EDITOR NOTE: The idea of a nation inflating-away its debts is nothing new. History is replete with the ruins or zombification of nations who used this strategy to the point of self-destruction. We did it ourselves, here in the US, after WWII, and again after 1971. “Maybe we did it right,” most Americans would think. Most Americans probably don’t feel the effects of a -92.6% loss in the dollar’s value since 1946. That’s inflation for you--slow, insidious, and erosive. The Powell and Yellen team are at it again as the nation attempts to recover from the economic effects of the Covid pandemic. Except, there’s a problem. It’s not just the “go big” spending to which Yellen, Biden, and Powell are in agreement. It’s the cycle of inflating-away debts that rely on inflation to carry out more spending, thereby creating more debt to inflate-away. It’s a feedback loop, not unlike holding a microphone to its own speaker. It gets exponentially louder until either your eardrums or the speaker blows up. That feedback...it’s the tune of our economy.
If you’re a wage earner, retiree, or a lowly saver, your wealth is in imminent danger.
A lifetime of schlepping and saving could be rapidly vaporized over the next several years. In fact, the forces towards this end have already been set in motion.
Indeed, there are many forces at work. But at the moment, the force above all forces is the extreme levels of money printing being jointly carried out by the Federal Reserve and the U.S. Treasury.
Fed Chairman Jay Powell and Treasury Secretary Janet Yellen have linked arms to crank up the printing presses in tandem.
This is what’s driving markets to price things – from copper to digital NFT art – in strange and shocking ways. But what’s behind the money printing?
Surely it’s more than progressive politics – under the guise of virus recovery – run amok.
Where to begin?
The U.S. national debt is a good place to start. And the U.S. national debt is now over $28 trillion. Is that a big number?
As far as we can tell, $28 trillion is a really big number…even in the year 2021. How do we know it’s a big number, aside from counting the twelve zeros that fall after the 28?
We know $28 trillion is a big number based on our everyday experience using dollars to buy goods and services. You can still buy a lot of stuff with $28 trillion. In truth, $28 trillion is so big it’s hard to comprehend.
Nonetheless, $28 trillion is not as big a number today as it was in 1950. Back then, the relative bigness of $28 trillion was much larger. It was unfathomable.
Crime of the Century
The points is, with paper dollars as legal tender the bigness of $28 trillion is relative. Moreover, with policies of mass dollar debasement in effect, tomorrow’s bigness of $28 trillion will be much different than today’s.
What if $28 trillion isn’t such a big number after all?
What if, through sleight of hand, $28 trillion could be made less big?
What if the relative bigness of $28 trillion could be dropped an order of magnitude so that it had a commensurate value of $2.8 trillion?
A national debt that’s on relative par with $2.8 trillion would be much more convenient for the goons in Washington. It would finagle the U.S. national debt to GDP ratio from over 130 percent to a relative 13 percent.
This may sound crazy. But it has been done before…
One of the unspoken objectives of the Fed’s monetary policy is to inflate the debt away. Powell won’t explicitly say this. He doesn’t have to. His actions tell you everything you need to know.
But what you may not know is that dollar debasement, as a matter of fiscal and monetary policy, bailed out the U.S. government in the 20th century. Powell and Yellen are endeavoring to pull off this crime of the century once again.
If you recall, in 1946, at the conclusion of WWII, the U.S. national debt to GDP ratio was 118 percent. Yet by 1981 the debt to GDP ratio had declined to just 31 percent. It has been rising ever since.
Vigorous economic growth in the 1950s and 1960s had a hand in growing the economy out of debt. But more important was the role of dollar debasement. Check this out…
The Bureau of Labor Statics own Consumer Price Index (CPI) inflation calculator shows that $1.00 in January 1946 had the same buying power as $5.16 in December 1981. Similarly, it took $1.00 in December 1981 to buy what $0.19 could buy in January 1946.
Thus, over this 35 year period, the dollar lost 81 percent. Four fifths of its value was inflated away by the Fed and the Treasury. That’s downright criminal.
There’s a Serious Flaw to the Team Powell-Yellen Inflation Scheme
As you can see, dollar debasement policies inflated a significant part of the national debt away. However, achieving this feat was remarkably destructive.
To halt the flight of gold from American soil, the U.S. government closed the gold window at the Treasury in 1971. This implicit default ended the Bretton Woods agreement. The Treasury stiffed America’s trading partners unconditionally.
“The dollar is our currency, but it’s your problem,” remarked Treasury Secretary John Connally to his astonished European counterparts at the G-10 Rome meetings in late 1971.
After Nixon removed the discipline of gold from the world monetary system the money supply could be inflated without limits. For American consumers, this quickly translated into raging price inflation. Things got ugly quick.
By 1980, the CPI was at 13.5 percent and the yield on the 30 Year Treasury hit 15 percent. Fed Chairman Paul Volcker had to jack the federal funds rate up over 20 percent to keep prices from coming completely uncorked. The price of gold spiked from $35 per ounce to over $800.
Volcker’s efforts may have temporarily salvaged the dollar. But they didn’t solve the debt problem. Instead they laid a faulty foundation for an even larger debt edifice to be erected upon.
This brings us to the present state of awfulness. Another implicit default is needed to reckon the Treasury’s books.
Aside from the fraud, chicanery, balderdash, and Montreal Screwjob of it all, there’s a serious flaw to the Team Powell-Yellen inflation scheme…
How can dollar debasement policies aimed at inflating away the debt ever succeed when it’s these very policies that induce the massive growth of debt in the first place?
And this, folks, is precisely why we’re doomed.
Originally posted on Economic Prism