We use cookies (including third-party cookies such as Google) to remember your site preferences and to help us understand how visitors use our sites so we can improve them. To learn more, please see our privacy policy and our cookie policy.

To agree to our use of cookies, click 'Accept' or choose 'Options' to set your preferences by cookie type.

Options Accept
BullionVault

CHARTS

  • English
  • Deutsch
  • Español
  • Français
  • Italiano
  • Polski
  • 日本語
  • 简体中文
  • 繁體中文
  • Daily audit
  • Help
  • Contact
  • Deposit
  • Login
  • Open account
  • ABOUT US
    • About BullionVault
    • In the press
    • Reviews
    BUY/SELL BULLION
    • Vaulted gold & silver
    • -Live order board
    • -Daily Price
    • Coins for delivery (UK)
    INVESTMENT GUIDE
    • Guide to gold
    • -How to buy gold
    • -Gold investment
    • -Gold investment plan
    • -Investment insurance
    • -Compare asset performance
    • Guide to silver
    • -How to buy silver
    • Guide to platinum
    • -How to buy platinum
    GOLD NEWS
    • Gold news front page
    • -Gold price news
    • -Opinion & analysis
    • -Market fundamentals
    • -Gold/Silver Investor Index
    • -Infographics
    CHARTS
    • Gold price
    • Silver price
    • Platinum price
    • Price alerts
  • Login
  • Open account
  • BUY/SELL BULLION
  • Vaulted gold & silver
    • ⤷
    • Live order board
    • Daily Price
  • Coins for delivery (UK)
  • INVESTMENT GUIDE
  • Guide to gold
    • ⤷
    • How to buy gold
    • Gold investment
    • Gold investment plan
    • Investment insurance
    • Compare asset performance
  • Guide to silver
    • ⤷
    • How to buy silver
  • Guide to platinum
    • ⤷
    • How to buy platinum
  • GOLD NEWS
  • Gold news front page
    • ⤷
    • Gold price news
    • Opinion & analysis
    • Market fundamentals
    • Gold/Silver Investor Index
    • Infographics
  • CHARTS
  • Gold price
  • Silver price
  • Platinum price
  • Price alerts
  • ABOUT US
  • About BullionVault
  • In the press
  • Reviews
  • Help
  • Contact
  • Daily audit
    • English
    • Deutsch
    • Español
    • Français
    • Italiano
    • Polski
    • 日本語
    • 简体中文
    • 繁體中文

Gold News

Live support

NEED HELP? ASK US NOW

Search form

Gold News front page

Gold Price News

Gold, Silver Fall with Stocks, Inflation Outlook as Covid and Lockdowns Worsen, Pension Rows Hit China and Spain

More...

Gold Investing In Depth

Learn about gold bullion bars

Learn about gold bullion coins (and costs)

Gold investment: Why & how?

Gold Investment Analysis

  • Latest Gold Investor Index
  • Diversification: Gold as investment insurance
  • 40-year Asset Performance Comparison Table

Gold Articles

Opinion & Analysis

Gold Price News

Investment News

Gold in History

Gold Books

Gold Investor Index

Gold Infographics

Archive

  • January 2021 (18)
  • December 2020 (24)
  • November 2020 (23)
  • October 2020 (25)
  • September 2020 (25)
More...

List of authors

How Stimulus Kills the Economy

Tuesday, 12/29/2020 09:01
Borrow from tomorrow, pay back with...?
 
NO WEIGHT-LOSS EXPERT was ever invited to showcase his new book  Don't Eat So Much onto the Oprah show,  writes Bill Bonner in his Diary of a Rogue Economist.
 
Nor did any household finance book, with the self-explanatory title, Save Your Money, ever make it onto the bestseller list.
 
And if you are waiting for an economist at the Federal Reserve to tell colleagues to "back off and let the economy do its thing," we hope you are not holding your breath.
 
The "experts" most in demand are those that tell the lies the public wants to hear. Such as...how to bail out the US economy.
 
The latest news from USA Today...
"Stimulus checks part of looming Covid-19 relief deal as Congress finalizes negotiations
 
"Lawmakers closed in on a roughly $900 billion Covid-19 relief deal Wednesday morning that may include another round of checks and other much-needed financial benefits for Americans, according to a source familiar with negotiations who wasn't authorized to speak on the record."
More money! Whoopee!
 
The idea is simple enough. The experts say that if we just give people money, they will spend it. Businesses will make sales. Consumers will consume. It will look like a healthy economy again.
 
But where do the feds get the money?
 
Never mind. You know as well as we do that they don't have any. The federal government is already scheduled for a $2 trillion deficit this fiscal year.
 
The feds will "print" the currency.
 
But as you also know, there is no wealth that is not created by the people themselves, trying to "give and get" in the Main Street economy.
 
And, ultimately, one way or another, the "money" the feds distribute today has to come from the people tomorrow.
 
Well, that may not be so bad...If drawing on the resources of tomorrow helps us out of a problem today...what's so bad about that?
 
But wait...The burden of today's letter is that the funny money does funny things to the economy. That is, the "stimulus" actually depresses investment and output. Over the long haul, people will be worse off, not better.
 
According to Bonner's Law, bad capital drives out good capital. Free money is not just a fraud, but a curse.
 
There is no example in history where giving people printing-press money – that is, money not connected to real products and services – ever did any lasting good. 
 
America's money supply rests, at least to some measure, on the Federal Reserve's balance sheet. The Fed creates or "prints" money to buy its "assets" (mostly, US Treasury bonds). Over the last 30 years, the Fed's balance sheet has grown nearly eight times faster than the American economy itself.
 
This might cause some experts to wonder whether bailouts...stimulus spending...and deficits (all funded by the Fed's balance sheet...aka "money printing") do any damned good.
 
But that is a question the experts are paid not to ask.
 
Besides, maybe this time is different?
 
Picking up from where we left off in previous Diary notes, we think that you can print all the pictures of dead Presidents you choose...but that "money" is not real wealth.
 
Real wealth comes from real capital – machines, time, knowhow, businesses, technology, infrastructure, sweat, and a web of connections and systems far too vast ever to be catalogued, let alone understood or controlled.
 
Except for improvements in infrastructure – which may or may not be good investments – the feds do not even attempt to increase America's capital. Instead, they use it...waste it...and spend it.
 
Das Kapital was a bestseller, at least for the genre. In it, Karl Marx grouched about how he thought the world works.
 
A man gets rich because he sets up a factory to make shoes and exploits cobblers. Wouldn't it be better to have an elite few in charge...and let them control the capital and decide who gets the money?
 
And why have so many different styles...and so many different brands and unnecessary choices? Shoes are just shoes, after all. Think of all the money that could be saved if we made just two or three styles...and only one brand. No need to advertise!
 
Besides, it was the cobblers who added value (the labor theory of value), not the man who invested in the shoe factory. The "capitalist" was just a parasite. Or so Marx thought.
 
He saw the problem. And he had a plan to fix it.
 
It was not enough to let the traditional, customary rules of a free society do their stuff, he thought. No more voluntary "give and take." No more "win-win" deals between consenting adults. No more capital in private hands. 
 
Instead, an economy needed bright, book-smart people like himself – experts – to organize things in a better way.
 
Marx was a rock star, posthumously, especially in Russia and China. There, they reorganized their whole societies to conform – at least, on paper – to the Marxian insights.
 
Then, after decades of government-led poverty, brutality, and mind-numbing stupidity, both countries rejected the creed. In theory, it still made sense. But it didn't work.
 
The Soviet Union dissolved itself and pulled down statues of Marx in 1991. China took the capitalist road in 1979...but left its Communist Party in charge.
 
Americans celebrated the victory. Communism had lost. Capitalism was triumphant.
 
Alas, the path to perdition is rarely empty for long. Soon, upon its slippery stones trod the Gucci-shod feet of erstwhile capitalists themselves.
 
The trust-funded grandchildren of innovators and tycoons were embarrassed by their own wealth. They learned in college that it was shameful to be so rich when others were so poor...and almost all of the world's problems – inequality, racism, global warming, and Donald Trump – could be traced to the "patriarchy."
 
Experts argued that classical theories of money and economics were all wrong.
 
The new Modern Monetary Theory (MMT) taught that the government was the source of all money...and that it should spend its money creating a better world for everyone.
 
They insisted, too, that the government – with its armies of PhD economists – should decide how high stock prices should be...how much it should cost to borrow money...what the rate of "inflation" should be...how many people should be unemployed...and what the "capacity" of an economy ought to be.
 
Above all, they learned that when capitalism fails, the experts need to get to work. They need to give the people money. A bailout. A giveaway.
 
Immediately, we see where the US Economic Politburo goes wrong.
 
All their stimulus is focused on the demand side. Consumption, not production. It's all getting...and no giving. Spend, spend, spend...even their counterfeit money – fake savings – can be used to draw out real savings (capital!) so that it can be spent on big-screen TVs and stock buybacks.
 
Real capital – the real source of wealth – disappears as fake capital takes its place.
 
But wait, there's more.
 
Not only do the giveaways turn valuable capital into a consumable...they also reduce the economy's ability to produce. Everyone – except the insiders – gets poorer.
  • Reddit logo
  • Facebook logo
  • Twitter logo
  • Google logo
  • Yahoo logo
  • LinkedIn logo
  • Digg logo
  • StumbleUpon logo
  • Technorati logo

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

Mobile apps

 - live trading 24/7

 - buy & sell instantly

 - up-to-the-second charts

 

 

 

Daily news email
Go to 'communications settings' 

Get the latest daily gold price news free by email

Latest gold news by email

 

 

 

Gold Investor Index
5 January 2020

Gold Investor Index

Gold investing +58% in NY21

 

 

 

LBMA webinar
21 January 2021

LBMA

London gold trading

 

 

 

International
Investment

16 December 2020

Gold 2021

Gold in 2021

 

 

 

LBMA Alchemist
1 December 2020

Newton

True Gold/Silver Ratio

 

 

 

  •  Email us

Market Fundamentals

  • 'Cut Bullion Duty to Cut Smuggling': India's Gold Industry
  • Platinum Price Hits 4-Year High Even as Electric Beats Diesel Cars in Europe
  • Record Investing Pushes 'Industrial' Silver and Platinum into Deep Deficits
More...
  • Cost calculator
  • Cookies
  • Terms & conditions

©BullionVault Ltd 2005-

  • Twitter
  • Facebook
  • LinkedIn
  • YouTube

Save your cookie preferences

We use cookies to remember your site preferences, record your referrer and improve the performance of our site. For more information, see our cookie policy.

Please select an option below and 'Save' your preferences.

Save

You can update your cookie preferences at any time from the 'Cookies' link in the footer.

Secure auto-logout warning

You have not been active for some time.

For your security you will be logged out in   minutes unless you take action.