GUALFIN, ARGENTINA – First, we discover that inflation here in the Andes is worse than we thought…
Economist Steve Hanke in Forbes:
[Last week] Argentina released its February inflation statistics. Inflation spiked, again. Indeed, the official annual inflation rate jumped to 51.3%/yr.
While this spike caught most observers off balance, it didn’t surprise me. Each day, I accurately measure Argentina’s inflation using high-frequency data and Purchasing Power Parity theory. By my measure, Argentina’s annual inflation rate is 100%/yr. That’s nearly double the official rate reported for the end of February.
What’s it like to live with 100% inflation? So far, so good. Yesterday, we organized an “asado” for the ranch.
An asado at Gualfin
It’s Too Late
But let’s get back to business. We were looking north of the 49th Parallel. The Canadians managed to come to grips with their government debt, noted a Dear Reader.
Why can’t we?
Here, we give you three reasons:
It’s too late.
Our insiders don’t want to.
It’s not the way of the world.
As to the first point, the time to pay down debt is when the economy is running hot. That was the situation (roughly) for the last four years, when the Fed should have normalized rates. And the feds should have cut spending.
The first barely began… the second, not at all.
The Obama team just went right along with all the goofy spending programs it inherited from the Bush years – from Afghanistan to Albany – adding an open-ended medical giveaway program to boot. And then the Trump crowd just kept going… but faster.
The last year of Obama’s reign saw a deficit of “only” $587 billion. That seems modest, even sensible, when compared to Trump’s $1 trillion deficits.
Mr. Trump came into office promising to “drain the swamp” and to “pay off the debt.” Neither of those things happened, either. Instead, The Swamp has gotten deeper and the debt has grown by $2 trillion.
And now, by July, this recovery phase – if it lasts that long – will be the longest ever recorded.
“Never say never.” The expansion could last a few months longer. But don’t bet on it. And any “tightening up” now – either with higher interest rates or lower deficits – will likely tip the economy into recession (where it is headed, anyway).
That is why the Fed decided to “hold the line,” yesterday. There will be no further rate hikes this year, it said. It sees the economy weakening; it doesn’t want to get the blame for the coming downturn.
So, it’s too late. The sweet spot – the expansion between 2014 and 2018 – is over.
Which brings us to the second reason a “save” is almost impossible. Neither party… and no major presidential hopeful… worries about debt.
Just look at the news. You’ll find claptrap about Mueller… or a presidential tweet about someone who is married to one of his lieutenants… or the latest bogus unemployment number.
But almost nothing about debt. Like war, people don’t care about it until they lose…
And show us the politician who wins the White House by promising to cut the voters’ benefits, raise their taxes, and end military boondoggles all over the planet?
He doesn’t exist. And Fed governors? Where is the Paul Volcker or Maggie Thatcher of 2019, who will stand against the howling mob and say: “The lady’s not for turning”?
Doesn’t exist, either.
Instead, the Fed says it is “data dependent.” As soon as stock prices go down, in other words, the Fed turns… tucks tail… and runs for the cover of lower rates, QE (quantitative easing) Redux, and who-knows-what-jackass-monetary hijinks it might get up to.
And, finally, we come to reason No. 3: that ain’t the way things work.
The U.S. is now an empire. It is controlled by a class of insiders (aka the Deep State), who benefit from government spending and debt.
They send troops all over the world, financed by debt, which makes them feel like big shots… and rewards their crony friends in the weapons industry.
They offer free education, free medical care, welfare, income redistribution, and every other cockamamie Bread and Circuses program to keep the mob satisfied – also financed by debt – and it helps them stay in power.
A small nation – such as Canada – that didn’t have the world’s reserve currency… and didn’t aspire to be the world’s hegemon… and where people had a realistic idea of what was being spent and why… and a residual sense of shame… might be able to buck its insiders.
But an empire? Its insiders have been corrupted by power. They don’t turn around… they don’t stop and ask themselves: “Are we doing the right thing?” They don’t say “please” or “thank you.” And they don’t abide by the rules of a civilized, win-win society… not even the financial rules.
Instead, they lurch and stumble… from embarrassment to absurdity to catastrophe… until they are defeated… or go broke.
ECONOMIC INSIGHT: GDP GROWTH HAS FLATLINED
By Joe Withrow, Head of Research, Bonner & Partners
The Federal Open Market Committee (FOMC) just announced that it foresees no rate hikes in 2019… Which is no surprise to regular readers of the Diary.
Bill has long written that the Fed would never stick to its policy of “normalization,” and that the central bank would likely reverse course at the first sign of trouble.
What’s gotten less press is the Fed’s projection for GDP growth… which has flatlined, as well.
Today’s chart maps the Fed’s projection for GDP growth going back to 2009 – when the dust from the financial crisis began to settle.
As you can see, the Fed projected GDP growth of nearly 2.7% annually, from 2009 to 2011. But its projected GDP growth plummeted to 1.9% by 2016… And that’s where it has remained.
And the Fed hedges this projection by saying it assumes “the absence of further shocks” and “appropriate monetary policy”…
In other words, 1.9% is the Fed’s rosiest projection for GDP growth, as long as everything goes right for all of us.
This is important because President Trump’s 2020 budget projects yearly deficits of more than $1 trillion per year… Presuming GDP growth of 3% and no recession out to 2030. But as Bill mentioned on Tuesday, the likelihood of either of those things happening is slim.
Come the next crisis, Bill suspects rates will be slashed, GDP growth will plunge, and government debt will explode.
And that means we can expect deficits that far exceed $1 trillion in the years to come.
As we have said before, exploding deficits can only result in one of two things: higher inflation or higher taxes.
Or, most likely, both.
– Joe Withrow
P.S. Bill’s not the only one who sees trouble brewing. Legendary speculator Doug Casey is predicting that the U.S. economy is headed for the next “big one.” And the fallout will be far worse than falling stocks. With the next crisis, Doug sees a breakdown in society… a tech-fueled police state… and a shooting war with a foreign superpower.
That all might sound too incredible to believe. But Doug Casey isn’t a man known for pulling his punches. See for yourself why Doug is expecting the worst, and what he’s recommending you do to prepare, right here.
No More Rate Hikes… And Wall Street Couldn’t Be Happier
As Bill wrote above, the Fed “held the line.” The decree from America’s central bank: no more rate hikes this year. Our editor suspects the Fed’s decision spells trouble down the road. But, at least for now, Wall Street is celebrating.
Wanted: 3,732 Female Executives
California has a new law. Most large companies in the state must have at least one woman serving on the board of directors by the end of the year. By 2021, they’ll need three. California was the first state to implement such a rule. But others could soon follow.
This Is the Next Space Race
Two of the world’s great superpowers are in an all-out race for global dominance of one type of technology… And Bill’s go-to tech expert, Jeff Brown, reveals the next big trend you won’t hear from the mainstream media. One that’s already pervasive in our everyday lives… and one that most investors are overlooking…
In today’s mailbag, readers continue to hash out if capitalism has failed us…
I believe the demise of pure capitalism came with the manipulation of government by rich people, businesses, and bankers controlling the government to make rulings that benefited them, instead of the masses. Imagine what would have happened if that had been in place in Henry Ford’s day. The carriage makers, whip makers, carriage wheel makers, the stable owners, the farmers who grew the grain to feed the horses, etc., etc., would have gone to their bought and paid-for politicians and demanded that these dangerous, noisy, polluting cars be banned forever. But that was not in place, and people liked cars and replaced horses and buggies. Win-win deals! Term limits could possibly be a way to drain the swamp!
– Dean H.
Hey, Bill. It’s always a fun read. Trickle down is the same pipe dream as tax the rich… neither works. They sell newspapers and sound bites but it’s complete folly… Follow the money and then do the calculation on 50% tax on the rich for redistribution. I laugh, and yet, straight faces sell both of those points of view. What about when the Pentagon is too big to audit? Thanks to Nixon, no wonder we are headed for a currency devaluation.
– Tim C.
It is not capitalism which is failing, it is the American educational system (and the system of most of the western world), which, especially in the colleges and universities, increasingly teaches the ideals of socialism. Those ideals are superficially fine, but lacking in realism. They rest on the principle of something for nothing – of the right of individuals to exist comfortably, without needing to make any real effort to justify their existence.
The reality of existence, as exhibited in the animal world, is tooth and claw. Capitalism is the human effort to civilize that in a way which benefits most of us, while admittedly leaving those who make little real effort, in the dust. Education which teaches idealism while de-emphasizing tooth-and-claw reality does its students a horrible disservice. It leaves its students without the mental and emotional background to prosper in the real world. Something for nothing is a gamble, and leads to what most gambles lead to: loss and eventual death.
– Chuck B.
When are the Democrats going to learn? Americans want the Second Amendment! Americans will vote for anyone (Trump) to save the Second Amendment!
– William C.
The conversation turns back to the ranch at Gualfin, as one dear reader responds to last Friday’s essay…
I got a kick out of seeing your godforsaken property because it brought back memories of when we used to travel the Rocky Mountain states. In fact, one of the pictures from your message looked a lot like our trip from Boulder City to Laughlin, Nevada. That was about 90 miles but it was the longest 2.5-hour drive we ever made, due to the stark desolation of the landscape and mountains. I often wondered what someone would do if he had car trouble or ran out of gas. Back in 1976, there were not too many cars on that road, especially after dark.
– Rick W.
IN CASE YOU MISSED IT…
Doug Casey is about to go live with what he sees coming for America in 2019 and beyond…
On Wednesday, March 27 at 8 p.m. ET, Doug is sharing five controversial predictions in the world premiere of Totally Incorrect: LIVE.
We must warn you… If you’re easily offended, this isn’t for you. Click here to reserve your spot now.