by Gary Alexander
April 25, 2023
What if the stocks in your portfolio always went up – you could gaze serenely at a field of green on your screen every day. Wouldn’t that be loverly? I think that’s what your friendly Congress, President, Federal Reserve, (and now even the Supreme Court) plan for your future. Here are just a few recent examples:
- On Sunday morning, March 12, Treasury Secretary Janet Yellen told CBS’ “Face the Nation” there would be no bailouts after the failure of Silicon Valley Bank the previous Friday. (“Yellen rules out bailout for Silicon Valley Bank: ‘We’re not going to do that again.’”) Later that same day, however, the Federal Reserve declared bailouts “to infinity and beyond,” in their new Bank Term Funding Program, providing relief to “AnyS. federally insured depository institution.” Payments would be at “100% of par value” rather than at the real (“mark to market”) bid value.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This verified one of my political laws (LOCO: The Law of Cabinet Officers): “To be a Secretary, you must be willing to take Dictation.” In this case, Janet Yellen had to take orders from President Biden.
- On Thursday, April 13, the Supreme Court turned down an appeal from colleges to review a case involving a settlement of $6 billion in student loans. Previously, on March 3, the U.S. Education Departmentbegan discharging hundreds of thousands of loans from borrowers in a class-action lawsuit, clearing the way for the Biden administration to forgive billions more in college loans.
- On April 19, as the debt ceiling approached faster than expected, U.S. House Speaker Kevin McCarthy outlined an austere Republican package that included $4.5 trillion in spending cuts, limiting spending growth to 1% a year and reverting to 2022 spending – trying to force President Biden to the bargaining table – but the President continued to avoid any bargaining offer, as the debt ceiling fast approached, with the sides farther apart than ever, and a debt default looming.
The U.S. debt has soared 10-fold since 1990 and over 5-fold since 2001. It took 200 years and 40 U.S. Presidents to roll up $3 trillion in public debts, but then it took only 32 years and six Presidents to multiply that total 10-fold to nearly $32 trillion – with no Great Depression or World War in that time.
Total debt has nearly doubled in the last decade, from $16 trillion in 2013 to nearly $32 trillion now.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
| Year | Accumulated public debt (billion) | |
| 1990 | $3,233 | (5-year rise) |
| 1995 | $4,975 | $+53.9% |
| 2000 | $5,674 | +14.1% |
| 2005 | $7,932 | +39.8% |
| 2010 | $13,561 | +71.0% |
| 2015 | $18,150 | +33.8% |
| 2020 | $26,945 | +46.0% |
| 2023 (3-31) | $31,463 | +18.8% (in 2+ years) |
| Source: U.S. Department of Treasury; Statista | ||
Despite this, it doesn’t seem like one in 10 members of Congress cares, only promising more programs, more bailouts, unending spending, and imaginary new “taxes on the rich,” which never work, since those investments the rich hold offer no guarantee of always rising. When they all sell their assets – stocks fall!
When Discipline Fails – Printing Presses Heat Up, and Values Break Down
It’s time to enter our historical Time Machine once again. No past period is perfect in comparison, but 100 years ago has some chilling parallels, starting with a global pandemic, a rise in racial tensions, disorder at the southern border, a market crash, controversial presidencies, and more, but the scariest warning is a debt explosion and hyperinflation in Europe, which was not limited to Germany.
- From 1913 to 1921, the British money supply grew from 28.7 billion to 127.3 billion pound sterling, a five-fold increase, in what British economist Edwin Cannon called a “diarrhea of pounds.” British debt grew from 717 million pounds in 1913 to 7.8 billion in 1920 (+988%).
- The French money supply was 5.7 billion francs in 1913 and 38.2 billion in 1920 (+570%). French debt grew from 32.9 billion francs before the war to 240 billion in 1920 (+484%).
- The Italian lire supply grew from 1.6 billion in 1913 to 14.2 billion in 1921 (+788%). Italy did not spend as much, but their debt was 15 billion lire in 1913 and 92 billion in 1921 (+513%).
(Richard Ebeling, “The Great German and Austrian Inflations 100 Years Ago,” fff.org, March 2023)
The United States was only involved for the last 18 months of the 52-month war, but U.S. money supply grew by 70% in two years from the non-war year of 1916 to the war year of 1918. Only 22% of U.S. war costs were covered by the new sky-high income tax, with 53% coming from War Bonds and 25% from printing new money. All this created record-high wartime CPI inflation in the U.S. of 18.1% in 1917, 20.4% in 1918, and 14.5% in 1919, for a total price gain of 88% in the five cumulative years, 1916-1920.
President Harding handled the postwar inflation well, enduring the 1920-21 Depression as the right medicine to cure inflation, resulting in the low-inflationary boom of the Roaring 20s that followed.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Germany’s hyper-inflation started before the first guns fired. The German government ended all gold redemption for their mark on July 29, 1914. The next week, the German Reichsbank approved a wide array of war spending financed by newly printed money. During the four-year war, German paper money grew 14-fold, from 2.37 to 33.11 billion marks. In the four post-war years of 1919-22, money supply grew 26-fold, from 50 billion to 1,310.7 billion marks, but then the presses went into overdrive. In 1923 alone, the money supply increased to 518,538,326,350,000,000,000 marks. That’s 518 quintillion marks.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There’s no use getting into percentage increases, or stories about wheelbarrows full of money. According to Gustav Stolper, in The Germany Economy, 1870-1940, “More than 30 paper mills worked at top speed and capacity to deliver notepaper to the Reichsbank, and 150 printing firms had 2,000 presses running day and night to print the Reichsbank notes.” But it was futile, as prices doubled by the hour, then the minute.
Assets seemed to rise in value, but it was an illusion. Elderly couples and families lost their life savings in vehicles like bonds, cash, or stocks. The result was political unrest, including Adolf Hitler’s aborted Beer Hall Putsch in Munich in November 1923. The mark died, replaced by the Rentenmark. In Austria, a gold standard was established, and a new Austrian shilling was issued with printing press restrictions.
None of this nightmare is likely to happen in the U.S. or Europe in the foreseeable future, but the danger we face is rapidly expanding money supplies after nearly 14 years of near-zero interest rates, causing widespread misallocations of capital investment and excessive speculation and consumer spending.
In the last year, the Fed has raised rates at the fastest pace in history while trying to cut back liquidity. Now, they face bailout challenges in a never-ending game of “chicken.” As Janet Yellen discovered, bailouts are NOT a thing of the past. Politicians will continue their bailouts – except for us investors.
Navellier & Associates does not own Silicon Valley Bank (SVB) in managed accounts. Gary Alexander does not own Silicon Valley Bank (SVB), personally.
All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.
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A Look Ahead by Louis Navellier
The G7 Nations Struggle with Climate Change Policy
Income Mail by Bryan Perry
Confluence of Data, Earnings, and Fed Policy Take Center Stage
Growth Mail by Gary Alexander
No Downside Risk! What a Wonderful World!
Global Mail by Ivan Martchev
The Stock Market Has Reached a Fork in the Road
Sector Spotlight by Jason Bodner
Opinions are Cheap – Accurate Data Is Priceless
View Full Archive
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About The Author
Gary Alexander
SENIOR EDITOR
Gary Alexander has been Senior Writer at Navellier since 2009. He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks. For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.
Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s. He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division. Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander
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