Eagles
Tuesday, February 4, 2025
Concept everyone should understand:
Macro Economics – The study of the big picture of an economy. It looks at questions of:
How much money is in the economy (that’s cash and credit cards).
Micro Economics – The study of individuals and companies and their money needs.
Do they have enough money to pay their bills?
Do they have access to loans and credit?
Inflation – Prices going up.
Deflation – Prices going down.
What determines a price is how much someone is willing to pay for something (and how much money they have to pay for it.)
Demand – How much people want something. This is measured in increased or decreased prices.
There are two types of demand:
Inelastic – You gotta have it no matter what. e.g. Gas to get to work. Medicine without which you will die.
Elastic – Gas to go on vacation.
All modern governments have a central bank. Ours is The Federal Reserve (The FED). Its job is to take money out of the economy if inflation is going too high. They do this by issuing Treasury Bonds (often called Notes or TBills). By offering higher interest rates people will be more likely to invest in them. In o doing that money is taken out of the economy. People don’t have it to spend. Prices come down.
If they want to put money into the economy they lower interest rates; people don’t buy them. Other notes come due and the money from those TBills goes back into the economy. People have more money to spend. Prices go up (ie inflation).
In general, economists and central bankers like a slightly inflationary economy. It makes paying off the old debt easier and everyone keeps getting more money.
There are some who don’t like a centralized bank and think we should do away with it. Others subscribe to wacky ideas about fiddling with the interest rates of TBills or something and that will somehow fix everything. I don’t understand it. It seems short sighted and or stupid. But Rand and Ron Paul push these ideas and they are encapsulated in what is know as The Austrian School of Economics. (This btw is dismissed out of hand by all other economists.
I mention the Austrian School because I fear we might be in for another round of this stupidity or a variant of it. Elon Musk has been given access to look at the bill paying mechanism the U.S. government uses. It is a mechanical thing. It does all the bill paying of the Federal government (there are a few minor exceptions.) Your name and social security numbers would be in that system.
I have to ask, “Do you really want someone with no elected or civilian background rooting around in there?”
Musk has made pronouncements that lots of things should not be getting paid. He also has said he wants to switch the backbone of the government TBills to blockchain, whatever that means.
Economies run on confidence. If one isn’t confident they won’t spend. They will hoard or put their money into something extremely safe. That used to be TBills, but now with Musk in there who knows?
Another favorite place to store your money is in gold (GLD) or Silver (SLV). There are other ways to buy gold and silver. Some folks don’t like it (Motley Fool and Warren Buffett), because there is no way to tell what it’s going to do other than people not knowing where else to put their money.
I’ve been worried that Trump would wreck the economy. I didn’t think he’d do it this fast. He’s sent up a few flares, and then withdrawn them. As my friend Corey used to say about kiting – there are sucker winds. those are winds that when you decide you are done for the day and pack up all your kites a wind comes up. One is tempted to break out another kite. Corey said don’t do it. They are sucker winds and as soon as you get your kite out the wind will die. I feel this way about the economy.
Biden left us the strongest economy in the world. Trump had bad mouthed it all during his campaign. I remember him talking about Robert Kennedy Jr. saying, he was going “to let Bobby do his thing.” Apparently, that applies to Elon too.
Elon is as dangerous as Kennedy. Just on the economy. What do you think is going to happen if he diddles with the Treasury Department’s payment system? I can hear him now, “These payments are illegal so we stopped them.” Then someone will have to go to court, prove him wrong and by then it might be too late for whomever.
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