Inflate or Die. Again

Monday, 9/30/2019 09:01

"Low-rate guy" wants lower rates...

The PRESIDENT, in his own words, is a "low interest guy" and "the king of debt", writes Bill Bonner in his Diary of a Rogue Economist.

He's seen what lower interest rates can do for a leveraged real estate speculator.

Without lower rates, and a willingness on the part of the banks (or other big lenders) to refinance his projects, he probably would have gone broke in the '90s.

But at least Mr.Trump was speculating on investment properties. Hotels, casinos, and apartment houses generate income. Bought wisely and managed correctly, they can pay off the debt.

Most of America's $72 trillion in debt, in contrast, cannot be repaid. It was used to buy consumer items – tuna sandwiches, vacations, automobiles, pills – and to pay for the feds' many boondoggles – drones, surveillance, and giveaways.

There is no investment return from this kind of spending. And even business borrowing has been focused on share buyback schemes rather than investment in productive assets.

It was this explosion in debt that engendered and nurtured the expansion of the last 10 years. Now, that expansion is the oldest on record, and the weakest ever too.

And since it was a consumer-based expansion rather than a capital investment boom, there will be no stream of income flowing from it to pay off the debt.

Instead, it's either Inflate or Die. Either inflation and debt increase...or the boom collapses.

Mr.Trump may believe that lower rates will save the US economy just as they saved him.

And he saw what happened to his pal, Mauricio Macri, in Argentina, who tried to slow down inflation. The economy went into a slump, and Macri died in the August election.

Democracy is a scam. The plain people vote. But insiders – the elite, the cronies, the Deep State – make the important decisions. And these few can increase their own wealth and power only by taking it from the many they are meant to serve – the public.

And when they are in the "Inflate-or-Die" trap, rarely are they willing or able to risk easing off from inflation.

First, because it threatens their power (the masses want free stuff too). Second, because it slows the transfer of wealth in their direction (it curbs the government spending on which they rely). And third, because it usually means an immediate cut in their personal wealth (as stock prices collapse).

That is why there is always a bias towards inflation – the benefits come quickly and mostly go to the people in charge of the system. The bill shows up much later and is paid – in higher prices, depression, and misery – by the public.

Adding more cash and credit (aka inflation) is the easy choice. It pushes up prices and simulates a boom.

Team Trump – including the president's nitwit advisor, Peter Navarro – believes it may be able to get the Dow up to 30,000 in time for next year's election.

As far as we recall, it is the first reelection strategy in history expressly tied to the Dow.

Whether stock prices will rise or not, we don't know. But if they rise, we'd be very surprised if gold didn't go up more.

Gold is real money. When fake money gets debased and inflated, gold shines.

Since the beginning of this century, central banks have added some $22 trillion in new, fake money – or 15 times the value of all the gold ever mined from the time of The Flood to 2000 AD.

In January 2000, the price of gold stood at $280. It is now $1500 – a more than five-times increase.

Meanwhile, inflation does little for real wealth. Producing businesses, measured by the Dow 30 – the flower of American capitalism – were worth $11,500 in January 2000. Today, those stocks will cost you $27,000 – barely a 2.4-times increase.

You would have made twice as much in capital gains from low-risk gold as from high-risk stocks over the last 20 years.

Or, to put it another way, since we made our "sell stocks, buy gold" recommendation in January 2000, America's greatest companies have lost more than half their value in real-money terms.

And you ain't seen nuthin' yet.