A Light at the End of the Tunnel?

Posted on July 5, 2022 by Frank Sortino

About Frank Sortino

Frank Sortino is finance professor emeritus from San Francisco State University and Director of the Pension Research Institute which he founded in 1981. For 10 years he wrote a quarterly analysis of mutual funds for Pensions and Investments Magazine and he has written two books on the subject of Post Modern Portfolio Theory. He has been a featured speaker at many conferences in the U.S., Europe, South Africa, and the Pacific Basin. Dr. Sortino received his Ph.D in Finance from the University of Oregon and has carried out research projects with many institutions like Shell Oil, Netherlands and The City and County of San Francisco Retirement System.

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5 Responses to A Light at the End of the Tunnel?

Ron Surz says:

July 5, 2022 at 2:23 pm

Have the Inscrutable Chinese Hustled Us? A Whimsical Thought Exercise.
• Our recent economic experience could be driven by a con game, a hustle.
• The TV series “Hustle” follows a template that can explain the ridiculous amount of money the US is printing
• The characters in this hustle are: The Mark is the US. The Grifter is China. And the Shills are Russia and US citizens.

Last month Al Jazeera published Why are China and Russia strengthening ties? that made me think of the TV series Hustle that portrays a likeable team of con artists who trick their “Marks” into parting with money or valuables. Each episode shows a different clever con that tricks an unlikeable person, many times without being recognized as the thief. It strikes me that $13 trillion in recent US money printing could be a trick executed by China in the current Thucydides Trap. In other words, it could be that the US has been conned into financial ruin that will make China the number one superpower in the world. Here’s the idea.

Mechanics of a hustle
Although every episode of Hustle is a different con, there is an established pattern, or template, throughout:
• They always play what’s called a “long con” which means it takes a long time to come together, like months, but they frequently finance the venture with some “short cons” that raise a little money quickly.
• There are always three main characters: (1) a “Mark” (the target) who is usually not a nice person, (2) the “Grifters” (the likeable team of con artists) and (3) “Shills” (accomplices who help along the way, sometimes unwittingly).
• The stages of the con progress as follows:

1) Foundation: Research the Mark to identify interests and vulnerabilities.
2) Approach: Set the objective and pick the con. In the TV series they usually identify the con by name, suggesting that there’s some sort of con manual. The Mark is approached or contacted.
3) Build-up: The victim is given an opportunity to profit from participating in a scheme. The victim’s greed is encouraged, such that their rational judgment of the situation is impaired.
4) Pay-off or convincer: The victim receives a small payout as a demonstration of the scheme’s purported effectiveness.
5) The “hurrah”: A sudden manufactured crisis or change of events forces the victim to act or decide immediately. This is the point at which the con succeeds or fails.
6) The in-and-in: The Grifter puts an amount of money into the same scheme as the victim, to add an appearance of legitimacy, and the Mark buys in. The con is completed.

Have we been hustled?
Our recent economic history fits this template in the following ways:
• Our current economic journey began in 2008 with the financial crisis, so this long con has lasted 13 years so far, and it will likely take another 4 or 5 years to complete. The “long” in this long con is about 18 years.
• The “Mark” in this con is the United States, specifically members of Congress. The “Grifter” is China that is caught in the Thucydides’ Trap, and seeks to be number one. And the “Shills” are Russia and unwitting U.S citizens.
• The stages of the con progress as follows:
1) Foundation: Congressional members are greedy and mostly focused on getting re-elected. Voters want free stuff like healthcare and education
2) Approach: Create a “theory” that liberates spending from a budget. Money printing is justified by “Modern Monetary Theory” (MMT) – print all you need. When was our last “balanced budget”?
3) Build-up: Following Japan’s lead, the US launches Quantitative Easing (QE) in 2008 to head off a recession, printing about $4.5 trillion.
4) Pay-off or convincer: QE works!! The recession ends quickly, the stock market enjoys its longest recovery and inflation is subdued.
5) The “hurrah”: A sudden manufactured crisis or change of events forces the victim to act or decide immediately. The COVID pandemic breaks out, originating in China.
6) The in-and-in: China and Russia are “in” the fight against COVID. Congress approves another $5.5 trillion in COVID relief plus President Biden plans to spend at least another $3 trillion on infrastructure and other projects. So, $13 trillion in new money (counting QE), which should be enough to bring hyperinflation. $13 trillion is more expensive than our 10 most expensive wars combined

The scenario so far has set an inflationary spiral in motion that could bankrupt the US and bring China into world dominance. Stay tuned. This will take years to play out, and a lot can happen in the meantime. MMT encourages money printing until it causes inflation, at which time taxes are supposed to be increased to take that money out of the economy. Will Congress act? Is China that clever?

Conclusion
I’ve offered a sort of mind exercise that I suspect will amuse some while angering others. I’m looking forward to the discussion. Thanks.

Watch our Baby Boomer Investing Show and buy my book Baby Boomer Investing in the Perilous Decade of the 2020s.

Reply
- Frank Sortino says:
  
  July 6, 2022 at 6:55 pm
  
  An interesting story to explain the fact about how we got to where we are, the fact being, the government printed more money than the economy needed and the money found it’s way into assets which went up in price but not in value, However, I think there is more than one fact that we are dealing with. I offer a different story about what has been going on. We have moved from Monarchy’s, where Royalty told peon’s what to do (plant crops) and when to do it (all day long). Then came the industrial revolution, where humans, formerly peons, ended up telling computers what to do, using mathematical instructions. Now we are in a technological revolution where computers are telling humans what to do, using algorithms. We no longer need royalty and we will soon not need central bankers.
  
  Perhaps,,,you will not need human beings, Frank. Regretfully, Algo
  
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  Reply
  - Ron Surz says:
    
    July 6, 2022 at 7:25 pm
    
    Well said Frank: the money found it’s way into assets which went up in price but not in value, Most do not see it that way & that’s a problem
  - Frank Sortino says:
    
    July 6, 2022 at 7:57 pm
    
    Hope you got a laugh out of it!
    
    >
  - Ron Surz says:
    
    July 6, 2022 at 8:11 pm
    
    Yep