24 Dec 2021

Lets start off today with a record of another kind. Population growth in the US has fallen to more than 100yr lows. With the way the world likes to report economic growth via GDP this factor of production will come back to bite in the not too distant future.

Speaking of something we kind of take for granted – WATER. Let me test your free market credentials. More than 70% of earth is covered by water but only 2.5% is drinkable. There is a concern by 2050 that we might be short of drinkable water. Last year the Chicago Mercantile Exchange (CME) introduced water futures. Now there is a major outcry some might call it an “open outcry” to stop the trade of one of life’s most essential elements.

Doesn’t free market trade lead to better price stability?

I am really fighting the clock since my morning routine has been changed around this week. I like to go and pray early but the rest of the community is in a laid back mode and we are praying as a community later. Where is God when you need him.

As I predicted in these letters there would be a Santa rally and boy we got one. New all time highs on the S&P500 and yes I am still short. Do what I say not what I do.

I have to say it was quite hilarious I just got roped into a conversation with my son and a few of his mates who were asking me for job advice while it was midnight in Israel where they are on a gap year program and they were clearly 4 to 8 beers into the night. While I was trying to provide good solid feedback I think they thought I was a little too tight. Oh my to be 19 again – if only.

To end on a serious note. I want to raise an issue with Modern Monetary Theory (MMT) that I saw in an article by analyst Michael Lebowitz. He raises 2 major flaws with the MMT model that has gained widespread popularity in recent years.

For those of you who are not up to date, Stephannie Kelton, Bernie Sanders chief economic advisor is the current high priestess of the movement. MMT proponents state governments can spend an unlimited amount of money without concern for debts and deficits. We will leave the technicalities aside for today.

The main problem this theory is not well adjusted for is, wait for it, INFLATION. The reason is when an economy reaches full employment and inflation becomes a risk, government according to the MMT model is expected to tax individuals and corporations to reduce inflation pressure.

Flaw #1 is how to measure inflation. It’s impossible really to find an inflation rate that is representative of all demographics. Inflation for a 19yr old boy in Arizona and a 45yr old man with 3 kids living in New York are 2 different numbers. Then you have government reporting 1 national number which is very politically influenced and your have the private sector reporting other national numbers. It becomes really difficult to control for a number that is so nebulous and politically motivated.

Flaw #2 political willpower. We live in a political world where leadership is held onto so precariously that there are so few statesman (or women) that have the support and or courage to make the tough decisions. In theory with inflation at 6.8% way above the 2% Fed guideline there should be a succession of interest rate hikes to curb the inflation as well as a pullback in government deficit spending. We are 14yrs into the Global Financial Crisis era that starting in 2007 and we are still pumping every time the market catches a shiver from a reduction at the pump.

“True leaders do not make choices with reference to the opinion of the majority. They make choices based on the opinion of the truth, and the truth can come from either the majority or the minority!” -Israelmore Ayivor.

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