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Monday, September 21st, 2026
Bill Bonner, from Ardmore, Ireland
We’ve been using “inflate or die” as our model for the path of the crisis. I’m retiring the model. “Inflate or die” is no longer valid. The model has turned into “die or die.”
—Tom Dyson
We begin the week on a sepulcher note. Death awaits us all. And the Bubble Empire too.
The Bubble, however, is still alive and kicking. But Mr. Trump’s excuse for a financial advisor — Pete Navarro — is already laying the blame for its demise — on Kevin Warsh. The Hill:
Peter Navarro says Fed’s rate raise is ‘a bad decision’
In a nutshell, Navarro wants more inflation...and he wants it before lunch. He thinks a little more gin in the punch will keep the party going a bit longer — at least until after the midterm elections.
Warsh thinks we should all get some exercise instead.
‘Inflate or Die’ was merely a policy choice. The feds had no other option. They could keep the music playing by inflating the bubble, further and further...with more fake money and lower interest rates. Or, they could pull the plug and let it deflate, sag, and die a natural death.
Either way, the end result was a corpse. The ‘die’ option was simply faster...more dignified, and more controlled. Hitting the ‘inflate’ button, on the other hand, led to chaos, disruption, corruption, re-election, depression...and often, to war...before ending in death anyway.
Inflation makes it possible for you to spend money that doesn’t exist on things you can’t afford. At a certain point, though, you just can’t afford anymore inflation. Only then will politicians give up on it. Which is why Navarro can relax. He’ll get his inflation...and get it good and hard.
Here’s how it works. You ‘print’ an extra dollar...and people take it up, say, at a 5% discount. Then, you ‘print’ another one...and another one. Each one is taken by the marketplace at a larger discount, until...the discount is more than 100%!
Sounds absurd. But eventually, the fake money has negative value.
When that happens, printing more money just makes things worse...real values go down, not up.
You run a restaurant. You serve a decent meal for $100. Then, with a little inflation, it goes to $120...then, to $200...and $1,000. You’re not making more money; you’re just trying to keep up with inflation. But at some point, traders give up on dollars. Then, the price tag — even if it is $100 trillion dollars — is actually worth less than your original $100 menu price.
Inflation upsets the economy. It distorts prices...causes financial ‘mistakes’...impedes investment...reduces output...and makes people crazy. Most people have less spending power...so ‘demand’ falls. Real things become cheap — in real money. We looked last week at how houses and automobiles have become very cheap — in gold terms. Labor has become very cheap too. In 1999, the median household earned 145 ounces of gold per year. Now, it earns barely 20.
Paper money always knows where it is going...and always gets there. $1,000 bills blow down alleyways; no one stoops to pick them up. Just since 2020, the dollar has lost 23% of its purchasing power. At that rate, around 2044, the dollar should be just about worthless. That is when it will be time to bring in the mahogany coffin; by then, the economy has already decomposed.
As we saw a few days ago, for many decades, the growth in US money supply has been two or three times greater than GDP growth. That will continue.
Given the ‘inflate or die’ choice, politicians and central bankers will almost always choose inflation, as long as they can get away with it. They’ll want to ‘kick the can’ down the road...making it someone else’s problem. Sometimes, however, they will stand firm, tighten up, and let the bubble die. That’s what Paul Volcker did in 1980. But that was when the US government owed less than $1 trillion. Now, the total is $40 trillion...with about $90 trillion more in private debt...and trillions more in federal obligations.
Today, the politicians still want to inflate. But now, they are trapped. Dying is too painful to contemplate. But living is not so easy either. The interest rate cycle has turned against them. They inflate by borrowing. More borrowing means more debt. More debt means more debt service (interest rates), which increases debt and requires more inflation.
This is why Tom says it’s time to update our ‘inflate or die’ dictum.
The whole problem is the dollar is overvalued...AND the government has made promises it can’t honor, many of which haven’t even come due yet. The debt has become such a crushing weight...that they cannot pursue either austerity (die) or more borrow and spend (inflate). Both paths lead to the same place...a gigantic default.
Now, there is no Volcker. And no Reagan to back him up. $39 trillion more debt on the feds’ books. And no way to deflate the Bubble Empire without striking the tents...firing the ringmaster...and sending the elephants back to the zoo.
Stay tuned.
Regards,
Bill Bonner