Your Wealth Is at Risk: Explaining the Modern Monetary Disaster

“I see risk everywhere,” said old friend Doug Casey over a video hookup the other day.

“Just look at what they call Modern Monetary Theory (MMT),” he added. “MMT is a license for the U.S. government to print money forever, for any reason, to dish it out however the politicians want.”

“And those so-called ‘stimmy’ checks that people are receiving? Ha!” said Doug.

“Stimmy checks,” he said, “are the front door to a universal basic income (UBI), where everyone gets a guaranteed amount from the government. It’s endless spending and it’ll never stop because you can’t roll it back. Once the money starts flowing, no politician in his right mind will ever vote to stop it.”

“And the next question,” Doug added, “is where does all that money go?”

Hmm… A darn good question because it’s an absolute, guaranteed, no-kidding certainty that all the MMT spending will not make the country rich.

In fact, MMT is a roadmap to monetary disaster. And MMT will make the country poor and take you down with it — unless you find a way to preserve your wealth.

Let’s dig into this…

Three things happened this week that helped crystallize my thinking on monetary issues.

First, I watched the masked man, President Biden, address other masked men and women in Congress. He discussed the trillions of dollars he wants to tax-tax-tax and spend-spend-spend. And it adds up to astronomical numbers.

Second, and via video link, I attended a small, intimate conference sponsored by old friend Rick Rule, who recently retired from running Toronto-based Sprott, Inc., one of the world’s premier offices for mining and precious metal investing.

Rick’s speaker list included the above-mentioned Doug Casey, as well as an old colleague and former adviser to President Reagan David Stockman, plus several other speakers with deep understanding of the nature of money and precious metal mining from the inside-out.

Finally, we published a superb Whiskey article entitled “Money’s Frightening Future” by my esteemed colleague Jim Amrhein. Jim dove in and dissected the idea of MMT.

If you haven’t seen Jim’s article, it’s well worth reading. But before you link away, let’s discuss President Biden and math — an odd combination, some might say.

Because the other night Biden laid out some seriously big, nosebleed numbers, up in the multi-trillions of dollars. Which means what?

Well, the distance from the sun to Jupiter is about 483 million miles. So a billion is the sun-Jupiter distance times just over two. (A billion miles would place you out past Saturn.)

And a trillion is sun-Jupiter times over 2,000 — way past the outer bounds of the solar system, deep in the Oort Cloud somewhere. Star Trek numbers.

Biden wants to spend several of those trillions in terms of dollars — and simultaneously tax away a couple of trillions more. Yes, astronomical in so many ways!

This spending supernova comes after the U.S. government shelled out about $6 trillion over the past year just on so-called “relief” for allegedly Covid-related issues.

Meanwhile the U.S. government carries national debt on the books in the range of $28 trillion, which is more dollars than the mileage from the sun to the nearest star, Alpha Centauri, about 23 trillion miles away (4.3 light years).

So when Biden talks about taxing and spending big numbers of dollars, it really is deep space astronomical.

Getting back to planet Earth, the other day David Stockman put this spending in perspective.

“When I went to work for President Reagan in 1981,” he said, “our first budget came in just under $700 billion.”

By comparison, per Stockman’s reckoning, Biden’s Covid package, plus proposed so-called “infrastructure” spending, plus the general social welfare and pork spending is on track to exceed $7 trillion this year.

Add another $2 trillion of essentially baseline spending, things like the defense budget and running all the other everyday government agencies. And the overall federal outlay will be over $9 trillion this year.

“We’re on a whole different scale of measurement,” said Stockman. “The old rules don’t count. They don’t work anymore.”

Stockman looked at the year 2000 when, by his calculation, 30% of U.S. gross domestic product (GDP) was cumulative government spending. Primarily it was federal outlays, plus state and local.

But that was then.

Now, in 2021 per Stockman, cumulative government spending will exceed 44% of U.S. GDP.

Obviously, that’s quite a leap in the government’s share of the overall economy. If you dig deeper into the meaning of this, the dramatic increase in the role of government spending is all the more significant due to the decline in overall productive output across the U.S. economy.

This last point relates to structural, economy-wide issues. Things like offshoring entire industrial and service sectors from electronics and auto parts to call centers and even medical diagnostics.

Economically, the loss of primary, American-based, wage-earning productive activity from factory floor to professional level services has been masked by the vastly increased role of finance, from Wall Street hedge funders to side Main Street house flippers.

Stockman’s comments highlighted what we’ve often noted here at the Whiskey bar, that a real economy makes real things.

And in essence, the U.S. is less and less of a “real” economy. It’s just a Fed-funded spending machine.

Further along the lines of Stockman, the growing share of government spending, as a component of GDP, reflects how seriously the private sector of the economy is being crowded out.

Stockman framed a picture of how the Federal Reserve has vastly increased money supply and in the end has “monetized everything.”

Stockman looked back over 40 years to help illustrate the point. “In the 1970s when I was a Congressman from Michigan,” he said, “if the government soaked up too much of the nation’s money supply it meant that U.S. business, from manufacturing to car dealerships and appliance stores, couldn’t get credit. And they’d let us know.”

But anymore, per Stockman, the U.S. economy has become so distorted by globalization and financialization that the flood of Fed dollars has led to two massive phenomena.

First, much of the Niagara of federal outlays have moved into asset inflation. Or to answer Doug Casey’s rhetorical question from the beginning of this article (“Where does all that money go?”), those new dollars have moved into higher price levels for real estate and stock markets.

Plus, other massive wallops of federal dollars have gone into consumer purchases of goods manufactured overseas. Or as Stockman put it, “Washington has stimulated China!”

On this last point, Stockman reinforced a point we made not long ago here in Whiskey that the U.S. has transformed its economy into a consumer-focused, nuclear armed big box store.

We see the new import-focused nature of the U.S. economy in stories from East, West and Gulf coast ports. There, container ships are stacked up like airplanes in a busy holding pattern awaiting their chance to dock and discharge their cargoes of big boxes.

For example, a recent article in the trade journal American Shipper explained how “You ain’t seen nothing yet.”

Per the article, “The U.S. import boom has already shattered the forecasts and pushed the global supply chain to the brink. … The U.S. inventory restocking cycle is nowhere close to over and import demand is certainly not about to fall off a cliff.”1

This is, of course, simply another way of describing an economy in which the driving force is money creation by the central bank. It feeds endless consumption within a deindustrialized society where more and more people are less and less productive.

This gets us back to President Biden the other night, orating about how the U.S. should be manufacturing windmill components in Pittsburgh.

Nice idea but c’mon man… Who is he kidding?

As an old Pittsburgher, I’m always pleased to see the city (the Western Pennsylvania region, actually) get good press. And it’s interesting how a place like Pittsburgh holds a certain mystique in the national consciousness as a symbol of heartland America, if not manufacturing might.

Indeed, President Trump once commented on how he was “elected to represent Pittsburgh, not Paris,” in the context of how to approach energy and climate issues.

More recently, President Biden chose Pittsburgh as a kickoff locale for his presidential campaign, and just last month announced his big, so-called “infrastructure” spend-a-thon at a site just on the outskirts of town.

Well, thanks for the free advertising. But good luck with the windmill thing, Mr. President. As in, we’ve had this discussion before here at the Whiskey bar.

Over several decades, the U.S. has pursued a disastrous strategy of deindustrialization. The country is currently generations behind much of the rest of the world in terms of basic abilities to manufacture complex energy equipment from batteries to solar panels to, yes, windmills. See here. And here.

To the extent that the U.S. government can help rebuild the industrial base, we’re not exactly seeing it. For example, building something as basic as old fashioned oil pipelines is hard work, and at any rate the Biden administration is opposed to pipelines.

For future energy systems, the U.S. will need all manner of technology metals such as rare earths (REs) and battery metals, and supply chains for them are currently in a state of “national emergency.”

It’s much the same thing with other metals, from silver to copper.

We’re looking at a hard, long, expensive slog to rebuild the U.S. manufacturing base. And perhaps it can happen but it’s hard to discern how with the current crowd in Washington making their bizarre policies. And see here, too.

Getting back to Rick Rule’s conference the other day, I’d be remiss not to mention one asset that has also greatly benefitted from the growing Fed money supply and associated hemorrhage of federal spending out of Washington, namely cryptocurrencies.

You’ve likely heard of Bitcoin, and perhaps Ethereum. But there are dozens of other cryptos as well, with cumulative sector value above that magic, astronomical trillion-dollar mark.

Rick discussed crypto, along with Doug Casey. As did David Stockman, as well as a very sharp guy named Nick Giambruno. And to sum up several discussions, in many respects we’re in the midst of a battle for global supremacy over which form of “money” will prevail.

Fiat dollars versus gold versus crypto.

Will the dollar maintain its top-shelf status as the global reserve currency? After all, that monetary hegemony is a legacy of World War II and Bretton Woods, as we’ve discussed before. It’s also a much abused and debased monetary privilege that likely won’t maintain its primacy in years to come.

Or will gold retain its 5,000-year status as the ultimate form of wealth preservation, such as we discussed here.

And what of cryptos? Can an electronic currency based on only math and electrons serve as the next form of long-term wealth preservation? Hint: nobody really knows.

There are numerous positive aspects to cryptos, although their track record is short in terms of monetary cycles. Still, if you bought Bitcoin a few years ago, you are sitting pretty. Just don’t forget to sell and take something off the table.

But asked another way, the longer-term question is whether governments across the world will permit such a difficult-to-control currency to exist and persist.

After all, since time immemorial the fundamental nature of government power has been intertwined with control and access to money in one form or another. No government would ever walk away from that power, let alone allow it to be taken away by some usurping technology.

At the end of the day, you can stuff cash in the mattress, bury metal in the back yard, or load thumb-drives with crypto.

But one way or another, we’re living through the early innings of a modern monetary disaster. Like Doug Casey said, there’s risk everywhere.

Every day, the U.S. government is consciously blowing up its budget, monetizing everything and destroying the value of the dollar.

This is all diminishing your wealth, and the big question in life is how to deal with it.

And of course, we’ll have more on this topic in future articles. It’s what we think about all the time. So stay tuned.

And on that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com

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1 Deutsche Bank on Import Bonanza: ‘You Ain’t Seen Nothing Yet’, Freight Waves

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