Accident Ahead!

The feds stumble and fumble toward a massive pile-up for all...

(Source: Getty Images)

Bill Bonner, reckoning today from Dublin, Ireland...

A joke told by our priest in church:

A woman sees on the news that a car is driving the wrong way on the freeway. She calls her husband, who is on his way into town.

“Watch out, dear,” she says. “Some idiot is driving the wrong way.”

“Are you kidding?” he replies. “There are dozens of them. All going the wrong way.”

Going the wrong way can be fatal. And highway rules are often cited as evidence for the need to get everyone going the same way.

How you do that is the dot we’re trying to connect today. Why it matters will be obvious soon enough.

When the feds cut supply (shutting down the economy in the Covid Panic), and then boosted demand (printing up new money and passing out gimmie/stimmie checks) what would happen next was almost a foregone conclusion – prices would rise.

An Obvious Observation

This was not ‘rocket surgery;’ it was just the most basic and obvious observation. The only people who couldn’t see it were those who were paid to be blind – those at the Fed, the Treasury Department, and on Wall Street. Bloomberg:

Treasury Secretary Janet Yellen gave her most direct admission yet that she made an incorrect call last year in predicting that elevated inflation wouldn’t pose a continuing problem.

“I was wrong about the path inflation would take,” Yellen said in an interview that aired Tuesday on CNN. “There have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that at the time I didn’t fully understand.”

It took Ms. Yellen many years of higher education (Brown, Yale, Harvard, the London School of Economics) and 23 years feeding at the federal trough to miss the point. For her, formerly Fed chief and now US Treasury secretary, it was like knocking down houses and then being surprised by homelessness. 

And yet, this is the woman – along with Jerome Powell – who is supposed to guide the US to a ‘recovery.’ How likely is that?

We made a slightly more subtle point yesterday: that an economy is not circular… it is linear. It never really ‘recovers’ anything. That is, it never goes back “to what it was.” Time only goes one way. An economy too. Once the sun has set, the day is gone forever. And an economy never recovers from the damage inflicted by people like Janet Yellen; it simply moves on the best it can.

Stumbling and Fumbling

But what is happening in the US economy goes way beyond Madame Yellen’s stumbling and fumbling. It is more basic than the Fed’s falsifying the cost of capital… or the deficit spending of the federal government. It goes to the heart of how wealth is created – and to how people end up on the wrong side of the road.

As we noted last week, ultimately, people become richer by working, inventing, saving… and so forth. The more they are left alone, generally, the more wealth they create.  

We’ve seen, too – in many examples (the Soviet Union comes rushing to mind) – that you can’t force the issue. You can’t just command people: ‘get to work; make us wealthier.’ And if you could trick them into it – by holding down interest rates…or printing money – there would be a lot more rich people in the world.

It’s not quite that simple. There are rules you must follow if you’re going to have a wealthy society. But they are not commands – neither by Josef Stalin nor by Janet Yellen. The rules that allow people to get richer are not decrees from dictators, nor laws passed by Congress. They are vernacular rules that people follow because they help them all get where they want to go.  

Consensus vs Command

In the US, for example, people drive on the right side of the road. Here in Ireland, they drive on the left side. People cannot decide for themselves which side of the road to drive on. Some cannot drive on the right and some on the left. They all have to agree. And then, the person who bucks the trend and drives on the ‘wrong’ side of the road is a menace to himself and everyone else.

There are other important rules too – don’t steal, don’t kill, say ‘please’ and ‘thank you,’ don’t counterfeit money, don’t lie. These are ‘consensus’ rules… that people follow because they help us all get where we want to go. Are they sometimes ignored? Are there rule breakers? Of course… some people will always end up on the wrong side of the road.

Some people end up on the wrong side of the law, too. But more interesting is that  the law sometimes ends up on the wrong side of ‘the people.’

You can pass a law to back up a consensus rule. But without a consensus, the law is merely a command. It doesn’t help people get where they want to go… it forces them to go somewhere else. Not back to an economic ‘recovery,’ but somewhere they don’t want to go.

More to come…

Regards,

Bill Bonner

Joel’s Note: Bonner Private Research subscribers know that Investment Director, Tom Dyson, has set the dial to “Maximum Safety Mode.” Traffic conditions are, shall we say, “challenging,” with drivers swerving every which way. Best to pull into a rest stop and wait out the jam... with plenty of cash, gold (plus some silver) and other hard assets.

Paying subscribers can expect Tom’s weekly market update to hit their inbox later this afternoon. Not on the list? Jump on board, here, for just $2/week (for now)…