April 5, 2019 | Why a Ruinous Debt Deflation Is Coming

I’ve been writing on deflation since the early 1990s, when I had the topic all to myself and was regarded as a voice on the lunatic fringe. Scary essays that I freelanced to Barron’s, the San Francisco Examiner and a number of other publications turned out to have been premature, but I’ve never doubted that the endgame for a global economy glutted by debt would be a deflationary collapse. Skeptics say the Government will make this impossible by simply revving up the printing presses, creating enough money to bail out ‘the system’ regardless of how many dollars it takes. Oh really? How would this work if, as is extremely likely, a state pension system goes bust?

Realize that 28 states have been growing their liabilities twice as fast as their economies, and that in the states that lead the pack — i.e., New Jersey, Illinois, Connecticut, New Hampshire and Kentucky  — accrued debts have been growing three to four times as fast as their economies. How long can that continue?  My guess is that Illinois, with a fiscally reckless Chicago to help bring it down, will be the first state to go belly-up.  Were the Federal government to come to the rescue, actual ‘helicopter money’ would be needed, since checks would have to go out every month to retirees so that they could meet recurring expenses.

The ‘Catch 22’ of a Bailout

Two dozen other states would be close behind, seeking the same treatment. If they got it, that would be tantamount to hyperinflation. Before you assume that such a thing is even remotely possible, substitute the word ‘taxpayer’ for  ‘Federal government,’ because that is who would pay for a bailout.  That’s right: All of us working stiffs would presumably be on the hook…forever, forking over a big piece of our paychecks to cover the bills of down-and-outers in more than two dozen states. Yeah, sure. And here’s the kicker: If printing-press money were used instead of transfer payments, the hyperinflation that would instantly result would make checks mailed out to the Illinois pensioner worthless. That’s the ‘Catch 22’ of a pension system bailout by ‘the government’.

Much bigger disasters loom, by the way, since the Social Security and Medicare/Medicaid systems also face certain bankruptcy. Anyone who doubts this should be required to answer this question:  Do you actually believe that millennials and gen-xers who are living with their parents till they’re 35, and who are $50,000 or more in hock for mostly worthless college degrees, will be able to foot the bills for baby boomers’ Social Security and Medicare? End of debate. (Note: Ten-thousand boomers are retiring each day.)  For more-detailed predictions concerning the impending debt deflation and ways you can prepare for it, click here for a recent interview I did with Howe Street’s Jim Goddard, and here for an interview with Greg Hunter of USA Watchdog.

Rick Ackerman April 5th, 2019

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