Demonocracy is known for its graphic illustrations of financial facts and figures that can be so large we simply can't grasp them. It puts them into visual terms to which we can relate. For example, here's $1 trillion in $100 bills, stacked up and arranged neatly together alongside objects with which we're familiar (a Boeing 747, an eighteen-wheeler, the White House, etc.) for scale. Click the image for a larger view.
Demonocracy has used the same technique to visualize the current US stimulus package in response to the coronavirus pandemic. It's frightening when you realize just how big it is - and understand that the whole thing is based on borrowings and "printed money", generated out of nowhere, with no economic reality to back it up. Here it is in video form. I recommend watching it in full-screen mode to get the full impact.
You can see the whole thing as a Web page at this link. It's even more frightening like that than in a small video window.
Finally, remember that you and I - every single US taxpayer - is on the hook to repay that money, sooner or later. I don't think that's economically or mathematically feasible, which leaves only two options. Both may happen, separately or together.
- The rate of inflation will be deliberately allowed to grow, rendering "current" dollars almost worthless in relation to "historical" dollars. Old debts can then be repaid with new dollars, a much less painful process. Unfortunately, that leads to hyperinflation. Just look what happened to Weimar Germany when it tried to do exactly that to repay war reparations.
- The US government will simply ignore fiscal reality and continue to borrow money to fund its expenditure. This will see the deficit climb, and climb, and climb, until eventually no-one will buy US bonds or securities any more, because the "debt overhang" has become so great as to threaten the stability of the world's economic system. At that point, the US government's ability to pay for all its programs will collapse - as will the US dollar as a world reserve currency, and the US economy as a whole.
As I said, the really scary prospect is that we may see both of those things happening simultaneously. During the previous recession, the Federal Reserve ended up as the largest "buyer" of securities issued by the US Treasury, effectively printing money to pay for printed securities that weren't worth the paper they were printed on. It's doing the same thing now, as international demand for US securities can't absorb the trillions of dollars required for the current pandemic stimulus package. The Federal Reserve's balance sheet has grown astronomically over the past couple of months, and the growth shows no signs of slowing down.
There are those who argue that the current situation may lead to deflation, rather than inflation, due to asset prices taking a major hit. In the short term, they may well be correct. However, in the long term, the lesson of history is clear. Dilute the currency in any way (adulterating precious metals with base, or printing money without any economic foundation to support it) and sooner or later, the chickens come home to roost. Inflation is the inevitable result.
I think we're already seeing some of that affecting the consumer. Have you noticed food prices lately? I know they're attributed to market conditions, but I think they also reflect the underlying reality of inflationary pressure on the consumer. I've demonstrated several times in the past that real consumer inflation, as measured by objective sources such as Shadowstats or the Chapwood Index, has been far higher than official figures. As Miss D. and I do our shopping every week, we're seeing inflation even higher than that. Some items' prices have increased by more than 25% since March!
What will dumping an extra few trillion dollars into the economy, money created out of nothing from nowhere, do to the rate of inflation over time? I think we all know.
Peter
