"Where Did All the Fake Money Go?"
By Bill Bonner
WEST RIVER, MARYLAND – "Our Christmas tree is still up. The eggnog still flows. We are not ready for 2021. We entered a new year on Friday. But there is still so much to figure out about the last one. It was the most preposterous year of our lives… and, we think, a real hinge point in our history. It will take historians many decades to decipher it… which is to say, to make up convenient and flattering lies about it. But here, today, with the corpse of 2020 still unburied… having barely cooled to room temperature… we will attempt a dissection. Trigger warning: It ain’t gonna be pretty.
Mathematical Conundrum: Let us begin by getting out the Sawzall to open up the cranial cavity. Surely, there was something wrong in there. It was supposed to be a Plague Year. Even at the end of it, our holiday festivities were greatly limited. Few friends or family stopped by for Christmas cheer. Our church held a virtual service on Christmas Eve. And BWI airport, where we went on New Year’s Day to drop off one of the children, was almost empty.
Early in the year, COVID-19 sent almost everyone into a panic. Already, there were signs of mental distress. All over the world, governments – rather than make a serious effort to identify and protect their vulnerable citizens – closed down their economies. Travel and leisure industries – any business where people congregate – were hit especially hard.
But they weren’t the only ones. Offices and parking lots emptied out. Gasoline sales slowed to a trickle. The whole economy tightened up. Instead of growing by 4%, as forecast, the global economy shrank by 4%.
In the U.S., the feds pretended to offset the real losses – which included some 30 million people losing their jobs – by printing and distributing fake money. During the entire year, the loss of income caused by the lockdowns toted to less than $300 billion. But the feds pumped an additional $4.4 trillion into the economy.
Dear readers will notice that the two numbers have little to do with each other. One explanation is that members of Congress cannot add and subtract. A better one is our chief insight for the year ahead: Inflate or die.
Third Option: The feds have gotten the nation into a classic debt trap. When you owe too much money, every setback is a crisis. You either borrow more… or you admit that you can’t pay your bills. But sovereign governments have a third option. They have “printing presses,” on which they can create the cash they need (thus inflating the currency). That does not solve the problem. But it distorts and delays it. And as it runs its course, it turns a simple, honest bankruptcy into a corrupt, catastrophic disaster.But we’ll get to that anon. For the moment, let’s just focus on 2020.
Rising Stocks: What happened to all that money the feds put into the system? Like water, it has to go somewhere. Some of it was used to buy drugs. Some bought new cars. Some paid off political debts and bought off cronies. Some went into normal consumer spending. But much more went into capital markets. For, while the Main Street economy turned down, Wall Street turned up. Worldwide, stocks were worth about $80 trillion when the crisis began. Less than a year later, they are worth $100 trillion.
Huh? How come stocks can be worth $20 trillion – 25% – more… in less than 12 months… while the companies they represent are seeing fewer sales and lower profits? In the U.S., earnings are nearly 30% below projections made at the start of 2020.
Pie in the Sky: And look at the electric car manufacturer Tesla. It ended the year at a valuation higher than all the other major automakers put together. It has cumulative losses of $6 billion… and no plausible way to ever be worth $6 billion, let alone $600 billion. At least Tesla makes something. There are other companies that have no products at all. Companies with neither products, sales, nor profits are supposedly worth more than some of the biggest titans of the Industrial Age.
Just look at QuantumScape. It is said to be developing a battery. But it has no battery… no sales… no showrooms… no service network… no revenue… and no profits. But just before Christmas, its market cap – the market value of all its shares – was almost as much as GM’s.
Over the holidays, we found we could buy a mince pie for $15, a price that had changed little from the previous year. At the beginning of 2020, one bitcoin sold for less than $8,000. So one bitcoin would have bought you 533 mince pies. By the end of the year, that same bitcoin would have paid for 2,000 pies. Mince pie has many things in it – sugar, salt, flower, meat, suet, molasses, apples, raisins, and God knows what else.
By contrast, Bitcoin has no physical being, no profits, no CEO, no press secretary, no coffee breaks, no enlightened, gender-conscious management, no sales, no office. Bitcoin has nothing. And yet, there it is… worth more than $30,000 per coin, and with a total market cap of $579 billion – almost equal to Tesla.
Pie-in-the-Sky Inflation: And that’s where the feds’ new money went. Not into mince pies. But into pie-in-the-sky inflation. Which makes us wonder even more about the gray matter of those handing out the fake money… and those buying the shares. Tomorrow, we probe deeper…"
