What the Founding Fathers Thought About Money Printing

Talking about talking about... Another 'Is this time different?' moment... A must-listen interview with Ron Paul... What the Founding Fathers thought about money printing... You can go bankrupt in Monopoly, too...

The Federal Reserve is 'talking about talking about' cooling the economy...

That's the biggest thing we gleaned from the minutes of the last central bank meeting, which were made public yesterday.

Over two days late last month, Fed officials didn't talk about raising interest rates (which the market would surely have taken as a surprise), but Chair Jerome Powell and crew did debate the timing and mechanics of reducing the Fed's $120 billion in monthly bond purchases.

As we've written over the last several months, this is the next move that we've been expecting from the bank... with an official announcement on "tapering" bond purchases potentially to come at the bank's annual confab in Jackson Hole, Wyoming late next week.

Just earlier this week, in an online Fed "town hall" event with teachers and college and high-school students, Powell alluded to this idea when he talked about the "emergency" of the pandemic being largely behind us.

As our Stansberry NewsWire editor C. Scott Garliss wrote in his morning commentary yesterday...

Powell stated that as the emergency has receded, the central bank needs to put its "crisis tools" away.

The implication is there are two key crisis tools left... Interest rates and $120 billion worth of monthly bond purchases. So, as the economy overtakes pre-pandemic levels of activity, those are the next tools to go.

If new policy is not rolled out next week, it would be a topic of discussion at the Fed's next regular policy meeting on September 21 and 22, Scott says.

In today's Digest, I (Corey McLaughlin) will discuss the many repercussions of keeping rates so low for so long... from rising inflation to forcing investors to seek riskier ways to earn higher returns.

For anyone who has been paying close attention, this Fed news shouldn't come as a surprise...

Powell has telegraphed that the Fed certainly is not going to do anything rash to make money "sound" again anytime soon... or as we'll explain today, end what has been a 50-year-long real-life game of Monopoly.

As such, Mr. Market largely shrugged at the news of the Fed peeling back one of its major emergency measures, with the benchmark S&P 500 Index and Dow Jones Industrial Average each down around 1%, and the tech-heavy Nasdaq off a hair lower...

That followed another down day across the board on Tuesday. But today, the major U.S. indexes were mixed, with tech stocks gaining the most. From a technical standpoint, it looks like more of the same for this long bull market... way more up days than down days.

The number of NYSE-listed stocks trading above their long-term (200-day) moving averages continues to decrease from record highs (67%), but enough names keep rising so that the major indexes continue to push to new highs.

As our Ten Stock Trader editor Greg Diamond wrote to subscribers today, nothing revealed in the Fed's note this week should throw stocks off from their long-term trend immediately...

The minutes yesterday were from the Fed meeting in late July. Since that time, economic data has been a bit worse, so the mindset of the Fed can certainly change. But what has not changed is that the Fed is talking about talking about tapering.

It hasn't done anything yet, and this is not the first time we've seen the market overreact this year to something that hasn't happened. I find it hard to believe the Fed will do anything for a long time, but each time we've seen a scare from the Fed, it has been a buying opportunity. I won't bet on this time being any different.

We talk a lot about the Fed here... maybe too much, but we think for good reason...

For better or worse, a lot of what the central bank decides to do with its balance sheet, interest rates, and other permutations to keep the nation's banks afloat will likely dictate what happens in the stock market and on Main Street, even if most people never realize it.

In the short term, when the Fed actually "tightens" – and makes dollars more expensive to borrow – or stops buying $120 billion of bonds, there's bound to be a reaction – perhaps a wild one. That's not happening yet, though...

In the long term, as regular Digest readers know, the devaluation of the dollar is the greatest influence the Fed has on money... and society in general. This can be a hard concept to grasp, and most people never even come across the idea...

But we can't think of many more people who have been able to articulate the impact of central-bank policy on our daily lives, and what it really means, than our friend, former congressman, and presidential candidate Dr. Ron Paul of the Liberty Report.

On the 50th anniversary of the dollar officially going off the gold standard – August 15, 1971, which we wrote about in last Thursday's Digest – Paul joined Trish Regan on this week's episode of the American Consequences podcast to talk about this very topic.

If you've ever wondered why we talk about the Fed so much, this interview is a must-listen...

Among the highlights, Paul said...

You can't gain riches for the maximum number of people by printing money. It creates no new wealth. It creates distortion...

When you inflate, the currency prices will go up, but labor never keeps up with it. But capital markets do, the banks and the big corporations do. And it's a source of social friction.

We've seen that again these last 18 months...

Since 1989, as far back as public data goes on this, the share of net worth in the U.S. owned by the richest 1% has never been greater than today (32%), and that's compared with a pre-pandemic number of 29%.

In other words, if sending checks and debit cards to everyone and keeping other benefits flowing was supposed to help the poor the most, it looks like the opposite has happened.

In the interview, Paul also explained that the Founding Fathers were bitterly opposed to paper money...

In short, they had seen the runaway inflation that resulted when the Continental Congress issued money to help fund the Revolutionary War.

Inflation rates reportedly hit 300% per year between 1777 and 1780. As Paul explains...

The Constitution is explicit that the people could only use gold and silver as legal tender, which means they can't print money... They said in the Constitution, they cannot emit bills of credit. And that's what paper money is.

A later contentious Supreme Court decision in 1884 said the restrictions on issuing paper money in the Constitution only applied to states, not the federal government. Paul continued...

It's not so complicated. I've always told people that you can teach 12-year-olds about paper money by showing them a Monopoly game and [having them] try to go buy a hamburger.

Since the U.S. dollar lost its gold backing in 1971, we've all been playing a 50-year-long game of Monopoly. Today, we're still somewhere between Baltic Avenue and Park Place...

Paul also shares some personal information we hadn't heard before...

He explained how he got interested in the economy while working in his family's dairy business... how Austrian-British economist Friedrich Hayek's 1944 book, The Road to Serfdom, influenced him... and why, after all these years including time spent in Congress and a run for the White House, he still doesn't consider himself a politician.

Click here to listen to the whole interview for free.

Of course, you can go bankrupt in Monopoly, too...

For months, we've been warning subscribers of trouble in the credit markets. And it's finally getting attention from the financial media...

Debt issuance among "speculative grade" (junk-rated) companies has surpassed $650 billion so far this year, according to the Financial Times, which cited data from S&P Global Ratings. That puts junk-bond issuance on track to hit an all-time high this month, according to the FT.

Gregg Lemos-Stein, S&P's chief analytical officer for corporate ratings, said that there are clear signs of investors taking risks and buying up lower-rated debt. After all, bond yields have tumbled. So investors are having to look further and further into the junk-bond yard to find any yield.

As our colleague and Stansberry's Credit Opportunities editor Mike DiBiase wrote in the July 13 Digest...

The worst abusers of debt are being treated like royalty. Junk bonds yield an average of just 4%... That's the lowest they've ever yielded. It's even less than inflation today.

The hunt for yield in junk bonds could lead to "elevated levels of defaults down the road," Lemos-Stein said. It allows these businesses to have easy access to credit for cheap. But that situation won't last forever. And when it ends and borrowing costs rise again, these risky companies will be in big trouble.

Stansberry Research readers should be familiar with this idea...

Mike has been sounding the alarm on corporate debt for some time in his letter and here in the Digest, especially in the junk-bond space. More from Mike's July Digest...

The percentage of corporate borrowers with junk credit ratings is now at an all-time high (58%). In other words, nearly six out of every 10 borrowers in the U.S. have dubious credit ratings. These are the borrowers who are much more likely to default.

These companies "more likely to default" are the exact companies that are set to hit a record high in debt issuance this year. And with bond yields so low, these are the companies that yield-seeking investors are turning to. Junk-rated debt commands higher asking yields because investors want higher return for the higher risk.

But this trend won't end well, according to Mike. He continued...

The truth is, even with record-low interest rates, many companies these days can't even afford to pay the interest on their debt.

And when they can't pay back their debt, these companies will declare bankruptcy and default on their loans. That means debtholders could get nothing.

At the end of the day, "risky" companies are offering more debt than ever. But while they're enjoying cheap borrowing costs and increased investor appetite in the near term, there's trouble brewing in the debt markets.

This is another reason why we "Fed watch" so much...

Trouble often drags the entire corporate bond market down, but here's the thing...

From this trouble, Mike sees opportunities to buy safe corporate bonds for pennies on the dollar...

And since the companies that issued these bonds are legally obligated to pay you the full principal of the bonds at maturity regardless of what you paid for them, buying during crises could be a great way to generate incredible returns with very low risk.

The key though is to do your homework before the crisis hits... follow someone like Mike who understands the bond market inside and out... and then pounce when opportunities present themselves.

If you're worried about the next debt crisis hitting – and we don't blame you for that – this is a great way to protect yourself and your portfolio from the fallout. Learn more about this strategy right here.

Gold vs. Fiat, 50 Years Later – Are We Better Off?

As we mentioned earlier, the past Sunday marked the 50th anniversary of the end of the gold standard in the U.S. In 1971, President Richard Nixon formally unpegged the U.S. dollar from gold, meaning the greenback was no longer convertible into bullion.

Our editor-at-large Daniela Cambone speaks with bestselling author Jim Rickards about what has happened to the U.S. economy after the gold standard to answer the most important question: Are we better off today than 50 years ago?

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 8/18/21): Brown & Brown (BRO), Lonza (LZAGY), Invesco S&P 500 BuyWrite Fund (PBP), and Sea Limited (SE).

In today's mailbag, more kudos for Scott's two-part interview with Lawrence Lindsey (here's Part I and Part II)... and feedback on yesterday's Digest about the fallout in Afghanistan... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Scott's interview with Lawrence Lindsey might be one of the best interviews on what is really happening in the real world. Very tired of people who are touting their next investment letter on what to do.

"Those who believe the crap coming from the Fed and government that this inflation is transitory or temporary will surely pay a very steep price." – Paid-up subscriber Leslie W.

"In 2012 in my book, The Man Who Walked 3,500 Miles to Will Me, I compared and contrasted my tour with two infantry units in Vietnam and as a senior doctor in Afghanistan. I had an epiphany in each war that we were losing both far ahead of the 'consensus.' It's all true and historically documented. Worth the read..." – Paid-up subscriber William Z.

"Hi. You mis-attributed the quote 'only the dead have seen the end of war' to Plato. That quote comes from George Santayana's 1922 book Soliloquies in England, and Later Soliloquies.

"I know Ridley Scott attributed that to Plato in the movie Black Hawk Down, but he was incorrect.

"It remains true nonetheless unfortunately." – Paid-up subscriber John C.

Corey McLaughlin comment: Thanks for the note. This is why I'm always careful to say these old quotes are "often credited" to so-and-so. So many of them are misattributed over time, like a centuries-long game of Telephone.

As you pointed out, the quote is included at the start of the popular movie Black Hawk Down, as coming from the Greek philosopher. The common misattribution apparently stems from General Douglas MacArthur's farewell speech at West Point in May 1962, in which he credited Plato with the line.

As MacArthur said then, at age 82, in what became known as the "Duty, Honor, Country" speech...

The soldier above all other people prays for peace, for he must suffer and bear the deepest wounds and scars of war. But always in our ears ring the ominous words of Plato, that wisest of all philosophers: "Only the dead have seen the end of war."

As you also said, John, the point unfortunately remains true.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
August 19, 2021