Who Was Ever Really Helped By Free (Fake) Money?

‘I wouldn’t panic. Investors should stay in the long term. Goldilocks is alive and well.

Current Presidential Economic Advisor
Larry Kudlow on 11 December 2007

‘Coronavirus is well contained.

Kudlow on 25 February 2020

SAN MARTIN, ARGENTINA — We considered writing a special April Fool’s issue of the Diary. But nothing we could think of was as sensational as actual events.

After its surprise attack on Wuhan in December, the virus has now spread its deadly invaders throughout most of the world.

Everywhere, governments call out the troops, lock down their cities, and fortify their borders.

Still, the enemy is showing rapid gains.

The number of casualties in the US is already greater than those in China, and the number of cases in the greater New York City area are more than those in China’s Hubei province.


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The financial toll

Current estimates suggest that around 240,000 Americans will die from the disease.

Every year, about three million Americans die. So that’s only an 8% increase. But while the death toll rises modestly, the financial toll soars.

Here’s the latest from CNN:

The economy is cratering deeper than we have seen in our lifetimes. Layoffs are coming so quickly, the state unemployment offices can’t keep up. Banks are flooded with calls about upcoming mortgage and loan payments. Downtowns are deserted, malls are closed, bars are empty, and airplanes are grounded.

A sudden stop in the economy so severe, Goldman Sachs economists now forecast real GDP growth of negative 9% in the first quarter and down an astonishing 34% in the second.

The biggest economy in the world has stopped.

And it might not start up anytime soon. Here’s more from Bloomberg:

Beyond that, there is an array of questions for economists to grapple with and those doubts increasingly undermine projections for what’s known as a “V-shaped recovery,” in which lost output is quickly restored.

Rather than sounding a decisive “all clear,” health authorities seem likely to advocate a gradual return to normal working life, so the behavior known as “social distancing” may stick around.

Along with financial blows sustained during the downturn, that is likely to damp spending on travel or spending at shops or restaurants assuming those businesses can stay afloat in the first place.

Tight noose

The ‘war’ against COVID-19 will end. But with a whimper, not a bang.

There will be no decisive battles. No returning troops. No victory parades. No confetti. No pent-up demand. No post-war boom.

Instead, fear of the virus will linger. And so will an even bigger fear of what the feds might do next.

Companies will be reluctant to rehire. Consumers will be reluctant to spend. Renters will be unable to pay their rent. Homeowners will call their banks to delay mortgage payments. Small business owners will throw in the towel.

Meanwhile, the noose around all of their necks grows tighter. They fall behind in payments — for loans, cars, houses. And money grows scarce.

Credit card interest rates are rising. So are mortgage rates. Forbes:

According to data released this morning from the Mortgage Bankers Association, interest rates on 30-year fixed-rate mortgage loans averaged 3.82% over the last week—up from 3.74% the week prior and 3.29% at the start of the month.

It is not the virus that will do the most long-lasting damage. It is the Feds’ war against the win-win economy.

And here, the fog of war grows dense…

Lost in the smoke

Why — in light of this calamity — is the federal government undermining its own finances by printing up more than $2 trillion in emergency ‘relief’? How does that help?

What’s this fight really about? How do we hope to win?

Lost in the smoke is any clear strategy or fragment of common sense.

Supposedly, to counter the molecule’s advance, the feds have attacked the economy itself.

They’re blasting away at honest savers, balanced budgets, trust, real price signals, true money…and all of the other things that make a real economy work.

And not just with temporary closures and social distancing. They’ve opened fire with monetary and fiscal bazookas, larger than any ever before seen in human history.

The Fed is ‘printing’ $125 billion a day. And the government is handing out money all over town.

In addition to the $2.2 trillion CARES Act, Donald Trump is proposing another $2 trillion for infrastructure.

Money for businesses. Money for bridges.

Money for Democrats. Money for Republicans.

Money for people who work. Money for people who don’t.

Money for the Kennedy Center for Performing Arts.

Money for cronies. Money for chiselers and scoundrels.

Even help for sunscreen makers.

This time is not different

We remind readers that every penny is ‘printing press’ money that no one ever earned or saved.

So ask yourself: Do you know anyone who was ever really helped by free (fake) money?

A lottery winner? A welfare recipient? A poor foreign country?

As far as we know, giveaways have never done an economy any real good. All they do is cause mischief. Instead of getting back to work, people angle and connive to get the dead presidents.

But almost everybody thinks that this time…in spite of the entire historical record to the contrary…it will be different.

And here at the Diary, we’re still stuck on the theory behind it.

Imagine an island, half of whose citizens have been killed by a tsunami. The survivors pick through the rubble. They salvage what they can. They bury the dead. They prepare to get back to work.

The island had a total money supply of only $2,000…but half of it has been swept away. Their government, gracious and good, comes to the rescue. It prints up another $1,000 and hands it out all over town.

How does that do anyone any good? Do the losses disappear? Do the dead come back to life? Does the weather improve?

The extra currency merely confuses the picture…like a smoke grenade…giving some people a windfall, while others (savers…creditors) step on the Feds’ landmines.

The whole spectacle is breathtakingly absurd. And alarming. We only hope to live long enough so that one day we’ll be able to laugh at it.


Bill Bonner,
For The Rum Rebellion

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries.

A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally.

With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.

Bill has been a weekly contributor to The Rum Rebellion.

The Rum Rebellion