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Carroll County Times Opinion

Davidson: US can’t just keep printing money to spend way out of crisis | COMMENTARY

How much are we willing to spend in order to survive the pandemic?

For those less informed, Trump’s tax cuts, mostly for the wealthiest, and other policies added $1 trillion to our national debt before the coronavrius even arrived. This resulted in all-time highs in the stock market, also benefiting the wealthiest. Along comes the pandemic and we actually spent another trillion dollars. Once again the wealthiest companies got their checks first while inept state structures that were not designed to handle a pandemic and the volume of unemployment it created caused the neediest people to wait eight weeks or more to get benefits to which they were entitled.

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A trillion here, a trillion there, just keep printing money and we can spend our way out of any problem.

Wrong! The dollar is currently losing value against most world currencies and is at risk to no longer be the currency the world looks to for stability. Gold and Silver prices after retreating from the “too big to fail” levels have not only returned to them but they have surged way higher. Why did this happen?

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For an insight into this I refer to remarks made by Federal Reserve Chair Jerome Powell in which he proclaimed that the FED will no longer endeavor to hold the core inflation rate to 2% and that he is willing to let it rise to as much as 4% or more if necessary. That speech alone sent people holding the strongest currency in the world to the metal brokers to convert them into something of equal value that would hold that value while the dollar was losing value.

To understand this further in recent years cost of living adjustments (COLAs) on entitlements were tied to this calculation and those entitlements were skyrocketing out of control. What they came up with was several changes to the way the calculation was made basically removing anything from it that actually reflects what beneficiaries are experiencing in the way of never having enough from their stipend to pay their bills. This new calculation removed anything other than basic materials necessary to create a product. This new core inflation was just that.

Why is this relevant? Because if we are willing to allow the basic building materials to rise 4%, each middle man will feel at ease to tack on an equal increase to their prices and by the time the final product arrives at our doorsteps real inflation could be as high as 25%. For those with means, they convert their dollars to more stable assets that will hold their value while the masses of citizens that live paycheck to paycheck will see a $1 raise in the minimum wage instantly become 75 cents or less in purchasing power. This is yet another event where the rich people will stay rich and get richer and the working class will, via inflation, pay for it.

So while Trump and his hinged arm that is always patting himself on the back and telling you how great he is and how much he has done for you, he is really speaking to his fat cat friends and his less fortunate supporters are actually thinking he is talking to them.

So why is the stock market doing so well? A trillion dollars is a lot of liquidity. The wealthiest companies are using this money to buy in their old higher interest debt and replace it with the new almost 0% interest debt. They are also once again buying back their own stock. Most of these companies have considerable real assets which, like gold, will hold their value against the diminishing dollar.

I literally gasped when I heard Powell say these are extraordinary times and require extraordinary actions. We have all of the time to pay down the debt in better times. How stupid does he think people are? The first three years of Trump’s reign were the best this country has ever seen and they didn’t pay down a cent of the outstanding debt!

No matter who wins the election, the economy will not bounce right back in the sense the president is posturing. It took many years to recover from “too big to fail.” The current moves are at least a degree of 10 times worse than that.

The virus is not going to be talked away. A vaccine is not a panacea end as even if it is 95% effective — many vaccines are only 50% effective — the disease will still exist and there are more than a few stories of lingering effects from this disease. Many jobs lost during this disease will not be coming back as the number of bankruptcies is soaring. Other businesses will come back but it will take more than two years after the virus is under control before people feel safe enough to go back to full socialization.

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Steven Davidson writes from New Windsor.


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