If you earn a wage, are enjoying retirement, or simply trying to save, your financial stability is in serious jeopardy.
Years of hard work and saving could be obliterated in a matter of years. In fact, the mechanisms leading to this potentially grim reality have already been activated.
Many influences are in play, but currently, the predominant factor is the enormous amounts of money being printed by the Federal Reserve and the U.S. Treasury.
Chairman Jay Powell and Secretary Janet Yellen are collaborating to ramp up the money supply in unprecedented ways.
This is affecting market valuations across the board—from copper to digital NFT art—in bizarre and unexpected manners. But what is truly fueling this relentless money printing?
It must be more than just progressive agendas disguised as recovery from the pandemic.
So, where do we start?
The U.S. national debt provides a compelling starting point. Currently, that debt exceeds $28 trillion. But is that number truly as daunting as it seems?
To put it plainly—$28 trillion is an astronomically large figure, even in the current day and age. We can gauge its enormity not just by counting the zeros, but also by our everyday experiences as consumers. You could buy a tremendous amount of goods and services with $28 trillion. In truth, it’s such a staggering number that it defies easy comprehension.
However, that amount may not be as intimidating now as it was in 1950. Back then, $28 trillion represented an even larger relative burden. It was almost inconceivable.
The Crime of the Century
The crux of the matter is that, in a world where paper dollars serve as legal tender, the significance of $28 trillion is relative. With aggressive policies aimed at debasing the dollar in full effect, the meaning of $28 trillion will shift dramatically over time.
What if we could manipulate the way we perceive $28 trillion, making it appear considerably smaller?
What if, through careful manipulation, we could effectively reduce that towering figure to something resembling $2.8 trillion?
A national debt perceived as being similar to $2.8 trillion would be far more manageable for policymakers. It could potentially transform the U.S. national debt to GDP ratio from over 130 percent down to a mere 13 percent.
This may sound far-fetched, but it has happened before…
One of the hidden goals behind the Fed’s monetary policies is to inflate the debt down to size. Powell may not voice this directly, but his actions speak volumes.
What might surprise you is that the strategy of dollar debasement has previously served to bail out the U.S. government during the 20th century. Powell and Yellen appear poised to replicate this “crime of the century” once again.
Remember that in 1946, following World War II, the U.S. national debt to GDP ratio stood at 118 percent. By 1981, it had fallen to just 31 percent. However, it has climbed steadily since then.
Dynamic economic growth in the 1950s and 1960s contributed to this decline, but the more significant factor was dollar debasement. If you consult the Bureau of Labor Statistics’ own Consumer Price Index (CPI) inflation calculator, you’ll see that $1.00 in January 1946 possessed the same purchasing power as $5.16 in December 1981. Conversely, $1.00 in December 1981 could buy what $0.19 could in January 1946.
Thus, over this 35-year span, the dollar lost a staggering 81 percent of its value. Four-fifths of its worth was effectively eroded by the Fed and the Treasury’s actions. That’s nothing short of criminal.
A Critical Flaw in the Powell-Yellen Inflation Strategy
As demonstrated, dollar debasement strategies enabled a significant portion of the national debt to diminish. Yet, achieving this result exacted a heavy toll.
To prevent gold from fleeing American shores, the U.S. government severed the gold window at the Treasury in 1971. This unspoken default effectively ended the Bretton Woods agreement, leaving America’s trading partners in the lurch.
“The dollar is our currency, but it’s your problem,” asserted Treasury Secretary John Connally to bewildered European officials during the G-10 meetings in 1971.
After Nixon detached gold from the global monetary system, the money supply could expand unchecked. For U.S. consumers, this resulted in rampant inflation. Conditions deteriorated swiftly.
By 1980, the CPI soared to 13.5 percent, while the yield on the 30-Year Treasury hit 15 percent. Fed Chairman Paul Volcker was forced to raise the federal funds rate above 20 percent to curb inflation completely. The price of gold skyrocketed from $35 per ounce to over $800.
Volcker’s actions may have temporarily salvaged the dollar. Still, they didn’t resolve the debt dilemma; instead, they set an unstable foundation for an even greater debt burden to arise.
Now, we find ourselves in a precarious situation. Another implicit default is required to reconcile the Treasury’s finances.
Amidst the deception and baffling circumstances is a fundamental flaw in the Powell-Yellen inflation strategy…
How can policies intended to debase the dollar and diminish the debt ever succeed when these same measures are responsible for the very escalation of that debt?
And this, dear readers, is precisely why we face a grim outlook.
Sincerely,
MN Gordon
for Economic Prism
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