Welcome to Wonderland

Contrariwise, if it was so, it might be; and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.                                                                                                                                                                     Lewis Carroll

If Lewis Carroll were alive today, he would have plenty to write about.

In the current wonderland of today’s world, a whole new society has emerged that is dedicated to investing in cryptocurrency — that is, currency that exists only digitally and that is rarely used to buy anything. Dozens — maybe even hundreds — of online media have been created to guide investors who wish to invest in invisible money.

But our readers may wish they had invested in this non-currency currency last year. Bitcoin, the most popular cryptocurrency, increased in value 19-fold from trough to peak at one point.

If you don’t know where you are going, any road will take you there.

In the current wonderland, interest rates have been near zero for the better part of a decade. The Federal Reserve Board has raised rates to a range of 1.5% to 1.75%, yet even a 25 basis point uptick creates a bit of panic and volatility in the stock market. We act as though this is normal.

Begin at the beginning and go on till you come to the end; then stop.

Meanwhile, in some countries interest rates are even lower — negative, in fact. Central bankers have pushed them below zero.

In his article, “Liquidating Civilization,” Keith Weiner wrote, “The interest rate is the single most important price in the economy, because every other price and every investment and every enterprise depends on it. And the central banks have created a system which has driven it down to zero and beyond. …

“When interest sinks below zero, it means that the return to be earned on capital is negative. It means all savers are doomed to slowly lose their capital. It means any other better opportunities have, for one reason or another, gone away. No one would lend at -2% if he could get +3% obviously.”

Everything’s got a moral, if only you can find it.

We will soon be paying more to service the debt we’ve accumulated than we do to protect our country.

The Congressional Budget Office, in its recent report on the federal debt, predicted that interest payments on the debt will nearly triple to $915 billion in 2028 from $263 billion in 2017.

“To put some numbers in perspective, the CBO forecasts that the U.S. will spend more on interest payments on the public debt than it does on the military beginning in 2023,” according to The Wall Street Journal. “Debt-service expenses are projected to outpace all non-defense discretionary spending (things like education, law enforcement, foreign aid, homeland security and services for veterans) by 2025.”

Money spent to service the debt provides no benefit to Americans. It doesn’t build roads, feed the poor or educate our children. It is a waste. It will lower our standard of living and our children’s standard of living even more. So why isn’t controlling our national debt our country’s top priority?

She generally gave herself very good advice, (though she very seldom followed it).

When we wrote about Tesla a year ago, it was the number one auto manufacturer in America, based on market cap, even though it was unprofitable. It has not fared so well recently. This sentence from Zero Hedge sums up what’s wrong with the company:

“Tesla is the perfect metaphor for where the US economy is at: a company stuffed with debt plus government subsidies, unable to deliver the wished-for miracle product — affordable electric cars — whirling around the drain into bankruptcy.”

‘But I don’t want to go among mad people,’ said Alice. ‘Oh, you can’t help that,’ said the cat. ‘We’re all mad here.’

Yet another byproduct of zero interest rate policy (ZIRP) has been its impact on home prices. As “The Automatic Earth” noted:

“People wanting to buy a home are under the impression they can get ‘more home for their buck’ because rates are so low, which in turn drives up home prices, which means the next buyers pay a lot more than they would have otherwise, and get ‘less home for their buck.’ In the same vein, ultra-low rates allow for companies to borrow on the cheap to buy back their own stock, which leads to surging stock prices, which means ‘investors’ pay more per share.”

It seems that Lewis Carroll was right. We’re all mad here.

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