Price Increases? Prohibited!

Old school rules, fatal conceits and the folly of "command economies"...

(“Price increases? Prohibited!” Belarus' President Alexander Lukashenko. Source: Getty Images)

Bill Bonner, reckoning today Baltimore, Maryland...

Yesterday came an amusing news item over the Reuters wire:

Belarus' President Alexander Lukashenko said on Thursday he was imposing a ban on consumer price rises in response to "exorbitant" inflation across the economy, state media reported.

"From today, any price increase is prohibited. Prohibited!," the state-run Belta news agency quoted Lukashenko as saying in a meeting of government ministers.

"It starts today - not from tomorrow, but from today, so that prices cannot be inflated during the course of today," Lukashenko said.

“Well, that ought to fix that,” joked our colleagues Dan Denning and Joel Bowman.

‘How dumb can these people be’ is a frequent question here at the Bonner Private Research headquarters. We plumb the depths of it; but our cord is never quite long enough. 

Everybody knows that price controls don’t work. Always and everywhere, they are followed by shortages… and ultimately higher prices. But heck, it’s a New Era, right?

Old School Rules

In the 1990s, we were invited to Belarus to advise the government, after the collapse of the Soviet Union. We sat around an immense meeting table with some immense Belarusians, whom we took for the leaders of the new country. But after a few rounds of vodka, it was obvious to both sides of the table that we were ill-suited to the job. On our side, we had no clue what to tell them. And on theirs, they wouldn’t have been able to implement our advice, even if it had been good.

The old rules and patterns still applied. You still couldn’t get something for nothing… regression to the mean (going back to normal) was still a good bet… and the more government did to make things better, the worse they would get.

“Why don’t you guys just protect private property… back your money with gold… lock up murderers and thieves… and otherwise leave people alone…” we suggested.

But the context – a crumbling communist empire – was so different… surely, there was no precedent. Our advice went nowhere. And the inflation rate now in Belarus – 19%.

A lot of things in life – though not novel to history – are certainly new to us. You only die once, for example. You don’t get a chance to practice.  Or learn from your mistakes. Many people have done it before, but for you… this is your first time. You just have to do your best…

And in today’s markets, we have a whole new context. Completely new to anyone under the age of 60. You had to be an adult in 1980 to have seen anything like it.

Now, the Fed can no longer support the economy or the stock market; any attempt to stimulate them will only cause more inflation.

Let’s review.  

Fatal Conceits

We’ve all spent most of our lives in an age of plenty. After WWII, it seemed like it would be onwards and upwards forever. Growth, prosperity and progress seemed like they were in the bag.  

It was a period of great conceit too. Americans came to feel that they were a special people. “We see further,” is how the now deceased and very dispensable Secretary of State, Madeleine Albright, put it. We are the “indispensable nation.”  

The conceit grew out of power… and along with them both came fantasy thinking, corruption and debt. There was no war we thought we couldn’t win, though we won none. Overseas, we claimed the right, for us and for us alone, to invade, to assassinate, and to execute – no judge or jury necessary. And at home, we aimed to abolish poverty and to forbid the use of drugs that lacked FDA approval. 

The elite professed to be working for ‘equity’ and ‘diversity’ even as they grew further and further removed from the common people, whom they regarded as deplorable. They aimed to turn Iraq into an American-model democracy, complete with ATMs on every corner and Sunday night football. And though all their previous crusades ended in woeful failure, they still believed that they do the most remarkable things – turning women into men, and men into women… and adjusting the thermostat for the entire planet.

But it was money that undid them. Their boondoggles, illusions, and jackass programs were expensive. By 1971, the Nixon administration shifted to a pure-paper money system (with nothing to limit the quantity of money or protect its value) and the trap was set.

The New Old Era

The Fed and its member banks funded the federal government by expanding the money supply, lending out newly created dollars – especially to the US government. GDP growth slowed. But debt growth sped up. In 1980, US debt was still under $1 trillion. Now, it is $31 trillion… and growing fast.

By the 21st century, the whole economy was so tricked-up on debt and delusion that productivity declined. Real wages went down. The Fed pumped up financial assets… while ‘globalization’ brought China into the world economy to help keep down consumer prices.

Come 2021, and the gods seemed to turn against the USA. Consumer prices were rising at the fastest pace in 40 years. The Fed had to put its money-printing on pause. And later, when inflation didn’t disappear, it had to ‘tighten’ –  reversing the policies and profligacy that created the Bubble Epoch. No more bailouts. No more stimmies. No more zero interest rate lending. And no more bull market.

And here we are, in a ‘new era.’ It is new to most Americans. But it is actually a very old era. Every fake boom is followed by a bust. And every attempt to ‘print your way out of it,’ is followed by worse inflation.   

The best way out is to follow the advice we gave the Belarusians. They didn’t take it. Neither will the USA.

Regards,

Bill Bonner     

Joel’s Note: As you might have seen – and as we’ll delve into in this week’s Sunday Session – the US National Debt officially surpassed $31 trillion earlier this week. There’s a lot of hang wringing and finger pointing among both Republicans and Democrats, but they needn’t waste their energy… there’s more than enough blame to share between both parties.

It took the republic roughly two hundred years to amass its first $1 trillion in debt, a bar it cleared back in October, 1981. Since then, it’s been off to the races, with each successive president adding more and more to the total debt.

Reagan piled on $1.8 trillion… George H.W. Bush another $1.5 trillion… and Bill Clinton $1.4 trillion. Then came the heavy hitters…

Between 2001 and 2009, George W. Bush added $6.1 trillion to the national burden, before Barack Obama said “hold my beer,” and dropped another $8.3 trillion on top. Then came Donald Trump, the man who was going to march on down to Washington DC and “drain the swamp.” During his four years at the helm, the national debt grew by a whopping $8.2 trillion… almost as much as it did under his predecessor, only in half the time.

Then, when the moment came for Mr. Trump to leave office, sky high, multi-trillion dollar deficits were essentially par for the course…

So high had the national debt piled that it was almost impossible to see the peak with the naked eye. Earlier this year, in his State of the Union speech, Mr. Biden even crowed that he would be “the only president ever to cut the deficit by more than one trillion dollars in a single year.”

It was a bit like saying, “I’ll be the first ever smoker to reduce my daily intake by 100 cigarettes!” One had to be a serious addict in the first place in order to cut so much from the fix. And it’s not as though our aging smoker is a paragon of health…

The Committee for a Responsible Federal Budget estimates [emphasis ours]: “The Biden Administration has enacted policies through legislation and executive actions that will add more than $4.8 trillion to deficits between 2021 and 2031 [...] This is on top of the trillions of dollars we were projected to borrow before President Biden took office.”

$31 trillion is a big number, to be sure… but one gets the feeling we ain’t seen nuthin’ yet…