“Right here, boys! Right here! Get your cake, pie, dill pickles, and ice cream! Eat all you can! Be a glutton! Stuff yourselves! It’s all free, boys! It’s all free! Hurry, hurry, hurry, hurry!”
– Pleasure Island voiceover, Walt Disney’s Pinocchio (1940)
Welcome to Pleasure Island!
Have you received your stimulus check yet? If so, have you considered how to use it?
Will you stash it in your savings, pay off debts, or clear some bills? Perhaps you’re thinking of investing in popular stocks, cryptocurrencies, or unique digital NFTs?
Or maybe you’re contemplating splurging on a new iPhone, fancy dinners, a getaway to Cabo, or even a lavish new living room setup with a giant flat-screen TV?
The collective decision individuals make regarding their stimulus money will significantly impact consumer price inflation, asset inflation, and deflation.
Billionaire investor Warren Buffett suggests using your stimulus check to “pay off credit card debt.” His reasoning is practical:
“If I owed any money at 18 percent, the first thing I’d do with any money I had would be to pay it off. You can’t go through life borrowing money at those rates and be better off.”
However, the last thing Federal Reserve Chairman Jay Powell wants is for you to pay down debt. This action is deflationary, shrinking the money supply.
Powell’s aim is to boost both consumer prices and asset values, allowing long-term public and private debts to be gradually diminished by inflation. He desires a consistently high stock market, vital for the retirement plans of millions of Baby Boomers.
Congress perpetuates the illusion that stimulus money is free, encouraging you to indulge and feast. They want you to consume and support expansive government policies.
Welcome to Pleasure Island! According to 2021 laws, free money—along with free education, food, and drugs—is now perceived as a human right. Just don’t ask about the hidden inflation tax or the severe repercussions…
A Nation of Donkeys
“If we play our cards right, we’ll be on easy street! Or my name isn’t Honest John!”
– J. Worthington Foulfellow, aka Honest John, Pinocchio (1940)
You could opt to invest your stimulus check in high-risk assets. If you bet on the right stock, cryptocurrency, SPAC, or NFT, you might see a return that multiplies your investment by ten or even one hundred times. As Honest John suggests, success could lead you to an easy life.
The allure of free money is undeniable, promising a life free from labor and limitations. Once a society has tasted Pleasure Island, there’s no turning back. The temptation of unearned wealth can quickly become an insatiable desire.
But beware: Pleasure Island is no paradise; it’s a trap. Those who indulge too much fall victim to a grave curse. In Pinocchio, the boys who misbehave become donkeys.
First, they sprout donkey ears, then a tail, followed by a furry head. Soon their laughter transforms into braying, their hands and feet morph into hooves, and their ability to speak is lost. Ultimately, they end up on all fours.
But there’s more! These donkeys are collected, stripped of their clothes, placed in crates, and transported back to the mainland, where they’re sold into labor in salt mines.
Over the past two decades of aggressive monetary policy and multiple stimulus rounds, America has transformed into a nation of donkeys, afflicted by the curse. Europe, China, Japan, and many other nations have faced similar consequences from their own monetary experiments.
Moreover, the purported purpose of the American Rescue Plan Act is misleading. It has little to do with COVID-19 relief but more with extensive giveaways:
- Pension fund bailouts ($86 billion).
- State, local, and tribal government bailouts ($350 billion).
- Transportation provisions ($62.9 billion), including a new $2 billion windfall for Amtrak.
- Agriculture relief ($10.4 billion).
- Cybersecurity funding ($3.67 billion).
- Rental assistance ($21.6 billion).
- Homeowner assistance ($10 billion).
- Funding for colleges and universities ($40 billion).
- Extensions of unemployment benefits and stimulus checks (extensive amounts).
- And much more…
Hee-haw? HEE-HAW!
The Great Donkification
“Go too far. Stay too long. Can’t get back.”
– Words of an old preacher
The U.S. national debt has surpassed $28 trillion. The budget deficit for the fiscal year 2021 is projected to reach nearly $3 trillion, financed by printing money—the Federal Reserve creating credit from thin air and loaning it to the Treasury.
Hee-haw? HEE-HAW!
After two decades of intense monetary interventions and numerous rounds of stimulus checks, the economy has developed a dependency on these measures. Institutions, individuals, and businesses have entered a state of “donkification.” The path back to economic normalcy is fraught with risks.
The choices are stark: either voluntarily halt the continuous credit expansion and face an immediate crisis or expand credits further and court a catastrophic downfall of the dollar system.
Hee-haw? HEE-HAW!
This week, the Fed reaffirmed its commitment to donkification—leading the path to the total collapse of the dollar system. Following the recent FOMC statement, the Fed intends to keep the federal funds rate near zero until at least 2023. Furthermore, it will continue generating credit from thin air to purchase $80 billion per month in Treasuries and $40 billion in mortgage-backed securities (MBS).
Hee-haw? HEE-HAW!
But what’s this? Are the obstinate donkeys now hindering Powell’s grand aspirations?
On Thursday, against Powell’s hopes, the yield on the 10-Year Treasury note surged past 1.75 percent. This places us a mere 30 basis points away from disaster. Anticipating this, the NASDAQ tumbled over 400 points.
Hee-haw? HEE-HAW!
This illustrates the plight of the great donkification. The path to redemption could come at a significant cost.
Sincerely,
MN Gordon
for Economic Prism
