Will the Truth Really Set You Free?

“You shall know the truth, and the truth shall make you free” — John 8:32 informs us.

No, said Thomas Huxley. John was far from the facts.

“You shall know the truth,” countered Huxley… “and the truth shall make you mad.”

“Mad” is angry by one definition. By another it is lunatic. Both definitions may pertain today.

You shall know the truth about America’s finances… and it shall make you mad.

One-fifth of all United States dollars ever issued have entered existence within the past year.

One dollar in five ever issued — within the past year!

That fact may stagger you. It may flabbergast you. It may even appall you.

It will certainly madden you.

Meantime, the Federal Reserve’s balance sheet has expanded 80% since February last, from $4.1 trillion… to $7.4 trillion.

$82 Trillion in Debt

One enormity piles upon another. Consider:

United States national debt has leapt over 20% since last January.

That debt careens towards $30 trillion with each clack of the cuckoo clock. Then to $35 trillion, to $40 trillion… and beyond… to some distant oblivion.

Total United States debt, public and private, runs to $82 trillion. A mad $82 trillion — that is — for a $21 trillion economy.

But let us gaze briefly beyond these fair shores, to the world beyond…

Total global debt stacks to $277 trillion. Here we range towards figures beyond all comprehension.

The number 277,000,000,000,000 does not clarify. It clouds. It stupefies. It staggers. It dulls the critical senses.

It therefore requires… perspective.

8,777,576 Years!

Imagine the scene: A diabolical fiend orders you to print $1 each second of each day you live.

How much time would you require to print $1 trillion?

The answer is 31,688 years.

How many years would you require to print $277 trillion in $1 increments?

The answer is 8,777,576 years — nearly nine million years.

That is, to retire the world’s debt… you must clear your calendar for the following 8,777,576 years.

But your tormenter showers you with mercy. He reduces your sentence by 100. He permits you to retire the world’s debt with $100 bills… rather than $1 bills.

Thus your enslavement is reduced to 87,776 years of ceaseless agony.

Now you have some faint understanding of $277 trillion. A $100 bill per second will bring you to $277 trillion — after 87,776 years hard at the grindstone.

Yet we are informed $277 trillion of debt is inadequate to the world’s needs. The world requires madder wine, madder music… and madder men…

It requires additional debt.

“The Time to Go Big Is Now”

Treasury Secretary Janet Yellen has instructed her G7 fellows, “the time to go big is now.”

You are fully aware what going “big” means, of course — spending “big.”

Big spending must not be limited to pandemic relief. For the world’s needs are many…

The planet roasts. And the United States must help recalibrate Earth’s oven settings, explains Ms. Yellen:

“We understand the crucial role that the United States must play in the global climate effort.”

We do not know the precise number of dollars required to tinker the temperature dials. Yet we hazard the figure is handsome.

Madam Secretary further affirms the United States must aid the poorer countries clobbered by the pandemic.

A costly undertaking, again.

Where Does the Money Come From?

Where will Janet Yellen locate the monies to restore prosperity… to recalibrate the earthly temperature… to succor the world’s poorer nations?

She will not locate them in the national strongbox. The thing is empty — our spies have smuggled a look.

How then can the United States give out what it has not taken in?

It must go upon the borrow, of course, as is its custom.

It must plunge deeper into debt today so that it… and the world… will rise in wealth tomorrow.

Will the dose work the cure? It is unlikely. To understand why you must penetrate the “veil of money.”

Mr. Lance Roberts of Real Investment Advice:

While in theory, “printing money” should lead to an increase in economic activity and inflation, such has not been the case.

A better way to look at this is through the “veil of money” theory. If money is a commodity, more of it should lead to less purchasing power, resulting in inflation. However, this theory began to fail as Governments attempted to adjust interest rates rather than maintain a gold standard…

… beginning in 2000, the “money supply” as a percentage of GDP has exploded higher without a resulting rise in inflation or economic growth.

When Debt Turns Deflationary

But why little inflation or economic growth? Here Mr. Roberts lowers his axe to the root of the tree:

“Monetary policy is ‘deflationary’ when ‘debt’ is required to fund it.”

Does a greater paradox exist? The harder the Federal Reserve goes at inflation, the more elusive the target.

It is hell-mad for inflation. It gets deflation instead.

The bugaboo in this dreadful tale is monetary velocity — as Jim Rickards has documented in these pages.

As a man obese with blubber struggles to move… an economy obese with debt struggles to move.

The more calories the man hauls in, the slower his going. The more debt the economy hauls in, the slower its going.

More Debt, Less Growth

The economy has guttered along in low gear 20 years running. And for the reasons listed. Roberts:

In 2000, the Fed “crossed the Rubicon,” whereby lowering interest rates did not stimulate economic activity. Instead, the “debt burden” detracted from it.

With each monetary policy intervention, the velocity of money has slowed along with the breadth and strength of economic activity…

Despite perennial hopes that economic growth and inflation would arise from lower rates, more government spending, and increased “accommodative policies,” each iteration led to weaker outcomes.

To no surprise, monetary velocity increases when the deficit reverses to a surplus. Financial surpluses allow revenues to move into productive investments rather than debt service.

In an economy saddled by $82 Trillion in debt, the debt is no longer productive as more debt is issued to cover ongoing spending needs. This is why “monetary velocity” began to decline as total debt passed the point of being “productive” to becoming “destructive.”

Productive vs. Destructive Debt

Mr. Roberts distinguishes between “productive” debt and “destructive” debt.

Since 1980, he reminds us, debt has switched from productive to non-productive.

The lion’s take has gone to fund “social welfare” and to service existing de‌bt.

That is, debt has gone largely to non-productive uses. And so debt has pulled… rather than pushed.

Here Roberts cites Woody Brock’s American Gridlock:

Country A spends $4 Trillion with receipts of $3 Trillion. This leaves Country A with a $1 Trillion deficit. In order to make up the difference between the spending and the income, the Treasury must issue $1 Trillion in new de‌bt. That new de‌bt is used to cover the excess expenditures but generates no income leaving a future hole that must be filled.

Country B spends $4 Trillion and receives $3 Trillion income. However, the $1 Trillion of excess, which was financed by de‌bt, was invested into projects, infrastructure, that produced a positive rate of return. There is no deficit as the rate of return on the investment funds the “deficit” over time.

Lest you doubt… the United States is not “Country B.”

A World Gone Mad

Roberts reminds us:

As this money is used for servicing de‌bt, entitlements, and welfare, instead of productive endeavors, there is no question that high de‌bt-to-GDP ratios reduce economic prosperity over time. In turn, the Government tries to fix the “economic problem” by adding on more “de‌bt.

Fix the problem by hosing in more debt? As well fix a flood by hosing in more water.

It is mad. Yet the world is mad. We should therefore be unsurprised that greater madness is the choice of a mad world.

Yet we must consider this alarming possibility, however reluctantly:

It is the world that is sane. It is we who are mad.

As wrote the late Japanese film director Akira Kurosawa:

“In a mad world, only the mad are sane.”


Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

The Daily Reckoning