“What you know you can’t explain, but you feel it. You’’ve felt it your entire life. There’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in you mind, driving you mad”.  ~ – Morpheus

“If I were a rich man,
Daidle deedle daidle, Daidle daidle deedle daidle dumb…”

By the time you finish reading this article, you may discover that you have many more questions than answers. When I decided to write this article, my objective was not to provide answers but rather to demonstrate to you that many presupposed airtight beliefs may actually be littered with holes. Rather than to provide answers that may bring curiosity to a halt with the end of this article, my objective is to have inserted many more splinters in your mind that drive you to seek more answers, to question the beliefs you already question, and to validate the truths you already know. Continue reading →

Don’t ever listen to your employees – just spend their retirement into oblivion! ~ Ed.

A toothpaste factory had a problem: it sometimes shipped empty boxes without the tube inside. This was due to the way the production line was set up, and people with experience in designing production lines will tell you how difficult it is to have everything happen with timings so precise that every single unit coming out of it is perfect 100% of the time. Small variations in the environment (which can’t be controlled in a cost-effective fashion) mean you must have quality-assurance checks smartly distributed across the line so that customers all the way down to the supermarket don’t get pissed off and buy another product instead. Continue reading →

We are coming to the point in the United States when even the US government will no longer be able to borrow at very low long-term rates. That point is a few years off, and we have time to change paths; but as I have shown in previous letters, the longer we wait to get the deficit under control, the fewer choices we have and the more painful they are. NO country can run deficits the size we are currently running, along with unfunded deficits over four times the size of the economy and a growing overall debt burden, without consequences. At some point, investors in bonds will start wondering exactly what the process is by which they will be repaid. And what will the value of those future payments be? Continue reading →

A run is a mass withdrawal of cash funds from a borrower. We are in the midst of a continuing worldwide credit crisis, punctuated by “runs” of varying prominence and publicity.

These runs are rational, not panics and not due to quirks of psychology. They occur when investors realize that their funds are endangered in an institution. They try to get them out before they lose them.

The danger comes when the institution no longer is getting cash inflows in sufficient amounts to pay off all its obligations. In businesses, this comes about through sour investments. In governments, it comes about through wasteful spending that fails to be recovered in tax revenues. Continue reading →