My 90-year-old mom is quarantined in her assisted living home, and that’s understandable. But are we Americans so naive as to believe that the economy can be shut down and somehow goods will magically appear on store shelves; that money creation can replace a real economy?
Every day the ongoing coronavirus news is looking more like a media-hyped event to shut things down and bring in a centrally planned economy, and I ask myself why. Already staggering under the weight of trillions in unpayable debt and decades of mismanagement, one possibility is to provide cover for the already collapsing economy as the petro-dollar agreement comes to an end. This 47-year-old agreement gave America the privilege to create unlimited money on computer screens that the world was forced to accept for their real goods. It was used to expand the welfare-warfare state and inflate ever-rising bubbles in bonds, stocks, and real estate. We’ve been having a party on borrowed money. That party is over now, but many don’t realize it yet, and no official wants to take the blame.
Central bank money creation policies will no longer work to pump up an economy based on ever-expanding debt. Austrian economists refer to this end phase of the cycle as pushing on a string. It worked for 47 years, but like all Ponzi schemes, it’s over.
Local decision-makers should recognize this for what it is and consider taking action soon, making budget cuts, and keeping a lid on taxes to save our local economy. They won’t because this debt-fueled economic expansion has gone on for so long now that it seems normal. It’s not. They will be hoping for a V-shaped recovery, but that recovery will never materialize because it’s not about the coronavirus, which is only the catalyst. We are at the end of a monetary cycle as a nation. It will take years of contracting to reset and cleanse the misallocation of capital and excesses – like a giant money and debt-creating machine that is now going into reverse. Lots of people and businesses will be going under.
Maybe an outside person must be brought in to make the difficult cuts.
Skip this paragraph if you’re not interested, but the petro-dollar agreement has allowed us to live way beyond our means for all these years by forcing oil-exporting countries to sell their oil only in dollars and forcing oil-importing countries to buy dollars first to purchase oil. Then the dollars received by the oil-exporters were also recycled into US Treasuries. This agreement propped up (backed) the dollar as the world’s reserve currency by providing buyers in the bond markets for the ever-expanding debt. But recently Russia, China, and several other countries have formed their own economic block and are no longer participating, even going so far as to sell their US Treasuries. As a result, the Federal Reserve is forced to step up and buy that debt with newly created trillions. Will other countries someday soon refuse to accept those fiat dollars as payment?
Here’s a hypothetical question: If trillions can be instantly created on a screen (no corresponding increase in goods and services produced) without leading to rising prices, then why are we receiving such puny stimulus checks? Instead, add a couple of zeros and send us $120,000 each like the big boys are getting, and then we can really stimulate the economy. And why are we paying taxes if the Fed can create the dollars for us?
We should expect to see our money lose its buying power at a faster rate than it already has been, while the economy contracts for years to come. We should be planning for it.
Mark Quello, Grand Marais
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