Pretty much ALL of our clients have been severely vexed by our present inflation and have turned to our staff for help in developing strategies to cope. All have asked “why is this happening ?” The answer has been with man for millennia; aptly codified by our good friend Uncle Milty:
Short and longer Versions respectively:
“Swingin” Dick Long — a master aviator and bandleader who has copious credits to his long and distinguished career–including as a Nobel nominated master economist–spent an initial portion his life teaching economics at his home university in Pittsburgh. We think he aptly distills the problem to its core:
“In the 70’s the scapegoat was labor unions–even under a democratic administration ! Today it’s Covid or ‘supply chain’ nonsense. As Milton Friedman succinctly described it, these are misdirections intended to deflect the weak minded from the obvious cause. The ONLY –repeat ONLY — entity which can cause inflation is a government or quasi-governmental entity (such as the Fed). None other. Period.
What has been happening for years is that our government has been spending well beyond its means. It has engaged in a charade of monitizing this debt–effectively through ‘vouchers’ (much like the Social Security trust fund did under Clinton)–with the Fed. While the Fed is technically a private corporation, its members are politically appointed and there is undue influence by this very fact. Keyensians have been appointed every single time through recent history; believing that it’s possible to get something for nothing which in economics is absolutely false and always has been.
One dollar of tax money is used to ‘seed’ or borrow five. The shortfall is made up in public borrowing and there’s no real concern towards ever paying down the principal (only service the debt). This is and always has been a very dangerous approach. While theoretically the government could default independently of the Fed, unfortunately the Fed is the largest holder of ‘collateral’ in the federal government–dollars of monetized debt. So if the central government defaults, it takes the money supply along with it. The only item that current politicians have been interested in is being able to service the debt–pay the interest on the huge bathtub of funded and non-funded liabilities. When private or foreign borrowing isn’t enough, our government has turned to the Fed to ‘lend’ it money in the form of dollar ‘futures’ (the practice known as monitizing debt). And the Fed has done this without reservation for decades.
When the Federal Reserve was established, the primary charge was to keep a dollar a dollar — with the secondary charge to promote commerce and stock market gain. While it’s theoretically possible to do this, in practice it’s not possible. The tie-ins between corrupt governmental officials and large corporations is just too strong. Senators and congressmen become millionaires not through salary or investment, but in supporting certain corporations and ensuring the money supply favors THEM. And in passing laws (with massive public spending) favoring one corporation over another. At some point, the money supply through the supposedly independent Fed is drawn in and when the public debt becomes too great it’s simply monetized. This isn’t an immediate threat; there’s a turning point where the money just kind of ‘sits there’ backing up vouchers of public debt for quite some time until called upon to when the tax revenue isn’t enough to support the interest on the public debt. And the money starts to come out all at once to cover the ‘bets’ that public officials have accrued–bets that, like CDOs, have no tangible backing in reality. The ONLY tool to reign this in is to hike interest rates–which further exacerbates the problem of servicing the public debt. If this isn’t done massive inflation occurs.
Which is what we are now seeing.
Unfortunately, the current regime’s solution to this is to accrue MORE public debt which is frankly insane. Not nutty aunt Harriet insane but James Jones insane.
What has kept inflation in check over the years is the dramatic increase in productivity through automation and more productive workers. When the economy booms, this can cover the shortfall in that taxes are completely sufficient to cover the interest on public borrowing. In fact, the ONLY way to power out of runaway inflation is THROUGH a booming economy. Which is what we had until Trump left office.
The present regime is hell-bent on pushing a communist agenda of strangling energy (without scientific basis in fact) and destroying commerce. This creates a double whammy in that now indigenous energy resources are ‘locked up’ through regulation–tripling costs–which then ripples through the system. So there IS no ‘supply chain’ issue; businesses were simply shut down through mandates and energy supplies locked up over the carbon scam. This inhibits competitive action necessary for a productive economy and results in an “Atlas Shrugged” style of economic death similar to how the FSU collapsed under its own weight–these problems are entirely self-induced.”
Which is what we see today.
What’s the answer ? It’s to completely unbridle energy assets and dump the ‘green’ or ESG crap. ESG is simply communism under another name. And we’ve ALL seen what communism does to people–it internally bombs cultures back into the Stone Age. Until economies are free to boom, inflation will rage.
Unfortunately, there IS no easy way to deal with the monetization of debt. Inflation is basically a hidden tax which hits lower and middle income families particularly hard. It destroys savings. It’s the government spending YOUR savings FOR you on boondoggles while making themselves–and their chosen benefactors– rich. There will be some pain. Interest rates MUST be hiked to prevent runaway hyperinflation; the present regime MUST get out of the way of widespread capitalism and energy exploration and development. We gotta make coal power plants, burn coal, drill here for oil, frack for gas, everything. By increasing supply we can start the foreign dominoes tumbling such that energy costs can come down to sane levels. And the oil ’embargo’ against Russia has only strangled the west–Putin has no problems selling his high priced oil to China and India–making a mint in the process. While ‘laundering’ the oil and gas through third party middlemen strangling the good guys. In fact, the present regime has been Putin’s best friend; to REALLY strangle him (if that’s the intent) the ultimate punishment would be to drill and frack AMERICAN oil and gas and collapse the energy prices–hitting him in the pocketbook.
If we continue down this path, the US is going to see famine and real people freezing in their homes. We are devolving our society back into the 19th century.
So we have been suggesting to our clients that they get all the durables they can to weather the storm and to be as well positioned as they can be as things hit. Hopefully, there will be a huge sea change in the political winds soon–but communism has been notoriously hard to defeat throughout history (in that weak minded people buy into the lie right up to a Jonestown style mass-suicide of their nation).
At D-J we think Dick’s spot on. We’ve advised our clients accordingly. Most of them already have all the tools they need–and are braced for a widespread decimation of the dollar and capital. One would like to think cooler heads would prevail, but we’re just not sure here. Scatter your resources amongst everything that has long term growth potential, and don’t put all your eggs in one basket. If you’re sitting on cash try to figure a way to put it into something tangible which can create income when the storm passes. Hold some gold, some stocks, some cash, some real estate, have tools, spare parts, and equipment (and know-how to do basic tasks yourself) and brace. If you’re voting for a democrat at this point you’re either an absolute idiot or suicidal miscreant.
We covered the mathematical certainty of the present regimes’ path pretty well in a previous article:
Blaise Pascal and Albert Eienstein fortell our future
We’d be remiss if we didn’t put in a shameless plug for Dick and his newfound band ! We really appreciate Dick’s consulting work and wish him and the band well. If you’re around when Swingin’ Dick rolls into town, go see him ! Feel free to check out his site if you have a chance.
Diatomaceous-Johnson 
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