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July 9, 2019 | Why Everyone Wants More Inflation

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.


DUBLIN – Our little galaxy pals were scratching their juicer heads. Negative rates… financialization… backasswards time, something from nothing…

They are affronts to God and Nature… breaches of the laws of physics and the universe… and invitations to economic catastrophe.

Why would anyone believe they could stimulate an economy with fake money? Or that a small group of goofballs with PhDs in economics could manage and control a $20 trillion economy of 330 million people?

And why now, only 30 years after the Soviet Union’s magnificent experiment proving that central planning and price fixing don’t work, would they – including the president of the USA – believe they can rig the U.S. economy with phony prices and more central planning? Why would they think that more inflation could make them richer?

“Only an earthling would believe such claptrap,” muttered one of the extraterrestrials before heading back towards his spacecraft.

Wacky Thinking

But at least for us earthlings, it is fun to watch… like those videos of people diving into empty swimming pools or lighting firecrackers and letting them blow up in their faces.

What dumb thing will happen next, we wonder? Who will say the stupidest thing today?

Trump’s recent tweet was a strong contender:

China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!

This was apparently a follow-on thought from last week’s White House suggestion that the U.S. should have Mario Draghi at the head of the Federal Reserve.

Draghi, soon to be ex-president of the European Central Bank, has been gamely trying to debase, degrade, and devalue the euro – following the same wacky thinking as his peers in the U.S., Japan, and elsewhere.

The Donald appears to believe that the Europeans – and the Chinese – are doing a better job of pumping money than the American Fed.

It’s hard to know what he’s looking at. Neither Europe’s consumer prices nor its asset prices are going up as much as their U.S. counterparts. When it comes to inflating asset prices, we’re Number One.

Road to Hell

The only real evidence of a more robust and absurd European monetary policy is in the bond market, where 10-year government bonds from Germany and France now trade with negative yields.

Only an earthling, a speculator, or a moron would think it made sense to lend money to France for 10 years… and pay for the privilege.

Most likely, speculators are counting on Draghi’s replacement, Christine Lagarde, continuing on her predecessor’s path… that is, on the road to Hell.

Between here and Hell, they reason, there’s money to be made. More inflation from central banks will go into the bond market, which will push up bond prices to even higher levels… and press down on yields like a pillow on the face of an old pensioner.

Nobody wants to hold those 10-year, flatline-yielding bonds to maturity. Everyone expects to get out of the trade before it gets to its hellish finale.

In this expectation, we predict, many will be disappointed. They can exit only by selling their bonds to someone who is an even bigger moron than they are.

At this stage of the Great Bubblelooza, the morons are still a dime a dozen. But typically, they thin out suddenly…


In the meantime, it’s Inflate or Die. Everyone wants more inflation. And now, they are searching for new and better ways to get it.

Inflation, remember, is essentially a crime – counterfeiting. It gives you a way to spend money you never earned on things you don’t need in order to fool people into thinking you’re richer than you really are.

In its simplest form, it is just printing up pieces of paper and calling them “money.”

Which is just what Italy is proposing to do. It is planning to create a new, separate currency – the mini-BOT (bonds of the Treasury). These would be very short-term notes (like Federal Reserve notes… aka “dollars”) issued by the Italian government, which would be used as legal tender.

The EU’s constitution calls for member governments to give up their local currencies and limit their budget deficit levels to 3% of GDP – in order to protect the value of their common currency, the euro.

Italy is already over the 3% limit. It can’t inflate more – unless it can find some way around the 3% restriction.

Its solution is to issue mini-BOTs, which will look like fake money, be used like fake money, and inflate the economy like fake money. But the Italians will swear on the Sacra Bibbia that mini-BOTs are neither currency nor debt, and thus, do not violate their EU engagements.

The euro itself is fake money; it is backed by nothing but the expertise and goodwill of the EU feds, whoever they may be. The mini-BOT would be fake money, too. But at least it would have the backing of the Italian government, for whatever it is worth.

A New Level of Complexity

Back in the USA, corporate America is getting in on the act, too. Here’s our colleague, Jeff Brown, on Facebook’s new cryptocurrency:

FacebookCoin, or “Libra,” will bridge the gap between fiat and crypto. Large digital asset exchanges like Coinbase and Xapo will likely provide liquidity and support for Facebook’s stablecoin, which is expected to be linked to a basket of fiat currencies.

Yes, the Libra takes fake money to a new level of complexity… it’s a fake crypto backed by fake dollars, fake euros, and fake yen.

And there will surely be more – more fake currencies… more experiments… and more ways to inflate to avoid dying.

Where does it all end?

We put the question to our non-earthling visitors:

“Wait… You, who are so damned smart, tell me something… You see the dumb things we are doing. How does it turn out?”

“Ha… ha… ha… ha… ha…”

The laughing died down as the hatch closed… And then, in a flash of light, our friends from the galaxy far, far away were gone.





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July 9th, 2019

Posted In: Bill Bonner's Diary

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