If you don’t remember the donkeys in Pinocchio, here’s a refresher course. From MN Gordon at economicprism.com:
“Right here, boys! Right here! Get your cake, pie, dill pickles, and ice cream! Eat all you can! Be a glutton! Stuff yourselves! It’s all free, boys! It’s all free! Hurry, hurry, hurry, hurry!”
– Pleasure Island voiceover, Walt Disney’s Pinocchio (1940)
Welcome To Pleasure Island!
Did you get your stimmy check, yet? If so, what are you going to do with it?
Are you going to park it in your savings account, pay down debt, and pay off a few bills? Are you going to buy Chinese ‘stonks’, cryptocurrencies, and digital NFT art?
What about a new iPhone, fancy dinners, or a plane ticket to Cabo? How about a new living room rug, a wood pellet grill, or a 75-inch flat screen TV with a sound bar?
The collective answer to these questions is the difference between deflation, asset price inflation, and consumer price inflation.
Billionaire folk hero Warren Buffett says you should use your stimmy check to “pay off credit card debt.” His rationale is sound enough:
“If I owed any money at 18 percent, the first thing I’d do with any money I had would be to pay it off. You can’t go through life borrowing money at those rates and be better off.”
Yet paying off credit card debt is the last thing Federal Reserve Chairman Jay Powell wants you to do with your stimmy check. Because paying off debt is deflationary – it contracts the money supply.
Powell wants inflation of both consumer prices and asset prices. He wants prices to rise, and the dollar to fall, so that long-term public and private debt burdens are slowly inflated away. He also wants the stock market to maintain a permanently high plateau; the retirements of millions of Baby Boomers are banking on this.