“Could be worse. Could be raining.” – Young Frankenstein
I heard Joe Biden was thinking of having a horse for a vice president, to make the economy stable.
Scott Adams is the creator of Dilbert® and a close personal friend who I bonded with during the Olympic trials for rhythmic gymnastics. Okay, that’s not quite true. Scott’s a long-time acquaintance and we go to some of the same parties. Okay, that’s not quite true, either. Probably a more accurate statement is that I have quite a few of his books and he liked exactly two of my Tweets® back when I Twittered™ on a more regular basis.
The last one is actually true.
Anyway, Mr. Adams used to be a blogger, and had some interesting written posts over the years. Now, he spends more time doing a YouTube® show rather than blog (LINK). I listen to him a couple of times a month as I drive to work. I’d watch him, but the people on the sidewalk seem to mind. I guess I’m not as bad a driver as Helen Keller. But she had a real excuse, being a woman and all.
One comment I’ve heard Scott make at least twice during the COVIDanomic® crisis is that he’s optimistic about the economy restarting and taking right off. More or less he has said, “Unlike a war or some other catastrophe, everything we need for a successful economy is still sitting there. All we have to do is restart it.”
One thing I’ve enjoyed about Mr. Adams is that he’s incredibly perceptive, and the reason I listen to him is he’s a constant source of unique opinions. He was one of the first to pick Trump winning in 2016. Adams noticed the way Trump uses the language of persuasion and thought it would be the difference in the election. Me, I generally vote based on lawn signs, which is why I voted for my realtor last election.
Jeb was a pallbearer at his dad’s funeral, so he could let him down one final time.
Trump’s persuasion immediately frames and freezes the way people think about public figures. “Low energy Jeb (Bush),” and “Little Mike (Bloomberg)” were the verbal equivalents of public political homicide. Once Trump Tweeted® those phrases, ¡Jeb! and Little Mike could still campaign, but their chances of winning were the same as a belt made of watches – a waist of time.
So, when Mr. Adams speaks, I pay attention. New ideas are fairly rare and I like to steal mine while they’re fresh. As noted, many times he’s very perceptive in ways the news media forgot about being when they first caught Trump Derangement Syndrome. In this case, I think Scott is wrong. Everything may still be there, but you can no longer restart the economy to the previous levels than you could resuscitate Grover Cleveland by giving his corpse CPR. I mean, I can give CPR to a steak, but it still won’t moo.
Just like Grover Cleveland, everything is there, but putting him in a lawn chair and propping him up with a tropical cocktail (with umbrella) won’t really help. Everything’s there.
But it’s really not.
If only Grover Cleveland had Twitter®, I’m sure we’d still be laughing at the dank Benjamin Harrison memes.
Just like you can’t restart a heart after a few weeks of it sitting on the bedside table, you can’t restart an economy after months of it sitting dead in Coronapause©.
Let’s take the human body analogy a bit farther. A business is an organism. It consumes money and raw materials and produces goods and services as a byproduct. You could even call that byproduct a waste if it had anything to do with Kardashians. Companies eat metal and energy and use employee labor to pop out automobiles and beer and knee braces and fruitcake bloomers. And where would we be without fruitcake bloomers???
A lack of oxygen makes cells in your body die. No oxygen, no cells.
In business, a lack of money causes employees to die. Oops. They don’t die, they just don’t come in anymore, unless your business was in the Soviet Union, where ‘being terminated’ had an entirely different and completely Schwarzenegger-free meaning.
That lack of money for a business is called debt, and debt is what kills an economy. Just as weak people like The Mrs. complains that she needs a constant supply of oxygen after being stuck in the car with me after a week-long backpacking trip, debt is a mechanism to make sure that people and companies require a constant flow of money.
Why would a company be in debt?
Well, for small ones, the same reason that you or I would go into debt, namely because they don’t have the money to pay for everything up front. Debt can also provide money for the business to grow.
And moderate sized companies that you can buy on the stock market nearly have to be in debt. Without debt, a guy from New York would buy them out using the cash that the company had hanging around for a rainy day. They even have a name for this – a leveraged buyout (LBO). In an LBO, the person buying the company buys it with money that he borrowed against company he’s buying.
It sounds complicated, but it’s really not. An LBO is the same thing that happens when you sell your house. The person buying the house uses the house as the basis of the loan to buy the house from the owners.
And good news, it’s already several trillion higher than this!
But in the case of the company being bought out, the resulting company after the LBO is actually weaker and more likely to fail since it’s now saddled with debt. Just because you can borrow the money doesn’t mean you should borrow the money.
Giant sized companies don’t face this problem nobody but Jeff Bezos has enough money to buy his stake in Amazon®, plus he’d send his android double to come kill you if you tried to buy the company or made fun of his girlfriend. Apple® is similarly large, so they can have billions of dollars in cash on the books, too, but Apple™ doesn’t have a girlfriend. Yet.
The chain of death of a business in after WuFlu looks something like this:
- Lockdowns stop businesses from being open, which
- Stops the money coming to Employees so,
- Employees stop buying, therefore
- Businesses don’t have money.
Keep this cycle up for two months and in some cases you’ve used up more reserves than the business has. The result is either more debt, which the business still can’t pay because debt is the problem in the first place, or bankruptcy.
Well, TP is one problem that’s been wiped out.
The same cycle can be seen with landlords.
- A dollar owed for rent isn’t owed to a random person,
- It’s often owed to a person who has a mortgage against the property, and
- If the rent isn’t paid, many times the landlord can’t pay his
- But when the landlord can’t pay the mortgage, the bank isn’t paid.
If you’re worried about the bank, don’t. The old saying is that “Debt is always paid, either by the borrower, or the lender.” In the case of banks, there’s the three Fed Amigos: the Federal government, the Federal Reserve™, and the Federal Deposit Insurance Corporation (FDIC).
The reason the FDIC was created was that banks failed faster and more frequently than FUNNY during the Great Depression. If people keep their money in Mason© jars in the backyard, it’s pretty hard for the other two Feds to track it, so they had to convince people the banks were safe.
They idea behind the FDIC is that if a bank goes bankrupt, the insurance will pay off the depositors. I was going to look up the total assets of the FDIC to see how big a crisis it could cover, but decided it was irrelevant. The Federal government (Treasury) or the Federal Reserve© or some group will simply print all of the money required to pay off the depositors.
I knew there was a reason that clowns scared me.
If my bank runs out of money? Well, the Fed will just lend them some. The FDIC is for amateur problems.
But lending money into a system where the primary problem is debt isn’t the solution, and it explains why things won’t just “start right up” after months where car sales are at 50% of last year, and airline flights are at 10% or less. The debt is the reason that the economy was able to fall so far, so fast. And you can’t loan more money to solve what is, at the core, a debt problem.
I do hope my close, personal friend Scott Adams is right. But I fear he’s wrong. But hey, we’ll always have those Olympic™ medals we won for rhythmic gymnastics.