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Counter-Intuitive Inflation – Epilogue

This is an excerpt from Counter-Intuitive Inflation. We’ll be posting sections over the first two weeks of October.

Epilogue:

There’s no avoiding the fact that US government liabilities are already at a level that can’t be paid, and Congress is going to continue spending us further into bankruptcy (super-bankruptcy?). I want to provide some clarity on what has me upset and worried, and where I think there’s hope.

The part that makes me angry is the dishonesty of using currency debasement as the method of paying for popular giveaways instead of taxation. In his excellent book, The Bitcoin Standard, Saifedean Ammous writes about how fiat currency makes endless war possible. Historically, a king or ruler had to tax his people to fund overseas wars. If the people were taxed lightly and saw the benefit of new lands and resources, the enterprise would go well. However, if the king wanted to expand his empire for his own glory, and taxed his people into poverty, he’d quickly lose the support of his subjects.

In the earlier days of the US, we tended not to run long-term deficits so in the short to medium-term, citizens paid for government programs in taxes. When politicians wanted to expand the size and scope of government, citizens felt those ambitions in their wallets and at their dinner tables. In this way, household budgets became a check on expanding government power and resulted in high-spending politicians being voted out of office.

With our current fiat currency that is no longer backed by gold; but rather, only by faith and credit, our government can spend unlimited amounts without overtly taxing citizens and incurring their anger. We now spend obscene trillions on social welfare, quarter-century long retirements, endless wars, and on waste like maintaining tens of thousands of empty federal buildings. We hand out trillions in “free” stimulus payments buying the affection of the voters.

All of this is a lie based on misdirection. You are not being taxed for your generously awarded government largesse. Instead, the government simply takes on more debt and prints more dollars to fund guns and butter, bread and circuses. This spending increases the money supply, debases the currency, and leads to massive inflation. As DKI has pointed out before, if you get a $1,000 stimulus check and your monthly expenses rise by $200 due to inflation, you’re going to pay for your “free stimmies”. Politicians never accept the responsibility for what they’ve done, and instead, blame greedy businesses, rich people, leaders of other countries, and the other political party.

All of this obfuscates the true cost of running a government that claims to be able to provide all people with all programs necessary for a materially comfortable and meaningful life while also conducting endless foreign wars. The average citizen has no way to connect government spending levels consisting of numbers not comprehensible to human beings with their declining quality of life and decreasing freedom. Citizens shouldn’t need an advanced understanding of economics to grasp how the government is stealth-stealing from them.

Taxation is annoying, and may be immoral in some cases, but at least people know where to point when they can’t pay their bills. With the current fiat system, the connection between spending and paying for the cost of that spending is hidden. This is dishonest and deserves our contempt. Despite living in the wealthiest country that’s ever existed, the US does not have unlimited resources, and is for all intents and purposes, bankrupt.

Unfortunately, I don’t see a way to reform and save the system. There are far too many people now dependent on social welfare programs, and there’s an enormous bureaucracy actively trying to increase the level of that dependence. Given the promises made, there is no fair or moral way to roll back the clock for those now dependent on the government. There is no fair or moral way to push unpayable responsibilities onto American children and grandchildren. DKI has many non-US subscribers, and I suspect they may also be tired of having to deal with debased dollars, especially when it comes to the price of oil. The BRICS countries are actively looking for a way out, but what about the rest of us?

Here’s where I have hope and confidence:  The best we can do is to protect our portfolios, our homes, and our families from the coming abuse of non-transitory inflation. There are things we can do to insulate ourselves from theft by fiat currency debasement. We started writing about this topic in November of 2021 and recommended alternatives like gold, oil, energy, and Bitcoin. DKI exists to help people like you do better in environments that others consider “bad”. The situation is indeed bad, but we can still make money from it as investors. Feel free to reach out if you’d like some help.

 

Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use.  The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so. 

The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write. 

Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 

In no event shall DKI be liable for any costs, liabilities, losses, expenses (including, but not limited to, attorneys’ fees), damages of any kind, including direct, indirect, punitive, incidental, special or consequential damages, or for any trading losses arising from or attributable to the use of this report. 

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