"Watch The Economy Stagflate,
Complete With Unrelated Bikini Picture"
by John Wilder
“We, the people, suffered. We still suffer from
unemployment, inflation, crime and corruption.”
– "Taxi Driver"
"Back in the bad (economically) old days of the 1970s, a word came into existence that described the economic policy of the Carter Administration: Stagflation. Now, if this would have been about massive helium-filled deer antlers, it would have been great. Surreal, but great. But it wasn’t. Instead, it was surreal but bad – the economy was stagnant, but the price of everything kept going up. It was like going to the dentist because of a toothache and finding out that instead of anesthetic you just got pepper spray in your eyes to take your mind off the dental surgery.
But back to surreal. The impacts of stagflation were likewise as surreal as the giraffe clock currently melting in my light socket. Here’s an example: I remember when I was first married to The Mrs., we would go and visit her parents and spend the weekend in her old bedroom. In one part of the closet was a dust-covered box filled with toys from when The Mrs. was a very young The Miss.
One toy in particular stood out – it was a cheap plastic injection-molded car. It still had the grocery store price sticker on it – and it was something like $8.99. Whoa! Back in the late 1990s, $8.99 would have bought something like a dozen similar cheap plastic injection-molded cars. Inflation had been out of control in the late 1970s when The Mrs. had been given that toy.
Everything sucked economically – crappy quality at inflated prices. Two major factors led to that situation – Nixon pulling the United States off the gold standard was the most critical one. If we had to prove-up our spending with gold, well, we’d have to have some sort of discipline or we wouldn’t have any gold. Discipline sounds like it’s boring, and the 1970s was made for disco parties, drugs, and infidelity, so why have discipline with our money? That’s just not cool, man. Besides, who needs rules when you have bitchin’ bell bottoms?
The other situation is that the United States had reached a (then) peak in oil production, and was now dependent upon oil supplies from foreign nations (they were nations instead of countries back then – now, not so much). Since one group of foreigners (Arabs) didn’t like another group of foreigners (Israelis) the group that had all the oil (Arabs) decided to stop selling so much oil.
Oil is a big deal, because the price of oil is hidden almost everywhere in our economy. It’s required for planes to move bikini models, for trucks to move PEZ™, and in some places heats homes. So, increasing the price of oil was just like tossing a big tax on everything, so moms everywhere went to work to bring home the bacon, fry it up in a pan, and then wear crappy perfume and nylon pantsuits.
I think I just gave the origin story of Hamburger Helper™, but I digress. What does this mean to today’s problem? Are we in the same place? Partially.
We’ve been partying, mostly, since the 1970s, and have gotten away with it through various shenanigans. As Ayn Rand said, “You can avoid reality, but you cannot avoid the consequences of avoiding reality.” I’ll just shrug and Ayn was talking about her polyamorous relationships, but I can’t be sure.
Regardless, 2025 is a big year for dealing with consequences. Our current national debt is something like $33 trillion. I know, it’s like Whoopi Goldberg’s butt, it’s so big it’s meaningless. But we have to refinance $9 trillion of that $33 trillion plus another $3 trillion that we’re spending that we don’t have, this year. I mean, who is going to buy all that debt? Don’t know. Probably not China. Or Canada. Or Mexico.
Let’s think about where that debt is now. The Federal Reserve® already owns about $5 trillion, and it’s not like they have a choice, so they’re probably in for several trillion. But the biggest holder of the national debt is . . . the government. It owes itself $7 trillion dollars.
Yes, you read that right. Big chunks of that are Social Security “trust fund” that’s stuck in Al Gore’s “lock box”. I mean, seriously, what do people not understand about a lock box? But it also includes things like DOD retirement, and civil service retirement (which is over a trillion dollars). And you know we’re spending down that Social Security trust fund right now, so that just means more debt that someone else will have to buy.
It’ll be the Fed©, snapping up debt like it’s at a Black Friday sale on silicon oven-mitts on TEMU™. A trillion here, a trillion there, and soon enough we’re talking about real money. The way debt bonds are sold is that people bid on ‘em at an auction. What are people bidding? The interest rate. So if there’s a huge supply and lower demand, what goes up? The interest rate.
Since we’re not paying the bills out of cash, but out of borrowed money, that means the interest paid will just go onto the debt as it’s paid, which means that even more bonds will need to be sold. That means that there will be more supply and higher interest rates. It’s a vicious circle, but one that works as long as the economy keeps growing. But the economy likely didn’t grow last quarter, so we’re (at least right now) stagnant.
Oddly, the tariffs and deportations seem to have broken something and right now we have the lowest inflation in the last four years. I don’t think that will last. Higher interest rates will bleed into businesses, and money for expansion or even day-to-day operational expenses. These higher interest rates will also make trillions of bank assets (my mortgage, for instance) worth less. My mortgage is at an interest rate lower than I can get with a deposit a savings account. I assure you my bank is aware of that and loves it when I toss them my monthly check. This is what led to the Silicon Valley Bank® implosion – it had too many dollars tied up in low interest loans and securities, and then rates went up.
Thankfully, the Fed® made the decision that the banks can ignore the fact that their assets are worth less, or else all of them would have self-extinguished. And you wonder why gold is selling at $3,300 an ounce?
Why do I predict the high likelihood of Civil War 2.0 by 2032? Because by then, if you do the math, you’ll see that just interest on the debt will be at least half of the total tax hauled in, but I think it will be worse, because the numbers always are worse.
The solution to this won’t be a business-as-usual solution, and there will be extreme economic dislocations. There is no evidence of anyone wanting to increase our economy at the China-like rates we’d need to outrun this mess, and no appetite to cut the cost of government. At some point the consequences of ignoring reality will become so manifest that they aren’t something we can ignore.
Well, the good news is that we probably won’t see $8.99 injection molded plastic toy cars. The bad news is that they’re already selling the one in the picture above for $10.00."
No comments:
Post a Comment