Dateline: Tbilisi, Georgia
I have to admit, my primary objective here at Nomad Capitalist isn’t to criticize Trump all the time; rather, my objective is to help you take action using smart finances and flag theory and warn you of the bad ideas that are out there.
Unfortunately, it just so happens that Trump has a lot of bad ideas I feel I need to warn you about.
Most recently, in an attempt to course-correct a statement he made claiming that he would get bondholders to take a haircut, Trump took another route and explained that he could reduce the national debt by simply printing more money. In his words:
“This is the United States government. First of all, you never have to default because you print the money. I hate to tell you. So there’s never a default.”
And he’s right. The US can and does do this. In fact, the US can do a lot of stuff that other countries can’t do and gets away with it.
Some people will argue that printing money to pay off the national debt is a smart practice. In economic terms, it’s known as modern monetary theory or MMT. The theory points out that countries that print their own money can never truly “run out of money” because they can always print more. (Taxes, then, aren’t for paying off government debt, but to control the market.)
For example, during the peak of the Greek financial crisis, many financial commentators pointed to the Grecian government’s inability to print more of its own currency in order to get out of debt as one of the leading causes of the country’s failure to avoid the crisis.
BUT the real problem was never whether or not the government of Greece could print more money, just as the real problem with the US national debt — and its financial system in general — cannot be covered up by printing more money. You see, the real problem is that politicians and all the other folks in power around the globe are beyond happy to spend money on behalf of “the people” with no regard whatsoever for fiscal sanity.
National debt and the internal struggle
The fact that the US can continue to support its bad financial policies with a backdoor printing press Is totally outrageous. It’s the reason the US has sustained itself for so long, but you can only kick the can so far down the road before you run into a dead end.
But lets’ set aside the fact that printing money to reduce the national debt would be a disastrous mess in terms of triggering massive inflation and turning the economy on its head. Ignore the fact that the Republican front runner is arguing for the same monetary policy as Bernie Sanders. And overlook the fact that Trump’s $9.5 trillion in promised tax cuts will increase the national debt by up to $15 trillion in just ten years — which is what makes it necessary for the Republican candidate to find a way to argue that the national debt simply isn’t a problem . . . which is exactly what MMT suggests. Set aside all those factors and realize that the ideas being put forward by every candidate remaining in this US presidential campaign add up to an ugly recipe for financial disaster. The US seems to be threatening its own self-destruction.
However, the well-being of the US economy is not only facing the threat of its own internal undoing, financial tides around the world are changing, as well.
A century ago, China wasn’t much of a competitor at all. Now, with its incredible growth and the creation of the AIIB, China poses a serious threat to US hegemony. And while Russia had its problems in the last century, it is still a force to be reckoned with, too.
In fact, there are now numerous countries and their corresponding currencies that can finally give the US dollar some competition. In just the last few months, the dollar is down against almost every emerging world currency.
And then there is Zimbabwe.
When printing money doesn’t solve your problems
Zimbabwe is its own special case. It’s difficult to forget what happened to Zimbabwe the last time its government tried to print its way out of debt. By the end of 2008, inflation was at 79.6 billion percent and one US dollar was worth 2.6 decillion Zimbabwean dollars.
You can now find the 100 trillion dollar notes that were created during this period being sold on eBay as souvenirs.
Even John Oliver mentioned that he received one that was worth about $0.40. They’re literally worth FAR more as souvenirs than they ever were for meeting the daily needs of the people of Zimbabwe. Fast forward seven years and, instead of hyperinflation, Zimbabwe has serious problems with deflation in the face of an extreme cash shortage.
The Zimbabwean Central Bank isn’t too keen on printing their own money again to fix the problem, though, which leaves them in a similar position as Greece in the euro area, or even California (or any other state) in the US, as a government that has no sway over national monetary policy. What Zimbabwe has decided to do, instead, is drop its dollar peg and print its own version of the US dollar.
That is something that they can print with abandon.
Even so, this solution will still have outrageous consequences. Other countries that have used the US dollar or attached its currency rate to the dollar have suffered in turn.
The Argentine peso was fixed to the dollar for a decade, but that did little (if not contributed) to its economic depression from 1998 to 2002 and its $95 billion default on foreign debt. But officials in the Zimbabwean government don’t care about that. They only care about fixing the problem that’s staring them in the face and not much more.
The same can be said about pretty much any government. Just as the US government doesn’t care about you, your children, or your grandchildren with its nearly $20 trillion debt, the Zimbabwean government doesn’t care if their most recent monetary gamble will fix the fundamentals of their broken fiscal system.
The slow demise
In Zimbabwe, astonishing hyperinflation or stagnating deflation means you can’t eat. In the US, it means your standard of living will fall drastically.
It’s already started.
The average American hasn’t gotten an effective raise since Seinfeld was on the air. You just can’t feel the effect of the slow demise. But the piper must eventually be paid. As I said before, you can kick the can down the road, but eventually, you reach a dead end. Zimbabwe and countries like it reach that dead end quickly. The US reaches it slowly, but a slow painful death is often worse than ripping off the bandaid and starting over. The only sad lesson here is that politicians never learn, and always take the easy way out. It sounds like a reasonable solution to just print your way out of debt, Mr. Trump.
Unless, of course, you look at the consequences. The good news for you and me is that there are still countries that maintain some fiscal sanity. And since you are not limited by borders, you can still choose to follow my five magic words and go where you’re treated best.
As I’ve been saying since the beginning, don’t wait to see who will be put in office and what crazy plans they will finally implement before you decide to set up your Plan B. Do it now and then just enjoy your life knowing that you have a way out of the system before it takes itself down. If you’re ready to set up your Plan B, apply for a personal Strategy Call with me and we can begin working today to increase your personal freedom.