Photo Credit: Dunk ???? || Aside from the last election, I can’t think of a worse pair to choose from.
I wrote a piece 4.6 years ago to kvetch about the lousy choices in the 2016 Presidential Elections. It is no better today in political terms, and times are worse in prospect now.
Whereas the last post focused on individual choices, and why it is stupid to look to politicians to increase prosperity, this one is going to point to a grimmer reality. We are headed for a crisis, and the following parties are out of touch with reality:
- The far left
- The far right
- Trump
- Biden
- Congress, inhabited by the permanent government of the Purple Party
- The grand majority of the media, which is innumerate, and economically illiterate
- The American people generally
You can’t get something for nothing. You can’t print or borrow prosperity. Prosperity comes from producing products or services that other people want. Everything else is a sideshow.
These are realities that the next President and Congress will bump into, regardless of who is elected:
- We will begin to run into borrowing limits.
- We will begin to experience inflation — at least, poor people will experience inflation. DC doesn’t care about poor people. They will only get alarmed if inflation affects the middle and upper classes.
- Monetary policy will either prove impotent, or it will take over areas that properly belong to private banks, leading to favoritism in the provision of credit.
- Municipal pension funds will see their funding levels deteriorate. Medicare’s funding will deteriorate. So will that of Social Security.
- Some major currency will experience a crisis. It may not be the US Dollar. It might be the Euro, Yen, or Yuan. Personally, I think the Euro is structurally the weakest, but seeing a major currency fail will set the world on edge, and make everyone ask what currency defines value.
Ask yourself this: who cares about the long run? I don’t see anyone among major politicians who cares about the long run. This is the sort of behavior that exists prior to a revolution. Self-interested parties bicker with one another over short-term matters, while long-term problems are ignored.
Now, many people, including the editors of Barron’s praise the Fed for being a guardian of the economy while Congress and the White House bicker. Nothing could be further from the truth. The Fed has been complicit with the government by not letting recessions clear out bad debt, and forcing Congress and the Executive Branch to own up to their foolish policies.
Instead, the Fed has encouraged public and private debt to the degree that bailouts by the Fed and Congress MUST happen, or we will get a depression. And as a result, will they finally begin monetizing the debt of the US Government directly, so that we can have severe inflation? That may be the only way to get rid of the debt, but will it create a revolution en route?
Friends, the promises of venal politicians are catching up to us. The unwillingness to have stable policies like balanced budgets, which work really well if adhered to, are a remote dream of our parents.
Okay, we may not have a crisis by 2025, but a crisis is coming, and with most crises, the weakest are hurt the most. To that end, the Democrats should be the most cautious about deficits, but the short-term governs politics.
To that end I will say that your vote doesn’t matter. There are bigger economic forces that will constrain politicians, and the same result is coming regardless of who is elected. The Republicans and Democrats are a duopoly which should be abolished, and they cooperate together for bad policy that harms average people in America.
PS — the far right and the far left in the media live to create fear. They lie to their bases to stir them up. Don’t listen to them. Economically and politically, the truth is in the center, if we will ever remember to run balanced budgets, and not run profligate monetary policies.
Your articles are always measured and rational. This one is scary and rational. How is the average person supposed to protect himself from the coming debacle?
David, this “debt and QE will kill us” has been the conventional view for over 30 years but nothing seems to have happened in the US. I think the world economy and geopolitics are a complex and chaotic system that no one can fully predict. Also the recessions that “clear out bad debt” are not without their costs – especially for the poorest. The late 19th century had many of those with 15-30% unemployment. Are we ready to bear that as a society anymore? I think not. So the current approach of kicking the can is probably the least worst option; it keeps you in a game where you don’t really know how many innings remain to be played. 5 or 500.
Jay,
I have no idea how this will end up. Steve Hanke thinks inflation is already ticking up when he looks at M4. Personally, I think the Euro could face a currency crisis before the US dollar does.
I know that what I wrote is the conventional view. But every boom is somewhat self-fulfilling until prospective liability cash flows exceed asset cash flows — which in this case will likely be when inflation finally rises and sticks, because the Fed might not act to kill off a recovery.
Worse presidential choice: Nixon vs. McGovern- a paranoid vs a pandering, appeasing socialist. There are others that are worse than 2020 choices.
The US constitution sets up the government so it “can’t help you” too much. It’s a feature not a bug.
A minority of one major party has people who are numerate, economically educated, etc. I vote with them (in hopes that some of this knowledge will find its way into their governing.)
However, the elite establishment definitely doesn’t want to “help you”, unless you are (very) rich.
I have a question about inflation — When economists measure inflation they account for quality improvement (e.g. improved technology), but they do not account for quality degradation. I wonder if today could we already be experiencing a significant inflation due to the fact that consumer items do not last like they used to — E.g., clothes, appliances, furniture, etc.? E.g. boots that used to last 20 years must be rebought several times in the same timespan today. Is this kind of thing significant enough to affect inflation overall?
I have three articles where I go over my misgivings about inflation statistics. Here’s a link:
https://alephblog.com/?s=hedonics
You highlight another area where applying hedonics would be tough. Having raised eight children, with clothing, it lasted very different amounts of time with each child. When they got older, ome wanted larger wardrobes,
some were minimalists... the minimalists wore out their clothes more quickly. The same may apply to tools as well. Aside from some of my boys that broke my tools and didn't tell me, tools that I alone used lasted a long time. The same applies to electronic gadgets -- my kids would wear them out rapidly, while everything that my wife and I used typically lasted well past the average useful lifetime. I could give more examples.As people of integrity always must: with thrift, prudence, patience, and faith. Oh, and be sure to diversify: “Give portions to seven, even to eight, for you do not know what disaster may come upon the land.”
Thanks, Doug.
Launching a revolution is easy. Governing after you “win” is really really hard.
Neither presidential candidate will have a mandate, whomever “wins” the election it is statistically a tie. Both parties are heavily divided within themselves, to say nothing of the country as a whole. The central banks are out of effective bullets. Trump, Biden, pelosi and McConnell will not be of this earth to repay the debts they created — trump is the so called youngster at 74.
The FBI is run by people who think the law only applies to those outside the beltway — if the DoJ doesn’t respect the law, why would anyone else? Why shouldn’t everyone flaunt the law just like the DoJ and FBI?
The real strength of the USA are (were?) millions of mom and pop shops and restaurants and services… all in ruins because an arrogant bureaucrat Fauci wanted his 15 minutes of TV time, being a bureaucrat, fauci didn’t lose his job and won’t no matter how badly he messes up.
The beltway is in no position to govern, regardless of who “wins” the election.