- the source for market opinions


August 7, 2020 | Filling the Gaps in America’s Economy

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.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner, as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency system involved.

– Economist Ludwig von Mises


What fun! Like visiting an insane asylum every day, just for laughs.

But first, let’s look at the grim news:

The big CARES Act giveaways are winding down. The Paycheck Protection Program, for example, expires tomorrow…

But last week, 1.2 million people filed for UI (unemployment insurance compensation)… the 20th week in a row with more than 1 million new claims.

Already, the UI checks are coming in a little light, since the $600 per week supplement is drying up, too.

And landlords are now free to evict their tenants.

Double Whammy

Things aren’t looking so good out in the corn belt either, where Team Trump seems to have something against farmers. There, they’ve been hit by a double whammy.

First, it was the trade war, which whacked grain sales… Then, the economy was shut down – wiping out sales to restaurants and cafeterias.

And here’s The Wall Street Journal with the result:

More U.S. farmers are filing for bankruptcy, as federal payments projected to reach record levels this year fall short of compensating for the coronavirus pandemic and a yearslong slump in the agricultural economy.

About 580 farmers filed for chapter 12 bankruptcy protection in the 12-month period ended June 30, according to federal data. That was 8% more than a year earlier…

But don’t give up – you farmers, longshoremen, brain surgeons (and especially you, cronies and insiders) – more help is on the way.

Though temporarily stalled in a partisan battle between Republicans and Democrats, each side trying to score political points in the run up to the election, we have 100% confidence that more fake money is practically on its way.

Simple Math

This week, we did some simple math. We saw that the feds are “transferring” huge amounts of money – $12 trillion! – this year. That’s more than is earned by all of America’s workers put together.

It’s going out the door at an average rate of $1 trillion per month (our estimate).

Divide that by 330 million people. It is the equivalent of giving every man, woman, child… and everyone in between… a check for $36,000… or $144,000 per family of four.

This is more than twice the average annual family income of $63,000.

Go figure. We’ve scratched our heads so much already; if we keep it up, we’ll need to see a dermatologist.

Volcanic Eruption

We wondered where the hell all of this money was coming from. Paul was getting paid, big time. But Peter didn’t even know he was being robbed.

Obviously, the money is fake – nobody ever earned it, saved it, invested it, lent it… or even imagined that it existed. So, of course, no one noticed when it went missing.

We also saw that this volcanic eruption of fake money was more than a fluke. This Vesuvius has been smoking and shaking for a long time, with the amount of money “transferred” – as opposed to earned – rising for the past half-century.

And we inferred that the transfers aren’t going to come to an end any time soon. As Ludwig von Mises tells us above, there are only two ways these booms can end: Either voluntarily (stop the money-printing)… or involuntarily (just keep printing until the whole thing blows sky high).

Which way will it go?

Filling the Gap

In 1979, Paul Volcker was able to voluntarily stop the credit expansion. In 2020, nobody can.

Because in the intervening 40 years, total U.S. government debt rose from only $900 billion to $26.6 trillion. Likewise, business debt today is 17 times greater today than it was back then. The Fed’s balance sheet – a rough measure of the credit expansion – rose 43 times, from $163 million to $7 trillion.

Paul Volcker hiked the Federal Reserve’s key lending rate to 20%. Try to do that now… and the whole kit and caboodle would melt into a puddle, like a plastic bottle in a fire.

The longer the fake money flows, the more people depend on it – households, businesses, and the government, too.

This year, the federal government will collect only about $3.5 trillion in taxes. But it will spend the aforementioned $12 trillion. The gap is filled with fake money.

Sugar Hit

Without fake credit, created and subsidized by the Fed, thousands of businesses would go broke.

Without UI, millions of households would have to cut back their spending – causing a recession.

Without billions in contracts and subsidies, the whole military/industrial/social welfare/diversity/education/medical complex would have to retrench – leading to a collapse of Wall Street, pulling down the whole edifice of parasite enterprises that the fake money supports.

And what president will be re-elected by denying the voters the sugar that has become such a big part of their diet?

Look for another big dose… coming soon.




STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

August 7th, 2020

Posted In: Bill Bonner's Diary

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.