Week 23 of the Quarantine
SAN MARTIN, ARGENTINA – “You better come look at this,” said Elizabeth this morning.
Out in the field, a cow was lying down, bloated. Its legs were sticking out, not folded under, as they normally are.
We went out for a closer look, taking a kitchen knife with us (as instructed by our foreman), but hoping we wouldn’t have to use it.
As we approached the cow, we saw its legs were rigid and its belly was very swollen. “Hinchada,” say the locals.
But it was too late. We felt its neck. It was cold. Stiff. Its eyes rolled back, blank and motionless.
“We lost another one,” we told the foreman when he got here.
Not Normal
So far, four of the cows we brought down from the ranch have died. Up at the ranch, they die of hunger. Here, they die from overeating.
“He shouldn’t have died; it’s not normal,” the foreman assessed the situation gravely. “I’m going to get the vet to look at him. Find out what killed him. I don’t think it was the alfalfa. Not this time of year.”
In the springtime, the alfalfa is rich and fulsome. Cows are not allowed in the fields. It is too strong for them.
But in the winter (we’re in the Southern Hemisphere), the plants are dried out and, normally, pose little risk.
To be safe, we drove the cows into their corrals for the night.
Birdwatching
Meanwhile…
Little-noticed in the financial news was this report from RTTNews:
U.S. Consumer Price Growth Exceeds Estimates In July
Core consumer prices showed their biggest increase since January of 1991, partly reflecting another jump in prices for motor vehicle insurance, which skyrocketed by 9.3 percent in July after spiking by 5.1 percent in June.
Prices for shelter, communication, used cars and trucks, and medical care also increased in July, while prices for recreation declined.
The biggest price increase in 29 years might be newsworthy. Or it might not. A single swallow does not a summer make. Nor does a single month of exuberant price increases mean that consumer price inflation is on the wing.
But today, we’re birdwatching.
And the first fowl we look at is that strange bird, Trump’s former chief strategist, Steve Bannon.
Mr. Bannon was headline news yesterday. The champion of the “little guy,” and mortal enemy of the evil Chinese, was arrested aboard a Chinese billionaire’s yacht.
Naturally, the liberal media went wild… claiming that he had defrauded thousands of little guys in a GoFundMe scam. Contributors had sent money to build a wall between the U.S. and Mexico. Steve, it appears, thought he had better uses for the money.
In that regard, he would surely be right. “The Wall” – along with the rest of Bannon’s jackass distractions – was always a goofy idea. For the last 10 years, more people have been leaving the U.S. to enter Mexico than the other way around.
Consequences
And in Lionel Shriver’s novel, The Mandibles – which we reviewed a couple of years ago [Bonner-Denning Letter readers can read it here] – “The Wall” is eventually built… but it is put up by the Mexicans to keep out fleeing Americans.
In the future, as imagined by Shriver, America is not just a failed state… but a miserable one, with out-of-control inflation, millions of desperately poor people, and a Lockdown/Lockup government determined to keep a lid on.
Today, we look at why Mr. Shriver may be right.
That is, we are looking at the consequences of the economic lockdown and the reckless money-printing that came after.
The feds (including state-level functionaries) shut down the parts of society that produce wealth… (for no good reason; the wealth producers – typically aged 20-65 – are more likely to die from accidents than from COVID)…
…and then, they blew up the money supply to try to offset the losses.
We looked at one of the consequences yesterday – Apple rose to a $2 trillion market cap earlier this week.
Another obvious consequence – gold is hitting record highs. Colleague Tom Dyson’s gold-trade portfolio, released just last May, has already returned 20%… with one of his picks up over 200%.
[To sign up for Tom’s Portfolio, click here.]
Huge Scam
We’ve seen that a determined central bank – the Federal Reserve – really can boost stock prices. As prices rise, it appears to create “wealth.” No one objects. Instead, people think it is a sign of success.
But it is a huge scam. The Fed is just doing what government always does – take money from one group and give it to another.
In this case, the money goes mostly to the richest 10% of the country, and comes – eventually – from the public, when consumer prices rise.
The Fed has been inflating asset prices for the last 30 years… becoming more and more reckless about it… and making rich people a lot richer than they ought to be. Were the Fed to stop supporting Wall Street with ultra-cheap credit, stocks and bonds would fall immediately.
But driving up consumer prices is entirely different from goosing up asset prices. And what we haven’t seen – yet – is a sustained increase in consumer price inflation.
And it has the opposite result. Higher stock prices make people feel rich. Higher consumer prices make them feel poor.
Consumer price inflation usually results from fiscal stimulus – overspending and deficits by the government, supported by money-printing.
Classic “helicopter money” giveaways – such as the $1,200 checks sent to Americans in April – put money in people’s pockets. But they don’t necessarily spend it. They could choose to save, rather than spend.
And cheap imports can lower prices, even as the money supply increases. In effect, Americans can export their inflation to foreign countries.
Overseas nations – Argentina is a good example – often have higher inflation than the U.S. They use the dollar as a backup, a more stable currency, further absorbing America’s excess money-printing.
Two Ingredients
There are two main ingredients in the consumer price inflation stew – the amount of money… and the rate (the velocity) at which it changes hands.
In a recession, consumers earn less and spend less, lowering the velocity of money.
The feds can add money at a furious pace… and prices can still go down. For a while.
But the more “support” they provide, the more money the feds need to print to keep the jig going. Consumer spending, jobs, payrolls – all come to depend on it.
Impossible to Stop
And then, just as it can be hard to get consumer price inflation rolling, once underway, it can be almost impossible to stop it.
Curbing deficits will be impossible – the voters, the insiders, the cronies – everyone will be desperate for dollars.
And even if you could stop the money-printing, it wouldn’t necessarily stop price increases.
When people begin to lose faith in the dollar, the main source of inflation switches from the quantity of money to its velocity.
That is, the trillions of dollars – which had been stored in banks, foreign accounts, mattresses, household savings – all come out into the open. People want to get rid of them as fast as possible. Prices – stocks, houses, tools, cars – all take off.
Then, the end is in sight. The feds have lost control completely. The disaster runs its familiar course…
And America begins to look a bit more like the catastrophe Steve Bannon helped create… and Lionel Shriver described…
Weimar without the cabarets. A banana republic without the bananas. A sh*thole without the sh…
Well, never mind.
Regards,
 |
Bill
Like what you’re reading? Send your thoughts to [email protected].