Inflatable Nation

Even a Recession Might Not Tame Inflation

Is it really that bad? Nah, it's worse. It's that "slowly, slowly all at once" problem.

Dealing with US inflation needs to account for the foreign entities that hold so many dollars for purposes that don't often align with our own (our declared enemies have a lot of it). Basically, the dollars will be used in a mercantilist manner to further the interest of these rulers -- often at the expense of the average American worker.

For the moment the dollar won't be replaced in international trade because it's backed by US real estate. We don't like the CCP buying American farmland in "State of Rode Island" sized batches, but the possibility of doing that in a pinch is a big attraction for the dollar (and land is an excellent inflation hedge). If we say, "No more of that, you'll have to buy Fords instead," then their dollars will flood back into the US to buy land and other assets while they still can. At this point, the world will stop trading its goods for our debt.

As international trade collapses, there's less need for US debt as "good" collateral for trade among third-party nations. With foreigners less willing to swap their goods for our debt, the supply of goods drys up just as more dollars race into the domestic market, sparking more asset inflation but not job creation. This likely results in high-interest rates to encourage foreigners to hold onto their bonds. Meanwhile, the Fed funds the government through the printing press and further fuels inflation.

Inflation could be used to lower the burden of the $31 trillion National Debt -- if we balanced the budget. But why do that if you can sell more and more debt at near-zero rates with foreigners willing to buy a lot of it? Well, things that can't go on forever, won't -- and we are heading for a wall of won't (so prepare a bolthole in New Zealand).