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● USA Today
2023 Best Financial Advisory Firms
usa today best financial advisory firms 2023 logo for wellspring financial

Award based on independent survey carried out by USA TODAY and Statista. Firms need to be nominated by a participant in the survey. No prior registration is required, and no costs are involved for the nomination. The recommendations for each firm are summarized and evaluated anonymously. 
In addition to the survey results, additional metrics (e.g., data in relation to assets under management (AUM)) will be included in the final analysis.

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Experimenting with Your Work

I thought it worthwhile to view the world of ‘work’ over a period of say… 5,000 years just for the sake of convenience. And, in this view, think about how a grand experiment is being done with the fruits of your work.

People have been lending money to each other for a long, long time.  Normally, the lending of money occurs when three things happen;

  1. Someone needs resources (money) that they don’t possess today to buy something they want
  2. They have to look like they are able to pay it back (or it becomes an unintended gift from the lender)
  3. A mutually arranged interest rate occurs, normally related to how ‘risky’ the likelihood of repayment might be; Higher risk people have to pay higher interest rates than lower risk people

Everybody says; That’s an easy economic lesson dummy, that’s the way it always is.  Well, I say, what if it isn’t?

A little perspective first for you.  Many different types of people borrow money; Individuals (your kids from you, you for your home mortgage), companies for their business (both for profit and non-profit) and governments (city, county, state, federal).  Labor (work) is what pays it back; you work to earn a paycheck and you pay it back out of those wages, companies employ individuals for labor in their field of endeavor and hope to earn a profit so they can pay their loan back (and try to make a buck or two extra for shareholders), and governments employ the power of taxation to tax the paychecks of individuals and the profits of companies to pay their borrowings back.  Voila!  Everybody’s on the same page.

However, very recent in the overall times of mankind on this earth, we are upsetting the apple-cart.  When big things change, I like to call them out.

We are experiencing a time when borrowers are not lending money to be compensated.  In many parts of the world, lenders are the ones PAYING for the privilege of letting governments borrow their cash.  As of the last Monday in August just past, almost $16,000,000,000,000 (16 trillion) of government bonds world-wide were offering yields below zero[i].  That means you lend $1,000, but only expect to get $990 back in your pocket.  Doesn’t that seem a tad strange to you?

Some researchers think so too.  There is a book (“The History of Interest Rates” – it would look really impressive on your coffee table) that reviews the history of borrowing in the world as we know it.  One of the authors sums up his findings: “There were no negative bond yields in 5,000 years of recorded history”[ii].  For the record, central banks have accomplished this current feat by printing money, and then buying up the bonds in the market (making them expensive), which inversely drives down the interest rates on them (called yield).  If you flagellate yourself sufficiently in this process those yields become negative.

All the above is done in the interest of encouraging borrowers to borrow because interest rates are so low.  If they borrow, they employ more labor, the labor gets taxed, and the merry-go-round described above continues on its normal path.  That’s the theory.  I will point out that this theory is not necessarily working, however, and thus we are really in a global laboratory ‘experiment’ and we’re not sure exactly how it will turn out.  I personally think it would be nice if governments were a bit more open about this experiment, but I’m not holding my breath.

By the way, when interest rates go above zero, the regular person would be happy because their savings account would make a dollar or two more.  The person who would be unhappy?  The government who has to pay all those borrowings back at higher interest rates.  If you think the above is weird enough, let me leave you with this conundrum; Sovereign governments are borrowing more money than ever, which makes them ‘riskier’ and that would tend to indicate their interest rate would be higher (think Greece).  Nonetheless, these are the same governments whose interest rates are negative.  With wisdom beyond her years, the old adage that your grandmother used to say comes to mind; “Be careful what you wish for”.

I said in the last post that the economy must grow; that jobs must grow for things to work out.  In this article I’m just cautioning that we have to be careful about what kind of policies we pursue to make them grow.

 

 

[i] “The 5,000-Year Government Debt Bubble” (Opinion Page, James Freeman, Wall Street Journal, Sept. 1, 2016)

[ii] The History of Interest Rates (Sydney Homer and Richard Sylla, Wiley and Sons, 2005)

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