Thursday, December 14, 2023

John Wilder, "The Jenga Economy"

"The Jenga Economy"
by John Wilder

“Out of these windows, we will view the collapse of 
financial history. One step closer to economic equilibrium.” 
– "Fight Club"

"After 9-11, sales of the Jenga® game really dropped. I’m not sure why, but in 2002 people had to play Jenga® the old-fashioned way – by stacking dishes in the sink.

But the game of Jenga™ is a pretty good analogy for our economy right now. Jenga© is based on taking one piece from the lower part of the structure and putting it on top. As the game progresses, everyone can see that the structure becomes weaker and more unstable. The game always (at our house) ends the same way: the tower, which now seems ridiculously tall, sways a little bit, becomes unbalanced, and topples. The pieces then go everywhere, and we leave them on the floor for the herds of stray free-range toddlers in our neighborhood to eat. We’re givers that way. The economy (to me) looks exactly like a game of Jenga™, seemingly impossibly stretched out and tall.

Examples? Well, let’s talk about when we turned money into cash. The dollar used to be bound to actual, physical commodities – gold and silver. I guess you could call it an either-ore situation. Gold was always the preferred, but people who wanted looser money (i.e., inflation) fought to get silver in there, too. In fact, silver was actually part of the money supply, making up a portion of many coins up until the 1960s when one Jenga© block was pulled and set on top.

Nixon pulled another when he ended the ability of foreign nations to bring piles of dollars and walk away with piles of gold. He made the tower even shakier as he threw gold out, entirely as a standard. The good news was that Americans could once again own gold. The bad news was that dollars were no longer money – they were cash – not backed by anything.

And could be printed at will. Another Jenga™ piece on top. The tower becomes a bit wobblier. And wobblier still as Nixon and Ford and Carter start printing. I mainly blame Nixon, since he got the ball going, and it took the hand of Reagan reaching out to steady the tower, though that created the very deep 1982 recession.

Reagan, though, added his bit as well. Sure, it made sense to try to spend the Russians into the ground – after the 1982 recession the economy came roaring back as The Wealth Pump started in earnest and the stock market soared. But during this time, the market cheered as jobs left the United States. In many cases, the jobs were subsidized by the country taking them. They wanted to build up the industrial expertise so that they could make world-class products and were willing to pay for their economy and workers to learn how to do it.

Remember George H. W. Bush’s advisors saying they didn’t care if the economy made computer chips or potato chips? Pepperidge Farms© remembers™. Because it does matter. Potato chips or computer chips don’t matter if you’re a banker making a loan, but if you’re trying to create the greatest value with the economy? It sure as hell does matter.

On the government side, fiscal responsibility seemed to come back for a bit with Bill Clinton. Now, don’t thank Bill – it was entirely based on Newt Gingrich stopping all the nonsense for a few years that primed the pump of the economy. While Hillary is an ideologue, Bill was always in it for the hot chicks. Sure, there were shenanigans, but the Jenga™ players were mostly playing it safe during that time period.

But when the recession hit in 2000? George W. Bush really wanted to open the floodgates, so he started stacking as high and as fast as he could. War helped him move a few Jenga™ pieces, and low interest rates in his “everyone who breathes should own a McMansion” policy fueled an amazing set of bubbles that ended up including housing, natural gas, crude oil, and what was left of my hair.

The path out of the Great Recession was a simple one. Print more money. People aren’t buying United States Bonds? Heck, the Fed® can buy them now. We can also pay Wall Street to launder all the bad debt and make sure that irresponsible bank vaults get filled to the top with cash. Because, why not?

Obama took some Jenga™ pieces from the very bottom and put them up top because he wanted to get health care into the system.

Trump didn’t add too many blocks to the top of the board, at first. Trump was mainly because he was focused on deals – immigration, trade, covfefe. But he couldn’t make a deal with COVID. His instincts were bad and his solution was just to stack more blocks up top by printing money and cramming it down people’s throats as fast as he could.

Biden doubled down on that strategy: importing illegals by the truckload to paper over the economy that no longer serves its citizens, spending billions to “reduce inflation” and now nobody wants to buy the bonds. Thankfully, the banks are scrambling to create weird new structures so they can pretend that the loan that they made at 4% isn’t costing them when they’re giving 5.5% on CDs.
The tower is now, really, really tall. And really, really shaky. And these things never end slowly – they end either with mass social unrest, a big war, or both when the tower finally collapses. And others have just given up."

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