“Something Will Have to Give”

“Something will have to give.”

So the International Monetary Fund warns us.

Yet what must give? And why must it give?

These are the questions that seize our attention today. Reports Bloomberg:

The International Monetary Fund leveled an unusually direct criticism at U.S. policymakers Tuesday, saying the country’s recent standout performance among advanced economies was in part driven by an unsustainable fiscal policy.

“The exceptional recent performance of the United States is certainly impressive and a major driver of global growth,” the IMF said in its annual World Economic Outlook. “But it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability.”

Washington’s overspending, the report said, risks reigniting inflation and undermining long-term fiscal and financial stability…

Thus a substantial portion of American prosperity is false prosperity.

It is a dependent prosperity — dependent — that is, upon tricks.

The fiscal and monetary authorities are the false magicians yanking rabbits from top hats, sawing damsels in two, catching bullets in their teeth.

The Enraptured Audience

The audience — in this example Wall Street and the financial media — roars in gobsmacked astonishment.

“The Fed nearly has inflation licked,” they shout. “The economy is roaring,” they yell. “The stock market is a-boom,” they shriek.

The magician’s gasping audience fails to perceive the deception in back of the appearing rabbit, the bisected damsel, the dentally ensnared projectile.

Deep within it does not even wish to know the false sorcery behind them.

It cares only that it is entertained. It simply wants a show.

So do Wall Street and the financial media want a show. The fiscal and monetary authorities are providing them one.

The audience fails to perceive that existing economic and stock market prosperity is false magic.

It comes issuing from the trillions and trillions of dollars the United States government has conjured into existence within recent years.

Prior to the 2020 deliriums, the United States government never dispensed more than $4.4 trillion in any year.

Yet the United States government distributed $6.82 trillion in fiscal year 2021… $6.27 trillion in fiscal year 2022… $6.37 trillion in fiscal year 2023 and $6.8 trillion in fiscal year 2024.

Not Rocket Science — or Magic

Is it a wonder — then — that the gross domestic product has taken a jump?

Is it a wonder that the stock market has undergone a levitation?

We hazard strongly these are no wonders whatsoever.

They are simply the hocus-pocus of the monetary and fiscal authorities.

And if the false Merlin in present occupation of the White House has his way… the United States government will dispense $7.3 trillion in fiscal year 2025.

That is, the United States government would fan into circulation 66% more money than in pre-delirius 2019.

$7.3 trillion can spin loads of superficial magic.

Yet as the stage magician’s magic is no magic whatsoever, the monetary and fiscal magic on present display is no magic whatsoever.

It is sleight of hand.

The showman thrills his audience with gaudy economic and stock market delights, yes.

But backstage, behind the concealing curtain, squats the source of his tricks.

It is a print press, frantic, whirling at speeds truly dizzying.

It is his talisman, his power fountain.

$1 Trillion of Debt Every 100 Days

To keep the show going and the audience a-thrill… the United States government is piling on a fresh $1 trillion of debt each 100 days.

Thus the audience — presently enraptured — is enduring a silent fleecing.

“So what?” says the showman — and his applauding audience.

“Wolf-criers have been screaming about debt and deficits for 40 years. Yet the wolf has never appeared. Why should it now?”

Yet economist Daniel Lacalle detects a menacing wolf on the prowl:

Those who ignore the accumulation of public debt tend to do so under the idea that nothing has happened yet. This is a reckless way of looking at the economy, a sort of “we have not killed ourselves yet; let us accelerate” mentality.

An ever-weaker private sector, weak real wages, declining productivity growth and the currency’s diminishing purchasing power all indicate the unsustainability of debt levels. It becomes increasingly difficult for families and small businesses to make ends meet and pay for essential goods and services, while those who already have access to debt and the public sector smile in contentment. 

Why? Because the accumulation of public debt is printing money artificially.

When money is created in the private sector through the financial system, there is a process of wealth creation and productive money creation. The financial system creates money for projects that yield a genuine economic return… That is the process of productive economic growth and progress. 

Only when the central bank manipulates interest rates, disguises the cost of risk and increases the money supply to monetize unproductive deficit spending can it distort this process.

That is, when the central bank performs magic tricks.

Alas, This Magic Is Real

Yet in one sense its magic is real — it has levitated the nation’s debt to an ionospheric $34.6 trillion.

And the magic is working it into space.

Mr. Lacalle continues:

When the fiscal position is unsustainable, the only way for the state to force the acceptance of its debt — newly created currency — is through coercion and repression.

A state’s debt is only an asset when the private sector values its solvency and uses it as a reserve.

When the state imposes its insolvency on the economy, its bankruptcy manifests in the destruction of the purchasing power of the currency through inflation and the weakening of real wage purchasing capacity.

The state basically conducts a process of slow default on the economy through rising taxes and weakening the purchasing power of the currency, which leads to weaker growth and erosion of the middle class, the captive hostages of the currency issuer.

“Something will have to give.”

When precisely something will give, we do not know.

Time to Let the Daylight In

No, we do not know when something will give. Yet we do know that a stout and sturdy economy does not require magic tricks.

We likewise know that the monetary and fiscal magicians in present operation wield no authentic magic.

We have penetrated their whim-wham.

We know where the rabbit is concealed, how the damsel appears sawed into halves, that a rocketing bullet is not caught between the teeth.

“We must not let daylight in upon the magic,” said 19th-century Englishman Walter Bagehot.

Shining daylight upon the magic is the magician’s highest fear.

Yet it is time to shine the daylight upon this one.

It is time to bombard this illuminated illusionist with decaying fruit and assorted missilery.

It is time — above all — to chase him from the stage…