Trump, DOGE and the Big Beautiful Bill
It’s inflation or deflation. They picked inflation.
Short version: Trump stormed in to cut spending, realized it would lead to deflationary collapse, and pivoted back to inflation. If he and the team are smart (there is some hope here), he can close this chapter in monetary history with a revaluation of the dollar to gold
Storming into office with a buzzsaw, those in the ‘government-is-the-problem’ camp were thrilled to see DOGE cutting government waste to the bone. USAID wreaks havoc all over the world while enriching fraudsters. Taxpayers are better off lighting money on fire than letting the crooked bureaucrats at USAID anywhere near it.
We salivated at the idea of DOGE burning through Federal agencies – DOD, NHS, SSA, CMS, DOL, DOE, all of ‘em – with fervor.
I warned friends though, it would be deflationary.
All that largesse, when the money stops, expect bankruptcies, unemployment, and a stock market rout. Real (though crappy) businesses, livelihoods, and infrastructure are built around the pork. Stop the money flow and they fail. Loans default, and a cascade of deflation sends our economy into a needed but painful depression.
Economic depressions are painful, but in free markets, they are short (the 1930’s was not a free market depression, but one prolonged by government bungling).
They are a necessary cleansing from excess.
Capital and equipment change hands, bought at fire sales by better operators who make real things in place of DEI, BLM, Transapalooza and whatever value-destroying rackets we funded under decades of cronyism, thievery, and virtue signaling.
From creative destruction comes new prosperity on sound footing. That’s how it’s supposed to work.
Instead, due to our crooked, debt-based money system, politicians aided by central banks insist on avoiding pain, pushing it to the future with money printing.
That Trump and Bessent entertained the first path is surprising.
That they lacked conviction is not, pivoting back to an inflationary spending spree with the big, thick, long, beautiful, throbbing bill.
Do I fault them for it? It’s too early to tell. There’s a way to do it right, but it will take brilliance and incredible fortitude to stick the landing.
Coming into office after 50 years of debt-fueled malinvestment piled 150 stories high with a three-headed bubble in stocks, bonds, and real-estate, there aren’t any smooth paths to resolving this quagmire. They have two options: Deflation or inflation.
Deflation
Just run DOGE across all federal agencies, cut to the bone, and let the chips fall where they may. We’d face a depression – a necessary cleansing – painful but short lived if allowed to happen. Stocks down 80%, real estate down 60%, unemployment at 20%. It would be brutal, but consumer prices – food, gas – would fall too, dampening the pain.
Cut taxes and regulation – get rid of nearly all of it – and let people serve each other without bureaucrats micromanaging every transaction.
This would fix things quickly, and while we should also go back to a gold standard, they wouldn’t even have to if they cut spending and maintain a balanced budget.
A morning in America, could anyone accomplish it?
Or would they be impeached or voted out in favor of a new FDR promising grand projects like Hoover Dam 2.0, another giant erection of a spending bill with guaranteed basic income, free healthcare, free college, and two chickens in every pot?
As spending cuts trigger bankruptcies, unemployment, and falling stocks, the talking heads (and those who fund them) will demand the same heroin fix we got hooked on over 50 years: money printing. Lower interest rates, bailouts, and quantitative easing.
No one in the cheap seats knows any better; we’ve all been taught that government can fix the economy (don’t let your kids be among the sheep, get our books today!).
Therefore, a true, cleansing correction through deflation is not viable. Anyone who knows it’s necessary and is willing to endure it is self-selected out of power.
Inflation
What happens everytime instead is we kick the can down the road with inflation. We erect one big, beautiful bill after another.
You get through the cycle and plan to retire before it blows up.
The problem is that it doesn’t solve anything. It makes the problem (and ultimate reckoning) bigger. If deflation and depression are not allowed to cleanse the malinvestment, it ends in hyperinflation: A total destruction of the currency.
As painful as a free-market depression would be, hyperinflation is worse. Shelves go empty, and you’re killing the neighborhood dog for dinner.
Without a functioning money system, commerce stops. The market eventually finds alternatives in barter, foreign currencies, and ultimately, gold, silver and Bitcoin. But there is a period where nothing functions; everything breaks down.
Is this the choice they’re making? Is our fate set? Are we now Zimbabwe?
Threading the needle
There is a third option, a permutation of the inflation route that stops short of hyperinflation. My hope is that the Trump team is quietly planning this.
We called it inevitable way back in 2017, our 2nd piece, “We’re headed back to a gold standard (and what to do first)”.
The debt-based money system has reached the end of its useful life. It was always flawed, crooked, and inherently unstable. It was always a rigged game with winners (government, banks, and financiers) and losers (the middle and working classes).
The booms and busts were inevitable, but it worked well enough as long as debt could be expanded. We passed the baton around until everyone – seniors, homeowners, state & local governments, students, pensions, the treasury – were stuffed to the gills with it.
We’re at the point where it doesn’t work; there is too much debt in the system. It must end in upward collapse (hyperinflation), downward collapse (depression), or we thread the needle with a monetary reset, a controlled devaluation of the dollar.
A controlled devaluation of the underlying debt.
The way to do it is to repeg the dollar to gold. It still comes with pain – a combination of higher consumer prices, reshoring of industry, rebalancing of global trade, and a reduction in average standards of living as necessary adjustments take place.
With so much gold flowing into the United States from Europe, it seems they may be quietly planning this.
And with it, too, comes morning in America and the world, the end of the root of all the world’s biggest, most intractable problems: the fiat money system.
At what price for gold? In 2017, we said between $5,000 and $10,000 per ounce. With the debts racked up since then, I think we can start the bidding at $15,000.
PS: Where have I been? My first piece since 01/24, I’ve been busy with two other businesses (rather than one, as before), thus little time for InflationEducation.net. Rest assured, we’re not going anywhere. The kids’ books remain available, and we’ll write more when we can!!