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August 18, 2019 | Inflation Has Eroded the U.S. and Chinese Economies

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.

One day, the China trade imbalance is such a national emergency that you’re willing to disrupt hundreds of billions in world trade and risk a global recession to set it right. The next, you call it off because it might interfere with the Christmas shopping season.

That was the big news yesterday. Once again, Trump backed off. Scheduled to go “Full Retard” just two and a half weeks from now, he changed his mind. The Dow jumped 500 points… and then retreated to end the day up 391. Yahoo Finance reports:

He can’t pull the trigger.

President Trump delayed the new tariffs on a large batch of Chinese imports that were supposed to go into effect Sept. 1, and exempted some other Chinese imports altogether. The move deescalates Trump’s trade war with China, and amounts to a tacit acknowledgement by Trump that his tariffs might hurt American consumers too much.

This completely contradicts claims that the “Chinese pay the tariffs.” But it is consistent with our prediction…

Inflation Hullabaloo

The whole world is in an Inflate-or-Die trap. The world economy lives on cheap credit, not on real earnings.

That is, it depends on rising levels of monetary inflation (aka debt) to keep living in the style to which it has become accustomed.

China plays a key role in the whole inflation hullabaloo.

First, it has brought some 300 million peasants in from the fields so they could make things cheaply, thus keeping consumer price inflation low while asset price inflation runs wild.

Second, in order to build out its production capacity, it became the world’s biggest buyer of iron ore, copper, oil, and other primary resources – helping to keep money flowing to the raw material suppliers.

Third, it took its dollar profits and recycled them into U.S. bonds… helping finance Washington’s borrowing spree without raising interest rates.

Fourth, in order to keep up with the debasement of the dollar, it had to debase the yuan – adding $2.3 trillion to its central bank holdings between 2007 and 2014 and becoming one of the major sources of new “inflation” in the world economy.

Nutjob Economy

Americans must have thought they had died and gone to heaven. They could take without giving and spend without earning.

But fake, free, or stolen money is always a curse.

Like a powerful drug, the phony money corrodes and disfigures your economy. Your teeth rot; your brain shrivels.

Both economies – China and the U.S. – became so ugly even their own mothers wouldn’t recognize them.

In 1950, the U.S. was the world’s Gerber Baby… the world’s biggest exporter, the world’s largest creditor, and the world’s biggest supporter of free enterprise and open markets.

Now it’s the world’s biggest importer… the world’s largest debtor… and its foremost promoter of sanctions, tariff barriers, government-managed trade, and monetary central planning.

China, on the other hand, had a closed-off, communist, centrally planned nutjob economy. Now it is still a nutjob, but it is also the world’s fastest-growing economy and its leading exporter.

But the two work together. The U.S., the world’s biggest spendthrift, spends money it doesn’t earn. And China, the world’s biggest chump, builds huge factories, highways, cities, ports – all to sell real products to a customer who pays with fake money.

And now… neither of these monsters has any choice. Too hideous for normal society, and too fragile for normal interest rates or civilized commerce, they both depend on more and more of the feel-good drug – fake money – to stay in business.

Abandoned Promises

And so it goes… The world economy is as full of empty promises as a rehab joint.

The Federal Reserve promises to “normalize” interest rates… and sell off its huge cache of bonds. The Trump Team promises to drain the swamp… balance the budget… end the forever wars in the Mideast… pay off the national debt… and bring back good-paying jobs to the heartland.

But all the promises are abandoned. And all for the same reason. Nothing can be allowed to stand in the way – no principle… no common sense… neither embarrassment nor shame… neither the hope of Heaven nor the fear of Hell…

…nothing can be permitted to stop inflation. No Smoot-Hawley trade policies… no debt ceilings… no congressional gridlock… no U.S. Constitution… no negative interest rates nor the approach of national insolvency.

Inflate the money supply. Inflate the federal budget. Inflate the military and its make-believe wars. Inflate the stock market. Inflate the economy.

Inflate… inflate… inflate…

Until it finally blows up.

How does that happen? With a whimper… and then a bang… which we’ll look at tomorrow.




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August 18th, 2019

Posted In: Bill Bonner's Diary

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