The four ways inflation kills democracy — Analysis
Large political changes often come before inflation. The average American starts to feel the effects of inflation. How worried should they be about their democracy?
As multi-billionaire Charles Munger once said: “Inflation is the way democracies die. Once you’ve got a populace that learns it can vote itself money. If you overdo it, you ruin your civilization a lot.”
The prolonged surge in global inflation should frighten everyone, despite several years of promises from central bankers, who created this mess, that “inflation is transitory.” These bankers have been lying since 2010.
Inflation determines survival options for a democracy. These are where and how many people can live.
The cost of crude oil has skyrocketed 174% in a little over a year, and it’s going higher, much higher. The cost of roasting beef per kg surged by an eye watering 29%, and it’s a safe bet your pay-packets did not rise by 30%.
When thinking about how inflation may pour fuel on existing embers sparking ‘a death of democracy moment’, we need to identify inflation’s root causes and examine how they may create a chain reaction capable of destroying democracy and civilization. It may be possible to predict and prepare for the future by studying the economic history and the cycles that led up to the collapse of previous democracies. Here are four signs to look out for in trouble:
Excessive non-productive debt and prolonged inflation
Inequality in wealth is significant
Media propagandists and fake fact-checkers enable dishonest politicians
The primary reason for the fall of Rome’s empire was inflation. In order to pay off debts, the Romans decreased the purity and weight of the silver in their denarius. It was now.5% silver. The economy suffered from hyperinflation, which saw prices increase by more than 1,000%. The Roman empire also increased its non-productive debts to unsustainable levels. It was the tragic events that led to the suspension of the rule law, civil wars, and eventually the fall of the empire.
After Germany’s defeat in World War I, the Weimar republic, which already had high inflation from war debt, and its increasing government debt obligations, saw inflation march even higher. In addition, Weimar’s reckless money printing caused hyperinflation that saw a 1923 to 1924 price increase for a loaf of bread of 80,000%. These factors created an economy depression so severe, that a terrified and hungry population voted for a populist leader. “promising food on every German’s table and a car in every garage.”Adolf Hitler’s accent was thus established. We all know the outcome.
Zimbabwe’s 2008 hyperinflation record was broken when the country saw its inflation rise by 80 billion per month. Cost of an egg in Zimbabwe is 50 billion dollars. One hundred trillion-dollar banknotes of Zimbabwe’s reserve bank were issued. Zimbabwe’s rapid decline was due to a decade-long period of disastrous monetary policy, which included reckless money printing, excess non-productive debt and corruption.
Will the biggest financial Ponzi scheme in history – more than $250 trillion is the true US debt – mark the end of democracy?
In 2019, pre-Covid pandemic, Laurence J. Kotlikoff, a senior economist who served as a member of President Ronald Reagan’s Council of Economic Advisers, estimated the true indebtedness of the United States to be over 220 trillion dollars. The government is essentially under-reporting its true levels of indebtedness. The future legally binding obligations to pay Social Security (SS), Medicare, or Medicaid are not included. 2019 saw a gap of $43 trillion between the present worth of outlays and receivables. Medicare and Medicaid had a gap of $165 trillion. Today’s numbers are even more staggering; as reported in the Social Security Administration 2021 Trustees Report, the gap has jumped to $59.8 trillion, an increase of 39.5% in two years. Conclusion: SSSS, Medicare and Medicaid are insolvent Ponzi schemes that run exponentially higher deficits than they can sustain. They expect to continue to transfer the huge debt to future generations. It will all end in disaster.
The US government reported that January 2022’s Consumer Prices Index surged by 7.5%, that is the highest inflation print in 40 years. This is a significant underestimate of the actual rate inflation. It’s between 15 and 19% if we use 1980’s methods. The calculation methodologies were ‘adjusted’ to hide inflationary pressures impacting trillions of dollars in payments affected by COLA (Cost of Living Adjustment) indexed payments. Inflation manipulation allows governments to conceal inflation and make a profit off savers. To lower outgoing COLA payments, insolvent governments may create fake inflation rates.
You would be shocked if a Wall Street professional said that you were: “I have a ten-year investment where on an inflation adjusted basis you are guaranteed to lose money,”Are you interested? If inflation is above 15%, why would you buy a US 10-year US bond with a yield of only 1.97%? Good thing the Federal Reserve is, 12 years later, still using its temporary emergency measures to purchase 20 billion dollars’ worth of bonds per month with its quantitative easing programs.
At 40-years highs, inflation is on the rise. This indicates that 13 years of excessive fiscal spending are nearing their end. Even at the current interest rate, it is unsustainable to continue financing existing high yield, corporate, and government debt. This thesis proves that the greatest financial crisis of history will soon be inevitable.
Janet Yellen was appointed US Treasury Secretary by Joe Biden in January 2021. She advised Biden on the need for stimulus. “at most be a small contributor to inflation.” Yellen was wrong. Yellen, who was the Treasury secretary, worked for the Fed system almost twenty-five years. She helped to create the reckless money printing policies that Ben Bernanke, Jerome Powell, and Jerome Powell created. This led us to our current mess. Janet Yellen’s other forecasts were often wrong. Ben Bernanke was at the helm of the Fed during the great financial crisis of 2008; Bernanke’s forecasts were worse. In 2018, Jerome Powell was elected Chairman. Powell witnessed multiple departures from his position by governors who were accused of ethical violations. As far as Powell’s forecasts, he too got it wrong, parroting Yellen’s mantra “inflation is transitory,” which allowed the Fed to fall behind the curve placing in today’s lose-lose dilemma, with no way but a crash out.
An inflationary, 1.9 trillion dollar stimulus plan was adopted in 2021. Biden’s Senate finance committee, headed by Bernie Sanders, introduced a new economic policy called Modern Monetary Theory (MMT). Warren, Sanders and Ocasio Cortez have advocated for additional stimulus spending. “minimum of another $6 trillion.” Sandy Cortez has argued that MMT ‘absolutely’ needed to be “a larger part of our conversation”Taxing the riches between “60 and 70%.”It works like magic. You can print as much as you want. You can’t go wrong. There are many things that could go wrong: inflation, even more inflation and out-of control inflation.
Red warning lights flash everywhere as the USA puts emphasis on division and tribalism. More than five warning signs have been identified. An unprecedented financial crisis is inevitable as the wealth gap continues to grow. The US, however, is not warning or responding to the crisis. Instead, it is still living in 1950s America and shouting about Russia/Ukraine. The USA is at a crucial moment of democracy, and everything points to it not going well.
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