Tuesday, October 20th, 2026
Bill Bonner, from Ardmore, Ireland
[Tariffs] are paid by parents trying to provide for their families. They are paid by students saving up to buy their first car. They are paid by anyone who seeks to spend money on any conceivable product.
—Rand Paul
Two big surprises coming your way. But first, the news.
Amidst the misery and mystery of last week came a report on tariffs. Washington Post:
The New York Federal Reserve released a study last week about the effects of tariffs on prices. As it turns out, by February this year the import taxes that Trump announced in 2025 “contributed 2.9 percentage points to goods price inflation,” the issue that remains the top concern among voters. Without the barrage of tariffs, the New York Fed says, “goods prices would have fallen slightly.”
Perhaps it is because tariffs hit businesses (who pay the levy directly to the feds) first, producers are being whacked by much more inflation than consumers. This from Wolf Richter:
Inflation in prices that businesses pay each other and charge each other – tracked by the Producer Price Index (PPI) – accelerated to 6.3% year-over-year in September, the worst inflation in the realm of businesses since December 2022 (red in the chart).
Inflation has been far more aggressive for businesses than for consumers, though it has also been getting worse for consumers: The Consumer Price Index yesterday accelerated to +3.7% year-over-year. GDP tracks inflation that all economic participants face – consumers, businesses, non-profits, and governments.
Tariffs make a nice target. Partly because they are stupid and partly because they don’t work. Fox:
Manufacturing — the industry the tariffs were intended to help — fared particularly poorly, according to the damning report. Researchers estimate the sector lost roughly 75,000 positions during the policy’s first year, or about 6,250 jobs per month.
“We can say with an over 90% confidence level that manufacturing lost jobs because of the tariffs,” Richard Stern, vice president of the Plymouth Institute for Free Enterprise at Advancing American Freedom, told Fox News Digital.
No surprise there. Modern factories do not just sell to foreigners...they buy raw materials from them too. Tax their inputs and their outputs go up in price. That’s how producer prices rose 6.3% over the last twelve months.
Nor did tariffs reduce the trade deficit. CEPR:
By December [2025], the deficit had risen back to $100 billion a month, roughly the same as the pre-election level. The deficits have increased sharply again in 2026, driven in large part by a surge in semiconductor chips due to the AI boom. The August level of $132.6 billion is the second-highest deficit on record, topped only by last year’s March deficit.
Tariffs are a self-imposed problem that is easy to fix. Just drop them. Tout de suite. Problem solved.
Inflation itself is easily solved too.
Just eliminate the tariffs and put the government on a pay-as-you-go basis...including paying down the debt. No borrowing. No funny money.
Why not? Every farmer, widow, and half-wit voter can do it.
But not if they can avoid doing it. And not when they still think they can ‘inflate the debt away.’ You might as well ask the wolf to give up meat for Lent.
This is where the first surprise comes in. The kind of inflation they see coming — slow, mild, house-trained inflation, at…say…the Fed’s 2% target rate — will work tolerably well...but only so long as the accumulated debt remains under control. The upward limit seems to be about 100% to 130% of GDP.
Thanks to Joe Biden and Donald Trump, who together added $20 trillion to US debt in the last ten years, we have reached the death zone. Now, even small increases in interest rates can spin out of control. Deficits cause borrowing, which causes higher interest rates, which raises the feds’ budget, which causes them to borrow more. As Tom points out, the “inflate” part of ‘inflate or die’ no longer rescues you...it finishes you off.
Investors and consumers are already alert to the swindle. They expect it — but at fairly civilized rates...certainly, less than 10% per year. Surprise number one is that inflation — that adorable pet curled up in front of the fire — will go feral. Maybe next year. Maybe ten years from now. It will eat your lunch. Your dinner. The furniture. Wolf-like...monstrous...and ravenous, it will devour your savings.
‘Hyperinflation!’ the press will shriek. ‘No one saw it coming.’
This will cue the Treasury for the second big surprise. The dollar will be devalued, perhaps 100 to 1. Or perhaps a new form of money will be inaugurated...invented by Elon Musk; it will do back-flips...and land in your bank account. AI-enhanced, crypto money — we will be happy to get it! The feds will declare your ‘old’ dollars void and worthless...an empty gesture, since it will have already become worthless.
The president will make the announcement, crossing his heart and hoping to die if ever again we see such high inflation. Most surprising of all, many voters will believe him.
Regards,
Bill Bonner
Bonner makes an important point, one that echoes an observation from his earlier book Family Fortunes: “Sometimes, credit, confidence, and centralized political authority expand. Sometimes they contract.”
That may be the most overlooked danger in today's debt debate: **the tipping point is not a fixed debt-to-GDP ratio. It is a matter of confidence. And confidence is notoriously difficult to measure until it begins to disappear.
Yet politicians behave as though we are comfortably far from the danger zone, even though nobody can reliably tell us where it begins. Worse, confidence can evaporate much faster than it was built.
Politicians always have an imperative to postpone painful decisions, while the consequences accumulate beyond the next election.
The fact that we cannot see the cliff is precisely why we should be more cautious, not less.
No sensible redress of our nation’s financial destiny will occur during this Administration