Who's Sorry Now?

With $50 trillion bound for monetary heaven, who's shedding a tear at this funeral?

(Source: Getty Images)

Bill Bonner, reckoning today from Poitou, France...

Who's sorry now?
Who's sorry now?
Whose heart is aching for breaking each vow?
Who's sad and blue?

Who's crying too?

~ Snyder, Kalmar, Ruby

News flash: Inflation ain’t licked yet. Breitbart:

Bidenflation Keeps Going: Inflation Edged Higher in July

The personal consumption price expenditures (PCE) price index rose 3.3 percent in July compared with 12 months earlier, the Bureau of Economic Analysis said Thursday. This was the first acceleration in PCE inflation since April and follows the three percent reading in June.

And the Daily Mail:

Inflation gauge preferred by the Fed rises to 4.2% as housing and healthcare costs increase

The key question for us all is: what next? Will inflation pick up? Will it decline?

There is $95 trillion in outstanding debt in the US, of which about $50 trillion is ‘excess’ – debt that probably can’t survive a complete interest rate cycle. One way or another, much of that $50 trillion will die – either from inflation or deflation. 

In anticipation, today, we look ahead…that is, we put on a dark suit and gather at the gravesite. We want to see who’s there...and who’s heart is breaking.

Weeping a the Grave

We’ve already seen that excess debt is a mistake from the past. (The Fed left its key rate too low for too long…resulting in way too much debt.) But trying to fix it with inflation undermines the future. Unstable prices damage the whole economy.    Real wages can’t keep up. Investment in long-term wealth-building industries disappears. Growth rates go down. The middle class shrinks. People get poorer.

But we also know that letting the debt bubble die (deflation) hits the rich and powerful especially hard. They’re the ones who own financial assets. When prices go down, they lose wealth.

One way or another, there’s about $50 trillion that is headed for money heaven. It can go quickly, in a bust. Or it can go slowly…in an inflationary frazzle.  

So, who will be there, mourning…a handkerchief quietly mopping the tears…with the smell of lilies wafting through the air? Is that an Italian suit…a Chanel handbag? Or an outfit from Target, a get-up last worn 20 years ago…when mother died?

Who are these people weeping at the grave? Who’s sorry now?

If we had our druthers, they’d be the rich men north of Richmond. They were the ones who gained the most from the Fed’s ‘mistake.’ Those to whom much has been given can damned well give it back.

According to Statista, the two richest areas in the US, by household income, are…wouldn’t you know it…just north of Richmond. Maryland – home of so many federal employees – has household income of $97,000. Washington, DC, is just behind with $90,000 per household.

In 1971, taken altogether, household, business and government debt toted to less than $2 trillion. And they were red-blooded, reliable, gold-backed, cigarette-smoking bucks back then. But then, the feds ‘transitioned’ the dollar. The next we knew it was a strange, unnatural thing; we hardly knew what to make of it.

The Great Divide

Soon, there were more and more of these funny-money dollars than ever before.   And you can guess where they went. 

Here are the remarkable figures, from former White House budget director, David Stockman:

In 1989 the collective net worth of the top 1% of households weighed in at $4.8 trillion, which was 6.2X the $775 billion net worth of the bottom 50% of households. By Q1 2022, however, those figures were $45 trillion versus $3.7 trillion, meaning that the wealth differential was now 12.2X.

In round numbers, therefore, the top 1% gained $40 trillion of wealth over that 33-year period compared to the mere $3 trillion gain of the bottom 50%. Stated differently, there are currently 65 million households in the bottom 50%, which have an average net worth of just $56,000. This compares to the 1.2 million households in the top 1% which currently sport an average net worth of $38,000,000.     

If the Fed were to let the credit bubble ‘die’…much of this $38 million per rich guy would go away. Write downs, defaults, bear markets and bankruptcies…the rich would take the losses they deserve.  

They measured their wealth not in the real output of the Mainstreet economy, but in the inflated currency of Wall Street. If Paul Volcker were still at the helm of the Fed, he might have something to say about it. In the early ‘80s, he took the air out of the whole system – with a 20% Fed Funds rate – and restored faith in the dollar.   Before he was finished, inflation was beaten and stocks were at their lowest prices ever. A similar move today would separate the rich from much of their ill-gotten gains. Each of the 1% might end up with only $20 million or so. Sniff. Sniff.

“At least they (dead asset values) didn’t suffer for too long,” the grieving relatives would say to each other. “When the end came…it came quickly.” 

By 1983, the inflation rate in the US had dropped to 3.2% – lower than it is today.  It was quick work. And successful. The US economy boomed for the next two decades.  

But we are dreaming, aren’t we?

Death by Policy

Inflation? Deflation? These are largely (though not completely) policy decisions.  And policy decisions are made by the rich men north of Richmond.  

And our guess is that it won’t be they whom we will find gathered in the cemetery.  It won’t be their money that dies. Instead, they will choose the first option…the tried and true panacea of mismanaged governments through the ages – inflation.   And then, try to picture the mourners.

No Italian suits. No Chanel handbags. No Mercedes in the parking lot. No fulsome stock portfolios…no huge capital gains. We are talking about Middle America, not the 1%. They will pay more for milk and cheese…and houses…and autos.

They, the people whose savings got ripped off by the Fed’s low interest rates…whose wages went nowhere for half a century…whose jobs were shipped to China…whose bedrock values were mocked by the elites…

…their heads hung low…their wallets empty…they will pay higher consumer prices to keep the elites’ asset bubble inflated.

Regards,

Bill Bonner