Diary

Managing the Upcoming Financial Crisis

George W. Bush was President during a major financial crisis.  He worked with Congress to pass the largest stimulus bill in US history.  The bill was loaded with special carveouts to the well connected.  During his tenure the US debt level roughly doubled.

Barack H. Obama was President during a major financial crisis.  He worked with Congress to pass the largest stimulus bill in US history.  The bill was loaded with special carveouts to the well connected.  During his tenure the US debt level roughly doubled.

Donald J. trump was President during a major financial crisis.  He worked with Congress to pass the largest stimulus bill in US history.  The bill was loaded with special carveouts to the well connected.  During his tenure the US debt level increased by ~50% in 4 years.

Anyone seeing a pattern here?  What do you want to bet the next stimulus bill breaks $3T?  At some point the lenders stop loaning, and the bill comes due.  Historically that day is a bad one.  Like France in 1799 bad, or Weimar republic bad, or Caesar Augustus bad.  Here are a few things that we can be pretty sure of

  1. The global financial system depends on us paying the bill
  2. We will not have the money to pay the bill

That leaves two options (both bad)

  1. Default (either pay partially, renew the loan over the objections of the lenders, unilaterally and retroactively change the interest rate, or go full bore “we do not recognize that loan as being valid”)
  2. Print money

Napoleon, Hitler, and Augustus all came to power after their nations chose option 2.  I suspect our betters in the Federal Reserve will choose option 1 (automatically renew loans with an interest rate declared by the reserve board).  That will destroy their ability to borrow money and still end up in the spot where we either cut spending to below income levels (HAHAHAHAHAHAHA) or print money to fund the government.  Let’s assume we run the printing presses.

Our best case scenario as the Medicare Trust fund runs out (before the end of Biden’s term) is a 1970’s level inflation, but during a time when the US labor force is contracting rather than expanding.

Well, what to do?  Well, if you knew that inflation is going to crush the value of your savings accounts, money market funds, and bonds (all “safe” investments) where would you put your money?