We need “another stiff-necked public servant like Paul Volcker”

by Bill Bonner,

“There are decades when nothing happens. And there are weeks when decades happen.“– Vladimir Lenin, former premier of the Soviet Union

“No pure-paper money has ever survived a complete interest rate cycle.”
We wrote that about 20 years ago. Now, we will see it put to the test.

Our hypothesis is that all the damage done by COVID-19… and by the government’s disastrous Universal Lockdown… is only prelude.

The economy has been shrunk.

But all of that is just the warm-up act… like second-string entertainers preparing the audience for the real tragedy to come. Yes, as dumb as it was to shut down the whole economy, it is even dumber to pretend that you can replace real economic losses with empty, worthless paper money.

We’re running out of metaphors to describe it. The old standards – printing money “out the wazoo”… “to beat the band”… “like nobody’s business” – just don’t seem up to the challenge.

The wild money-printing began, you’ll recall, back on September 17, 2019. That was when the big banks discovered that they needed more cash to buy the government’s bonds. The Federal Reserve stepped into the overnight funding markets with their Repo Madness program. In the weeks since then, buying bonds with fake money, they’ve added $3 trillion in new money to the U.S. financial system.

And everybody knows where this is leading. Corporate debt issuance, for example, is expected to double this year.

But let’s backtrack and look at how we got here…

After World War II, interest rates were bouncing off a generational bottom. Thereafter, they rose for about 36 years.

America’s paper money system began on August 15, 1971. The whole fake-money scam probably would have blown up in the 1980s, but for then Fed chair Paul Volcker.

In a rare display of courage and fortitude – for a public official – he forced the dollar to act AS THOUGH it were real money. That is, while inflation and interest rates rose to double-digit levels in 1980, he put the Fed’s key lending rate up to 20%. This caused a recession. But it saved the fake-dollar system.

This “save” by Volcker gave the dollar a longer lifespan than expected… and led people to think that the dollar was a reliable currency for the long-term. If ever there were another crisis, they said to themselves, there would surely be another stiff-necked public servant like Volcker to set it straight.

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