Wherein I Use Greek Mythology To Show How Screwed We Are

“Would Homer cut away from Odysseus’s journey just as he was being enticed by the siren’s song?” – BoJack Horseman

My lack of knowledge of Greek mythology is often my Achilles’ Elbow.

We’ve reached the Scylla and Charybdis stage of our economy.

Scylla was, in Greek mythology, a six-headed monster that was probably less scary than the average half-dozen Congresscritters, and certainly less dangerous.

Charybdis was a whirlpool that sucked inside everything that got close to it three times a day, so it was pretty much exactly like Kamala Harris.

The idea is that if you’re between Scylla and Charybdis, life is on the edge because there are dangers on either side.  When Odysseus tried to sneak between the two, he lost six crewmembers, one to each head of Scylla.  Thankfully they didn’t go too close to Charybdis, since Kamala has a mean-looking canker sore, and some gifts last forever.

Trying to thread the fine line between Scylla and Charybdis:  that’s where our economy is now.

Could it be that the Odyssey is just a made-up excuse by a husband as to why he’s ten years late?

As inflation rages through the system, every minute that we have an interest rate well below the rate of inflation, inflation is being fed.  To quote Joe Biden from January 24, 2022, “It’s a great asset – more inflation.  What a stupid son of a bitch.”  You can tell he’s excited to Build Back Better!

Oddly, it’s not inflation in everything.  Some items are starting to deflate now.  Houses, for instance.  The price of a house is tied to the interest rate – the more interest wrapped into a monthly payment, the fewer the number of buyers that can afford or qualify for a loan.  And in Biden’s America® people have to qualify for more important things, like a Quarter Pounder™ or a tank of gas.

But back to home loans:  fewer people qualify?  Less demand.  Less demand?  Lower home prices.

When we moved to Modern Mayberry in the middle of the Great Recession, some houses had been on the market for longer than 350 days.  These were decent houses, but there just wasn’t any demand.  Recently, as people began to take my advice and flee the cities, houses disappeared off the market in days here in Modern Mayberry.  With all the city folk moving in, at least I know what a hipster weighs:  an Instagram®.

One hipster I knew poured water from an ice tray into his beverage.  He liked ice before it was cool.

Now?  Interest rates for mortgages are going up, so demand for houses will be going down.  Eventually, the market for houses will go back to where it was when I got here.  That’s okay, I never expected to walk away from Stately Wilder Mansion with a single dime of profit.  For me, a house is where I live, not an investment.

So, interest rates up, housing prices down.  Simple.

Also, interest rates up, stock prices down.  For the last decade, stocks have been just about the only game for people who were trying to keep up with inflation.  This was a continual pressure upwards on stocks.  Now as interest rates go up, there are other options.

Traditionally, there was (this was something I read in an article a long time ago) a formula showing the value of a stock in relation to the interest rate:  Maximum P/E=20-Prime Rate.  That meant, with an interest rate of 0%, a stock was at fair value with a Price to Earnings ratio of 20.  Likewise, if the interest rate was 10%, the fair market P/E would be about 10.

Obviously, it’s such a one-dimensional analysis that it was made back when “digital computing” meant counting on your fingers.  There’s no way I’d suggest anyone use it to pick stocks (nor would I suggest taking the advice of an Internet humorist on any investment advice no matter how witty, charming, and handsome he might be), but it does show how the relationship between interest rates and stock prices and earnings was thought about once upon a time.  But it summarizes the same idea – interest rates up, stocks down.

I bought some speakers.  At least that was a sound investment.

Heck, it even led me to a never-fail way to manipulate individual stocks:  if I buy a stock, it goes down.

There are other impacts, too.  For instance, it makes debt harder to pay back for people around the planet.  If Egypt owes money to ChaseAmericanFargo™ Bank and the interest rate is variable, that means that Egypt will have to start selling items to pay back New York, or London, or Beijing.  Heck, the British would already have the Pyramids, but they wouldn’t fit in the British Museum

More money to the banking centers?  Less money for chow for the Egyptians.  We saw this exact scenario play out in the Arab Spring in 2012.  Expensive stuff caused people to go hungry and then hungry people with no hope do what they always do when they can’t watch Netflix™ and buy Twinkies©.

They swap out the government.  The new boss looks a lot like the old boss in Egypt, and it’s exactly the same boss as it was in Syria.  Some things don’t change.  If it’s bad enough, it also craters the economies in South America and, even Canada might have its assets frozen.  Or, more frozen.

How did Kamala get her cold sores?  She dated Herpules.

But when the interest rates go up, it’s not just the government in Egypt that gets squeezed.  The current debt in the United States is $30.5 trillion.  The total US debt, including personal debt, student loans, credit cards, and I.O.U.s to me from that one guy that owes me $20 is about $91 trillion.  (All numbers from usdebtclock.org)

When the interest rates go up, the payments on interest go up.  That means less money available for everything else.  When last I looked, the mandatory payments the Federal government were as much as or more than the amount of money that they took in.  That means that printing more money is now the only way the system can work.  It’s like having a tobacco cessation class with a two-cigar minimum.

That leads to the difficult bit – the hall of mirrors.  If we don’t raise interest rates, and raise them quickly and raise them high enough, inflation will devastate the economy.  If we do raise them, interest payments will freeze the economy and dry up all the PEZ®, pantyhose, and elephant rides the government buys daily.  We are in a classic trap, but it is a trap entirely devised by the Fed® and the politicians working long-term problems on short-term incentives.

By attempting to push back the moment of financial reckoning by any means possible, we’ve created a failure that is much, much larger.  If we would have let financial companies fail in 2000 and 2008, and fixed the structural problems with Medicare, perhaps, just perhaps we wouldn’t be here today.

But we are.

How bad are things?

Again, people have been trying to gauge when things in the stock market are out of whack – Gregory Mannarino came up with a market risk index that he called the Mannarino Market Risk Index, which was modified by Nobody Special Finance into the Modified Mannarino Market Risk Index.  You can watch the video on what makes it up here (LINK).  It’s only twelve minutes, and it’s pretty simple.  The MMMRI is simple, but it’s still quite a bit more sophisticated than the 20=P/E-Interest rate formula from back in the Stone Age.  The summary is of selected past MMMRIs is:

  • Black Monday (1987),               MMMRI 234
  • Dotcom Bubble Pop (2000),   MMMRI 208
  • Great Recession (2008),           MMMRI 169

Right now?

You can find tracking information on MMMRI here (LINK) on Mannarino’s website.

Yup.  MMMRI is screaming loudly that the stock market is really, really messed up.  But you knew that.  Things are broken, and they’re breaking faster as things go downhill.  So, whatever you do, don’t buy canned goods and storage food and precious metals and PEZ® and ammo.  Nope.

I’m sure that the team of Biden and Harris along with Janet Yellen, Treasury Secretary, (who had no idea that inflation was even a problem) or Jennifer Granholm, Energy Secretary, (who said that high gas prices are “a very compelling case” to buy an electric car) will be here to help us charter a safe course between Scylla and Charybdis.

Oh, wait, Biden and Harris are Scylla and Charybdis.

Author: John

Nobel-Prize Winning, MacArthur Genius Grant Near Recipient writing to you regularly about Fitness, Wealth, and Wisdom - How to be happy and how to be healthy. Oh, and rich.

32 thoughts on “Wherein I Use Greek Mythology To Show How Screwed We Are”

  1. They are burning it all down better as ordered.
    The egalitarian workers utopia is gonna work this time because these are enlightened evolved beings stuck on an obsolete ideology from 200 years ago.
    The German bum Marx was out to burn down the world and utopia isn’t on the menu.
    Now utility companies are warning of black outs coming in late summer and it is getting up to 100 degrees all week.
    Are all the shortages of everything due to inflation or did TrumpHitlerPutin do that?
    Two months into an engine replacement and just by being a thorn nuisance the maker will cover it…if the most important part can be found.
    How will we liberate Ukraine and Taiwan for the rainbow bathhouse with no supply chain or money to buy anything?
    Price controls, cargo cults, I’m from the government and here to help you followed by the digital currency.

  2. You’re right about rising interest rates opening up avenues of alternate investments. Why, just yesterday I was talking to my banker about the sale of our city house. We moved out to the homestead two years ago and kept the city house as a rental. It’s now appreciated enough to pay off both houses with cash left over. He asked what I was going to do with all that filthy lucre and told me about an exciting new account they were rolling out that would offer–wait for it–1% interest. But only if I parked $25K for a year. He obviously forgot who he was talking to as I told him, “Well, with 8% monthly inflation, I’m exchanging worthless fiat notes for durable goods. I feel it’s a better long-term play.” He laughed and said, “Yeah, I’m with you there.” But if they come back with an offer for 1.25%…

    1. Ha! I love it. Yup – we’re not close to breaking inflation. They’re not even trying yet.

  3. Just like 2008, the biggest cracks in the financial foundation are starting to show up in housing.

    The Fed can play games and talk about raising the 10 Year Treasury rate to “just” 4% at today’s FOMC meeting in the face of last Friday’s 8.6 %+ CPI print continuing inflation ONLY because they’ve got a printing press. But the Fed stopped buying MBS back in March.

    https://www.cnbc.com/video/2022/03/11/fed-to-announce-final-purchase-of-mortgage-backed-securities.html

    If the Fed is not buying MBS any more, somebody WITHOUT a printing press has gotta take up that slack and bear the mortgage default risk in the housing market. Whoever that is, they ain’t gonna bear that risk as long as mortgage rates are less than the inflation rate. So…mortgages headed much higher, to 8% and beyond.

    And who gonna bear that risk? Nobody. The latest MBS auction went bidless.

    https://www.cherrycreekmortgage.com/lous-credit-news

    “The CPI news this morning was so awful that it changed the bond market’s view of Fed trajectory, and the weakest sector broke. In bond jargon, MBS went “no-bid.” No buyers for MBS. Then a few posted prices beyond borrower demand, not wanting to buy except at penalty prices. Overnight the retail consequence has been a leap from roughly 5.50% to 6.00% for low-fee 30-fixed loans.”

    So what if mortgage rates climb to 8% where they “need to be” to reflect economic reality for lenders? Um, no buyers. Random factoid:

    “At a 6.125% mortgage rate the average home price in the US needs to fall ~32% to reach its pre-Covid affordability relative to income.”

    Last Friday’s red hot CPI print was a wake-up call, check it out here: https://www.bls.gov/news.release/pdf/cpi.pdf . Inflation ain’t transitory and it hasn’t peaked yet. The Fed may be hitting the snooze button playing around with “only” 4% Treasury rates to keep the US Government solvent a little longer, but the housing market has gotten the message. Brace for impact.

  4. John, back in The Olden Days Of Yore (TODOY) just prior to The Great Recession, yours truly spent some time peddling commercial and residential real estate. One of the things that I am sure most recall from that period of time is that real estate loans were as available as, say, PEZ dispensers: stated income and “good feelings” about the person were enough. I should know; I was one of those people – although we at least locked in a rate instead of an Adjustable Rate Mortgage. The whole shebang worked until I lost my job and suddenly there was not job to be had. While we ended up not having to pay for the privilege of selling our house, we did lose all the equity that we had put into it (Literally. Every single penny).

    We are at the same situation: overpriced housing, overleveraged incomes, and climbing interest rates.

    And that is just real estate. Add in the risks of every other form of debt and how dependent we are on services and consumer goods, and this promises to be epic – not in the sense of The Odyssey where Ulysses makes it home, but in the sense of Njal’s Saga, where pretty much all the main characters do not make it to the end.

  5. Wanna bet CONgress (spelling intentional) Has a PLAN TO SAVE 401K and such by forcing us to Buy SAFE US Treasury Bonds.

    Guaranteed Rates (Guaranteed to lose your money) AND THEY get cheaper money to grift and squander.

    Way too many billions in stagnant retirement accounts in their opinions.

    2. For at least 3-4 years now I have expected the .Gov to federalize all retirement accounts. For our safety, you know. See, the financial market is very complex and hard for the average Amerikan to navigate. To keep our funds safe, they will move it into “protected and earmarked” accounts that we can draw out when they say so…er…when we retire. At 90. If we live that long. Which we won’t. It’s for our safety!

  6. John is channeling his inner Hank Williams Jr. here. Bocephus was a prophet:

    “The interest is up and the Stock Market’s down
    And you only get mugged if you go downtown”

  7. Alas, if only Harris & Bidet submitted to the Siren’s Song…

    BTW, left our House in the Middle of Nowhere to migrate to the Beeg City yesterday, a 1.5 hr. drive. Traffic was way down. $6 diesel & $4.50 gasoline will do that to ‘ya.

    1. Traffic is down here, too. And things are beginning to close up. The recession? You’re soaking in it.

  8. Wealth, and control, can’t be continued without inflation, ruined economies and citizens dumber than a bag of hammers. In theory, it should always works. In proof, look at the United States.

  9. So glad I am no longer in debt, have invested in tangible assets, and live in a fairly small town. Only issue here is if the magic of electricity goes away, and we have to travel to the Snake River or bug out for the nearby spring feed mountain streams and rivers for our water supply. At least we do have contingency plans to transfer preps (to include water purification technology) and alternate routes/methods of travel if necessary.

    Have noticed a lot less traffic in the local area also, while local restaurants and coffee huts are seeing less traffic also.

  10. the Modified Mannarino Market Risk Index

    It is my fondest wish that I, too, might one day name a doom ‘n gloom index after my [modified] self. His mother must be so proud.

    Unfortunately, I can’t articulate that fellow’s name without channeling John Travolta as Vinnie Barbarino, crooning “Mann-Mann-Mann Mann-Mannarino” to the tune of ‘Barbara Ann’ (youngsters in the room may be excused at this point to return to their iPhonies and Wokemon Gogh sessions while us elder farts reminisce). I don’t know or care very much what it actually represents, but when I see a meter such as the MMMRI pegged like Kamala Harris in her up-and-coming days (there’s a joke in there that I don’t care to pursue) it can’t be good news. Looks like the tach on an over-revved ’70 Charger 318 right before the head gasket sh!ts the bed.

    Don’t you just love the smell of economic doom on a Wednesday morning at Wilder’s place? Smells like…our president and feckless leader.

  11. Ditto SMSgt Mikey only my river flows east.

    Glass half-full: the neighborhood meth dealer offed himself and after going bidless for months in a high-volume market his house sold to a squared-away family guy who’s fixing it up to flip. This place has been a problem for all 28 years I’ve lived here so fixing it up will hopefully attract better neighbors. But he also has to live in it a year before he can sell or rent it and by that time rates should be high enough he won’t be able to afford to move and we might just lock in a good neighbor.

    1. Best of luck there. I’ve got good neighbors with solid jobs – jobs that don’t go away in a recession. Or they’re retired. I’m probably the worst neighbor.

  12. Here’s a ZH article today on just how screwed we are….

    https://www.zerohedge.com/news/2022-06-14/forget-50-or-75-bps-fed-funds-rate-may-need-soar-20-once-again

    TL;DR:

    “In March 1980, the CPI year-over-year inflation rate hit a record 14.8%. The latest reading from last week (June 10th) showed the CPI rising to 8.6%. This shows the Fed has a long way to go to get above the rate of inflation, ***especially the “true rate”, which according to Dr. John Williams is 16.1%***….The reason we expect the Fed Funds rate to soar, perhaps to back to the record high of 20%, is because that’s how high it got in March 1980 when the Fed was fighting record high inflation. Currently the Fed Funds rate is 1%. But the analysts on TV don’t mention that…The younger/newer investors (under the age of 60) don’t seem to know that by the time serious economic problems surface, stocks are already down 50% or more…The recent weekly losing streak in the S&P 500 from April 4th to May 20th (7 consecutive weeks of declines) was the longest since 1928. That is one week longer than seen during the CRASH OF 1929…The amount of money and credit created since the start of Covid is an incredible $9 TRILLION. That is nine times the amount created over the past 95 years…”

  13. Remind me, again, of where the money comes from, to pay interest? If Peter works for Paul, Peter pays his interest from Paul’s money, but then where does Paul get the money to pay Peter’s interest?

    1. Welcome to fractional reserve banking. The Fed creates money from thin air and gives it to banks. The Fed tells the bank how much of the money they must keep in reserve – say, 10%, or some other FRACTION of the total money that was given to the bank.
      The bank gets to loan out the rest of the money – house loans, car loans, student loans, biz loans, credit cards, whatever. Making a loan CREATES new money. Paying off the loan DESTROYS the new money originally created by the loan. Between originating a loan/creating new money and paying off the loan/destroying new money, the new money is in circulation and its proceeds to the bank is used to make another loan and repeat the process, creating even more new money. The banks take their cut every time.

      The two valves to control all this new money is the reserve rate set by the Fed and the loan interest rate set by the bank. When these two numbers are low, the amount of new money created is higher. When these number are high, the amount of new money created is lower.

      That’s how it’s SUPPOSED to work. In reality, since 2008, the system has been fatally corrupted by the Fed setting both reserve rates and interest rates to effectively zero, pumping a continuous flood of new money into the economy over the last 14 years, trying to keep housing, stocks and the US Government from collapsing. Everybody got used to the free money and the party never got shut down. Since 2008, around $9 trillion has been injected into the economy with no corresponding increase in goods or services produced by businesses. More money + not so much new stuff = inflation. Duh. The real mystery is why it took so long and is only starting to bite now.

      So, the key thing to note is that our entire economy depends on people being willing to take out loans to keep the flood of new money coming. That’s why student loan holders skyrocketed in number and amounts borrowed – they were one of many sucker groups that have been sent down the chute to slaughter.

      Fractional reserve banking is the basis of American capitalism. It is a shell game, a ponzi scheme, and has a requirement that there must always be another rube that can be roped into the game and take out a loan. FRB requires eternal, unending growth. When the growth stops, the music stops, and there is a financial crash/recession/depression.

      Shhhh…..listen…you hear any music? Me neither.

  14. John,

    I appreciate your sharing your wisdom, but I could not get through this article due to being interrupted every second paragraph by exceedingly poor attempts at humor. If you had something to say in there it got lost in the ‘cleverness’ (not humor) for me. All the best.

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