Posted on 04/19/2023 8:15:10 AM PDT by CrosscutSaw
Bill Bonner, reckoning today from Dublin, Ireland... We left the question hanging yesterday…like a man dangling at the end of a rope…lynched and gurgling…
Why didn’t the Argentines stop the cycle? Spending, borrowing, defaulting, printing…from excess to distress…back and forth, over and over, for the last 70+ years.
Why didn’t they stop it? Why did Zimbabwe, Germany, Venezuela…et al…let inflation go to over a million percent?
One of the ‘basket cases’ we hear little about is Lebanon. Here’s our son, Henry, reporting from Paris:
In 2021, the Lebanese pound traded on the black market for 10,000 pounds to the dollar. In February 2023, it dropped to 74,000 to the dollar. Two months later, the rate is 97,000 pounds to the dollar.
According to the theory of ‘stimulation’ of an economy by adding money, you’d think Lebanon would be enjoying incredible prosperity. But the theory doesn’t match the reality. Lebanon’s GDP was $55 billion in 2018. It fell to $23 billion in 2021.
Financial Catastrophe? That’s how inflation really works. You increase the supply of currency 1,000%...and you cut the real economy in half.
The harm is so predictable, and so grave, it brings us back to our question: how come the authorities don’t stop it? And to answer it, we turn, via CNBC, to no less of an authority (because we can’t think of any less of an authority) than Ms. Janet Yellen:
The U.S. government risks “economic and financial catastrophe” if the House fails to pass a bill to raise the $31.4 trillion debt ceiling, Treasury Secretary Janet Yellen said …
“America has paid all of its bills on time since 1789, and not to do so would produce an economic and financial catastrophe,” Yellen told ABC’s George Stephanopolous …“And every responsible member of Congress must agree to raise the debt ceiling.”
And here’s the bond market chiming in. Business Insider:
The bond market sounded the alarm on US default risks as the deadline for reaching a deal on lifting the debt ceiling may come sooner than expected.
On Monday, the US sold $57 billion in three-month Treasury bills — which would mature around when the government could run out of money — at a yield of 5.1%, the highest since January 2001.
That comes a week after a similar auction of three-month bills also saw lackluster demand.
Government Unfunding You see, bond investors, like Ms. Yellen, fear that things might get back to where they should be. Yields are at a 22-year high specifically because investors worry about the ‘debt ceiling.’ And Ms. Yellen insists that the consequences of not increasing the debt ceiling – which will mean ‘printing’ more money – would be “an economic and financial catastrophe.”
And in the press, too…alarms are sounding: ‘the government would shut down’…a US default would be a ‘worldwide calamity’…etc. etc. blah, blah…
What would really happen if the feds couldn’t borrow more money? Isn’t $32 trillion enough?
Suppose the mighty federal government were forced to live within its means; would that be so terrifying? The Treasury is expecting tax receipts of about $3.5 trillion for the year. That’s as much as the federal government spent, in toto, in 2019, just 4 years ago.
Do you remember a catastrophe in 2019? Did people go hungry? Was the US Army disbanded because we couldn’t pay the soldiers? Did the old folks get their checks? Police? Schools? Hospitals? The SEC?
We don’t recall any problems. The feds continued to ‘drive it like they stole it’….which is to say, they spent money like it belonged to someone else – which it did. And today, if the feds had to spend only what they could get from tax receipts, they would have plenty of money to keep the lights on and the scams going. Besides, unfunding is what a lot of the government needs – especially unfunding the ‘transfer payments’ that keep the voters hooked on free stuff.
Push and Shove The experience of Argentina shows us that once the masses get hooked on free stuff (transfer payments), inflation is almost impossible to stop. Practically everyone comes to believe that whatever terrible damage inflation inflicts… politically, deflation is worse.
Push come to shove, politicians would always rather inflate than deflate. When they inflate, the costs are moved into the future. Deflation, on the other hand, hits hard and fast. It costs them votes. And power.
And when more than half the voters rely on free stuff, ‘Stop the Spending” is not a campaign bumper sticker you are likely to see. And the party that calls for a Balanced Budget is not likely to be the one calling the shots.
And so, the US stands on the brink of a fateful decision. More than half the “taxpayers” pay no federal income taxes. According to the Tax Foundation, more than 60% receive more in transfer payments than they pay in taxes. Fighting inflation means pain for them, but also for the rich (whose assets go down), and the whole ‘political’ class itself (whose power gets deflated along with everything else).
Can they stand it?
Stay tuned…
Regards,
Bill Bonner
There is no free lunch. One day, you have to pay the man.
And then DISMANTLE THE $3+ TRILLION UNCONSTITUTIONAL PORTION OF THE FEDERAL GOVERNMENT!!!!
ping
Very good article and excellent example using Argentina (which I have mentioned several times in this forum). We are about to have total financial collapse here. No one has the will to do what is necessary to stop it.
Argentina was, at the turn of the 20th century, in a rivalry with the United States for the #2 wealthiest country per capita (the UK being #1 at the time).
Now they are #66.
Modern monetary theory teaches us that it cannot happen here (sarcasm).
A transfer payment is a payment of money for which there are no goods or services exchanged. Transfer payments commonly refer to efforts by local, state, and federal governments to redistribute money to those in need. In the U.S., Social Security and unemployment insurance are common types of transfer payments.
Transfer Payment: Definition, Types of Transfers, and Examples
Investopedia
Politicians! Once their hand is in the “cookie jar”, there is no stopping them.
Hyperinflation and insolvency is the natural progression for any nation with a democratically elected government.
I like Bonner. He is right.
The problem with Bonner is the ridiculous number of adds for this and that which hit your mailbox.
Washington will continue to kick things down the road, until China is ready to pounce. They will take over the US without firing a shot
“Hyperinflation and insolvency is the natural progression for any nation with a democratically elected government.”
Yes and No. Yes, because people will always vote themselves more money. No, but there was a safegaurd to prevent this in the United States. Specifically, taxation was usually related to property when the Constitution was enacted. In order to be eligible to vote, you had to own property. While people will vote themselves more money, landowners generally won’t vote themselves more taxes. The cry was “No taxation without Representation” but we should have also followed “No Representation without Taxation”.
The real problem with democracy is it always votes for more socialism. Socialism ends up overspending, being government run is inefficient and subject to graft. The conversion from Democracy to Socialism, IE Socialist Democrat, Democrat Socialist, ect. is where things get ugly and dangerous.
Exactly, it’s all about consequences.
When Rome was a Republic, every landowner had to support the legions. They had to fight, be taxed, they had not just skin, but buttocks on the line.
After the Empire, other people did the fighting. People got rich, fat, lazy, and no longer had buttocks on the line. Finally, the foreign fighters came back to Rome.......
Responsible representative government starts with responsibility; No Taxation with Representation, and No Representation without Taxation.
The US Govt rakes in $11+Billion PER DAY. They got money to pay 95% of the “bills”.
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