This was an exciting week for Bitcoin (CRYPTO: BTC) holders and hodlers as the fourth-ever halving took place on Friday. The American consumer got back to work spending ever more on goods and services. Some of that was inflation and some was more consumption. That same consumer is a bit overstretched and some have started paying fees to use buy now, pay later services on rent. While consumers are using more credit, small businesses are finding that more difficult to source. Continuing our series on problems in commercial real estate, tech companies have continued to reduce leasing office space. Finally, DKI Intern, Andrew Brown, provides his view on where young people are having financial difficulties and offers excellent suggestions to begin addressing the problem. Let me know if you’d replace Janet Yellen with Andrew as Secretary of the Treasury.

• The Bitcoin halving is here! The Bitcoin halving is here!

• Good or bad economy, the American consumer continues to spend.

• Buy now, pay later…for rent?! What could go wrong?

• Consumers are using more credit. What about corporations?

• Tech companies reducing office footprint – the next problem in commercial real estate.

• Think the economy is in good shape? Think young people are just soft and entitled? Let’s hear from one of them and consider whether his opinion has merit.

There will be a total of 21MM Bitcoins mined from inception through the middle of the next century. However, those coins won’t be mined on a consistent schedule. Just 17 years into Bitcoin’s existence, about 19.7MM have been mined. That’s almost 94% of the total supply. Approximately every four years, the reward for miners gets cut in half. That means that by the time you read this, daily creation of new Bitcoin will fall from about 900 per day to 450. This is happening at a time when concerns about the debasement of the dollar and other fiat currencies is increasing and when ETFs are allowing a new class of investors to start to buy Bitcoin.

DKI Takeaway: One reason the dollar price of gold keeps rising and is now at an all-time high is because the supply of gold only increases approximately 2% a year. In contrast, Congress and the US Treasury think nothing of overspending by trillions of dollars each year and just adding to the debt as if the US will never need to pay what it owes. By the time you read this, Bitcoin will have become “harder” than gold. That means the creation of new units compared to the total supply available is even lower for Bitcoin than gold. As for the “hardness” of the US dollar, that’s a disaster which we’re all experiencing as inflation. DKI owns both Bitcoin and gold.

DKI Takeaway:  While I think it’s unwise to live beyond your means, it’s easy to understand why consumers keep spending. The government exercises no spending restraint and refuses to acknowledge tradeoffs between program benefits and costs. Bank bailouts in 2008 are still fresh in the memories of many, and now, people who never went to college are about to get the bill for the degrees of others. Neither the banks, nor the universities, nor the people who financed the student loans will suffer those losses. In this environment, who’s left to credibly preach financial restraint?

DKI has previously reported on the expanded use of buy now, pay later (BNPL) including when people started using it at fast food restaurants. (A McDonalds happy meal on layaway?) Companies like Flex are advertising that using BNPL to pay your rent is about “taking control” of your finances. Flex charges people who want the liberation of not having to pay their rent on time a $14.99 monthly fee plus just 1% of the payment amount. So, what could go wrong?

DKI Takeaway: Terms marketed as “freedom” to “take control” of your rent payments really mean pay later for a financing fee. In general, people who want to pay late do so because they’re falling behind; a trend that’s likely to continue. At that point, Flex starts charging up to a 36% APR on outstanding balances. Unsurprisingly, that part is in the fine print that’s harder to find than the cartoon videos advertising the “benefits”. These products are great to help people who need an occasional delay to avoid bouncing a check or being late with the rent. When it’s something people rely on, it’s easy for this to become a trap.

DKI Takeaway:  Many economists predicted a recession in 2024. DKI disagreed and said that massive governmental stimulus would skew the numbers and keep us out of an official recession. Government spending is becoming a larger part of GDP and is masking weakness in the private economy. Banks have slowed lending, businesses have been reducing growth and investing plans, and inflation has started to increase again. The mainstream press continues to run articles admonishing Americans for not appreciating our great economy. All new jobs are part-time and almost all of them are either in government or in sectors of the economy financed by government. There’s a reason people in the productive private economy are dissatisfied.

We’ve been reporting on problems in the commercial real estate sector for the past few editions of The Five Things. More people moving away from big cities combined with employees’ insistence on working from home/anywhere are putting pressure on the commercial office space market. This week, the Wall Street Journal reported on technology companies reducing the amount of office space they use. Due to the nature of their work, tech employees are well-equipped to be effective outside the office. Making the situation worse, tech companies defensively grabbing more office space than they needed contributed to huge growth in the rental markets in hubs like Seattle and San Francisco. That’s being reversed. The WSJ now reports that “San Francisco’s office-vacancy rate hit a record 36.7% in 1Q”. That’s up from 3.6% in 2019.

DKI Takeaway: Every week, we’re relaying more problems in the commercial real estate market, and the fear is that this will become the 2024 version of the housing market in 2008. On the positive side, there’s probably less leverage in the commercial side now than in the housing market then. On the negative side, housing demand didn’t disappear, but demand for office and retail space is vaporizing. We’ve heard rumors that Washington DC already has a plan to bail out overleveraged property owners and the banks that lend to them. DKI hopes that doesn’t happen. Until people suffer the consequences of making bad decisions, we’re going to keep getting more bad decisions, and will have intensifying boom and bust cycles.

Written by DKI Intern, Andrew Brown: American have been struggling financially in many ways, but especially the younger generations. Inflation has made it more difficult for my generation to buy a home, or even to afford food at the grocery store. A core driver of the struggle is government spending and incompetency which is a bipartisan problem. As DKI has written, government involvement in education funding has incentivized universities to raise tuition to levels that don’t match the job prospects of their graduates. Excessive government spending has locked us into $3.8 trillion of annual obligations that can only be adjusted with changes to benefit programs, something that politicians and voters reject. Unless Washington addresses this issue, continued overspending means my generation will be the ones to pay the price.

DKI Takeaway: The government likes to preach that people should gain financial literacy and save, but it doesn’t live by those guidelines. The government is unable to manage a budget or evaluate tradeoffs. They are in charge of education, but spend no time and effort teaching finance and budgeting to students. The schools do not prepare students for the workplace. Teaching students to save and invest could reduce the Social Security burden that will fall on me and my peers. Starting to prepare for that now would reduce our future reliance on these bankrupt programs and could reduce government spending. Long-term, that would reduce government deficits and result in lower inflation; something many of you in older generations might appreciate. (Gary here – Andrew is DKI’s 8th intern and they all understand this issue. The problem existed before they were old enough to vote. Spend some time with these young people, and you’ll quickly realize many of them are smart, worldly, hard-working, and lack any sense of entitlement. Well done, Andrew!)

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