"We’ll All Pay for This"
By Jeffrey Tucker
"You never wanted to live through such times. I didn’t either. My own mindset two years ago was essentially that of a Victorian intellectual. I believed that we mostly had life figured out, mostly had unity on the basic principles of life. We should protect liberty through law. Government should be frugal or at least have plans in place to pay for what it spends. That peace is better than war. That the military is brutal and should be deployed sparingly and never against masses of the domestic population.
Yes, sure there were bad things going on, and plenty of messes out and about. But generally, innovation was keeping up, stocks were rising, inflation was mostly flat or tolerable, war was in the process of being discredited and health care and inflation could be reformed in a way that was market oriented.
Taxes could even be cut more, provided the right people controlled the Congress. There were crazy ideological groups on the loose - left and right - but they were far from being mainstream, much less a threat. In other words, I believed that things could only get better, maybe not right away, but over time.
The darkness fell in March 2020. We had no idea (at least I did not) that the foundations of civilization itself had cracked. The ceiling too. Both collapsed at the same time. What that month revealed to us - and the subsequent 19 months further underscored - is that we were far worse off culturally and intellectually than I ever knew.
I talk to people all the time who still think that we can get through this without paying a heavy price. It’s nonsense. You can move to a red state. You can save your money. You can disappear from social media. You can stock up on essentials. All of those are worthy ideas. But there will be no one who will be safe from the coming storms.
The Insane Spending: Congress has been on a wild spending spree ever since those days, simply because they could. It was this binge that allowed the insanity at the state level to continue on and on. Essentially, Congress paid for the country to destroy itself.
I will illustrate the astonishing shock of what happened with a chart that, for some odd reason, I’ve never seen printed in the mainstream press. It shows total public debt as a percentage of GDP.
Here is another way to look at the same problem. This chart shows the percentage increase in federal government spending. What has happened in the last two years makes every administration we’ve ever had look like a pillar of frugality.
This is not an illusion. It represents the grim reality. The world as we know it was blown up. This is all reality: This debt will need to be paid. I can count a number of ways:
1. Inflation. This is already in double digits among producer prices. Next month’s consumer price index is going to come as a shock. Except that it will be reported with as much calm nothingness as possible, so that the natives won’t get restless.
This inflation itself will be underreported simply because we have a nation full of empty shelves. Everywhere. On random things. I was poking around some stores last night and observed that there were rows and rows of empty shelves in the store. This is nuts. Stores fight for shelf space. They keep as much inventory out as possible. Now they are moving shelves around to disguise the lack of goods.
The rationing is already here with liquor and random goods in stores, but the Biden administration won’t hesitate to impose it on a broader class of goods as we approach year’s end.
The Fed right now is toying around with the idea of restricting inflationary monetary policies, possibly raising rates and curbing its debt purchases. Jerome Powell is making ever louder noises as a warning to Wall Street that the party could be ending soon. You know why markets have stopped listening to him? Because they do not believe him. They know that he will not do this because the damage is too deep and wide. For the Fed to end its policies would cause rates to soar, lending to collapse and the economy to tumble into a depression like we’ve never seen before.
Therefore the chairman of the Fed is, for now, about as influential for current markets and policies as the pumpkin I will soon carve for All Hallows’ Eve. He has one job right now and he knows it: keep this illusion alive as long as possible. When the chaos finally happens, his plan is to stay out of the way.
2. Taxation is the second way to pay. The IRS will certainly be monitoring more money coming and going from your bank account. The protests against the idea are feeble and temporary. This will happen within the year. Will it work at raising revenue? I doubt it. It will however be used as another tool for targeting regime enemies. This power will reveal everyone as a viable subject for a tax audit. They can continue for years and drive people to despair and suicide. They usually cost more than they raise.
What about taxing the billionaires? Even if that works, and it will not because there is a reason these people are billionaires (they are smart), it would only pay the debt of a few days. When the total productivity of a nation falls below the accumulated debt that a nation owes, you are technically in default. Speaking of which:
3. Find new markets for the new debt. Five years ago, there were markets for U.S. debt all over the world and they were expanded. But in the meantime, the U.S. gave up its world leadership position. It encouraged a decoupling from trade, the destruction of supply chains, the ruination of traditional trade partnerships and the disintegration of decades of policies that promoted global integration. Now the U.S. finds itself in a strange position of being nearly alone, while China and the entire region develops new trade strategies and policies. At this stage, default might be the wisest move. Sure, that would ruin the U.S. as a credit risk for a generation. But that might happen in any case.
The Denialists: The first lecture I ever delivered on economics was about government spending and how it was going up dramatically in the mid 1980s. Yeah, we didn’t know what dramatic was! In any case, I recall explaining this to the kids there. They didn’t believe me. The entire media complex was complaining about spending cuts. How could they say this if spending was going up? I held up the chart. I passed around the chart. They questioned my source. I showed them the government document.
They never did come around to believing me. People believe what they want to believe. So too, people imagine that life can be normal again very soon. But reality has a way of prevailing over what we imagine to be true."
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