U.S. Stimulus Action Points to ‘Inflate-or-Die’ Future

One of these days, I’m going to climb that mountain

And live up there amongst them clouds

—Walter Brennan

The Calchaquí Valley is shouldered on both sides by mountain ranges. To the east are some of the most rugged mountains we have ever seen.

They are not high. They are more like a fortress wall…strange and forbidding.

The wall

Lit up in the afternoon sun, they look impassible. Unlivable. No grass grows. No bushes or trees. There is no water anywhere.

What’s on the other side? No one here knows…no one has ever crossed over. We’ll have to find out.

But first, let us turn to the money world…

Pandemonium and mass hysteria

We are living through the most remarkable period in our lives.

A virus is on the loose. People are either blasé or petrified. As far as we know, only old people are particularly at risk, especially those with pre-existing conditions.

So, the virus probably could be countered with moderate public health initiatives, aimed at protecting vulnerable groups, while allowing the rest to build up a ‘herd immunity.’

In Japan, life goes on more or less normally, even though the Japanese are the oldest group of humans on the planet.

The virus has been present in Japan for nearly two months, but only 1,194 people have tested positive…and only 43 have ‘climbed that mountain.’

In the U.S. meanwhile, pandemonium and mass hysteria seem to have taken over.

Congress just rushed through a $2 trillion boondoggle…2,000 pages of giveaways which, as usual, not a single member of Congress claims to have read.

The real aim of the legislation is not to fight the COVID-19 bug, but to keep the shysters, speculators, and imprudent managers from suffering the losses they deserve.

Of course, the feds don’t have a spare two cents…let alone $2 trillion. And no sane investor is going to lend money to a government that is borrowing that recklessly.

So where will the money come from?

The Federal Reserve…which is now ‘printing’ some $125 billion PER DAY to feed the government’s debt habit.

Whew! Whee!

But what does it mean? Where does it lead…?

What’s next: the social fallout

Last week, we looked at the likely political consequences. Today, we will take up the social fallout. What happens to a society when a government goes Full Retard with its money-printing?

The presumption that most people make is that this is an ‘emergency’ and that after the virus is under control things will go back to normal.

We caution our Dear Readers: Don’t bet on it.

After the crisis of ’08-’09, for example, the emergency measures never went away. Instead, they merely prefigured today’s crisis.

In 2015, the Fed attempted a timid effort to ‘normalize.’ Then, in 2018 it hit ‘pause,’ before reverting to stimulus mode in the summer of 2019.

And now, it is at it again…with a whole new group of schemes designed to pump more money into Wall Street pockets. And when the dust settles…and the markets have adjusted to this new reality…will the Fed be able to turn off the juice?

Debt habit

With a whole economy dependent on bailouts…helicopter money…negative real lending rates…tax cuts…and stimulus up the wazoo…who will have the backbone to ‘pull a Volcker,’ raising rates and squashing expectations for more free money?

Alas, when you start down that long, lonesome, lost inflation highway…it’s very hard to turn around. And when you’ve gone this far, each rescue brings on another crisis…and each crisis needs to be met with more stimulus.

You have almost no choice. Either you keep adding more and more ‘stimulus.’ Or stocks crash and the economy goes into a depression.

So you keep going until you finally go off the cliff. Grosso modo, that will be the financial history of the 21st century!

So what happens to your society? How do people react? Do they take their misfortune with good grace? Or, do they find others they can blame? Do they go gently into that good night…or rage, rage at dying of the light?

Lost inflation highway

We can begin simply by looking at what is going on in Venezuela.

‘Barely surviving,’ is how people put it to reporters covering the story in 2018. ‘Getting food to your fridge is a full-time job,’ they reported, bemoaning long lines and empty shelves.

By 2019, the situation had degenerated. There was no longer any point to waiting hours in line. There was no food. Venezuela, eyewitnesses reported, was becoming ‘uninhabitable.’ One out of three people didn’t have enough to eat, said the UN.

What did people do? They left. Last year, The New York Times estimated that 4 million had packed up (some of them forced to leave their children behind with grandparents).

The exodus was ‘staggering’ said the Times, much like the columns of refugees fleeing Northern France after the German invasion.

And the flight continues. They go on foot. They carry what they can. Taking cover for the night in abandoned buildings…or out in the open…and then start off again the next day.

And if they make it to Colombia or Brazil, they struggle to keep themselves alive in an often-unwelcoming place.

Meanwhile, back at home in Venezuela, power cuts are routine. Water service, too, fails from time to time. Getting enough food remains a constant preoccupation for millions of people.

Diabolical policies

This kind of economic collapse is not a natural occurrence in capitalism. It was caused by the government – its central planning, spending, nationalizations, price controls, and so forth; the usual mix of diabolical policies.

The Venezuelan people are ready for a change. But the further into the ‘Inflate-or-Die’ trap you go, the harder it is to change course. The BBC reports:

Opposition lawmakers have been barred from standing for office, some have been arrested and others have gone into exile. The United Nations has accused the government of using a strategy of instilling fear in its population to retain power.

The national assembly also has turned into a rubber stamp for the government; it is packed with President Nicolás Maduro loyalists.

And on the streets, violence increases. Kidnappings, formerly rare, became so common in 2019 that they were no longer reported; the statistics were no longer gathered.

But The Washington Post reports in 2020 that kidnappings and other property crimes might now be going down in Venezuela. And the reason is simple: There is nothing more to steal.

Bank robberies, for example, used to be common. Now, thieves say they would be wasting their time. The banks only have paper money, and it’s worthless.

Likewise, thieves used to ride motorbikes; they would zip along and steal purses from respectable ladies.

No more. The motorbikes don’t work; it’s impossible to find replacement parts. And the ladies no longer have anything worth stealing in their purses.

And armed robbery? A handgun is said to cost 1,200 DOLLARS. Only the rich have that kind of money.

Nationalized crime

This is not to say that crime doesn’t continue. But now it, along with much else, has been nationalized.

Not only do the Venezuelan feds rip off everyone with their phony money, they also have an elite group of police assassins, called the Fuerzas de Acciones Especiales (FAES), who are said to kill and rob at their pleasure. The FAES says reports of its mischief are ‘fake news.’

True? False?

One of the features of an advanced inflationary period is that the government typically takes control of the news as well as the economy.

Result: You can’t trust either.

Instead, people live in constant fear and uncertainty, never knowing what is going on…unable to trust their government, their institutions, or even each other.

Civil society – with its emphasis on stability, win-win trades, manners, and trust – falls apart.

In Venezuela today, no one knows how fast prices are rising. Bloomberg estimates that inflation is running at about 9,900%.

Bombed out and broke

Here at the Diary, we are connoisseurs of financial disaster. And probably the finest vintage we’ve ever found is the 1923 Weimar, the product of a war-torn terroir.

Stefan Zweig, writing in 1943, recalled what the year 1923 was like:

The mark plunged down, never to stop until it had reached the fantastic figures of madness – the millions, the billions and trillions. Now the real witches’ sabbath of inflation started, against which our Austrian inflation with its absurd enough ratio of 15,000 old to 1 of new currency had been shabby child’s play.

To describe it in detail, with its incredibilities, would take a whole book and to readers of today, it would seem like a fairy tale.

I have known days when I had to pay fifty thousand marks for a newspaper in the morning and a hundred thousand in the evening; whoever had foreign currency to exchange did so from hour to hour, because at four o’clock he would get a better rate than at three, and at five o’clock he would get much more than he had got an hour earlier.

 

The equivalent of a wheelbarrow

For instance, I sent a manuscript to my publisher on which I had worked for a year; to be on the safe side I asked for an advance payment of royalties on ten thousand copies. By the time the check was deposited, it hardly paid the postage I had put on the parcel a week before.

On street cars one paid in millions, trucks carried the paper money from the Reichsbank to the other banks, and a fortnight later one found hundred thousand mark notes in the gutter; a beggar had thrown them away contemptuously.

A pair of shoelaces cost more than a shoe had once cost; no, more than a fashionable shoe store with two thousand pairs of shoes had cost before; to repair a broken window cost more than the whole house had formerly cost, a book more than the printer’s shop with a hundred presses.

For a hundred dollars one could buy rows of six-story houses on the Kurfürstendamm, and factories were to be had for the old equivalent of a wheelbarrow.

Some adolescent boys who had found a case of soap forgotten in the harbour disported themselves for months in cars and lived like kings, selling a cake every day, while their parents, formerly well-to-do, slunk about like beggars. Messenger boys established foreign exchange businesses and speculated in currencies of all lands.

 

Loss of faith and confidence

Zweig focused on the chaos and confusion, first. Then, he turned his attention to the injustice:

Towering over all of them was the gigantic figure of the super-profiteer [industrialist Hugo] Stinnes. Expanding his credit and exploiting the mark, he bought whatever was for sale, coal mines and ships, factories and stocks, castles and country estates, actually for nothing because every payment, every promise became equal to nought.

Soon a quarter of Germany was in his hands, and perversely, the masses, who in Germany always become intoxicated at a success that they can see with their eyes, cheered him as a genius.

The unemployed stood around by the thousands and shook their fists at the profiteers and foreigners in their luxurious cars who bought whole rows of streets like a box of matches; everyone who could read and write traded, speculated, and profited and had a secret sense that they were deceiving themselves and were being deceived by a hidden force which brought about this chaos deliberately in order to liberate the State from its debts and obligations.

As painful as the financial losses were…it was the loss of faith, confidence, and fair-mindedness that really hurt.

It wasn’t long before the national socialist goons were breaking windows and cracking heads. And it wasn’t until 1945, more than two decades later, that the cycle had run its course.

Then, Germany was bombed out, broke, and occupied by foreign troops. Many people were starving. It had finally gone off the cliff. Then, and only then, could it start to rebuild on a solid footing.

Calchaquí Valley chronicles

But let us return, briefly, to our chronicle of life in the Calchaquí Valley.

Seen from Google Earth, the other side of the low, whitish-gray range of mountains to the east looks more like Mars than Earth. It is barren. Rocky.

To the west is a different range. Higher. Bigger. More familiar. Rising to 16,000 feet, these might be mountains in Arizona or Colorado.

When water falls in the summer month, they turn green. The rest of the year, they are brown or gray…or green from copper deposits…or red from iron.

From our San Martín office here in the valley, we can see Gualfin – our mountain ranch – in the distance. At least, we can see the mountains that embrace it. The two properties may touch each other (we’re not sure where the actual boundaries are).

We can drive the cattle over a pass in the mountains from the ranch – at 9,000 feet – down to the valley farm – at 6,700 feet. It is a two-day cattle drive over a rough trail. And the animals suffer. But once here, they have plenty to eat and quickly forgive us for the forced march.

As close as the two properties are, they are completely different. San Martín is a farm. And the people here are farmers.

Down in the valley

For centuries, they and their ancestors tilled the rich valley soil…digging canals to bring water where it was needed. They go about on foot. Horses are rare; they are not needed.

Up in the mountains, people almost live on their horses. They are herders, not farmers. And they are accustomed to hard living, with cold temperatures and fierce winds.

They are different people. The Spaniards arrived in the Calchaquí Valley in the 16th century. They quickly took up with the local girls and produced a mestizo race.

Down here in the valley…where the Spanish presence was more pronounced…the people appear more European than those in the high country, and softer, like the easier climate of the valley floor.

‘No…I’ve never been over to those mountains,’ said Antonio, who has lived here his entire life.

‘But I’d like to go too…’

Antonio walks, he doesn’t ride

More to come…

Regards,

Bill Bonner