It's been a while since we've posted any new articles or commentary related to current events going on in the world that just might be relatable to the Doowopolis story - but in case you haven't been paying attention, it's worth noting those kinds of events haven't exactly stopped occurring.
This past week was a bit of a doozy - from announcements of Treasury buybacks to new Fed chair Kevin Warsh's first "Jackson Hole" speech - the types of policies that led to the demolition of Doowopolis in the 2000s (and the ongoing demise of the values that built it in the first place?) were back in full view.
We figured this would be as good a time as any to post a few recent (and relevant) goodies - with our notes added to some quotes & excerpts to show how current themes in the economy continue to support our thesis on the rise, fall (and perhaps rise again someday?) of Doowopolis…
IYKYK.
The Greatest Cover-Up in Economic History: How Washington Hid Its Role in the 2008 Crash
(Mises Institute)
"the real crime of 2008 was not a failure of capitalism, but a catastrophic failure of central planning."
(despite all the property speculators & developers telling you how much they hated the idea of a centrally-planned "Doo Wop Historic District" in the Wildwoods - but they happily took all the centrally-planned government subsidies & bailouts for their ill-fated condo developments while telling you what "great free-market Americans" they are)
"This top-down command economy completely erased private market discipline."
(and the ability for independent would-be Doo Wop Motel owners/entrepreneurs to compete fairly)
"By forcing the financial system to accept trillions of dollars in low-quality debt, Washington single-handedly fueled the historic housing bubble."
(and thousands of look-alike condos built in the Wildwoods that sat vacant for years)
"Faced with a disaster of their own making, policymakers pulled off a multi-trillion-dollar ideological cover-up that may ultimately prove to be far more damaging than the original crime."
(many of the same people who created the problem - and led to the destruction & demolition of Doowopolis - got bailed out at your expense. essentially, they were rewarded for destroying your Doo Wop dreams, while you got to pay for it. and they continue to pretend they were defending your best interests all along - as if they would have any idea what your "best interests" are in the first place)
"By shielding Washington from accountability, the 2008 cover-up institutionalized systemic moral hazard and permanently crippled market discipline."
(and now we have the world of the 2020s - where the decline of Doowopolis continues, both physically and spiritually - while most real estate projects & ventures in the Wildwoods today are based on the premise of never-ending money printing to keep on inflating asset values regardless of the creativity, ingenuity, or operational effectiveness of the proprietor - i.e. why bother giving your guests a better experience in the hopes they'll spend more money when the government will essentially just hand you the money for free through inflation simply for owning your real estate? and you don't even have to lift a finger!)
What is Inflation??
(Praetorian Capital)
https://pracap.com/what-is-inflation
"Our current leaders need to suppress growth in order for asset bubbles to keep expanding. It’s an odd set of economic priorities—in fact, it’s so counter-productive to economic prosperity, that it hasn’t been tried since the Middle Ages."
(instead of building a real tourism-driven economy centered around the restoration and operation of historic Doo Wop Motels - i.e. with real people doing real jobs earning real money, and real tourists spending real money in real places built & managed by real people - we created a place where people buy condos simply because they hope the price goes up - whether anyone ever shows up or not)
"Bessent isn’t worried about Main Street, he’s worried about his over-levered finance friends, who are having an existential experience as long-rates blow out."
(private equity and other corporate sources of financing over independent small business owners & entrepreneurs)
"What if elevated asset prices are indicative of a dangerously imbalanced economy?? What if a healthy economy has subdued asset prices, as capital chases productive employment with much higher returns on capital??"
(for decades, real estate and particularly motels in the Wildwoods were valued based on their ability to generate income - i.e. how much can I rent out all those motel rooms for - and as such, warranted prudent business plans with serious cash flow projections, and produced lots of jobs to support the tourism economy in tandem. but with the artificial inflation of asset prices, it all changed to - let's see how much (cheap) money I can borrow to build however many condos I can fit on my lot to peddle to the next guy willing to overpay for one (or five) with additional (cheap) borrowed money and the intention of flipping again to the next guy, etc... to keep repeating the process, expecting never-ending price appreciation (never mind doing anything particularly creative, innovative, or sustainable to earn it) - and we don't even need to pay any employees to do anything because we don't actually need to run or operate anything anymore - we just sit back and wait for the numbers to go up by magic! instead, imagine if more "subdued asset prices" had allowed creative, innovative entrepreneurs to come in and restore Doo Wop Motels profitably by committing their hard work & capital over the long term to improving & operating sustainable businesses within their own community? similar to how the Cape May Victorian revival got off the ground in the 1970s with fledgling entrepreneurs buying cheap old homes that no one else wanted anymore, and DIY-ing their way to eventual success for both themselves and their entire community?)
"What if increased asset prices are instead indicative of a dying economy; where entrepreneurs cannot think of anything better to do with their capital, except to purchase an existing asset hoping for price appreciation, instead of building something new??"
(certainly indicative of a dying Doowopolis - and a really boring landscape of people sitting and waiting for their property values to go up, rather than building or creating anything that people actually want to see & experience)
https://pracap.com/what-is-inflation
The Lit Fuse: Low Interest Rates Ruined the Economy
(Of Two Minds blog)
https://www.oftwominds.com/blogaug26/powder-key-economy8-26.html
"shifted the incentives from risk-sensitive investing to risk-insensitive speculation"
(i.e. Doo Wop Motels that could have been lovingly restored through careful planning, passion, and hard work as part of a real, re-emergent tourism economy vs. new condos to throw up quickly & cheaply to "flip" for short-term profit)
"Handed the biggest financial players--corporations, investment banks and financiers--the enormous advantages of lower borrowing costs and unlimited credit lines, advantages unavailable to households and small businesses."
"Corporations with low-cost unlimited credit lines can always outbid households for homes"
(and outbid independent, aspiring Doo Wop Motel owners/entrepreneurs - demolishing their dreams in the process)
"creating an artificial scarcity that then drove home prices to absurd heights."
"Artificially low interest rates incentivize borrowing not to invest in the long-term but to place short-term speculative bets: get in, scalp a profit, exit."
(exactly what happened to the Wildwoods from around 2002 through 2006 - and started to happen again in the 2020s)
"Cash is trash so let's go outbid hundreds of thousands of homeowners to snap up family homes as income-producing rentals."
(or outbid aspiring Doo Wop Motel owners who actually wanted to build & operate something meaningful & profitable for their community - so we could instead build condos to flip (2000s era) or throw on Airbnb (2020s era) because we're all "real estate investing geniuses" now in an era of free money)
"capitalism is a system of discipline and accountability in which capital (cash, assets) is put at risk to earn a gain."
(the old American dream?)
"Call this whatever you want, but it isn't Capitalism"
(despite what the condo developers would tell you - i.e. "This is America! You can't tell me what to do with my property!! But I'll happily take your bailout money, PPP loan, artificially low interest rate, or other government subsidy while complaining that everyone else is a communist)
https://www.oftwominds.com/blogaug26/powder-key-economy8-26.html
Let the Bond Market Speak
(WSJ / Stanley Druckenmiller)
https://www.wsj.com/opinion/let-the-bond-market-speak-81529d74
"This wasn't liquidity management, it was price management"
(remind us who's supposed to set the price in capitalism? what's the name of that other system where the government sets prices? oh, wait…)
https://www.wsj.com/opinion/let-the-bond-market-speak-81529d74
Stanley Druckenmiller leads doubters who think Bessent’s bond ploys will fail
(CNBC)
"allow the market the opportunity, free of the government’s hand, to set the proper price for government debt."
(imagine if we allowed the market the opportunity to set the proper price for Doo Wop Motels in the Wildwoods back in the 2000s instead of letting them fall into the hands of condo developers enabled by the government's artificially low interest rates? maybe real, creative, forward-looking entrepreneurs would have been able to come in at legitimate free-market prices (with their own hard-earned capital) to preserve & restore them and build a meaningful long-term community enterprise for their families, guests, and employees to enjoy and profit from? unfortunately, they weren't allowed to compete freely or fairly with the "central authorities" who kept printing money to get the outcomes they wanted instead - i.e. lots of "investment condos" to absorb all the new debt)
"Governments defending prices against fundamentals always lose."
(but they tried really hard to overcome the fundamentals of the traditional tourism economy in the Doo Wop-era Wildwoods - and seems they succeeded - at least for now? in the long run - the rest of us lose)
Thank god interest rates have risen – we were living in a fantasy
(Telegraph UK)
https://uk.news.yahoo.com/thank-god-interest-rates-risen-070000568.html
"In fact, after a long decade of irrational finance, we may finally be back on steady ground."
"But we should be thankful that after a decade and a half of experimentation with quantitative easing (QE), normality has returned with "proper" interest rates."
"Prolonged zero, and even negative, interest rates removed our financial inhibitions. Easy access to cheap credit allowed consumers, businesses and governments to borrow, and then to borrow some more."
"the temptation was to believe ultra-low interest rates were permanent, gearing up was almost costless, and refinancing was a doddle."
"Prolonged QE was pernicious. Corporate duds were allowed to survive but faced no incentive to restructure and improve."
(people who were bad at business got to stay in business while making it more difficult for people who might have been better at business - if given the chance - to get into business - such as would-be Doo Wop Motel owners/entrepreneurs who were routinely outbid by condo developers overbidding and over-inflating the price of real estate with government-subsidized capital they hadn't actually earned, and certainly weren't incentivized to do anything better with - such as restoring vintage Doo Wop Motels or considering the design & construction of new ones)
"In short, productivity eroded and real wages were undermined. Flabby and wheezy, we are still nursing the wounds of this monetary mugging."
(aka - people who work hard and operate real businesses and/or produce real things - such as Doo Wop Motels and their real, hard-working guests - got mugged, to say the least)
"unnecessarily prolonged loose policy favoured the asset-rich getting richer while the asset-poor were lumbered with falling real earnings. He hypothesised that the yawning wealth gap would stoke political polarisation and feed resentment."
"you create economic resilience by living within your means."
"Getting into trouble with debt is easy; it's getting out that's difficult. Enough of the fantasy."
(and back to the reality that enabled real, hard-working people with big dreams (and real, honest, sound business plans) to build the kind of Fantasy (IYKYK) that Doowopolis was known for in the 1950s & 60s, could have been again in the 1990s/2000s (but sadly didn't last), and perhaps could still be yet again if we could only find a better way??)
https://uk.news.yahoo.com/thank-god-interest-rates-risen-070000568.html
Here's to hoping as one kind of "bonanza" (and the "fantasy" it created) comes to an end - a far better "Bonanza" can emerge once again, along with a new "Fantasy" that everyone can participate in? 😉