Thursday, October 8, 2020

"The Coming Doomsday Debt Debacle"

"The Coming Doomsday Debt Debacle"
By Bill Bonner

SAN MARTIN, ARGENTINA – "The New York Times says that the major hobgoblins of our time – COVID-19, global warming, racism, etc. – have been upstaged by a new concern. No kidding: Now, in a stark reminder of the tumultuous nature of the 2020 race, all of those issues […] have been eclipsed in the political dialogue by a fight over health precautions and transparency that is set to define the next presidential debate, scheduled for Oct. 15. The NYT is not known for tongue-in-cheek news reports. We assume it is serious. But it is the kind of seriousness you expect from a mental defective. The health precautions taken at the next presidential candidate debate are going to have no plausible consequences for the nation. They are just a distraction.

No Mention: That said, so far, the entire election campaign has been little more than a distraction. Not once in the Trump-Biden debate did the No. 1 threat facing the nation ever come up. Instead, both candidates showed how unsuited they were to America’s top office. Neither revealed any trace of real dignity, real modesty, real intelligence… or any awareness of the danger. And last night came the Pence-Harris showdown. This time, the newspapers celebrated the event as a “serious political debate.”

But again, the most serious threat to the U.S. and its people was not even mentioned. We found out a bit more about the candidates’ opinions on climate change, tax policy, COVID control, and other miscellany. But nothing about how the country might get out of its Doomsday Debt Debacle.

Cover Up: The federal government now owes $27 trillion that it can’t pay. The country as a whole, including the private sector, owes $80 trillion… that it can’t pay. And the government has promised America’s 76 million baby boomers (and others) $210 trillion in unfunded “entitlements” – pension, medical, and Social Security benefits – that can’t be paid, either.

Rather than man-up… and cut back on spending, both parties are committed to covering these unpayable debts by printing money – a policy that always leads to bankruptcy, poverty, depression, and inflation, as well as social and political chaos. But mum’s the word. Shhh… Cover your eyes. Plug your ears. And seal your lips. The candidates, the Federal Reserve, the press – all keep silent because they know the voters don’t want to hear about it. And their own fortunes, reputations, and careers depend on keeping the jig up.

Lagging Behind: Trouble is, you can’t keep this sort of party going forever. Yes, people are still willing to shake a leg… and the feds can keep spiking the punch. But the band gets tired. On Tuesday, the president claimed the U.S. is “leading the world in economic recovery.” That is not true. The U.S. is lagging. The official unemployment rate is nearly 8% – more than the 7.4% average for the Organization for Economic Cooperation and Development (OECD) nations. Some nations have unemployment as low as 3%.

But there are 28 million Americans still collecting unemployment benefits – state and/or federal. The American labor force is said to be 160 million. So the real unemployment rate may be closer to 18%. And there are 13 million people on “disability.” (These "official" numbers are totally incorrect. - CP)

As for the growth rate, China is still growing at more than 10% per year. The U.S. is not growing at all – it is in recession, with GDP growth at MINUS 9%.

Rising Inflation: Most interesting, from our standpoint, is that the inflation rate is rising. Here’s NBC News: "Inflation in the U.S., a measurement of price increases for consumers, stands at 4.6 percent, compared to an average of 3.9 percent for other OECD countries. That means American wages aren’t going as far to cover bills."

Sooner or later, higher rates of inflation are inevitable. And a lower dollar, too. Stephen Roach explained why in the Financial Times… "A crash in the dollar is likely and it could fall by as much as 35 per cent by the end of 2021. The reason: a lethal interplay between a collapse in domestic saving and a gaping current account deficit. […] At -1.2 per cent in the second quarter, net domestic saving as a share of national income was fully 4.1 percentage points below the first quarter, the steepest quarterly plunge in records that go back to 1947. […]

This was an accident waiting to happen. Going into the pandemic, the net domestic saving rate averaged just 2.9 per cent of gross national income from 2011 to 2019, less than half the 7 per cent average from 1960 to 2005. This thin cushion left the U.S. vulnerable to any shock, let alone COVID."

Complex Web: And here we pause to clear up a misunderstanding. The press reports the money-printing as a “stimulus” measure. But there is no record in the long, sorry history of state-managed economies of a single one that was actually improved by printing-press money. “Distort” would be a better word. “Pervert” is even better, because it suggests unnatural and disgusting tendencies.

There are a lot of things you can stimulate… You can stimulate a dipsomaniac with a bottle of whiskey… You can stimulate a poet by flattering his rhymes… and a Malvolio by admiring his stockings. But economies are neither vain nor addicted. They are complex webs… intricately balanced and trussed up… each strand with two ends and many connections. Tug on one end… and you bend the entire web.

You can stimulate savers by increasing interest rates (which America’s last honest central banker, Paul Volcker, did in 1980). Or you can stimulate borrowers (which the Federal Reserve has done this entire century… by lowering interest rates). But stimulate the savers and you un-stimulate the borrowers. Stimulate the borrowers and you un-stimulate the savers.

What you can’t do… or at least no one has ever figured out how to do it… is stimulate both ends at the same time.

Basic Problem: Apart from the historical record… which is empty (that is to say, vacant of success stories on the subject)… there is the obvious theoretical problem. It is impossible to give one group an advantage – more money, lower interest rates, higher stock prices – without simultaneously giving another group a disadvantage. Higher prices may be great for the seller… but what about the buyer? Higher interest rates may be great for the saver… but what about the borrower?

The problem is so basic and inescapable that we suspect the professional economists – like the politicians themselves – of being liars and frauds. To make a long story short… the feds’ printing-press money can distort. It can’t improve. And the more they pretend to stimulate the economy with printing-press money, the more they make a mess of it.

The distortions reduce efficiency, real investment, and wealth… slow growth… cause people to make mistakes… and make them feel, correctly, that they are getting ripped off. And then, the more you distort, the more you have to distort… or the whole thing blows up in a Doomsday Debt Debacle.

You’d think at least one of the candidates – perhaps in an unguarded moment – would say something about it. ‘Til tomorrow…"

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