"Final Scene in the Fed’s Fantastic Farce"
By Bill Bonner
SAN MARTIN, ARGENTINA – "First, we check in on the economy… Here’s CNBC: 'Yelp on Wednesday released its latest Economic Impact Report, revealing business closures across the U.S. are increasing as a result of the coronavirus pandemic’s economic toll. As of Aug. 31, 163,735 businesses have indicated on Yelp that they have closed. That’s down from the 180,000 that closed at the very beginning of the pandemic. However, it actually shows a 23% increase in the number of closures since mid-July.
In addition to monitoring closed businesses, Yelp also takes into account the businesses whose closures have become permanent. That number has steadily increased throughout the past six months, now reaching 97,966, representing 60 percent of closed businesses that won’t be reopening.'
Almost 100,000 businesses left behind. Like worn out auto parts… yesterday’s sitcoms… and day-old bread.
Full Picture: But that is just part of the picture. Politically, the conservatives – and the restraint they used to bring to public finances – are gone. Socially, the middle ground is disappearing; you’re either red or blue, with us or agin’ us. And economically, the whole kit and kaboodle is headed for an explosive crescendo.
Societies are always evolving… taking up new things… leaving old things behind. Some good. Some bad. A half century ago, they left behind the gold-backed dollar. At the time, to many people, including famed conservative economist Milton Friedman, it seemed like an improvement. Then, it became a hustle. Businesses, households, and the government realized that borrowing money was easier than earning (or taxing) it.
Big Leader: Now, the fake money system is a racket. Why bother to borrow when you can print? Our prediction for today: It won’t be too long before the U.S. dollar itself is left behind (although we’re not fool enough to say exactly when).
We saw yesterday how the Argentines are abandoning their pesos for U.S. dollars. In one day, the peso lost 15% of its value in black market trading. As the price of dollars (in pesos) rises, it becomes harder and harder for the Argentines to pay their hundreds of billions of dollar-based debts. They have to default.
President Juan Perón pioneered the program in 1946 – taking Benito Mussolini as his model. Big government. Big promises. Big spending. Big borrowing. Big printing. And a Big Leader. Perón’s big spending made such a mess of the Argentine economy that by 1955, he was chased from the country and his party was outlawed. Alas, he made a comeback in 1973… and died a year later. Argentina was finally rid of Perón. But it couldn’t shake off Peronism: anaesthetize the masses with giveaways… denounce political enemies as “traitors”… and stir up an “us against them” internal struggle, while presenting yourself as the only one who will maintain law and order.
Spending Spree: Of course, there’s a big difference between the U.S. and Argentina. America has a choice – in theory; Argentina doesn’t. The gauchos can’t print dollars. The U.S. can. This week, for example, the Federal Reserve said it would add nearly $1.5 trillion in new money every year until 2023. It took a hundred years, from 1913 to 2013, for the Fed to run up its first $3 trillion in holdings (a rough measure of the U.S. base money supply). Then, in just three months, from March through May of this year, it added another $3 trillion. And now, the Fed is promising nearly $5 trillion more!
This week, too, Mr. Trump’s chief of staff, Mark Meadows, said the White House was in favor of more printing-press money; he said he expected that Republicans and Democrats would soon go on a spending spree (aka another “stimulus” package) together. This will include another flight of “helicopter money” – $1,200 checks dropped promiscuously, which is the only way you can do that kind of thing.
Argentine Experience: Even the Argentines didn’t go this far. Sure, they made the same mistake – locking down the productive economy in order to protect the unproductive part (largely retired people). Then, they, too, tried to replace real output with their fake money – printing pesos and giving them to people who weren’t working. But at least they left the helicopters on the ground. Everyone here knows the government is broke. So, if money were dropped from helicopters, the locals would know exactly what to do with it. They’d head straight for their friendly black-market currency traders… and exchange it for real money – U.S. dollars.
Monetary Naifs: By comparison, Americans are monetary naifs. They have no history of defaults. And inflation – which rose to 13% 40 years ago – is a distant memory. The feds can hand out trillions; no one wonders where it comes from. And no one bothers to imagine that the well might go dry. Yet, no paper currency has ever survived a full credit cycle – from bottom to top… to bottom… and back to top again. The dollar is unlikely to be the first. And now, we begin the final scene in a well-rehearsed farce.
Real yields are at a cyclical low – just as they were when we were born. From there, they rose for the next 30 years… until 1980. Former Fed chairman Paul Volcker put the kibosh on that trend. Yields have been going down ever since – aided and abetted by the Fed. Now, it’s time for the…
Final Act: The lights dim… and the curtain rises on Act Four… in which the fatal flaws of our fake-dollar system take center stage… yields turn up… and the dollar approaches its denouement. So, grab a drink. Pull up a chair. Settle in and enjoy the show. The Fed prints. The government spends. And the people – the bit players in this spectacle – realize their dollars are becoming worthless. And then what? How does it turn out? What black market will develop? For what will Americans trade in their dollars? Where will their money be safe? Tune in next week for the exciting grand finale…"
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