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Here you have the central defect of the monetary and fiscal authorities who presently afflict us:
There we cite Mr. Lance Roberts of Real Financial Advice. More from whom:
The conclusion is clear as gin: The Federal Reserve and the United States government constitute active monetary and fiscal menaces.
That is, their botchwork is not merely a passive negligence, passive incompetence. It is an active negligence, an active incompetence.
With this bunch running the show… whence will growth originate?
The Broken Keynesian Multiplier
Since the Great Financial Crisis the monetary and fiscal authorities have conjured over $43 trillion from the great void of nothingness.
Within 24 pandemic months alone, the Federal Reserve plucked — from the same vast void — 50% more dollars than all dollars that ever existed in 256 previous years of American history.
Each of these dollars are representations of debt… as are all dollars under the present monetary arrangement… such as it is.
Since the aforesaid Great Financial Crisis the United States economy has expanded a cumulative $4.05 trillion.
That is: The economy can boast merely $4.05 trillion of growth for the $43 trillion of debt it has taken aboard.
That is: Each dollar of growth required nearly $11 of debt-financed stimulation.
As we have argued in multiple instances, the Keynesian “multiplier” — the promised miracle of water into wine — is reduced to a sad, sad jest.
It has been proven the false magic of a false prophet.
Thus the miracle of water into wine yields vinegar. How did the nation arrive at such a dismal pass?
The Long, Twisting Path to Insolvency
The long and meandering roadway stretches to the Great Depression. The way became clearer in 1971 — when old Nixon scissored the dollar’s remaining gold tetherings.
But after 2008 all obstacles were cleared away…
Anti-inflationists yelled that the trillions and trillions of quantitative easing would yield a terrible inflation.
It did not — the anti-inflationists were yelling wolf— and disinflation prevailed for the following decade.
Meantime, doomsdayers shrieked that ballooning deficits would reduce the economy to wreckage.
Yet doomsday never dawned. The economy pegged along at a languishing gait, yet it did peg along. It did not wreck.
And so the inflationists and the spenders took tremendous heart. Why stop now, they bellowed? The doomsdayers have been wrong in every particular.
A Dream Come True
They believed they could fabricate a near infinity of dollars without inflationary evils and tally fantastic deficits without economic destruction.
With all seeming checks removed, they carried on with staggering and predictable abandon.
Turn a child loose in the candy store. Turn a drunkard loose in a liquor store. Turn a thief loose in a bank vault.
Now you have the taste of it.
When the pandemic flattened the economy in 2020 the federal government proceeded on a scale truly stupendous.
The previous decade’s experience instructed policymakers that inflation was a phantom menace and that interest rates would remain caged — regardless.
Mr. Brian Riedl, senior fellow with the Manhattan Institute:
No Free Lunch
But the iron laws of economics will reimpose themselves in time. The child’s candy is not free. The drunkard’s liquor is not free.
The diner’s lunch is famously not free.
Soon or late the bill comes slamming upon the table. And that time may be now. That is, the era of “free-lunch economics” may be through. Riedl:
Nor was there ever.
Little Reason for Hope
Will Congress return to reality… and accept the honest costs of lunching?
We harbor very little confidence that it will. And why should we? Where is the evidence?
Prior even to the pandemic, the Congressional Budget Office estimated Congress would need to hack the budget 10% per year.
The hackings, twinned with tax hikes, were the only route back to fiscal health.
Can you imagine Congress spending 10% less money each year?
As we have written before: The pig in his sty will first sprout wings and take to the aerial ways.
Nor will Congress raise the necessary funds to keep the show going.
Thus debt — already a millstone heavy upon the neck — will weigh more and more.
It will form an impossible drag upon growth.
A Grim Lesson
Average annual growth of 3% or more was common before the great gale of 2008 blew on through.
Growth averaged a mere 1.7% from 2008–2021. Meantime, CBO currently projects American economic growth to gutter along at an average 1.8% per annum for the next decade.
As we have maintained before: A slight falling off from one year to the next may not appear dramatic — and it is not dramatic.
But multiply the business by five years, 10 years, 20 years or more.
You will acquire a grim lesson in the meaning of compounding interest — negative compounding interest.
If America does not lick its debt, it is a lesson it will learn plenty good… and plenty hard.
Alas, its monetary and fiscal authorities labor under the fiction that the solution is even more debt…
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