Autumn is upon us up here in the mountains of Virginia. The air has cooled… the humidity has evaporated… and the leaves are beginning to make their annual descent back to the Earth.
There’s something magical about this time of year. It’s a reminder that everything is finite. As the book of Ecclesiastes says: There is a time for everything… and a season for every activity under the heavens.
The gravel road pictured above is our driveway. There’s one way in and one way out… like we’re at the end of the world up here. Most days I feel like we are.
We bought this property from the family who owned the old Downer’s Hardware store in the nearby town. They opened the store in 1953 and ran it for just over 50 years.
We were a couple decades into the “cheap money” experiment when Downer’s Hardware closed its doors in 2004… but we hadn’t yet reached the apex.
We talked yesterday about the result of this experiment – cheap money cheapens everything. The case of Downer’s Hardware illustrates this dynamic…
When the family-owned store opened in 1953, it could sell individual screws, nuts, and bolts for a penny each and still make enough money to keep the lights on. That’s $0.01 – the lowest denomination of the dollar. One penny still held purchasing power.
Fast forward to today and you can buy individual screws for around $0.65 at Lowe’s or Home Depot. But nobody does.
Instead, we buy a pack of 200 screws for $5.99. Then we use the one or two screws we need, and we put the rest on the garage shelf.
We’ll have plenty of screws for the next time we need them, we think. Then 20 years goes by and we forget we even have those 198 screws on the shelf. But we don’t care—they only cost $5.99. That can’t even buy us lunch today.
This is how cheap money encourages waste.
We needed two screws… not 200. But we bought 200 because they only cost $5.99.
We got a “deal” and Lowe’s got to add some revenue in its endless quest to meet quarterly earnings forecasts. But 198 screws went to waste. What else could that metal have been used to make?
Meanwhile, Downer’s Hardware wasn’t around to sell us screws in any quantity. Because it couldn’t afford to keep the doors open selling screws for $0.03 each ($5.99 / 200).
Is that a bad thing?
Perhaps not. The Downers found other work and we can still buy screws for $0.03. But only if we buy 200 of them. If we just want one screw it’s $0.65.
But what did we give up?
After all, we used to be able to get one screw for $0.01 – that penny in our pocket held actual purchasing power. And we could buy that screw from the nice family who made their living running a hardware store.
What we’re talking about here was a fundamental reorganization of our society. The same thing that happened to Downer’s Hardware happened to millions of small businesses on Main Streets all across America.
And you know what… it worked out great for a lot of people. Corporate managers got their bonuses and everybody’s retirement accounts went up. Especially after the global central bank cartel pushed interest rates to zero.
But lest we forget – there is a time for everything… and a season for every activity under the heavens.
Like the leaves falling from my hickory tree in the image above, the cheap money era’s days are coming to an end. Tomorrow we’ll talk about why…
-Joe Withrow
P.S. We’re going to distill America’s Great Reorganization into actionable investment insights at our event next week. We’re calling it: The 4.5 Things You Need for Financial Freedom: How to Create True Financial Security in Today’s Economic Climate
We’ll go live on October 25th at 3:00 pm Eastern. The core presentation will run for about an hour or so. Then we’ll open it up to unlimited Q&A.
And I promise, you won’t get any fluff from us. Only actionable insight and specific investments you can make right now. You can register for the event at https://phoenician-league.lpages.co/webinar-oct24-int/. I hope to see you there!