The Roaring 20’s… 1920’s & 2020’s
The last time there was a worldwide pandemic was the Spanish Flu in 1918-1920. This was followed by a huge party we called “The Roaring 20’s”. I think about The Great Gatsby and what the point of ultra-wealth is in the context of the 1920’s, and the Roaring 20’s we’re about to enter. What’s different this time around is inequality has a racial quality we call systemic. I don’t know what this new Roaring 20’s will look like, but it will be up to The Millennials and their parents, the Baby Boomers to shape it.
Economic Parties & Hangovers
The Roaring 20’s was an amazing time of prosperity, speculation, and animal spirits. Everyone bought stocks and were getting richer, so much so that Fitzgerald wrote his magnum opus, The Great Gatsby about what our “American Dream” would be if the party just kept going. The party didn’t keep going, and the hangover was The Great Depression.
The Fed (Federal Reserve) was created after the Great Depression to prevent extreme emotional & spiritual pain arising from a loss of agency & hope. Imagine holding 3 doctorate degrees, be fluent in 4 languages, are a hard-working person with good integrity… and you can’t get a F*ing job as a sandwich maker! That was the Great Depression. Despite all your efforts, you have no power in the world. Despite your accolades, degrees of learning, and work ethic… you have no agency in this world; nothing you do will help your situation to progress in the way you want, all hope is lost. In response to that despair, the USA created the Fed.
This thing named “The Fed” can create money out of thin air… with the push of a button on a computer keyboard… then give it to whoever they see fit! There is one limitation on this power… the Fed must purchase debt / make loans.
Let’s say you wanted some money from the Fed… you’d have to write on the back of a napkin, “IOU ten trillion dollars at 0% interest over 10 million years”… then have Fed Chair Jerome Powell sign off on it and viola! You have 10 trillion dollars you repay over 10 million years. This is how we fund the “government”. Your taxes do NOT fund federal government spending. The Fed does. We owe our national debt to the Fed. If other countries or pension funds or any other entities that own Federal debt want to be repaid… The Fed will repay them, not you or I through taxes.
The USA was very scared of the Fed early on… it was a power so awesome that it dared never be used. People thought, “money that didn’t derive its value from gold! Preposterous!” This creation of money out of thin air was to be avoided at all costs!”
However, the immense pain and hopelessness from the Great Depression, was also to be avoided at all costs. This is the genesis of The Fed’s mandate to keep inflation at 2%… at minimum “the economy” will grow / inflate at 2%, so we can all feel like we’re getting richer and advancing in life. Remember, painful deflation is what caused the Great Depression.
But then, the Baby Boomer generation came of age in the 1970’s… the largest generation in US history turned 30 years old and they all wanted to make babies and buy houses. Inflation raged because so many new people were going after not enough supply.
The Early Years
During the 20 years after World War 2, things were pretty good. The “Greatest Generation” all succeeded together. There were some people who were richer, but they drove a Cadillac while the “working man” drove a Chevy. People who you saw in your day to day life looked and acted like you. They didn’t have Instagram where you see people taking private jets to stay for a month at a private villa in the Maldives.
Then the 1960’s happened, Civil Rights. Whatever you think of it, people in your day to day life obviously looked different… non-white people were around. Consider that as the backdrop of the hyper inflation of the 1970’s where it seemed like there “wasn’t enough” and too many people were competing for not enough houses. Inflation was nuts! Interest rates were at 18%! Scary stuff… in the back of people’s minds, they overtly or quietly asked themselves…do all the “new people” arriving have something to do with this?
Let’s party like it’s 1984
Reagan won the election in 1980 and he thought… “hey, this thing called the Fed. We can use that! Let’s have the Fed just create money out of thin air. We can lower taxes, so everyone has more money, then just fund any deficits with the created money! We have to kill this hyper inflation somehow, so let’s give people money so that when we call in the Fed to raise interest rates, people will be able to handle it. If we don’t do that, we may have another Great Depression.”
This has been every President’s game plan since 1980. As Reagan famously said, “Are you better off now than you were 4 years ago?” My answer is, if you create money and give it to me, sure! This is Reaganomics and what EVERY president has done since. The Fed has been cranking out created money and putting it into our “economy” so that the President can say, “Are you better off now than you were 4 years ago?”.
During the Reagan years and up until 2008, the Fed would create money, then give it to the US government. The US government either cut corporate (and personal) taxes OR expanded social programs (i.e. “welfare programs”). Usually both happened at the same time. However, most went to corporations & the investor class (i.e. lower capital gains taxes, lower interest rates, lower corporate taxes, etc).
The government / Congress will always have first dibs on newly created money. If Congress is gridlocked and does nothing… the large banks & corporations get it. Let that sink in… MONEY IS CREATED EVERY YEAR NO MATTER WHAT, and if Congress won’t use it… the large corporations (I.E. “Creditworthy”) get it… NOT YOU. It has to “trickle down” to you via your corporate employer. As we all know, Congress does nothing, therefore the large corporations & investor class has captured the majority of created money for the past 40 years.
Imagine that you are a US based company, you have debt with an interest rate of 18%, but then the Fed says you can refinance this debt at 9%…boom, game changer. It has the same effect as refinancing a mortgage to a lower rate. Consider that 16% was a great mortgage interest rate in 1982… and 7% was great in the 1990’s. Now 7% is unfathomable! http://www.freddiemac.com/pmms/pmms30.html
Remember, the FED is there to make us all FEEL better, to create money and put it into the system, so that we all have a sense of financial power and agency in our lives, to avoid another Great Depression… the utter loss of hope and agency. This is easy to see with real estate.
Let’s say you bought your home in 1982 for $100,000 and took out a 16% loan to fund it. That’s a monthly mortgage payment of $1275 a month. But now it’s 1992 and you go to sell your home. Mortgage rates are now down to 8%! You sell your house for a cool $185,000! That’s an 85% gain over 10 years… plus you’ve paid down some principle so not too shabby! You’re so smart! Great move, you have more money.
Maybe this was a great financial move… or maybe you’ve benefited from the Fed. Consider that even though the home sold for a lot more than what you purchased it for 10 years ago, the monthly mortgage payment is still $1275 because the interest rate is much lower. The “price” of the house has not gone up… it’s the same price, $1275 per month. However, you have $85,000 more anyway! Thank you, Federal Reserve!
This has been the source of “wealth creation” for the past 40 years. It’s the same process in stocks, corporate valuations, real estate, etc. This is the awesome power of the Fed. The Fed is making sure that your financial life progresses and results in a feel-good situation… like a helicopter parent at a little league game giving out participation awards.
Our national debt is owed to ourselves… and like in the Christmas movie “It’s a Wonderful Life”… the debt is owned as assets in your 401K, in your parent’s pension fund, in your home value. If we ever repay the national debt, it would be all of us deciding to repay the Federal Reserve. Why in the world would we ever do that? We won’t.
The Problem of partying like it’s 1984…
The Fed creates money to make us all feel like we have agency and power, a sense of financial progress and the good feelings that come with that. The problem is that since 1980 till now… all that created money has been given to banks, who in turn made loans to the “creditworthy” large corporations. Those corporations have used that created money to buy back stock, increase dividends, and give that created money to its investors… the top 10% you hear Progressives complaining about. I’ll omit “red lining” and racial considerations for now.
Let’s run with this narrative a little in the context of the new Roaring 20’s… the 2020’s we’re about to enter. If you are a millennial, your parents grew up in a time when their debt repayments kept shrinking year over year, because their interest payments went down. Their wages kept rising because the corporations they worked for also had more money (from the FED).
Consider that corporations obey the Friedman Doctrine (https://fellow401k.com/blog/why-it-feels-that-stock-markets-are-at-all-time-highs/), therefore the majority of that created money has flowed to people who owned stocks (& other assets like real estate). Your parents benefited from 40 years of created money given to them… subtly, without them really knowing it.
This is what the Occupy Wallstreet & BLM protests were really about. We print money so we all have a sense of progress, power, and agency in our lives… but it’s only gone to people who own stock, real estate, and “assets”… leaving out 50% of the population, who happen to be black & brown (mostly).
That is the true narrative that people don’t publicly talk about. The Fed has been creating money and that money has gone into asset prices (i.e. stocks & real estate). When I meet Boomers that say, “I feel bad for your generation because you’ll have to repay this debt”. I think, “well it’s actually your debt and you’ll pay for it… by leaving your assets in the form of inheritance (75 trillion), and my generation will decide if we want to repay the Fed or not. We won’t repay it… not to the Fed. We’re conscious of what’s been going on over the past 40 years.”
The USA has tried to “broaden participation” of created money from the Fed. Clinton in the 1990’s said, “let’s get everyone involved by making everyone a homeowner, just like we did in the 20 years after World War 2!” That game plan was still executed through the banking system and monetary policy (i.e. augmenting money creation via the Fed), and that led to the Great Financial Recession of 2008. I say that to point out, this unlevel benefit from money creation is not an issue people have been blind to!
Clinton used the financial markets to create “fairness”. Most democrats still want to run the Reagan playbook, keeping the created money flowing into large corporations, then influence the behavior of those corporations through taxes. Political “Labor parties” (all across the globe) ultimately are saying, “money is created out of thin air… stop giving it to people who want asset prices to increase… give it to employees / people… you Neo-liberal scum!”.
It appears Biden won the Presidency, but the Republicans gained seats in Congress. We’re going to continue to do what we’ve been doing for the past 40 years. How does Biden intend to “broaden participation” of Fed created money? Jerome Powell has been begging Congress to do something about it. The Fed must continue to create money and put it into the system as the LARGEST generation in history, the Millennials, come of age and want to make babies and buy houses, just like the Boomers did.
The Greatest Transfer of Wealth in History
The Millennials will inherit 75 trillion from the Baby Boomer generation. Many of these Millennials were in the streets this year standing alongside minorities shouting “Black Lives Matter”. The money creation that occurred over the last 40 years, which omitted many minorities, will be inherited by the Millennials.
However, many of these Millennials favor “taxes on the rich!” I hope they come around and see that taxes are just a concept, nothing more than a word we use to determine who gets the money created by the Fed. It’s the mechanism Congress uses to choose winners and losers.
Punishing the rich isn’t really the answer, If anyone had awesome wealth, they make sure their kids had education, emotional intelligence, social graces, a big heart, everything a good person should be. It’s not that family’s fault that people with great skills & high emotional intelligence get promoted within large organizations and make more money. The process continues, and the rich get richer! However, let’s be aware of that scenario is both a vicious and a virtuous circle… and that’s the paradox. We love our kids and give them everything we can… so that the rich can stay rich. Individualism and meritocracy are so tied to the Fed (i.e. created money) that there is no real individualism or meritocracy over time. Some may call it merit, others call it “white privilege”. I think both are wrong, it’s a game where the same families, skill sets, companies, zip codes, etc… keep receiving all the created money… and those that don’t, better learn how to rap or dunk a basketball. These narratives are dangerous for many people because without merit, what’s the point?! The loss of a sense of progress, agency, and hope is what the Great Depression was. “White Privilege” creates that same feeling. Until people can figure out a way to talk about this, nothing changes. This election result tells me, nothing has changed.
Congress & Politics may eventually work, this election didn’t have much significance. The main issue is not any clearer… what we do with the money the Fed creates every year… where does that go? Republicans (especially those who voted for Biden but Republican across the rest of the ticket) are afraid of giving created money to (a Democrat) Congress. However, just giving created money to corporations and the “investor class” has led to a “systemically racist” result for many people. Concurrently, those accused of “White Privilege” are mad that their sense of progress, human agency, and merit is being taken away… a “Cancel Culture” mandated emotional state of Great Depression. The paradox continues…a virtuous circle of family love is a vicious circle of systemic racism, if Fed money only goes to those who are “creditworthy”.
I hope that as the Millennials & Gen Z inherit the world, they share the capital, with the same love parents do for their kids. I hope those young Socialists & Capitalists, both protesting BLM this summer, understand that the “means of production” Socialists always talk about is Fed created money. But right now, society isn’t awake to that… They’re “woke” to “racism”… but not awake to how this USA party spikes the punch bowl.