Monday, May 2, 2022
It was the best of times, it was the worst of times. Record low unemployment. Free healthcare for all. Open borders. Employment unionization. Limited law enforcement. And 9.62% I Bonds! Who could ask for more?
As CNBC proudly touts, the Series I Bonds available all this month are "virtually risk-free." Hmmm...let's ponder that fellow financial farmers. Why are the Series I Bonds pricing at 9.62% in the first place? Wouldn't that imply raging inflation? Why yes dear reader it would. And what is the I Bond's inflation component based on? Ahhh...CPI. Now what if the average American doesn't consume tons of soybeans or compute data in terabytes, but actually EATS and DRIVES on a daily basis? Might that skew CPI even higher?
To the shill writers at CNBC who are apparently fully endorsed by a government not-so-quite-on-the-level, obviously there is tremendous risk in the sense that you potentially are LOSING purchasing power due to inflation. How much? This author estimates Americans are losing approximately 2% PER MONTH (assuming you eat food and drive using a..gasp...fossil fuel car!)
Let me slide my Nobel Prize in Economics aside and grab my dusty calculator behind it....OK so 2% per month is like...hmm...24% annually! Wow. Maybe that 9.62% isn't such a good deal after all? Where is all that money going? Hint: Free ain't cheap.
One of my heroes, and an American statesman par excellence, Art Laffer wrote this AM in the WSJ: "The current 8.5% inflation rate is the highest in 40 years. But few policy makers or Federal Reserve governors seem to have learned the lessons from the last bout of surging prices--how it started, the economic wreckage it caused, and how to get out of it. We wince when we hear investment gurus arguing that because inflation often means rising consumer demand, it is good for the economy and stock market."
Quite the opposite is true. Both investors and workers care about REAL returns, ie stripping out inflation and seeing nominal growth...when purchasing power collapses (think high gas prices, high healthcare costs if you pay for healthcare, high education costs, high housing costs, high food costs, etc. etc.) larceny at a grand scale is occurring via inflation. Hence the worst of times.
So as investors back up the truck on Biden Bonds, consider for a moment WHY Series I Bonds are yielding 9.62% and pray that the limit isn't raised from $10K per person to $100K. It would mean the utter collapse of capitalism and the government would become all. Because, really why take the risk of getting out of bed in the morning if you can get a juicy 9.62% from Uncle Joe?