These articles have discussed money, monetary policy, fiscal sanity, and government spending several times this year. Some have called me alarmist for raising fiscal sanity during a “Global Health Crisis.” While COVID-19 (Sars-COV-2) is undoubtedly a viral disease with a 98%+ survival rate, I cannot in good conscience call this a “Global Health Crisis.” The pandemic declaration was a political move, the mask mandating, business closures, and every other hysterical move have been carefully formulated to present a problem where none exists. Has Sars-COV-2 mutated; absolutely, but the emotional hysteria has mutated far faster.
Dollars and Sense
When you pass paper to a store clerk, are you spending money; no, you are spending confidence. Your confidence in the dollar’s strength, as represented by a check, cash, money order, credit card, etc., is what is being spent. Why was the Great Depression so lasting and detrimental; a lack of confidence in the US Dollar. People who saved their money formed sane fiscal policies personally and acted logically lost their confidence in the US Dollar, and the dollar went into a great depression.
Since President Clinton, the US Government has been on a drunken spending spree and does not appear to be stopping unless the citizens demand they cease and desist! What does this mean for you and me; everything costs more for two reasons inflation and interest. When the government prints money, too much money increases prices, and too few goods chase too much money, resulting in people suffering. When the government borrows money, the interest must be serviced; the interest will increase prices and usually absorb some of the extra capital on the market to bring down inflation.
Except, Quantitative Easing (QE) is hindering the absorption of money on the market. Hence America is witnessing something truly remarkable for the first time in financial history, the debt (principal), the interest, and the extra capital, all of these storms are combining into a major conflagration economically speaking. Usually, at this point, a country begins to look for a place to go to war, which explains China and its expansionist policies in Southeast Asia and the Pacific Ocean. Too much debt, too much interest, a military needing worked, and assets need to be stolen from other countries. Typical historical thinking, war truly is grand larceny on a massive scale!
Where are America and China headed; let’s ask Czarist Russia, USSR, Nazi Germany, East Germany, China, North Korea, Italy, Venezuela, Greece, France, and who knows how many other economically unstable countries historically and presently. Going to war will not solve this economic crisis, though some may try that solution. The only solution worth advancing at this critical juncture economically is reducing the size of government, placing a firm halt on all government spending, and refusing the politicians to get into debt for at least two decades! Yes, this means changing Social Security, Welfare, Medicaid and Medicare, and every other government benefit program to fit a reduced budget and smaller government model. Failure to tighten belts for the next two decades will bankrupt America, and most of the world, making the Great Depression look like a summer picnic.
Gold and Oil, real estate, Gross Domestic Products (the goods manufactured in America for sale), trade, all of these wealth tools and more cannot support the debt incurred, the money printed, nor the size of the government from the city and county to the White House. As this trend continues, Wall Street will continue to be tumultuous, at best, and the confidence in the US Dollar will continue to slide. But, as the dollar slides, which global currency will begin to take up the slack?
The Euro has discredited itself and is not worth the paper it is printed on. China thinks they will step into the void and take up the slack with the Yuan, except their financial situation is almost as bad as Venezuela’s and Cuba’s, but their size and government type keep this hidden from the public. Even though the Yuan is in junk status, the Communist government hides these facts; the truth is leaking out in higher trade tariffs and other global trade and finance costs. Russia’s economic situation still has not stabilized with the fall of the USSR and will probably need another two to three decades until it can compete on the global economy again.
I heard a postulation that the Arabian Oil Rich nations of the Middle East would produce an OPEC-backed currency if the US Dollar fails. I highly doubt this as a solution, but the potential is there. Another person claimed the lack of confidence in the US Dollar would lead to the World Bank/International Monetary Fund (IMF) issuing currency for the world; boy, would that be a significant problem! Yet, the American Dollar is being purposefully destroyed by the current crop of politicians, and nobody is standing up and declaring ENOUGH!
The US Government, and many others globally, have increased their drunken spending since Jan/Feb 2020 to incredibly extensive levels and used a “Global Health Crisis” as the excuse. Except when Ebola was sweeping the world, we did not have this level of insane spending and government intrusion. Ebola is far deadlier, easier to spread, and yet the Ebola disaster is barely remembered. Bird Flu, Swine Flu, SARS, MERS, all these viruses have had their time in the media hysterical spotlight, every single one of them is deadlier than Sars-COV-2, easier to spread, and they were never a cause for a global pandemic.
Inflation is caused by poor economic policy, where the government grants itself the ability to print money. Inflation is not just money and monetary policy; inflation is also confidence, faith, and trust. Inflation is how the government acts, thinks, and behaves. Inflation is as real as COVID-19 and just as deadly as Ebola while being more problematic for everyone. From Dec 2020 to the end of July 2021, inflation has increased the price of goods and services by 3.8%, seasonally adjusted, or 5.4% non-seasonally adjusted, which means that prices go up as a seasonal adjustment in the summer.
Consider with me an analogy; you live in a community of houses and pay a Homeowners Association (HOA) Fee. Your neighbor has decided they can write checks on your checking account, and the HOA has granted them legal protection to write checks on your bank accounts. Because your neighbor has legal protection, you sell off assets to provide the funds for your neighbor. You sell to other neighbors letters of credit that you promise to pay interest on, provided your other neighbors hold those letters of credit for specific amounts of time. Except, your neighbors stop buying those letters of credit over time because they do not like how your neighbor keeps writing checks and spending your money. How do you keep this house of cards from blowing over and losing everything?
America is in this position right now! Trend lines show a steady downward trend in the value of the US Dollar. Inflation will keep increasing prices as too much money is chasing too few products on the market. Debt needs to be serviced and interest paid. But, when the interest payment is the only thing being paid, and the principal will also need to be serviced, where and how does the principal get serviced when the interest is absorbing all the monthly payments? Simple economics, money once created and put into the money market, cannot just be absorbed or disappeared. Just like food doesn’t disappear once consumed, the offal must come out and be handled responsibly. Well, the dollar is in an offal position and needs responsibly handled!
© 2021 M. Dave Salisbury
All Rights Reserved
The images used herein were obtained in the public domain; this author holds no copyright to the images displayed.