Springtime for Flimflam

St George slays the dragon. Source: Getty Images

Wednesday, October 7th, 2026

Bill Bonner, from Ardmore, Ireland

I used to have this girlfriend known as Elsie
With whom I shared four sordid rooms in Chelsea
She wasn’t what you’d call a blushing flower
As a matter of fact, she rented by the hour

The day she died the neighbors came to snicker:
“Well, that’s what comes from too much pills and liquor”
But when I saw her laid out like a queen
She was the happiest corpse I’d ever seen

—Cabaret

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Willkommen, bienvenue, welcome...to Weimar, America.

For two weeks, we’ve been wrestling — like St. George armed with his lance — with the great inflation/deflation dragon. We’re pretty sure we have it pinned now...or else it has us pinned!

In a nutshell, the more you inflate...the cheaper things get in real terms. Recall that at the peak of Germany’s hyperinflation delirium of 1923 an American tourist could buy 4.2 trillion marks with just one gold-backed dollar. Everything was available to him at a deep discount. Literary Hub:

Newspapers published shocking depictions of their [foreigners’] luxurious lives—“glitzy parties, feasts, masquerades, balls, dance parties,” at which the lady guests ostentatiously displayed their cheaply purchased pearls and furs.

Humiliated, journalists wrote about how the foreigners gorged themselves at copiously laden tables, got drunk on the most expensive champagne and then availed themselves of the newly unemployed shorthand typists, now known as “currency girls.”

The US will try to ‘inflate away’ its outsized debt, just like Germany did. Inflation is always the scalawag politician’s first choice. It’s a tax increase he doesn’t need to vote for.

But tidy, controlled, post-WWII-inflation won’t work.

Because the feds add to the debt faster than moderate inflation can erase it. At this year’s 3.4% inflation, the real value of federal debt went down by $1.36 trillion. But...Reason reports:

Fiscal year 2026 ended last week, and while official figures aren’t out yet, it looks like the federal government spent $2 trillion more than it took in. The federal government hasn’t balanced its books in 25 years, a $2 trillion deficit adds to already staggering national debt and looming disaster.

Inflation at two to three times the Fed’s target is now expected. Despite Kevin Warsh’s stated intentions, they will let it ‘run hot’ to burn up some of the nation’s trash pile of unpaid bills.

But investors are not fools. Or, at least they are not fools all the time. Yahoo! Finance:

Perhaps the biggest story in the markets over the past month has been the meteoric run-up in US Treasury yields, putting increasing pressure on the US economy.

But the challenge is not just in the US — the global bond complex remains deep in a sell-off as governments stare down surging energy prices, booming deficits, a shifting US tariff regime, and economic growth running hot despite a number of headwinds.

And here’s the Wall Street Journal looking at how this trend is playing out in France:

A dangerous financial spiral.

The global surge in interest rates has exposed the country, once considered an oasis of relative stability in Europe’s financial markets, as one of the continent’s weakest links. France now pays more to borrow than former crisis hot spots like Greece and Italy. Its government is running a budget deficit surpassed only by the United States among its peers.

“France has been this free rider in Europe for years, if not decades. It has gotten away with fiscal murder,” said Kevin Thozet, a portfolio adviser at the French asset manager Carmignac. “It worked as long as people were not noticing. Now people have started to notice.”

Like April in Paris, there is the ‘good’ season for inflation...a springtime for the feds’ flimflam, when the green shoots of inflation help lower the real value of debt.

Later, there’s the bitter winter season...when the economy turns brown and shrivels up, as inflation raises the cost of borrowing faster than it shrinks what is owed.

It is at this stage that the only kind of inflation that will still ‘work’ is the kind Americans don’t expect, have never seen, and have no antibodies to protect themselves against — hyperinflation.

That is the big picture. At best it is a fair guess, a medium confidence hunch, about what will happen over the next ten years. If correct, hyperinflation will be accompanied by the usual disastrous foreign and domestic policies, designed to distract the public from the financial wreck at home and keep the dollars headed to the enforcers. Expect bread and circuses, with the circuses louder and the bread pricier than ever before.

You can expect a crash in the stock market, too, taking the Dow down to our ‘buy’ signal, at five ounces to the 30 Dow stocks. Stocks – along with pills, booze, and ‘currency girls’ -- will be a bargain...thoroughly deflated by inflation, even if their nominal prices are out of this world.

So, willkommen!?

Berlin in 1923. Violence, chaos, riots, crime and decadence. The world had never before seen so much funny money…while so many people went were left poor and hungry. But that was just the beginning of the misery hyperinflation caused. Goebbels’ right-wing activists declared war on the left-wing activists – the Roter Frontkampferbund. You know who won.

Regards,

Bill Bonner