GUALFIN, ARGENTINA – This week, we’ve been exploring the age-old question: Who pays unpayable debt?
To make a long story short, when it comes to government debt, the borrower never pays; the feds have no money. The lenders – big banks, investment funds, well-heeled insiders – don’t want to pay.
Generally, they collude with the feds to make sure the real cost is put on innocent third parties – taxpayers and consumers.
That was the meaning of the Fed’s announcement on Wednesday. There will be no rate hikes this year.
Still, it was shocking that Powell & Co. would cave in so fast. At least, Greenspan, Bernanke, and Yellen had enough sense of shame to wait for a crisis.
But here we are… at the tail end of a business expansion… with stocks near an all-time high and unemployment near an all-time low – and yet, the Fed’s key lending rate is barely above zero. Where’s the emergency? The Fed didn’t want to find out.
Even for a bond market bracing for an accommodative Federal Reserve, policy makers’ moves on Wednesday were a stunner, raising the specter of recession.
In particular, analysts said bond investors were taken aback by the sharp reduction of interest-rate-hike projections by the Federal Open Market Committee… the Fed announced plans to end the runoff of its $4 trillion balance sheet in September and downgraded expectations for gross domestic product in 2019 to 2.1% from 2.3%.
Now, Fed governors have given up even the pretense of normalizing… or any sort of prudent monetary policy. They’re just making up as they go along – desperately trying to protect their pals on Wall Street.
There’s a long, bumpy road ahead. You can’t anticipate the twists and turns along the way. But at least, we think we know where we’ll end up.
So, if you are wondering who gets stuck with the feds’ enormous debts, here is your answer: You do. And today, we look at the most likely way you’ll pay the bill.
Genius and a Saint
The ranch’s ex-foreman – now retired – came to visit yesterday. Jorge grew up in a house with a dirt floor and never went beyond the eighth grade in school. But compared to PhDs at the Fed, U.S. congressmen, and White House denizens of all grades, he’s both a genius and a saint.
“What’s it like to live with 100% inflation,” we asked.
“Not so good,” began the reply. “We go to the store as soon as we get our check. We can’t afford to wait.
“They adjust the amount for inflation. But it is always the last inflation reading. So, they might increase the check by 2%, for example, because that was their official reading last month. But by the time I get the money, prices have gone up by 3%.”
Jorge worked from the time he was 14 years old until he retired at 65. The government promised a pension. But what happened to it? Where did it go?
“When I was growing up on the ranch, there were no machines, no electricity, no telephones… Nothing. We started working as soon as we could walk… herding the goats and pulling weeds out of the garden. We pulled weeds all day. I remember when I was 6 years old, my hands would bleed every day.”
Jorge’s family traded potatoes for wheat, bringing its produce down to market on burros. There were no roads to the ranch. And, the money economy had not yet reached the valley.
But now, Jorge relies on the peso. And it is as shifty as a Fed governor.
Officially, prices are now rising by more than 3% per month. But inflation is a wily thing. Typically, the statisticians develop tricks and techniques which they believe help capture what is going on… but the results are often far removed from the experience of ordinary people.
The previous government – run by Cristina Fernández de Kirchner – simply lied about it. It claimed inflation was under 10%… when everyone knew prices were rising by 20% or 30% per year.
The new government vowed to provide honest figures. But tortured numbers provide unreliable information. Officially, the rate is 50% per year. As we reported yesterday, the real rate may be twice that high.
And so, the real cost of government debt falls on the heads of the common people.
“What’s happening now is a disaster,” continued our retired foreman.
“Nobody can keep up. I fall behind every month. So does everyone. Businesses can’t keep up either. They lay off their employees. And then, you’ve got all these people in the city with no way to buy food.
“That’s why some of these young men are here at the ranch. Like Natalio’s boys – Rodrigo, Guillermo, and Carlos. They used to work on construction projects in the city. But the building has pretty much stopped. So, they come up here… back to the ranch.
“You can’t live high on the hog here in the country,” said Jorge with a grin, “but you can always eat the hog.”
“We used to eat only what we grew ourselves – mostly corn… potatoes. And of course, we always had meat. And cheese, from the goats. Not much variety. But it wasn’t bad.
“Funny how it works. But now, we seem to be going backwards. These kids hoped to escape the hard work of the farm by going to the city. And when things were booming, they could work… get paid… and they had money to go out, buy cell phones, and so forth.
“But now, they can’t get work. And they don’t have any money. So, they’re coming back. And they’re taking care of the goats… and planting potatoes and corn…
“At least, in the country, they survive…”
P.S. It’s a bumpy road ahead. But Jorge is right. In the country, you can always eat. That’s why Dan Denning, our co-author on our monthly letter, has been scouring America for overlooked “boltholes.” The idea is simple. When things get tough, you’ll have a refuge. Subscribers can see Dan’s latest findings right here. And if you’re not a subscriber, you can join us by going here.
ECONOMIC INSIGHT: AOC’S TENDENCY FOR SELF-DESTRUCTION
Editor’s Note: Dear readers are no doubt familiar with Congresswoman Alexandria Ocasio-Cortez. Bill even wondered if the self-described Democratic Socialist might even be “the most dangerous woman in America.”
Today, legendary speculator Doug Casey reveals what he suspects will come from AOC and her policies. In a word: destruction. Doug doesn’t pull any punches in today’s insight. Read on…
By Doug Casey, Founder, Casey Research
Most likely Alexandria Ocasio-Cortez (AOC) is the future of the Democratic Party – and of the U.S.
She’s cute, vivacious, charming, different, outspoken, and has a plan to Make America Great Again. And she’s shrewd. She realized she could win by ringing doorbells in her district, where voter turnout was very low, and about 70% are non-white. There was zero motivation for residents to turn out for the tired, corrupt, old hack of a white man she ran against.
She’s certainly politically astute – but doesn’t seem very intelligent. In fact, she’s probably quite stupid. But let’s define the word stupid, otherwise, it’s just a meaningless pejorative – name-calling.
But in fact it doesn’t seem like she has a very high IQ. I suspect that if she took a standardized IQ test, she’d be someplace in the low end of the normal range. But that’s just conjecture on my part, entirely apart from the fact a high IQ doesn’t necessarily correlate with success. Besides, there are many kinds of intelligence – athletic, aesthetic, emotional, situational…
A high IQ can actually be a disadvantage in getting elected. Remember it’s a bell-shaped curve; the “average” person isn’t terribly smart, compounded by the fact half the population has an IQ of less than 100. And they’re suspicious of anyone who’s more than, say, 15 points smarter than they are.
However, there are better ways to define stupid than “a low score on an IQ test,” that apply to Alexandria. Stupid is the inability to not just predict the immediate and direct consequences of actions, but especially the indirect and delayed consequences of your actions.
She’s clearly unable to do that. She can predict the immediate and direct consequences of the policies she’s promoting – everybody getting excited about liberating all other people’s wealth that just seems to be sitting around. Power to the People, and Alexandria! But she’s unable to see the indirect and delayed consequences of her policies – which I hope I don’t have to explain to anyone now reading this.
If you promise people unicorns, lollipops, and free everything, they’re going to say, “Gee, I like that, let’s do it.” She’s clever on about a third grade level.
But there’s an even better definition of stupid. Namely, “an unwitting tendency to self-destruction.” All the economic ideas that she’s proposing are going to wind up absolutely destroying the country.
It’s as if she thinks that what’s happened recently in Venezuela, Zimbabwe – not to mention Mao’s China, the Soviet Union, and a hundred other places – was a good thing.
That’s my argument for her being stupid. And ignorant as well. But perhaps I’m missing something. After all, Karl Marx was both highly intelligent, and extremely knowledgeable; he was actually a polymath. The same can be said of many academics, left-wing economists, and socialist theoreticians.
So perhaps a desire for “socialism” isn’t just an intellectual failing. It’s actually a moral failing.
How? I’ll answer that in tomorrow’s weekend Diary.
– Doug Casey
Editor’s Note: Doug is beloved by his readers as a man who shoots straight. And as you can see, he’s not afraid to call it like he sees it – no matter whom it might offend.
But today’s prediction was nothing compared to what he’ll say on Wednesday, March 27, at 8 p.m. ET, for the world premiere event of Totally Incorrect: LIVE.
That’s when Doug will share his five latest predictions for what he sees coming for America in 2019 and beyond…
By attending, you’ll also get details on five new speculations that could deliver 1,000% or more in the next year. Reserve your spot here.
Trump to Powell: What Took You So Long?
As Bill said today, most investors were shocked over the Fed’s decision to halt rate hikes. President Trump isn’t surprised, though. In fact, POTUS is wondering what took so long…
Why Deleting Facebook Could Save You Money
Dan Denning, Bill’s right-hand man on The Bill Bonner Letter, has long urged readers to “go dark” and delete their social media profiles. But what does the aftermath of deleting it all look like? Well, for one, your wallet might thank you…
But also read…
Declare Your Digital Rights
Do you believe privacy online should be your right? Do you believe your data is your property and not a commodity for Big Tech firms to trade in? If so, do something. Declare your digital rights. Today.
Today, some responses to yesterday’s Diary. Our editor’s “doom and gloom” predictions continue to stir the pot with dear readers…
Socialism brings the “heavy hand” of politics into economics, the distribution of goods and services. Socialism is wealth distribution using win-lose scams, with the final winner always being the ruling class. Prime examples are North Korea, Cuba, and Venezuela.
The answer to a better life is to live in a country that supports capitalism with a focus on wealth creation with its win-win proposition. And the distribution of goods and services be directed by the “invisible hand” of the laws of economics vs. ruled by the “heavy hand” of government, politicians, and unelected officials. The standard of living for the country is improved with capitalism. Economic progress depends upon the individual liberties of the pursuit of self-interest, division of labor, and freedom of trade. An increase in capitalism is what energized the growth in the Chinese economy and wages.
Our present income/payroll tax system supports socialism by giving government and politicians the heavy hand to directly tax us, as enabled by the 16th Amendment. The best solution is to repeal the 16th Amendment to renew our lost civil rights, freedom, and liberty; end the income/payroll tax system and collect the same tax total with a national sales/consumption tax system, with one tax break that helps mostly the impoverished.
– Paul L.
Were you always so gloomy or just since Trump was elected? Instead of being uplifted by your anecdotes, now reading you is depressing. Telling us how great things could be, if only we had the right leadership, while also capitulating to the Elite or Deep State as inevitable, no matter what, isn’t really helpful. Perhaps MMT [Modern Monetary Theory] and getting everything for free fits right in with all the doom and gloom predictions. Let’s live it up because, in 12 years, we are all dead. Who cares about debt, then?
It is only when lots of money is created and spent on nonproductive targets, without regard of utility and economic return, that it becomes problematic, as is the case in socialism. Sooner or later, socialism runs out of other people’s money.
– Erich K.
The only reason Canada is not bankrupt yet is the devaluation of the Canadian dollar, fake asset values, and fake money… We are working hard to get there!
– Rene S.
IN CASE YOU MISSED IT…
Have you seen the exclusive trailer for Doug Casey’s new video, Totally Incorrect: LIVE?
Fair warning… if you’re easily offended, this isn’t for you.
But, if you want to see what this legendary speculator thinks is in store for America in 2019 and beyond… get your free tickets for the world premiere on Wednesday, March 27, at 8 p.m. ET, right here.