You describe with admirable clarity what you mistake for a prediction. It is not a prediction. It is a diagnosis already rendered, decades ago, by anyone who understood that inflationism is not an accident of policy but its very essence under fiat money.
You write that “devaluation is coming.” I must correct you: devaluation arrived the moment the link to gold was severed. What you anticipate is merely the acceleration of a process long underway. 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. Your government, like all governments before it, has chosen “later.”
You are correct that no statesman will propose the necessary retrenchment. But do not flatter the politicians by calling this cowardice. It is something worse: it is the logic of interventionism itself. Each intervention creates the conditions that seem to demand the next. The deficit demands the debt; the debt demands the cheap money; the cheap money demands the next deficit. The interventionist state is not failing to balance its budget — it is constitutionally incapable of doing so, for its entire claim to legitimacy rests upon distributing what it has not earned.
You note that the wealthy and politically connected profit from the inflation. Just so — this is no novelty. Inflation is never neutral. It enriches those who receive the new money first and despoils those who receive it last: the wage earner, the pensioner, the saver — precisely those virtuous citizens whom the demagogue claims to champion. Inflation is the fiscal complement of statism, and it is the most insidious of all taxes, for it is levied without legislation and blamed upon the grocer.
Where I must caution you is in your fatalism. You say the playbook “never changes.” But the playbook is not a law of nature; it is a choice made by men who hold false ideas about money. Sound money is not a technical arrangement. It belongs in the same class with constitutions and bills of rights — it is an instrument for the protection of civil liberties against despotic inroads by government. If the public again comes to understand this, the printing press can be stopped. If it does not, then your forecast requires no economist to confirm it. The masses who applaud each new “stimulus” will learn, as the Germans of 1923 learned, that the government cannot make all people richer by making the money poorer.
The question is not whether the bill comes due. It is only who shall be made to pay it, and whether anything of the market economy — which is to say, of civilization — remains when it does.
I would contend that it is impossible for the United States to have both a balanced budget and the world’s reserve currency. It is the US Dollar that runs the world.
If the US were to have a balanced budget, then there would be no increase in wealth around the world (in nominal terms), because every liability of the US government is someone else’s asset. The years when the US had a balanced budget (in the post-World War 2 era) were always lea-in’s to a recession in the US. And it is true that under Austrian Economic Theory, recessions were the cleansing of the excesses of the last expansion. But, for worse or worse, we aren’t living under that type of system, where the world revolves around economic balance. Instead, it revolves around credit. And the US is the biggest abuser of credit on the planet. But it’s that credit, extended to the US, that is responsible for all the (phony) wealth on the planet.
Now, any politician voting for a recession would find a new home on the sidewalk (which is probably a good thing). But if the US Dollar is going to maintain its status in the world’s banking system (which isn’t certain), the political class in Washington, DC will do their damnedest to prevent a recession. Which means they will never balance the budget.
Kevin, you ask whether it has to be this way. Honestly, it probably does, at least as long as America wants to keep the crown of the world's reserve currency. As you probably know, what you've put your finger on is one side of what's known as Triffin's Dilemma. You've got the asset aspect of it nailed. But there's a trade side too: to keep the world stocked with dollars, the U.S. has to run permanent trade deficits, which hollows out its own industry and feeds the debt. Stop, and the world hits a dollar shortage and drifts to other reserves anyway. I've written about this before, but you've convinced me it might be due its own essay again. Great comment. Appreciate it.
You’re right about Trifflin’s Trilemma; I had two of the three legs.
At this point, the only way I can think of might be to use something like SDR’s from the Bank for International Settlements, which would be some type of trade-weighted international settlement currency, and would stop using the US Dollar as the world’s reserve currency.
I think it’s accurate to say that anything a politician says is simply marketing and safe to ignore. Only actions are meaningful. My portfolio of examples dates back to Bush Sr.’s “no new taxes” line.
Your analysis is correct - 20th century Americans are incapable of sacrifice, so devaluation is the remaining solution. So Lau - expand on that result and a hypothetical timeline. How to protect ones assets when inflation is 20% 10 years running? Is it as simple as gold coins and bitcoin? The tax implications are difficult to consider, since any sale of AAPL shares acquired at $100 but sold at a future inflated dollar price of $1000 (with no change in real value) have a $900 taxable gain. So owning equities sounds like a bad deal.
Another idea to stew on and write about - is the window opening for real estate purchases? The 19-year cycle bottom is within the window now - a 7% fixed rate mortgage sounds great when inflation is 20%. Farmland with a cow on it to qualify for real estate tax exemptions may be a good investment for the next 20 years.
Once again a great article. So succinctly explained keeping the political biases balanced.
Indeed, only way is inflate your way out of this, but then again all the other countries would be on same path and so dollar will likely keep the equilibrium against other fiat currencies but not against precious metals and commodities.
I remember Bill Clinton‘s motto “it’s the economy stupid” and there might be some Accounting errors but I think balancing the budget comes under one of those things that “Close counts“ like horseshoes, hand, grenades, and Atom bombs.
I am interested in your thoughts on the price of metals. Isn't the old adage, dollar value down, metals rise. Metals down when dollar is valued and in rise? Well, if metals are going down (as i speak) and the dollar is also lost value, WTF is up then? Why do you think the dive on metals?
Good question, and it trips up a lot of people. "Dollar down, metals up" is a long-run tendency, not a daily rule. Day to day, gold and silver move on real interest rates, on the dollar's strength against other currencies (which isn't the same as its purchasing power), and on plain liquidity and sentiment. So you can absolutely get a stretch where metals dip even as the dollar loses real value, usually it's a strong-dollar-versus-other-currencies move, rising real yields, or leveraged traders getting flushed out. Zoom out to years instead of days and the relationship reasserts itself. I wouldn't read much into one week's dive. If anything, every time the system papers over another crack, the long-run case for metals gets stronger.
Or just float 39 x SPCX govt derivatives, rate them all AAA, change the world laws to force all pension funds, worldwide, to invest in them within a few days. Snip snap, Bob's your Auntie and wealth transfer 101 done.
You describe with admirable clarity what you mistake for a prediction. It is not a prediction. It is a diagnosis already rendered, decades ago, by anyone who understood that inflationism is not an accident of policy but its very essence under fiat money.
You write that “devaluation is coming.” I must correct you: devaluation arrived the moment the link to gold was severed. What you anticipate is merely the acceleration of a process long underway. 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. Your government, like all governments before it, has chosen “later.”
You are correct that no statesman will propose the necessary retrenchment. But do not flatter the politicians by calling this cowardice. It is something worse: it is the logic of interventionism itself. Each intervention creates the conditions that seem to demand the next. The deficit demands the debt; the debt demands the cheap money; the cheap money demands the next deficit. The interventionist state is not failing to balance its budget — it is constitutionally incapable of doing so, for its entire claim to legitimacy rests upon distributing what it has not earned.
You note that the wealthy and politically connected profit from the inflation. Just so — this is no novelty. Inflation is never neutral. It enriches those who receive the new money first and despoils those who receive it last: the wage earner, the pensioner, the saver — precisely those virtuous citizens whom the demagogue claims to champion. Inflation is the fiscal complement of statism, and it is the most insidious of all taxes, for it is levied without legislation and blamed upon the grocer.
Where I must caution you is in your fatalism. You say the playbook “never changes.” But the playbook is not a law of nature; it is a choice made by men who hold false ideas about money. Sound money is not a technical arrangement. It belongs in the same class with constitutions and bills of rights — it is an instrument for the protection of civil liberties against despotic inroads by government. If the public again comes to understand this, the printing press can be stopped. If it does not, then your forecast requires no economist to confirm it. The masses who applaud each new “stimulus” will learn, as the Germans of 1923 learned, that the government cannot make all people richer by making the money poorer.
The question is not whether the bill comes due. It is only who shall be made to pay it, and whether anything of the market economy — which is to say, of civilization — remains when it does.
Yup. Aug 15th 1971 is when the devaluation started. Spot on.
It doesn’t have to be this way. Or does it?
I would contend that it is impossible for the United States to have both a balanced budget and the world’s reserve currency. It is the US Dollar that runs the world.
If the US were to have a balanced budget, then there would be no increase in wealth around the world (in nominal terms), because every liability of the US government is someone else’s asset. The years when the US had a balanced budget (in the post-World War 2 era) were always lea-in’s to a recession in the US. And it is true that under Austrian Economic Theory, recessions were the cleansing of the excesses of the last expansion. But, for worse or worse, we aren’t living under that type of system, where the world revolves around economic balance. Instead, it revolves around credit. And the US is the biggest abuser of credit on the planet. But it’s that credit, extended to the US, that is responsible for all the (phony) wealth on the planet.
Now, any politician voting for a recession would find a new home on the sidewalk (which is probably a good thing). But if the US Dollar is going to maintain its status in the world’s banking system (which isn’t certain), the political class in Washington, DC will do their damnedest to prevent a recession. Which means they will never balance the budget.
Kevin, you ask whether it has to be this way. Honestly, it probably does, at least as long as America wants to keep the crown of the world's reserve currency. As you probably know, what you've put your finger on is one side of what's known as Triffin's Dilemma. You've got the asset aspect of it nailed. But there's a trade side too: to keep the world stocked with dollars, the U.S. has to run permanent trade deficits, which hollows out its own industry and feeds the debt. Stop, and the world hits a dollar shortage and drifts to other reserves anyway. I've written about this before, but you've convinced me it might be due its own essay again. Great comment. Appreciate it.
You’re right about Trifflin’s Trilemma; I had two of the three legs.
At this point, the only way I can think of might be to use something like SDR’s from the Bank for International Settlements, which would be some type of trade-weighted international settlement currency, and would stop using the US Dollar as the world’s reserve currency.
The fiat currency scam will be perpetuated by stable coins, tokenization, and universal basic income.
100%
Very few seem to understand this though. After all, tokenization is for speed of settlement which most folks couldn’t care less about.
Very clear and succinct. But maybe the title of this piece should be my father’s favorite phrase: “there’s no such thing as a free lunch, son.”
I think it’s accurate to say that anything a politician says is simply marketing and safe to ignore. Only actions are meaningful. My portfolio of examples dates back to Bush Sr.’s “no new taxes” line.
Your analysis is correct - 20th century Americans are incapable of sacrifice, so devaluation is the remaining solution. So Lau - expand on that result and a hypothetical timeline. How to protect ones assets when inflation is 20% 10 years running? Is it as simple as gold coins and bitcoin? The tax implications are difficult to consider, since any sale of AAPL shares acquired at $100 but sold at a future inflated dollar price of $1000 (with no change in real value) have a $900 taxable gain. So owning equities sounds like a bad deal.
Another idea to stew on and write about - is the window opening for real estate purchases? The 19-year cycle bottom is within the window now - a 7% fixed rate mortgage sounds great when inflation is 20%. Farmland with a cow on it to qualify for real estate tax exemptions may be a good investment for the next 20 years.
Once again a great article. So succinctly explained keeping the political biases balanced.
Indeed, only way is inflate your way out of this, but then again all the other countries would be on same path and so dollar will likely keep the equilibrium against other fiat currencies but not against precious metals and commodities.
Thanks
I remember Bill Clinton‘s motto “it’s the economy stupid” and there might be some Accounting errors but I think balancing the budget comes under one of those things that “Close counts“ like horseshoes, hand, grenades, and Atom bombs.
Absolutely, in your face, REALITY!
NIcely done. I am a fan
Inflate or die. Richard Russell
I don’t see any other way. Devaluation is here to stay.
A quiet secret was the debt was never meant to be paid back. This has been a whole sale robbery.
I am interested in your thoughts on the price of metals. Isn't the old adage, dollar value down, metals rise. Metals down when dollar is valued and in rise? Well, if metals are going down (as i speak) and the dollar is also lost value, WTF is up then? Why do you think the dive on metals?
Thank you for the thought on this.
Good question, and it trips up a lot of people. "Dollar down, metals up" is a long-run tendency, not a daily rule. Day to day, gold and silver move on real interest rates, on the dollar's strength against other currencies (which isn't the same as its purchasing power), and on plain liquidity and sentiment. So you can absolutely get a stretch where metals dip even as the dollar loses real value, usually it's a strong-dollar-versus-other-currencies move, rising real yields, or leveraged traders getting flushed out. Zoom out to years instead of days and the relationship reasserts itself. I wouldn't read much into one week's dive. If anything, every time the system papers over another crack, the long-run case for metals gets stronger.
One of the other things politicians get out of it is to pass the problem on to future generations. Buck to the future !!
100%
Could we please call it what it is——financial repression.
Or just float 39 x SPCX govt derivatives, rate them all AAA, change the world laws to force all pension funds, worldwide, to invest in them within a few days. Snip snap, Bob's your Auntie and wealth transfer 101 done.
Ha, don't give them ideas, Dean.
Perfetto
This is a catch 22 situation. No matter how insane policies are, there is no way on Gods green earth that leads to a sensible exit.
Next step is collapse of currencies in terms of purchasing power, followed by some form of heroic rescue by a “strong man.”
I wish it was not so, but for now the best thing is to hunker down in some Sh*thole foreign country and wait it out.