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March 21, 2019 | Three Reasons Why America Can’t Get a Grip

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

GUALFIN, ARGENTINA – First, we discover that inflation here in the Andes is worse than we thought…

Economist Steve Hanke in Forbes:

[Last week] Argentina released its February inflation statistics. Inflation spiked, again. Indeed, the official annual inflation rate jumped to 51.3%/yr.

While this spike caught most observers off balance, it didn’t surprise me. Each day, I accurately measure Argentina’s inflation using high-frequency data and Purchasing Power Parity theory. By my measure, Argentina’s annual inflation rate is 100%/yr. That’s nearly double the official rate reported for the end of February.

What’s it like to live with 100% inflation? So far, so good. Yesterday, we organized an “asado” for the ranch.


An asado at Gualfin

It’s Too Late

But let’s get back to business. We were looking north of the 49th Parallel. The Canadians managed to come to grips with their government debt, noted a Dear Reader.

Why can’t we?

Here, we give you three reasons:

  1. It’s too late.
  2. Our insiders don’t want to.
  3. It’s not the way of the world.

As to the first point, the time to pay down debt is when the economy is running hot. That was the situation (roughly) for the last four years, when the Fed should have normalized rates. And the feds should have cut spending.

The first barely began… the second, not at all.

The Obama team just went right along with all the goofy spending programs it inherited from the Bush years – from Afghanistan to Albany – adding an open-ended medical giveaway program to boot. And then the Trump crowd just kept going… but faster.

The last year of Obama’s reign saw a deficit of “only” $587 billion. That seems modest, even sensible, when compared to Trump’s $1 trillion deficits.

Mr. Trump came into office promising to “drain the swamp” and to “pay off the debt.” Neither of those things happened, either. Instead, The Swamp has gotten deeper and the debt has grown by $2 trillion.

And now, by July, this recovery phase – if it lasts that long – will be the longest ever recorded.

“Never say never.” The expansion could last a few months longer. But don’t bet on it. And any “tightening up” now – either with higher interest rates or lower deficits – will likely tip the economy into recession (where it is headed, anyway).

That is why the Fed decided to “hold the line,” yesterday. There will be no further rate hikes this year, it said. It sees the economy weakening; it doesn’t want to get the blame for the coming downturn.

So, it’s too late. The sweet spot – the expansion between 2014 and 2018 – is over.


Second Reason

Which brings us to the second reason a “save” is almost impossible. Neither party… and no major presidential hopeful… worries about debt.

Just look at the news. You’ll find claptrap about Mueller… or a presidential tweet about someone who is married to one of his lieutenants… or the latest bogus unemployment number.

But almost nothing about debt. Like war, people don’t care about it until they lose…

And show us the politician who wins the White House by promising to cut the voters’ benefits, raise their taxes, and end military boondoggles all over the planet?

He doesn’t exist. And Fed governors? Where is the Paul Volcker or Maggie Thatcher of 2019, who will stand against the howling mob and say: “The lady’s not for turning”?

Doesn’t exist, either.

Instead, the Fed says it is “data dependent.” As soon as stock prices go down, in other words, the Fed turns… tucks tail… and runs for the cover of lower rates, QE (quantitative easing) Redux, and who-knows-what-jackass-monetary hijinks it might get up to.


American Empire

And, finally, we come to reason No. 3: that ain’t the way things work.

The U.S. is now an empire. It is controlled by a class of insiders (aka the Deep State), who benefit from government spending and debt.

They send troops all over the world, financed by debt, which makes them feel like big shots… and rewards their crony friends in the weapons industry.

They offer free education, free medical care, welfare, income redistribution, and every other cockamamie Bread and Circuses program to keep the mob satisfied – also financed by debt – and it helps them stay in power.

A small nation – such as Canada – that didn’t have the world’s reserve currency… and didn’t aspire to be the world’s hegemon… and where people had a realistic idea of what was being spent and why… and a residual sense of shame… might be able to buck its insiders.

But an empire? Its insiders have been corrupted by power. They don’t turn around… they don’t stop and ask themselves: “Are we doing the right thing?” They don’t say “please” or “thank you.” And they don’t abide by the rules of a civilized, win-win society… not even the financial rules.

Instead, they lurch and stumble… from embarrassment to absurdity to catastrophe… until they are defeated… or go broke.

Usually both.




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March 21st, 2019

Posted In: Bill Bonner's Diary

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