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July 23, 2019 | It’s the Era of Inflate or Die

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.


PARIS – Oh boy… Paris is in for a real scorcher.

The temperature is rising… and is expected to crest at 108 degrees on Thursday, a new record.

Tourists wilt. The streets are empty. Shutters are closed against the sun during the day… and open wide for whatever cool air the night offers.

We’re getting out of town as soon as we can. Which is today. Where we’re going isn’t much cooler… but at least it’s in the countryside, where we’ll have some breezes and some shade.

Jibber and Jabber

In the meantime, we follow up on yesterday’s prediction: The feds will not curb spending… they will not balance the budget or control runaway debt. They will jibber and jabber about debt ceilings and priorities.

They will blame each other. They will distract the public by calling each other “racists.” But they will all fall in line behind bigger budgets, not smaller ones… and more debt.


Because it’s Inflate or Die. Monetary inflation, fiscal inflation… any kind of inflation they can get. Here’s the commander in chief with his insights from yesterday:

With almost no inflation, our Country is needlessly being forced to pay a MUCH higher interest rate than other countries only because of a very misguided Federal Reserve. In addition, Quantitative Tightening is continuing, making it harder for our Country to compete. As good…

…as we have done, it could have been soooo much better[…] other countries manipulate their currencies and pump money in!

Condensed tweet: “We need more inflation!” That’s what inflation is – more money pumped into an economy.

MMT Switch

That is why we are pretty sure all our predictions will come to pass.

The Fed can’t normalize rates…

The president can’t go Full Retard in his trade war with China…

The economists and intellectuals of both parties need to get on the Modern Monetary Theory (MMT) bus…

And they won’t even consider kicking the debt habit now. Inflation is the thing. Everyone wants more of it.

Note that the tweet above implies that POTUS thinks the Fed can and should cut interest rates unless and until consumer prices go up.

That, of course, is the operating formula of MMT. It tells us that the feds issue the money. They control it. If there’s not enough inflation, they should issue more. If there is too much inflation, they should raise taxes to take it away.

It is a simpleton’s idea… which makes it suitable for both Democrats and Republicans. But it totally ignores how a real economy works… and the role of honest prices in guiding investors, businesses, and consumers.

As we’ve seen, Wall Street inflation is even more damaging than inflation in consumer prices. It turns entrepreneurs away from the hard work of creating real businesses and real long-term wealth in favor of get-rich-quick schemes, buybacks, and short-term hustles.

MMT also pretends that managing a $20 trillion economy is as simple as flipping an on-off switch. According to proponents, the government should spend as much as it wants, until “incoming data” tell it to change policy.

But the whole idea of guiding monetary policy with “incoming data” is as absurd as MMT itself.

Just look what’s happened. Speculators see the incoming data, too. And they also listen to Fed Chairman Powell. And now, they’re front-running the whole lot of them… stocks and bonds go up as investors bet that he’ll cut rates. So, now Powell’s been boxed in by his own dumbbell words and silly policy; now he has to cut rates.

Bubble Monster

Oh dear, Dear Reader… do you see what’s happening? The ironic, elegant beauty of a market system is on display.

By anticipating the Fed’s next move, speculators are providing Powell with new “data” – rising prices. But they’re data of his own making. He looks into the data mirror and sees a bubble monster that he created!

And what can he do now? Surprise investors by raising rates… thereby starving the monster down to a reasonable size?

How many businesses will go bust, and how many households will lose their houses and their cars when the fake low lending rates that caused them to borrow are reversed with artificially high rates?

Who’s gonna flip that switch? Not Jay Powell.

What politician will turn off the lights at senior centers and Medicare for All? Which one of them is willing to stand up to Deep State lobbyists from General Dynamics, Raytheon, or Lockheed Martin?

Who will raise rates to 5%… 10%… or even 20%, as Paul Volcker did in 1980, to get ahead of the price increases?

But don’t worry about it. It’s not going to happen. Neither Congress, nor the White House, nor the Fed have the backbone, the will, or the wit to challenge the Inflate or Die Era.

While the president bulldozes away opposition to cutting rates… Congress is determined, too, not to let a debt ceiling stand in its way. Here’s Elizabeth Warren with another nutty proposal:

We should take the prospect of breaching the debt ceiling off the table forever by either eliminating it or by automatically raising the ceiling to accommodate spending and revenue decisions authorized by Congress.

Nothing will be allowed to stand in the way of more inflation. Count on it.





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July 23rd, 2019

Posted In: Bill Bonner's Diary

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