Week 7 of the Quarantine

SAN MARTIN, ARGENTINA — Wednesday morning, The New York Times:

U.S. gross domestic product, the broadest measure of goods and services produced in the economy, fell at a 4.8 percent annual rate in the first quarter of the year, the Commerce Department said Wednesday. That is the first decline since 2014, and the worst quarterly contraction since 2008, when the country was in a deep recession.

There is much worse to come. Widespread layoffs and business closings didn’t hit until late March in most of the country. Economists expect figures from the current quarter, which will capture the shutdown’s impact more fully, to show that G.D.P. contracted at an annual rate of 30 percent or more, a scale not seen since the Great Depression.

“They’re going to be the worst in our lifetime,” Dan North, chief economist for the credit insurance company Euler Hermes North America, said of the second-quarter figures. “They’re going to be the worst in the post-World War II era.”

CNN on Monday:

Kevin Hassett, a senior economic adviser to President Donald Trump, warned Tuesday that the jobless rate in the United States could spike to between 16% and 20% by June.

That would be a startling spike from current levels of 4.4% and would mark the highest unemployment since the 1930s. (Unemployment spiked at 25% in 1933, according to estimates from the US Bureau of Labor Statistics.)

But don’t worry. Hassett also says the feds are working on big, new programs that will put everything right.

This is one thing both left and right can agree on: spending more money. Joe Biden says he would spend a “hell of a lot more.” And Donald Trump is pitching more spending for crony industries — oil, airlines … and even another $2 trillion on infrastructure.

How will these big, new programs be funded? Tax revenues are collapsing. Deficits are exploding.

There’s only one funder-of-first-and-last-resort: the Federal Reserve.

Voodoo Money Magic

It’s a pity. But the Fed can’t print jobs. Or cars. Or houses. Or carrots. Or the “purple drank” so beloved in Baltimore’s poor neighborhoods. It can’t print chocolate cake, frappuccinos, sparkling water, love affairs, marriages, children …

… it can’t print careers … or piano lessons … or summer vacations … or trips to the mall. All it can print is what it calls “money.”

On Monday, for example, it set a new record. It “printed” (it’s all electronic now) $190 billion. Just like that.

A few taps on the keyboard … and poof! … suddenly appeared an amount equal (roughly) to the entire annual GDP of New Zealand or Peru.

This is the voodoo magic that the feds are pretending will “stimulate” the economy and replace the losses from their lockdown approach to the C-virus.

In the last six weeks, the Fed has added $2.26 trillion. That’s the same as Britain’s GDP. And Goldman Sachs says the U.S. is on track to run deficits of $6 trillion over the next two years. That’s more than the GDPs of Germany or Japan.

Nowhere in the world is there $6 trillion … or even $1 trillion … waiting to fund the government’s big-spending whirligig.

All of it will have to be financed by the Fed … which will mean money-printing on such a scale that it will blow the doors off the entire world economy.

Desperate for Dollars

What happens when you print that kind of money? Independent presidential candidate Emanuel Pastreich:

All the money they are creating through magic has opened the door to hyperinflation. When hyperinflation comes, the cost of a loaf of bread could go from $3 to $10 to $100, or even to $1000 in a short period of time. It has happened before under similar circumstances.

The lying media will not tell you anything, but the writing is on the wall. The truth is that inflation for food and for services is already far, far higher than what has been reported for the last decade. You know this from your own experience. You do not need a Harvard professor to tell you.

Here in Argentina, we see how it works. Just a week ago, you could go onto the square in Salta and trade $1 for 90 pesos. This week, you can get 110 pesos.

The inflation rate was already at 50% per year in 2019. Now, the lockdown is reducing wages, sales profits … and the government’s tax receipts.

Last year, the government’s deficit was about the same as the U.S. — at about 4% of GDP. But now, it’s exploding to 8% of GDP … and beyond. (In the U.S., the deficit is running at 20% of GDP.)

Every gaucho, tango instructor and polo player knows what’s coming next: higher prices. People with pesos are desperate to get ahold of dollars to protect themselves.

Alas, in their eagerness to flee their sinking boat, they have climbed on board the Titanic.

Stay tuned.



• This article was originally published by Bonner & Partners. You can learn more about Bill and Bill Bonner’s Diary right here.