Who Will Push America Over This Cliff?

We’ve made three bold predictions in this space:

  1. The Fed would never voluntarily normalise monetary policy.
  2. The Donald would never go Full Retard on his trade war with China.
  3. Republicans and Democrats would both come to embrace Bernie Sanders’ Modern Monetary Theory (MMT).

So far, so good

As to the first — check. The Powell Pivot ended the Fed’s hesitant, pseudo-tightening program. The Fed chairman, panicked by the market’s decline at the end of 2018, said no rate hikes this year.

Normal Fed policy allows markets to correct. Now, there is no question that the Fed will not permit a normal market correction.

As to the second…well…so far, so good.

The negotiators are at work. Most likely, POTUS will soon announce a wonderful…beautiful…trade deal that will satisfy lobbyists and cronies while having little real effect on the economy.

It’s the third one that is most extraordinary. Modern Monetary Theory is the goofball idea — popular with Sanders and AOC — that the feds should borrow, print, and spend as much money as they want…as long as nothing bad happens.

Of course, the Soviet economy looked like a success for decades. Venezuela was rolling in money for many years. Zimbabwe was once the most prosperous economy in Africa.

There are some things you shouldn’t do…even though nothing bad happens right away. You jump out of a 30-storey window. Nothing bad will happen for at least 29 storeys.

Play Russian roulette with a six-shot revolver; you might get to pull the trigger five times before anything bad happens.

Likewise, as economist John Maynard Keynes once remarked, ‘there is a lot of ruin in a country.’ Even the worst economic policy will take time to manifest itself. And even MMT may look pretty good — until something bad happens.

More stimulus

That’s why we have theories, principles, rules, and ‘best practices’ — to prevent us from doing things we’ll regret when the bad stuff finally happens.

We bring it up today because the president is already edging towards MMT. We thought he’d wait until after the market crashes and the economy sinks into a recession. But no.

He’s already on the case, out in front…preparing the public to blame the Fed for the inevitable blow-up…and pushing the Fed into even loonier money policies — that is, toward MMT.

Here’s the most recent tweet from the White House:

China is adding great stimulus to its economy while at the same time keeping interest rates low. Our Federal Reserve has incessantly lifted interest rates, even though inflation is very low, and instituted a very big dose of quantitative tightening. We have the potential to go…up like a rocket if we did some lowering of rates, like one point, and some quantitative easing. Yes, we are doing very well at 3.2% GDP, but with our wonderfully low inflation, we could be setting major records &, at the same time, make our National Debt start to look small!

In short, the president thinks we need more stimulus! ‘Like one point…’

One thing is becoming very clear. For all the effort Donald Trump puts into being spontaneous and erratic, he is actually very predictable.

When it comes to financial matters, he will always go for EZier money, lower rates, more spending, and bigger deficits. After all, he’s a ‘low-interest guy.’

And this confirms our theory of history. When an empire reaches the edge of a cliff, it will always find leaders to give it a push. This is the hour. Donald J Trump is the man. History is being made.

Perverse fantasy

How close the US is to the precipice is a matter of some debate. When Donald Trump was elected, there was probably still time for a strong leader to pull back…to cut spending and reduce debt levels.

Instead, Mr Trump chose to go in the opposite direction. Now, with an aging population…an all-powerful Deep State…and government debt. When the boom ends, bad stuff happens. Stocks collapse. The economy goes into a recession.

Deficits double. Politicians and policy makers turn to fantasies…such as MMT.

And the idea that putting the fed funds rate down by a point — into negative territory — would stimulate the economy so much that the ‘National Debt [would] start to look small’ is a scam.

Rates have been negative for nearly the last 10 years; federal debt more than doubled, while real growth rates fell.

Instead of causing a boom, 10 more years of that policy will more likely leave federal debt at $40 trillion…with the economy at the bottom of the cliff.

Regards,

Bill Bonner


Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.


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