time of this writing, nobody knows for sure how or when SVB will be bailed out. If recent history is any indication, ignorance, mediocrity and stupidity will create a program that will funnel your tax dollars into a program designed to save a severely corrupted system.  Nobody will be held accountable. And the people and politicians who knowingly allowed it to happen will likely suffer no consequences.

But at least now you know what happened and why.  Maybe that will teach people that when making really important decisions, there are many more important issues to consider than, say, messy hair.