The Big Swindle Of 2020–22

We live in the midst of the great unraveling, a time so disorienting that it becomes difficult to keep up much less describe and interpret events all around us. We tend rather to be bounced from data point to data point—high prices, learning loss among kids, falling income, increased population, the normalization of crime, the corruption of the media—without seeing the bigger picture much less having an explanation for why all this seems to have happened to us.

A view of the U.S. Capitol in Washington on Oct. 6, 2021. (Drew Angerer/Getty Images)

Here I would like to offer a hermeneutical key. Think of what has happened as a big swindle, perhaps the biggest in American history. It’s all about the transfer of wealth from the poor and middle class to the rich, from small businesses to large ones, from the people to the government. We are talking trillions of dollars here, all of it quantifiable and visible in the suggestive charts below.

To review the history briefly, governments at all levels in mid-March 2020 locked down life and especially economic life, and Congress within a few weeks passed a spending package worth $1.8 trillion. Implausibly and very unexpectedly, government became everyone’s benefactor, dropping many thousands of dollars directly into the bank accounts of U.S. individuals, families, and businesses. It all seems suspiciously benevolent.

Such spending continued for two years and so did the “stimulus” checks, in three rounds. All the way, Congress was relying on debt finance. This is a trick they can get away with but you cannot thanks only to the power of the Federal Reserve to create money and credit out of thin air. This is precisely what they did. Totaling it all up—the Congressional spending plus outright money creation as measured by M2—we get nearly a dollar-for-dollar match of $6 trillion over two years.

What are the consequences of that? Depending on where the money lands, it creates tremendous economic distortions. If the money is dropped as if from a helicopter, and it was in this case, you get the crudest form of monetary debasement. The purchasing of power of existing dollars declines in proportion to new money created in excess of the production. This is precisely what happened. We now have inflation running somewhere between 8.6 percent and 12 percent depending on what data you want to check.

The new money can create the appearance of an economic boom but it masks underlying destruction of wages and salaries. In real terms—income adjusted for the decline in the power of that income to buy things—our standard of living declines even in the midst of a boom. Overall productivity can also be expressed in real terms. It means nothing if the economy is “growing” by 3 percent if the value of the dollar is declining by 5 percent. To get a picture of reality, we need to look at increases in money printing against the productivity adjusted for changes in purchasing power.

The chart below charts M2 against real GDP from 1965 to the present. What we see here is rather alarming.

It not only reveals just how unprecedented are the times. It also shows that the recent explosion of money in fact created very little bang for the buck.

In real terms the rate of growth plummeted, then shot up but not nearly as much as one might expect, and then fell again. One more drop on this scale and the recession will be declared.

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Were we tricked? You had better believe it. It was the biggest and most egregious swindle in American history as measured by scale. Do people understand this? Maybe a bit, if only intuitively. As time goes on, it will become more obvious what has happened to us. Then the question will become: who bears the blame and what should we do about it?…

Read more here…

Header featured image (edited) credit:  A view of the U.S. Capitol (Drew Angerer/Getty Images)

Emphasis added by (TLB) editors

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