The negatives of negative interest rates

The Thinker by Rodin

Donald Trump wants the Federal Reserve to drop interest rates to zero or to even allow them to go negative. It’s pretty obvious why: so he can avoid being at the wheel if a recession inconveniently hits before Election Day. He’s clearly freaking out about the election still more than a year away, as also evidenced by his decision to suspend some tariffs on Chinese goods.

Why should negative interest rates matter to you? It’s not like you can set up a Federal Reserve bank account. The Fed Funds Rate is currently 2.25%. This is the interest rate the Fed requires that one bank charges another bank to park its funds in their bank. It usually parked there only overnight. Any excess reserve a bank has on hand is money they cannot earn interest on. So parking it overnight at another bank allows them to make some money on it.

So what does this mean if the reserve rate is set to 0%? It effectively means there is no reason for a bank to park its excess reserves because it will not earn the bank any money. They might as well lend it. What happens if it’s a negative number, say -1%? Then effectively a bank takes a hit to park its money elsewhere. It would be stupid not to lend it.

A bank could pass its lower profitability from these lower rates onto its depositors. This happens routinely when the Fed Funds Rate changes. We bank at Ally Bank. When the Fed cut its rate by .25%, my savings and money market interest rates were cut by this amount too. Anticipating a rate cut, we at least did one thing smart: we took out a certificate of deposit for one year, which locked in our rate. We’ll earn 2.47% on it after one year, but not before. In general though most people don’t like to tie up their cash like this, so when the Fed Funds Rate drops, they will lose interest income. Better to take that money and risk it on investments is the hope.

Banks could in theory charge depositors’ negative interest rates, i.e. charge them for holding their money. (Considering all the bank fees we pay, some of us in effect already are!) They probably won’t, but accounts that effectively draw little to no interest at least one advantage: safety. Or do they?

Most accounts are fully insured because they don’t pass the threshold of $250,000 per depositor per bank. So yes, if a bank goes under you are likely to get your money back. But since the Glass-Steagall law (passed as a result of the Great Depression) was repealed in 1999, things have loosened. Banks can now invest in speculative investment with depositors’ money. This resulted in the Great Recession when banks loaded up on toxic assets to chase their bottom line. For them, the worst thing that can happen is they declare bankruptcy, which is what happened to so many banks in the Great Recession. The government got to clean up the mess and shoulder any financial losses, i.e. you and me assumed the risk.

Now, as the economy improved and Republicans controlled government again, these financial rules were loosened even further. In 2018, Trump signed into law new regulations that eased oversight on the largest banks, by raising the criteria for what comprises a very large bank. This results in less regulator oversight.

Add in low or negative interest rates though and we add a lot more risk to our financial system. Trump of course is hoping these low rates will incentivize banks to loan money, pumping up the economy. (It might also save him boatloads of money, if he can renegotiate interest rates on his loans.) But by incentivizing banks, we are in effect incentivizing risky loans. In short, we risk another Great Recession, or possibly another Great Depression by doing this.

Some countries are trying negative interest rates to stem deflation or deflation fears. Deflation occurs when money you have today is worth more tomorrow. In that case, there is no incentive to invest the money. Rather, you want to hold onto it, which means it’s not available for others to use. By making savers pay negative interest, it encourages them to loan out the money to stimulate the economy instead.

As a tactic for stopping deflation, maybe it has some merit. It’s working marginally in Japan, which has experienced years of deflation. But the United States is not in a deflationary environment. Hopefully though the Fed is instead trying to prevent deflation from happening in the first place.

Negative interest rates don’t have to lead to financial calamity, at least if they are properly overseen and regulated. But in this country it would be a very nervy thing to do at present. The Fed’s toolset though is very limited and well tried. The Fed’s policy of quantitative easing (imitated by lots of central banks) was one tactic of desperation after the Great Recession when the economy was still a mess even after virtually zero interest rates. Quantitative easing is essentially the Fed buying up investments others don’t want to buy with money the Fed creates out of thin air. They control the money supply, and can create money willy-nilly. That and low interest rates are about all the tools they have left.

A negative interest rate policy looks like the next and more desperate step to keep an economy from sinking into depression. It is basically a tool to use for deflation, which is what happened in the Great Depression. It’s like a fire extinguisher alarm: break glass only in case of emergency.

If investors though figure deflation is going to happen, they have an option: take the money out of the banking system and figuratively put it in the mattress. That way no one can use it but at least it’s safe, unless someone looks in the mattress. It’s more likely though they will move it to currencies and economies that are not deflating.

So hopefully the Fed will take a pass on Trump’s idea. In reality, the problems of our economy are structural and these tactics of the last ten years are basically stopgap measures. The Fed should have been doing more modest increasing of interest rates instead, as our economy, at least if it’s not in a recession, should be able to handle it. Mostly our economy is showing every sign of being over-leveraged and fragile again. If your economy is truly strong, you don’t need to even think about using these tools.

If this house of cards collapses again, it will be felt the way it was last time: soaring unemployment, wiped out savings. A lot of it will be due to risky investments, just like the Great Recession. If you are looking for a true revolution, another Great Recession or Great Depression is a good way to start one.

Here’s why the improved economy means so little

The Thinker by Rodin

The stock market is reaching record highs again, which make us moneyed people woozy. I’m modestly including myself here although I’m not that well moneyed. But I am retired on a nice pension with plenty of assets to draw on should things go south. The Dow Jones Industrial Average passed 27,000 yesterday and closed for the week at 27,322. Not bad for an index that dropped to 6547 on March 6, 2009, a little over ten years ago.

Happy days are here again? It might help to wonder why the market indexes are so high. The most recent surges are almost surely due to the Fed’s strong hinting that it’s going to reduce interest rates soon. Maybe Donald Trump’s bullying is getting to the Fed, but much more likely the Fed has read the tealeaves and suspects a recession is getting started and is trying to prevent one. And it’s enough to calm Wall Street and make them think happy days will keep on coming.

You don’t have to look hard though to find worrying signs: tariffs are slowing trade, commodity prices are dropping, and the percentage of people in the workforce keeps dropping. This is artificially keeping the unemployment statistics low. Consumers are taking on the same levels of record debt they took on before the Great Recession and Republicans have managed to repeal many of the key safeguards put in place to keep it from happening again. Student loans passed the $1T mark, sucking money from these former students’ wallets that they can’t spend on actual goods and services like houses. Perhaps in response, mortgage rates are dropping again, which is actually not a good sign. Banks are trying to entice people to buy houses, so the lower the rates go the harder time they are having finding people who can afford to take out a mortgage.

Still, many of us including me have been expecting calamity and have been wondering why we have been proven wrong. There are a few positive signs. With unemployment low, workers can bargain for higher wages and it’s working, sort of. They are beating the cost of living by .5 to 1% annually. That doesn’t translate into a whole lot of money, but it beats the decades of wage stagnation we’ve been experiencing. This is hardly the end of wage stagnation, but it is at least a hopeful sign.

Donald Trump is wondering why he isn’t getting more traction on the economy. That’s actually his one bright spot, with a slim majority approving of his handling of it, while his overall approval ratings seem mired in the low 40s. 40% of Americans still cannot find $500 to draw from in an emergency. It could be they are all inept at financial management, which is what Republicans would like you to believe.

The real reasons are much simpler. Much of today’s work requires people with fewer valuable skills, which mean they can’t command as much in wages. That’s why they are working two or three jobs to pay the bills. Even this is not enough, which is the real reason they can’t find $500 and are living paycheck to paycheck.

But there’s one other important factor that is often overlooked. Certain things cost a lot more than they used to (housing is a prime example) and there are other things that cost dramatically more than they used to. The most likely reason you will get thrown into poverty is if you need more medical care than you can afford. The Affordable Care Act was a good first step, but it wasn’t nearly affordable enough, despite the subsidies. You still needed enough income to pay for the bronze plans. And since they came with high deductibles, they mostly only bought catastrophic protection. All those deductibles, copayments and coinsurance payments cost a heap of money and all of it needs to be in the form of disposable cash, which for the most part these people don’t have. They still can’t afford to be sick. Of course, a lot of states won’t offer health care under Medicaid to these people, which they probably could afford if it were offered because copays are minimal when they exist at all. Medical price inflation is still insane and there are fewer mechanisms to check it. The magic of the free market has proven largely illusory with health care costs.

It’s no wonder then that surveys show that for most voters it’s not how well the economy is doing that matters, but how well their economy is doing — and it’s not going that great. The good news is that there is work out there for pretty much anyone who wants it. The bad news is that without a lot of high-paying skills, at best you can barely get by on the wages you are earning. Voters have figured out that health insurance really matters, and it’s their number one concern now. Those who had Obamacare realized that at least for a while it cushioned financial shocks. But they also need health care because they can get sick and simply can’t afford to get well. There are people driving hundreds of miles to Canada regularly just to buy insulin at affordable prices.

While it’s true that Donald Trump is widely seen as unlikeable and unpresidential, what voters are really understanding is that government needs to actually govern, and so little of it is happening. A president can be thrown out after four years, which is likely to happen to Trump. But we need a Congress that compromises in the public interest and tackles real problems like immigration reform and the lack of affordable health insurance ten years after Obamacare.

It may be a long wait. The Supreme Court recently decided states were perfectly free to gerrymander based on political party. In short, it’s allowing states to stay in the business of incumbent protection, making it harder and harder for people to actually have a true republican form of government. With our courts now largely in conservative hands, it’s hard to see how this can change.

Which is why Bernie Sanders’ call for a political revolution makes a whole lot of sense. Achieving it without wholesale insurrection though looks incredibly improbable.

Can you profit from a likely coming recession?

The Thinker by Rodin

There are a lot of wags predicting a recession in 2020. There are wonky predictors of recession, like sustained inverted yield curves, which have accurately predicted most recessions in the past. This happens when short-term treasury bonds earn more interest than long-term bonds, which has been the case for a while now. Historically, it’s a great predictor of a recession and gives you about a year of warning.

Much of the world’s investors are already paying for negative yields, basically paying governments to take their money in the form of negative interest bonds. This sounds crazy. They do this as a hedge against currency deflation. During deflation, there is no incentive to spend money because the same dollar will buy more in the future. Fear of deflation often predicts recession too. We saw a little of this in the Great Recession when some money market accounts actually lost money, at least until new rules were created to place the full faith and credit of the U.S. government behind these accounts.

Naturally, Trump is not helping things. By initiating trade wars, principally with China, Mexico and Canada, he is injecting even more uncertainty into the markets, not to mention reducing international trade. Making willy-nilly decisions, like his recent threat to impose new tariffs on Mexico, feeds this pessimistic narrative.

It seems paradoxical that the stock market is rallying. But it’s rallying only because the Federal Reserve is suggesting it will lower interest rates. If it does, it’s only to try on the hopes of stopping a recession from happening, a recession that appears to be likely largely due to Trump’s trade policies. The Fed though doesn’t have a whole lot of flexibility as interest rates were only modestly raised since the last recession, so there’s not much room for them to fall. No wonder that so many investors are scared of the specter of deflation.

It’s been a good stretch of growth – one of the longest ever – ten years pulling out of the Great Recession. Good times never last forever anyhow, but Trump has certainly been pulling the wrong levers. We should be investing in clean technologies because that’s where future growth will come from. We should be improving our infrastructure, which is decaying around us because the economy needs a robust infrastructure to keep humming. We should be promoting higher wages so people have more money to spend, not throwing more money at millionaires and billionaires who can’t spend much of it.

Recession is coming at some point; it’s just a question of when. Most economists think the likelihood of a recession in 2020 is sixty percent. Should you be buckling down for the next recession? Given that personal credit card debt levels are as high as right before the Great Recession, it looks like many of us are not well prepared, a situation made worse by income inequality. Those who could hopefully pared down debt and created an emergency fund. But since 40% of Americans can’t afford an unexpected $400 expense, we can only hope that when the next recession comes it not as severe as the last one. Since many of the factors that got us in trouble last time are back again, largely because Republicans insist on deregulation, that doesn’t seem likely. Most Americans will simply hunker down and pray.

Looking back on my experience from the Great Recession, my takeaway is that it inadvertently made me, if not rich, a lot richer. I was blessed with a steady job that paid well and a 401K I kept contributing toward regularly. I was surprised in 2014 to discover that recovering markets made it not only possible to retire, but to retire comfortably, and I haven’t looked back. Inadvertently, I bought a lot of cheap stocks through my 401K and in just five years this was more than enough time to greatly increase my wealth.

So if you are 10-20 years away from a retirement and in a comfy job that’s unlikely to go away, then perversely you might welcome another recession because you can profit from it the way I did. If you have the nerve (something I don’t have), like a short-seller, you might want to bet against America. By this I mean, count on recession and try to profit from it.

How? If you take the bet that markets are likely at record peaks, then sell. I’m not recommending selling your entire portfolio, but it might make sense to sell a good portion of those stocks, ETFs and mutual funds and park them in U.S. treasuries, which is what a lot of investors are doing. Or you could take them as cash. You can do this with your IRA or 401K without a tax penalty. Then you just have to wait until the inevitable happens. No one can predict how much markets will decline, but if they are down 25% or more, that would be an excellent time to buy some cheap(er) stocks, ETFs and mutual funds. During the Great Recession, there was a huge sale as which discounted Grade A stocks as much as 50% from highs. After all, those who need the money to buy stuff will sell it for any price they can get, which is when bargain hunters like you swoop in. Then, like me, wait for the inevitable appreciation as stocks recover.

Will I take my own advice? Of course not! I’m retired, in my sixties, and although reasonably well off, almost all of our saving are in retirement assets. I could up my percentage of bonds and then later move them back to stocks when the market is at its low. But at my stage of my life, I want to maintain my standard of living, not necessarily gamble on some prospect ten years from now of a much larger net worth which would also be harder to enjoy before I die. Also, I pay a financial adviser to make sure we stay on plan.

But if I were a younger person like I was at the start of the last recession, then I might be taking some joy in the misfortune of others, knowing that when markets recover I would reap substantial rewards.

Monetary policy and the danger of revolution

The Thinker by Rodin

My recent post on quantum computing and its impact on cyber currencies like BitCoin have taken me exploring the world of money some more. This exploration took me to this video, which discusses who controls money and how it is created.

I think this video is meant to be shocking. Most of us are painfully aware of how important money is, because we cannot survive without it. While vital, money is also completely abstract. We like to think money is a form of permanent liquid value. This video points out the “shocking” fact that money is not this and that it is created almost universally by central banks, the Federal Reserve in the case of the United States.

As you get on in the video, you also learn that banks create money when they issue loans. If you were hoping to trade in your dollars for gold bullion, those days are gone. President Nixon turned the U.S. dollar into a fiat currency. This essentially means that the dollar has value because the government says it does. If it’s backed up by anything, it’s backed up by your faith that our government can manage money intelligently.

But really, the only ones managing money is the Federal Reserve, since they are the sole suppliers of money. The degree to which the Fed controls the spigot of money generally determines the health of the economy. Quantitative easing, which the Fed (and other central banks) have been doing since the Great Recession is basically the creation of lots of money which are then used to buy assets. Doing this helped pick up the economy and over many years took us out of recession.

So one might extrapolate that it’s not how much money that gets printed that is important, but how frequently it gets circulated. If circulated a lot, the production of goods and services continues apace. If it gets circulated too much, you end up with inflation, which means the same money buys fewer goods and services. If it’s not circulated enough, you may end up with deflation, which seems worse than inflation, in that the same money tomorrow buys more than it will today. In a deflationary environment, you would rather hold onto money than spend it, and that tends to stifle economic activity.

Lots of people like Ron Paul don’t like the way money actually works, which is why they would prefer the dollar be based on a gold standard, or some standard which equates a dollar to some amount of something precious. These people are probably economic Don Quixotes chasing electronic money windmills that may have existed at one time but which are probably gone for good. They look for impartial standards of value instead, which is why they turn dollars into BitCoin and similar electronic currencies.

The video says that central banks, being run by bankers, are a system that essentially pumps money from the lower classes to the upper classes. There’s a lot of recent evidence that they are right, as our middle class seems to be disappearing. Americans owe a lot more than they used to and in general earn a lot less in real wages than they used to. It used to be that wage increases followed productivity increases, but for decades that has not been the case. Today, the level of personal debt is staggering. Without meaningful raises, it gets harder and harder to pay off debt or do things we used to take for granted, like buy cars and homes. The Uber/Lyft phenomenon may be in part a reaction to these new facts of life.

Something ought to be done. In part, Donald Trump’s election was due to these economic anxieties. Trump was going to be our fixer to these various problems by bulldozing his way through all obstacles. Of course, he has done just the opposite. There is more than $1 trillion in outstanding student loan debt, but Trump’s education secretary Betsy DuBois is actually making it harder for people to pay off their student debts, and is promoting pricey private education at the expense of relatively affordable public education. So Trump is turning the screws even tighter on the working class.

Democratic presidential candidates have all sorts of ideas for addressing these problems. My senator, Elizabeth Warren, is distinguishing herself by having the most comprehensive set of policies for addressing these issues, including a lot of student loan debt forgiveness. All these policies though are basically ways of trying to solve the fundamental problem of more of our wealth going to the wealthiest and to put more money into those who need it the most. They all depend on redistribution of income from the wealthy toward the poor.

This “socialism” of course has the wealthy up in arms, since maintaining and increasing their wealth is all they seem to care about. So they are dead set against any of these ideas. Based on how our money supply works though, all this will do is keep pushing more of the wealth toward the wealthy.

It makes me wonder how all of this economic anxiety ends. And that gets me to figuring out what money really means. Money is essentially a social compact for the exchange of wealth, and whoever sets the rules controls the flow of wealth. The Fed is essentially accountable to no one. At best, all you can do is wait for someone’s term to expire. Trump’s inability to get people like Herman Cain on the Fed speaks to Republicans true values: they want the Fed to be populated with people that think like them, and that’s not Herman Cain. He’s too out of the mainstream.

To cut to the chase, the real threat to the wealthy is revolution. That’s exactly what happens if you screw the working class for too long. Revolution is upsetting the whole apple cart and starting over because the system is fundamentally broken and cannot be fixed. I believe this is the root of the partisan tensions we see these days. It’s not about value, or whether you are white or not; it’s about money and who gets to control it and how it should be distributed and used. Revolution though is very dangerous. It brings severe economic disruption, likely civil war, complete upheaval and a fundamental reordering of society. Hopefully when it is over the new system is more fare, but as we watch these things play out in places like Brazil it doesn’t look like that’s likely.

Ideally, rich Americans would understand that giving more back to society is in their interest. Sucking ever more wealth from the lower classes exacerbates tensions and increases the likelihood of revolution. They don’t seem to believe it though, and want to maintain control of the levers of power. If they succeed they will likely bring about the real revolution that will destroy their wealth, because wealth is predicated on connected economic systems that work. Unfortunately, the rich seem to be deliberately tone deaf, increasing the likelihood of the exact outcome they fear the most. Should it occur, BitCoin is not going to save them.

As billionaire Nick Hanauer puts it, the pitchforks are coming.

Chasing savings

The Thinker by Rodin

Well here’s something I didn’t think we’d be doing again: chasing higher interest rates.

For the last ten years, savings account interest rates have been hovering around zero percent. This was by design after the Great Recession. The Fed wanted to stimulate the economy. The natural tendency of Americans in a recession is to run toward safety. Savings accounts offer that if you have enough money in them to live on. But that’s all they offered. They were not investment opportunities. By cutting interest rates to basically nothing, the Fed was encouraging us to invest in the market. And it worked, although it took a long time.

It is only now a decade later that the Fed is raising interest rates again. Still, most banks are stuck in 2009 and offer virtually no interest on their accounts. But there are others that have gotten with the times, including our bank, Ally Bank. Their savings account now offers 2% annual return regardless of its size. It’s not quite enough to meet inflation, but it’s better than 0.1%. Their money market account is less generous: .9% on balances below $25,000 and 1% on balances above it. Its 12-month Certificate of Deposit though will earn you 2.65% annually. A five-year CD earns 3.1% annually. Ally Bank is an online-only bank, which in part explains their ability to offer these rates. With no brick and mortar buildings to maintain except one headquarters building in Philadelphia, their operational costs are low.

Nonetheless, old habits die hard. I am so used to getting virtually no interest that I’ve maintained our checking account where it’s been for nearly thirty years: Pentagon Federal Credit Union. I still haven’t severed my relationship with PenFed, but the time may be coming. However, I have moved the bulk of our money in PenFed to Ally where it at least earns a good interest rate.

Traditionally we’ve dumped paychecks into a checking account. That’s because most of it was gone by the end of the month, so interest on the account was kind of pointless. Now that we are retired though, it makes no sense. The house is paid off. We have zero debts. What makes sense now is to take our income, mostly pension income, but also 401K and other income from teaching and consulting and stuff it into savings accounts, where the balance earns 2%. Now we have a monthly automatic transfer from our savings account to our checking account based on how much we are likely to spend in a given month. This way most of this money earns interest. This monthly automatic transfer into checking mainly involves figuring how much we will spend monthly on the general cost of living. The idea is to keep our checking account balance low, but not so low as we are likely to overdraw it.

I’ve done this with our Money Market account too. Even at Ally, it was only earning 1%. The account exists basically as long-term savings, but it was really an escrow account. It holds funds that we are accumulating to pay for future long-term expenses, stuff like buying a new car or replacing the roof in fifteen years. But there was no point in taking the hit on interest. So we’ve reduced the balance there to $5,000 and moved the rest into savings. I figure $5000 is the most we are likely to ever write from the account quickly. If we need to write a check for more than that, there will be time to move it from savings.

Oddly enough, this approach is amounting to real money, to the point where when I estimate our income for the year it’s becoming a not insignificant portion of our income. With 2% interest, it amounts to more than $150 per month in interest. Do the math and we should net at least $1800 annual income just from interest, most of it from savings. Granted that our cash reserves are now flush where they weren’t ten years ago. But by simply rethinking how we are managing our money, we’re bringing in this extra money every year, with zero risk to our portfolio. The only real risk is that the Fed will drop interest rates again, which certainly could happen. Markets are definitely in correction territory, suggesting that if things go awry again like in 2008, zero interest rates and more “quantitative easing” may be in the future.

So this is good for us, but not so good for the rest of you who I assume are borrowing a lot of money. It’s pushing up interest rates in general, but home mortgage interest rates in particular. For ten years the economy has been propped up by super cheap interest rates. That’s changing, which will put more stress on borrowers, perhaps adding to our risk of recession.

Still, these higher interest rates are notable. Savings accounts pay real money again, at least if you are using the right bank. It should reshape thinking in the way things are normally done. It has certainly reshaped our thinking. It’s always good to keep a healthy amount of your assets in safe forms like savings accounts. It’s just that now it is beginning to pay to do so again.

The stock buyback warning: stormy economic times are likely ahead

The Thinker by Rodin

Remember when Trump’s tax cuts were going to put money back into the pockets of working class Americans and create more jobs for them too? Unsurprisingly, this turned out to be a load of peanut butter. With gas now around $3 a gallon, whatever new modest tax cuts trickled down to working America are probably being eaten up in higher transportation costs. As for businesses reinvesting their tax cuts in their businesses and bumping up wage rates for employees, well, there’s not much evidence of that. According to this March report from the Roosevelt Institute, just six percent of these corporate tax cuts are going to wage increases and bonuses for employees. Just twenty percent of this money is going toward capital investments that will result in more jobs.

So what are companies doing with the extra money from this enormous windfall? There is little reason for CEOs to spend most of it investing on the long-term futures of their companies. That’s because CEO compensation tends to be based on making short-term profits. These days many CEOs make far more compensation from exercising stock options than they do from a salary.

So we should not be surprised that CEOs are trying to make money the easy way instead. And the easy way is to take these windfall corporate tax cuts and buy back shares of their company’s stock. It’s good for them and it’s good for shareholders. Or so it seems. Experts are questioning if these buybacks are just artificially inflating the price of corporate stocks. One traditional measure is a stock’s price to earning’s (P/E) ratio. The higher the ratio, the longer it takes for earning from owning the stock to be used to buy a new share of company stock. High P/E ratios are a sign that stocks are overvalued and due for a correction. We are now at a P/E ratio about where we were before the Great Recession.

If it were just a handful of companies, this would not be particularly worrisome, but it’s part of a large and broad general trend among American corporations. Bloomberg reports a record $800B in stock buybacks are expected in 2018. So how are these buybacks inflating the value of a company artificially? It’s quite simple. When a company buys back its own stock, the supply of the stock for purchase diminishes. Of course as supply diminishes, price increases for any shares that are traded. If a CEO has $5 million in his company’s stock, by channeling these tax cuts and profits to buybacks, all other factors being equal the price of the stock will go up. So his $5M might easily turn into $6M. And what work had to be done? Simply redirecting these tax cuts and profits to create “buy” orders for his company’s stock.

That’s a whole lot easier than creating new products, expanding into new markets or figuring out how to run the business more efficiently. Shareholders probably aren’t going to complain when they see the value of their investments rise. Smarter CEOs will be systematically selling their stock when its price goes up, so they can capture its inflated wealth. This gives them money in the bank that can’t be taken away and shifts the risks of owning this stock to other stockholders.

Which is why these record stock buybacks really worry me. They do nothing to actually make a company more profitable in the long run and actually add to a company’s vulnerability. They allow more agile competitors (if there are any) to get a leg up on their market. That adds risks to a company’s value. Companies are essentially betting on the profitability of corporate inertia. Traditionally, this has not worked well for companies in the long run.

Stock corrections are inevitable. There was evidence earlier this year that we had reached correction territory, but markets have recovered much of these losses. For now though these tax cuts seem to be juicing the markets instead of your pocketbooks. I get the feeling that a true correction will happen sooner rather than later, in part because of the volatility of the market so far this year. This suggests there is a general nervousness among investors.

Stock buybacks though are a clear symptom of corporate greed. Greed is simply the lust for more wealth, and the truly greedy will want to increase their riches now rather than wait for improbable future profits. Congress is aiding and abetting this greed through these tax cuts in the first place, but also by removing regulations that were put in place after the Great Recession to prevent these things from happening in the future. You can see this through Trump’s attack on the Consumer Financial Protection Bureau. You can see it in recently passed legislation that will remove more higher reserve requirements on midsize banks. And you can see it in record consumer debt levels, bigger even than before the Great Recession. I believe that these large stock buybacks are another sign that this financial house of cards is moving toward another correction.

This time we can hope that it won’t be as bad as 2008. It shouldn’t, but who can say? The Trump Administration is being both being reckless and shortsighted, and Congress is fine with this. Their insatiable greed means they simply don’t care about fulfilling their primary function. The primary function of government is to be fiduciaries for the nation, making sure it is properly managed for both the short and long term. To the extent they are interested, it is to convince them that their timeworn strategies that just do the opposite will somehow work in the long term this time.

You would be wise not to take their bet. Rather than practicing greed, you might want to practice prudence instead. My take: this is a good time for less market exposure. I’m not alone. When the Treasury bill rate made it above 3% for the first time in years, it pushed up other interest rates. Many investors saw this as a sign and began moving more money into bonds for the surety of a return.

I don’t think Republican governance is going to change any fundamentals of the economy. Needless to say, I’m limiting my market exposure now and putting more money into bond funds. Maybe you should too.

Reaping the benefits of the Great Recession

The Thinker by Rodin

One of my life’s little mysteries is why I was suddenly able to retire three years ago at age 57. Granted that I wanted to retire and as one of those rare retirees with a comfortable pension I was more able to retire than most. Recently a sister announced her retirement effective January 2nd. She will beat my young retirement age, retiring at age 55. She does not have a pension like me to draw from, but she and her husband are childless. Doubtless that was a factor. Most of my many siblings though are still working, some unhappily, and about half are older than me. Some I know prefer to keep working as the idea of retirement does not agree with them.

All this led me to ponder how we did it and what lessons you may take away from it. Much of what they say is true: start saving for retirement early, the earlier the better. Be relentless about this kind of saving. I did it through payroll deduction increasing the amount to periodically painful levels. At age 50 here in the United States you have the option to contribute additional money tax-free toward your retirement, so called catch-up contributions. I took advantage of that in my last few years of employment. Generally you are in your peak earning years then so it’s not harder to pour more money into your retirement pot.

While I found this all to be true and was reasonably systematic following these principles, I was often a slacker. I was in my 30s before I started saving for retirement, later than recommended. I was in my late 40s before I took a retirement seminar and found the time and money to integrate a financial planner into my life. One factor was that I was reasonably well paid, being in the IT business and in the last ten years in a managerial role. It wasn’t enough to buy a BMW, but it was enough to regularly have money left over and take nice vacations. When you are paid well it’s much easier to put money aside for retirement.

Still I just didn’t understand how we did it, so I was looking in Quicken the other day. I’ve faithfully used it since 1992 to track this stuff; I just don’t often analyze its numbers. Toward the end of 2008 the value of my 401K was about $162K. When I retired six years later its value was $323K. In those six years of course I had been putting a lot more money aside, but not $161K worth. Today, even though I have been withdrawing $1900 a month from the 401K since February 2015, its value is at $446K, so it’s gained $123K over just three years while taking $50K out of it. I should add that my wife also has a pretty good 401K nest egg that we haven’t touched yet. Our income is a combination of my pension and my 401K withdrawals. With some supplemental income of about $10K a year, we are living a comfortable retirement on $100K to $110K a year. It’s made more comfortable because we have zero debt. The house is all paid off, as are our cars.

So what happened to my sister and me that we are able to do this? It turns out that a lot of my sudden wealth was due to the Great Recession. It’s hard to quantify though but my guess is that it is 50% due to riding and profiting from the Great Recession. And I am sure we are not alone. While plenty of baby boomers are struggling financially, many of us are moving into early and comfortable retirements thanks to the Great Recession.

That’s because of a great wealth redistribution that in effect happened during the recession. Think about it. At its low point in February 2009, the Dow Jones Industrial Average (DJIA) was at about 8000. Today it is at around 21,000. The DJIA overstates the growth in the economy but it is an important benchmark. Over about nine years the index grew at an average of 18% per year.

In February 2009 stocks were incredibly cheap by today’s standards, and even by the standards of that time. Stock prices reflected a general sourness that people felt about the economy. No question that it was a scary time. The unemployment rate peaked at over 10%, huge amounts of paper wealth disappeared and those close to the financial edge lost homes, incurred additional debt and in many cases saw their income plummet. Stocks were traded in for cash for whatever the market would bear just to pay expenses. When stocks are traded someone else is buying. One of those people was me, at least indirectly. I was still buying funds via my 401K through regular payroll withdrawals. “Buy low and sell high” is the general advice you are given if you want to be an investor. I hadn’t intended to buy at a low rate, it just worked out that way. For years I bought stocks via mutual funds that turned out to be woefully undervalued.

With help from my financial advisers I was able to capture that wealth too, moving more of it into fixed assets like bonds. What goes up must come down, so there will be another recession in our future. But with a sizable portion of my 401K now in bonds, I can ride out the ups and downs in the stock market.

Curiously it was just the opposite from my late father’s experience. When the Great Recession hit he and many in his retirement community had to finance their retirements with cash. It was challenging because many did not have enough cash and bond funds to fall back on. He sold some of his stocks likely at a discount to keep going and hoped that the Great Recession would finally end.

It’s hardly a secret that the top 1% have vastly increased their wealth over the last few decades. During the last decade, they likely have you to thank. They picked up those sweet discounted assets that you sold and held onto them until the markets recovered. The low taxes on capital gains certainly helped in accumulating this additional wealth. To a lesser extent it raised our financial boat too, artificially so it seems to me. I too profited from your financial mistakes and misfortunes but until I put it together recently I never understood it.

And this has been the secret to much of my financial acumen: sheer luck but well timed financial calamities that I was able to profit from. We were similarly blessed with the timing of home purchases, with generally low inflation over the last few decades and steady employment. Yes, we did a lot of the “responsible” things that responsible people should do. But had the Great Recession never happened I’d likely still be working full time and probably not enjoying it that much, still waiting for a day when I felt it was safe to retire.

Sucking it up for Herman Cain

The Thinker by Rodin

Herman Cain is Tea Party America’s favorite presidential candidate of the moment. Recent polls show him leading among Republican voters. While recent history suggests that Cain fascination will be brief (Michele who? Rick who?), you can understand why conservatives would be gaga over him. Cain, when speaking about Occupy Wall Street protesters, had this retort:

Don’t blame Wall Street, don’t blame the big banks, if you don’t have a job and you’re not rich, blame yourself! […] It is not someone’s fault if they succeeded; it is someone’s fault if they failed.

Attention 99% America: this may not be obvious to you but anyone can succeed in America. The only reason we are all not millionaires is because only one percent found the moxie to become a success. The ability to achieve success includes everyone: including the crippled, the disease ridden, the mentally retarded and the homeless. You can all become independently rich if you try hard enough. And if you don’t, you are a failure. A complete looooser.

If you are still not getting it, consider the curve of standard deviation below. It seems in nature most of us fit somewhere in the middle of the curve, but some of us are must inevitably be on the low or the high end. There are very few in the top one percent of the curve. Herman Cain is one of them. You and me, we’re in the 99% and the reason that I infer this is true, channeling Herman Cain, is because we chose to go fat and be lazy:

If you are not in the top 1%, you are a looooser

In the world of Herman Cain and Tea Party America, here is where we could all be if we tried hard enough:

The possible American world according to Herman Cain
The possible American world according to Herman Cain

That’s right. We all can all be millionaires, just suck in it, suck it up, be clever, put your nose to the grindstone and inevitably you too, like Herman Cain, can rise from humble circumstances to become a millionaire. It’s that simple. When you have the right mental attitude, just like God, you can move mountains. End of story.

But some people just aren’t getting it. They apparently include Matt, a guy I hired to do some handyman work for me. The guy I tried to hire was too busy, so he referred me to Matt. Matt is a guy who lives somewhere off I-66 in Virginia’s Piedmont. Five days a week he works a full time job somewhere that obviously does not come close to covering his modest lifestyle. When not working, he is taking care of his four kids so his wife can work at her odd part time jobs. On some Friday and Saturday nights, if he is lucky, he gets gigs playing the guitar at local pubs, which contributes some spare change to household expenses, and is his one passion in life. On Thursdays and Saturdays he runs his other business: handyman for hire. He does about a third of the work himself, but he also hires other good ol’ white boys like him to put in a few hours here and there to handle customers like me who are not Tool Time Tims. All of them so far that I’ve met smoke and all appear to live hand to mouth. They are Joe Bageant’s poor working class. This week some of them made some spare change because Matt subcontracted some of my work to them.

The weather has not been a construction worker’s friend this week. We had torrential rain for a good part of yesterday. The guys tried to tack down the new screening on our deck between downpours; otherwise they were in our garage trying to put up a new garage ceiling. For some reason the morons who built our house back in the 1980s attached drywall to the ceiling of our garage. About a quarter of it fell out while I was cleaning it a few weeks back, fortunately not while I was directly under it. I’m having them replace it with sturdier particleboard, and directed that they actually use screws to attach the boards into the joists instead of the drywall nails used when the house was constructed. Anyhow, progress has been slow.

Matt apparently is not working hard enough to be a success. He was managing multiple other projects with other good ol’ boys, which meant frequent trips to Manassas and other places to make things right. He’s pissed that he’s behind on our job, and is apologetic. Fortunately I am in no hurry.

Matt is basically doing everything possible to make money in this economy with his natural talents, but even with three jobs and essentially working twelve or more hours a day seven days a week, it’s still not enough. What’s the problem here?

If you were thinking, “Well, the economy is not doing too great, and a handyman’s wages are pretty modest, and gosh, it takes a lot to feed a family of six” you are one of the 99% and hence a looooser. If you are the surreally out of touch Herman Cain, the solution is obvious: Matt is a failure. Moreover, he is simply not trying hard enough. Maybe if in addition to working seven days a week he gave up the guitar gigs and worked instead of sleep, he could finally achieve success. He basically should run himself into the ground even more than he is doing now, which is leaving him obese, tobacco addicted and with circles under his eyes.

I bet you can guess where I stand on this. It’s pretty simple. Herman Cain, you may be a success, but in many ways you are also a moron who cannot see one centimeter past the bridge of your nose. Only a moron or a conservative would actually believe this crap that you spewed out. And yet it seems part of our American character to believe your crap. The fault is never in our stars, or in the broader economy, or in life’s circumstances, or our genetics, or our abusive parents, or our substandard schools but only in ourselves. Just like original sin that the Catholics believe in, in your mind the original sin is the inability of everyone to replicate what you achieved. The rest of us are failures, basically dog poop.

Mr. Cain, please print this out and stick it up some orifice in your body where the sun don’t shine. Consider it a little thank you from one of the 99%. And Matt, I feel nothing but compassion for you and the good ol’ boys who work for you, even if I can’t get too close to you because I am a nonsmoker. You are doing extraordinary things and while it is still clearly not enough, you have my respect and heartfelt sympathy. You also have my sincere hope that the economy improves quickly so you don’t need to be someone’s handyman anymore and get the chance to breathe again. And I hope you get more gigs strumming out those songs that you love.

The dangers of deficit fever

The Thinker by Rodin

Why study history? After all, many people (particularly students) find history boring. However, there are excellent reasons for studying history. By observing our actions in the past and their effect we can predict with a fair amount of confidence whether they will work again. For example, based on our experience during the Great Depression, cutting spending lead to less economic activity and prolonged the Great Depression. Lesson: the government should keep spending in ways that stimulate the economy until a recovery is sustainable.

So what are we doing as we just begin to emerge from the Great Recession? Why, we are cutting spending! With history as our example, we now know that we are almost guaranteeing a double dip recession. Moreover, what we are cutting suggests profoundly stupid choices. It appears that whenever we finally emerge from our economic doldrums and near double-digit unemployment, our status of still being a superpower will be problematical.

It is easy to look at countries like Greece, which is in the midst of a terrible deficit-driven crisis, and figure we need to buckle down ourselves. Greece is buckling down, largely because it had no choice. Here is what austerity is also bringing in Greece: a sharp and marked drop in standards of living, a rise in already high unemployment rates, and credit that is hard to get and when available only at usury rates. There is also a lot of civil strife. Students, pensioners and government employees are marching in the streets. Rioters have already killed some people and damaged considerable property. Greece is on the edge of anarchy.

However, here in the United States both our “welfare state” and our total debt as a percentage of GDP is a fraction of Greece’s. This suggests we are in no danger immediate danger from excessive debt. In fact, as financial markets now look shaky again, even more money is flowing into U.S. Treasury bills. So our country is still seen as a safe haven for money, and our debt is seen as good debt, at least compared with other investments. Unlike in Greece, only a small percentage of us retiring at fifty-five or sixty are retiring on a pension. Most of those retiring are retiring only because they lost their jobs and no one will hire them.

Having lost their jobs, they have far less money in their pocket, so they are spending less. When people spend less and earn less, governments collect less in the way of taxes. For the most part, state and local governments cannot raise taxes enough to make up the difference, so they must cut services instead. And since states and local governments have little in the way of bloat, essential services are being cut. Firefighters, police and teachers that thought they had steady jobs are finding themselves unemployed. Here is a real trickledown effect. Because they have less to spend, retailers receive less and perhaps cut their workforce, or reduce hours. When retailers sell less, they need less from wholesalers who also cut jobs. When wholesalers need less, producers and manufacturers make less so they cut jobs. So the economic effect keeps trickling down, exacerbating unemployment, reducing tax revenues and extending our economic doldrums.

Moreover, our supposedly precious children are getting inferior educations. They are stuffed into classrooms with more students, lose opportunities for extracurricular activities and in at least 120 school districts have four-day school weeks. We will depend on their income in our own retirements, but it’s hard to understand how. By teaching them less today, they will likely be behind children in other countries. All these negative effects are because we are now alarmed over short-term deficits that it appears we can comfortably sustain over the short term.

If you have trouble starting your car, you might pump the accelerator hoping the engine will start. The same is true with our economy. What you don’t do is the moment it sputters to life stop giving it gas.

Deficits remain important in the long term. However, Republicans don’t seem to understand that raising taxes is a viable way to solve deficits. If deficits are truly more important than anything else is, then raising taxes has to be on the table. Otherwise, keeping taxes low is more important than deficits, which is the philosophy they have traditionally embraced. It is also important to get spending in line with revenues. But first things first. First the economy has to be vibrant enough so that economic activity reduces unemployment and drives wealth. When this happens, tax collections also increase, reducing deficits.

Unquestionably, we waste and misdirect much of our tax dollars. Our spending on war in Afghanistan is an egregious waste of money because it is a lost cause. A lot of the money given to the Afghan government instead lines the pockets of its largely corrupt Afghan officials. It also goes to pay off warlords who look the other way so our supply trucks carry cargo safely to remote locations. Aside from the wars in Iraq and Afghanistan, huge amounts of money are wasted within the Department of Defense. Secretary of Defense Robert Gates agrees. There is also huge waste in the Medicare system. Some of these expenditures, like building aircraft engines we don’t need, do feed American families. However, but they don’t go to buy things we need to make our country stronger and safer.

It’s pretty clear what we do need to do.  We need to create jobs for the unemployed that will leave us with a stronger country. Jobs provide money, but also feed faith in the future. You don’t get there by laying off teachers, policemen and firemen. These are our first priorities, which is why it makes no sense for Republicans (and one turncoat Democrat) to kill a bill that keeps them employed. You also get there by building and rebuilding bridges and roads, funding innovative research for the 21st century and by investing in the educational needs of all our citizens, activities that are underway but where more money is likely needed. You don’t get there by cutting off unemployment benefits because people have been two years without a job. All that does is breed poverty and homelessness. However, if a chronically unemployed person at least has a check coming in, maybe he can pay his rent and buy food and clothing. That money stimulates a lot of economic activity.

You also raise taxes where it makes sense to do so. Aside from the poor economy, what is feeding the deficit? Mostly tax cuts that we gave to the richest Americans. These are people who can certainly afford to pay more taxes and in some cases genuinely want to pay more taxes. These huge tax cuts drove the problem that caused our deficits to explode. Certainly now is not the time to raise taxes on middle and lower income people, but those who can afford to pay more in taxes certainly should, particularly when richer Americans historically have paid much higher tax rates and still maintained a great standard of living.

Perhaps to achieve fiscal solvency it will be necessary to extend retirement ages or cut benefits in social programs like Medicare and Medicaid. These cuts become much more likely though in a hampered economy. I know my lifestyle would take a severe hit if I lived on half my income. The same is true with our government. A thriving economy will be the engine that creates this wealth again, as it did under Bill Clinton.

We need to spend more to get this economy moving again, even if the debt numbers look scary in the short term. Just as importantly, we need to spend wisely, investing on essentials like education, our state and local governments, and our infrastructure. Doing so prepares us for the economic challenges of the 21st century. To narrow the deficit, we need to repeal tax cuts given to the rich. At the very least, we need to redirect wasted money from places like Afghanistan into useful activities, like maintaining basic services for our citizens. What we do not need is what we have now: a panicky and foolish Congress that cannot see that their version of austerity is just another word for continued recession, unemployment and our quick descent into a second world country.

The Aughts: worst decade ever? Umm, not even close.

The Thinker by Rodin

The corpse of the last decade has not even started cooling but pundits are all over the place proclaiming what an awful decade it was. No question about it: on the macro level, the years 2000 through 2009 had little to recommend them. Most of us will not look fondly on the decade. At best, our real income stayed even but in many cases our net income declined, much of it eaten away by out of control health care costs. Then of course there was September 11, 2001, which, for us Americans, was the defining day of our decade. Naturally, we attacked the problem of terrorism using 20th century tactics that had proven widely discredited. This quickly resulted in quagmires in both Iraq and Afghanistan costing us thousands of lives and wasting trillions of dollars. Just when we thought it could not get any worse, our laissez-faire never-think-about-tomorrow economy all came tumbling down only to be rescued by massive overspending. Our overleveraged country went into what is now widely called the Great Recession. It was not as bad as the Great Depression but oh Lord it sure was not good. We start 2010 technically out of the recession but as a nation feeling like we were gang raped. Only, we mostly did this to ourselves through rampant selfishness and a lack of anything resembling fiscal discipline.

I am glad to say goodbye to the 2000s. However, I have also lived long enough to realize that most of the decades I have lived through sucked. Of course, many of you reading this were not even alive back then. I was born at the crest of the baby boom in 1957, so I can speak accurately from 1960 and beyond. In addition, I can also speak with a reasonably informed opinion about my parents early years and how they saw things. Let me take you on a tour of the decades from 1930 or so. Maybe you will appreciate that the aught decade did not suck as much as you thought.

The 1930s. This was unquestionably the worst decade of the 20th century, although the Great Depression actually began in the 1920s. For my deceased mother, born in 1920, the 1930s were a horrible, terrible, no good, very bad decade that framed the rest of her life and came close to destroying her spiritually. This was because like most Americans, she was a victim of the Great Depression, but even worse, she was one of a dozen children in an immigrant household, which meant she experienced the worst of the worst of it. It is hard for us today to understand how bad things were during those times, but you can get an idea of it from books like this one or watching movies like Seabiscuit. You think ten percent unemployment is bad? During the worst of the Great Depression, it was double that. The decade ended with the worst over but with America feeling something like the Great Recession we endured the last few years. For almost everyone in this country and overseas, it was a miserable decade full of painful lessons about the precariousness of life.

The 1940s. If you studied your history books, you know that the Second World War framed this decade. The only thing you can say that was good about this war is that it kicked us out of the Great Depression. Tens of millions of soldiers and civilians lost their lives, and fortunes beyond imagining we spent trying to win wars on two fronts. The war killed an uncle I never met. In the end, both Germany and Japan were defeated but it left pretty much every country except the United States destitute and impoverished. The Second World War destroyed the British Empire. While it left America ascendant, new trouble was stirring in the Soviet Union. A new and costly Cold War was beginning. America’s nuclear trump card was to be quickly neutered when the Soviet Union also figured out how to build the bomb. The decade ended with the Chinese Communist revolution. Our new world looked painted red.

The 1950s. The rapid spread of communism left Americans scared and paranoid. We quickly were bogged down in our first unwinnable war on the Korean peninsula, which ended not with peace, but a cessation of hostilities and only when President Eisenhower threatened to nuke North Korea. Communist hysteria was everywhere. Joseph McCarthy, the alcoholic and gleefully abusive senator from Wisconsin, whipped its flames. People were harassed or imprisoned for imagined or real (but generally entirely lawful) associations with communists and socialists; some died from guilt by association. A number of severe recessions rocked the decade. America became puritanical and plastic. Toward the end of the decade, the Soviet Union shot a satellite into space and we tried desperately to think of an appropriate response.

The 1960s. To quote Charles Dickens, they were the best of times and the worst of times. The best of times came in response to Sputnik. America quickly became ascendant in the space race and ended the decade putting men on the surface of the moon, a feat so mind boggling that it is still hard for us to get our minds around it. The worst of times were the Vietnam War, which framed the decade and much of the 1970s as well. We could not quite afford the Great Society we created and it did not work as advertised. Millions died in Vietnam in a stupid and pointless war. The civil rights struggle was rampant. Our cities burned in riots and our best and brightest died from assassins’ bullets, including Martin Luther King, Malcolm X and two Kennedys. We ended it by electing the biggest crook to ever sit in the Oval Office: Richard M. Nixon.

The 1970s. This was my coming of age decade and I remember it well. We spent years trying to get out of Vietnam. Vietnamization in the end turned out to only be a ruse to let us withdraw from Vietnam. As our forces withdrew, the Vietcong and the North Vietnamese Army quickly overran the country. We left humiliated and defeated. All this was happening whilst Watergate was unfolding and we found our constitutional system rocked to its core. The good news is that unlike during the Bush Administration, it worked in holding power accountable, mainly Congress took itself as a coequal branch of government seriously. We had two major oil shocks in the 1970s. Inflation routinely ran close to or above ten percent a year while unemployment was also high. While we waited in line to buy gas, Iranian revolutionaries invaded our embassy in Tehran and held Americans captive for 444 days. Disco was briefly in. President Carter wanted us to conserve energy and wear sweaters. We blew off his common sense and instead elected Ronald Reagan who promised us the plasticity of the Eisenhower era again.

The 1980s. If it was Morning in America again, you could not tell for the first half of the decade due to what was then the worst recession since the Great Depression. Reagan’s solution to solving the Cold War was to outspend the Soviet Union, at the cost of reckless federal spending and huge deficits. So many things went wrong in this decade including:

  • A bombing in Beirut that killed hundreds of Marines
  • A silly war to stop Communism in Grenada of all places
  • A Savings and Loan debacle that after our most recent bailout now looks minor
  • The Iran-Contra affair in which we helped make Iran an even bigger threat to us
  • Our helping insurgents in Afghanistan fight the Soviet occupation, who we would abandon when we would find it convenient. They would train their hatred on us in 2001.

Reagan was a great communicator but in reality, a lousy president who stayed largely detached from government and made sure he got his afternoon naps. His staff largely ran the government. Toward the end of his final term, it was clear he was turning into a space cadet. Later we would learn he had Alzheimer’s Disease.

The 1990s. To the extent we had a great decade, this was it. With the Cold War gone we could spend money on things that mattered again. Still, it was no cakewalk. It began with the Persian Gulf War, which was militarily successful but inconveniently caused a bad recession, resulting in voters turning George H.W. Bush out of office. Bill Clinton probably won only because spoiler Ross Perot got votes that would have otherwise gone to Bush. We had real prosperity in the 1990s and family incomes at all levels rose steadily. We found a good balance between taxing and spending and the government lived within its means. The decade ended with a substantial federal surplus. Still, there were a scattering of seismic events that precluded bad things to come: the bombing of the federal center in Oklahoma City by our homegrown terrorist Timothy McVeigh as well as bombings of embassies overseas. Republicans got into a huge snit with Bill Clinton because he lied about oral sex with an intern while the rest of America truly didn’t give a damn. Yet, Republicans impeached him basically because he was not a Republican. The Republicans also delivered on their Contract with America that turned into a contract on America, principally when they shut down the government in 1995 in a mean partisan snit. The tech bubble bubbled to overflowing by the end of the decade, but we saw the emergence of the Internet economy and the real delivery of the information age.

In summary, we have been through a rotten decade, but some perspective is in order. Most decades are rotten, but life goes on somehow. If you want to feel nostalgic about a decade, feel nostalgic about the 1990s. None of the other decades deserve fond remembrance.