“No, you’ve already made the choice. Now you have to understand it.” – The Matrix Reloaded
I spent hundreds to rent a limo, but there was no driver. All that cash on a limo, and nothing to chauffeur it.
I did posts about inflation before inflation hit, but I’m not a psychic. It’s not like I work for ESPN or something. No. This inflation was absolutely predictable, and in fact, has been absolutely predictable since 2008. Ben Bernanke’s Fed© Approved™ solution to the Great Liquidity Crisis during the Great Recession was simple: print a lot of money.
Make no mistake, the economic problem was big back then in 2008. I personally saw an entire segment of the economy reach a full dead stop. Rail cars piled up at the sidings on my drive to work near Modern Mayberry because the railroads had no place to put them – miles of them. I mean, without rail cars how could new railroad employees train?
Why did this happen? Nobody knew which banks had money and which ones didn’t. The trust that underlies the system had been blown up by a series of banks defaulting, with stocks crashing, and bonds plummeting. Heck, even physicists stopped trusting atoms – they make up everything. The Fed’s® solution to this lack of trust? Like I said, print money.
They were sneaky about how they did it – they printed money and gave it to the banks by buying up the awful assets they had on the books. The money vacuumed up the bad debt like Charlie Sheen on the set of Two and a Half Grams.
Something tells me he’d be a more thoughtful Fed® chairman than the one we have now.
The printing also kicked the can down the road. We could spend all day about the causes, but the reality is that we are the can that was kicked down the road. Our current inflation is the result of keeping the party going even when the system should have cleared out the bad debts, cleared out the dead companies, and cleared out the waste that caused the crisis.
Would it have been tough? Sure, especially on elevator repairmen – but their business is always up and down anyway.
So, now what?
The reality is simple. As a nation, we face only two choices.
The first choice we could make is to keep doing what we’re doing. We can keep printing money, and keep pretending that the economic problems are created by the sanctions we put in place over a regional border conflict that we helped create and certainly encouraged.
The result of the decision to keep printing will first be higher prices. Higher fuel prices mean less driving, but they also mean that the cost of nearly everything you buy costs more: food, trash service, beer, PEZ®, posters of Elvis (especially posters of the The King after he discovered carbohydrates), everything physical will cost more.
Why can’t Elvis drive his Cadillac™ in reverse? He’s dead.
Oh, sure, hyperinflation seems like fun at first. Rising prices, rising wages . . . but the wages never keep up with the prices. And businesses can’t keep up with the rising costs, so long-term contracts that had been great are now unprofitable. Bare shelves show up. People rush to ditch cash to buy stuff because they know that Kraft© Mac n’ Cheese™ is going to be 20% more next week, so canned goods have a better rate of return than the stock market. Some people don’t like canned food, but for me it’s ate out of tin.
But then banks have finally gotten wise, and we’ll see higher interest rates on car loans, home loans, and student debt. Higher costs on cars plus higher interest costs mean lower new car sales, especially when people are struggling to find change in their couches to buy Pizza Rolls® and Twinkies™.
Lower new car sales mean fewer new cars made. Which requires fewer workers. Which increases unemployment. Eventually, there’s a recession or depression as economic activity ceases to be meaningful – weird things happen as people resort to a manic level of activity.
The banks finally get wise and loans don’t come with an interest rate, they come with a scheme to create a way that the bank doesn’t go bankrupt as the currency value plummets. The values are pegged to a commodity (like gold) or an inflation index. Bankers have been through this before in country after country and know every trick to keep themselves whole. I assure you, inflation has their interest.
I saw a homeless man talking to his shadow. That means six more weeks of inflation.
Ultimately, the orgy of printing results in destitution, unemployment, and a political and moral crisis. How bad is it? Reminders of the hyperinflation caused by worthless money during the Revolutionary War are still in the Constitution – “No state shall coin money, emit bills of credit, or make anything but gold and silver tender in payment of debts.” I even keep a copy of the Constitution on the wall – The Mrs. calls it the Decoration of Independence.
Wonder why the German bankers are so crazy about not letting the euro hyperinflate? They’ve been through that before. And German bankers are generally pessimists, which is why they study Russian.
Sadly, we’re seeing these impacts even though many of the trillions in printing haven’t even hit the economy yet. Biden’s Bipartisan Infrastructure Bill hasn’t even hit the economy yet. Think construction is expensive now? Wait until there are a trillion more dollar in construction contracts that hit the economy in the next six months. That will lead to millions of guys standing around trying to look busy.
I wanted to build highways, but I decided not to go down that road.
So, that’s path one – keep going and wait for everything to blow up like slobber from a pasty dingo with a bag of decade-old beef jerky, which seems like an oddly specific analogy, but I have my reasons. What will be on the other side? No one can say – often, hyperinflation destroys the entire fabric of the country, making the people desperate, willing to do anything, even watch another Marvel® movie.
There is, of course, a second choice:
Quit printing money.
Stop entirely.
Have the Fed® increase the interest rate to slow down the economy and re-value the currency. Stop the shenanigans.
The result of that is, of course, also a major recession – probably worse than the Great Recession of 2008. Possibly as bad as the Great Depression.
There will be plummeting home values as interest rates increase. There will be unemployment. But once the debt clears, in a decade or so, what will be left will be an economy that is based, perhaps, on a more fundamentally sound currency, or even one that won’t inflate until it is worthless. I can dream, can’t I?
It’s not a pleasant idea, going through that pain. But in the end, it provides a chance for economic prosperity.
That’s it. Those are really the only choices I see in the economy. We’ll have to pick one.
I have no faith that the second path will be taken. Why? This graph, for one. Looks like people who like free stuff, vote for people who give them . . . free stuff.
Romney supporters signed their checks on the front, Obama voters signed theirs on the back.
It requires making a hard choice, a knowing difficulty. It’s like having the discipline to eat the broccoli and skip the ice cream before they wheel you out to read things off the teleprompter. I have seen no sign of the political class of the United States being willing to make any difficult decision. I have seen only a little appetite in the general populace to take the tough road.
No, I think we’ll make the first choice. When inflation gets worse? My bet is that the reaction of the political leadership will be to send checks to everyone. Wait and see.
No, I’m not a psychic. But I wish I was a remote viewer. I’m still looking for the one from the stereo.
