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War Is the Health of the State—Not Investors

by Lobo Tiggre
Friday, November 26, 12:00pm, UTC, 2021

Just over 100 years after American author Randolph Bourne died, we’re seeing in spades the truth of his assertion that “war is the health of the state.”

The idea is that the existential threat of war results in the state taking on emergency powers it never gives back… at least not fully. The US government did relinquish war powers and extraordinary tax rates after WWI and WWII, it’s true. But each time, the beast had grown too large to fit back into its former cage. And now, of course, it dwarfs the size of its previous wartime bloat.

How can that be, since the US is not at war?

Ah, but it is—if you ask those in charge.

As the expression goes, “Never let a good crisis go to waste.” And how better to marshal support for combating a crisis than to call it a war?

Hence the War on Poverty, the War on Drugs, the War on Terrorism, and now, the War on COVID-19. Let’s set aside the necessity and success of these various “wars.” The point is that they and more have all made the US government bigger and more expensive than ever before.

Economist Robert Higgs explains this “ratchet effect” in his seminal work, Crisis and Leviathan.

But I’m not here to plan a libertarian attack on Big Government.

My point is simply to warn investors not to expect things to go back to how they were before COVID-19.

This applies especially to the emergency actions of the Fed in response to the global financial crisis of 2008. Not only did the Fed never normalize its post-2008 balance sheet (effectively monetizing government debt), what were once “emergency” policies (like “QE”) are now regular “tools” in the Fed’s toolbox.

Massive interference—call it plunge protection, if you like—is the new normal.

How long that can last…

Nobody knows.

What I do know is that all of the Fed’s and other central bankers’ tools for dealing with the current “war” are massively inflationary.

As I write, central bankers in the US and EU are sticking to their “transitory” narrative, though it has mutated to mean “not permanent—over after COVID-19.”

Traders on Wall Street seem willing to go along.

Consumers, however, aren’t buying it anymore. I know that talking heads on financial media are saying that surging retail sales show how “strong” the American consumer is, but I think this is actually evidence of consumers’ inflation expectations shifting into a higher gear. Plunging consumer sentiment surveys back me up on this.

What about this new “many mutations” variant of COVID-19? If that prompts a new wave of shutdowns, won’t that be deflationary?


There might be very brief deflationary spikes, but the government response would almost certainly be to turn the twin money firehoses—fiscal and monetary—on them.

My read on history is that the printing press always wins in the end.

And don't forget that even in the most worthy cause, war is always destructive. It can spur technological advancement, but so does the profit motive. It can envigorate a people, but so can a constructive vision like becoming a multi-planetary species. Even in the defense of priceless liberty, property and lives are destroyed. It's fine to look on the bright side of broken windows, but one should never forget the cost.

The full destructive impact of “World War COVID-19” will take years to play out, let alone measure.

So… what?

I think:

  • Whatever the medical issues and results of World War COVID-19 might be, the economic and financial result will be inflation.
  • Supply chain issues exacerbate inflation, to be sure, but in time Milton Friedman’s assertion that inflation is everywhere and always a monetary phenomenon will turn out to be right again.
  • Inflation may or may not slow after supply chain bottlenecks are sorted out, but it won’t stop or turn into deflation.
  • The price of a Thanksgiving dinner in 2021 has already shocked many Americans. Those who weren’t worried about inflation before are thinking about it now—and this affects consumer behavior.
  • Wage gains, while not keeping up with inflation, are going to continue—and they’re going to be “sticky.”
  • Even if Powell & Co. are right and inflation decreases substantially after COVID-19—who knows when that will be? At the very soonest, that might be next summer. That’s many months in which persistent high inflation will alter consumer expectations and behavior.
  • Inflation alone won’t prompt the Fed or the ECB to raise interest rates. They will say they want to see a much more robust employment recovery before they pull that trigger.
  • Given the truly historic levels of government debt, it’s an open question how much the Fed can let interest rates rise, even if the economy were to boom.
  • High inflation and low interest rates mean lasting negative real rates in the US and EU, at the very least.

All of this points to higher gold and silver prices.

That may not happen tomorrow, but I’ll be very surprised if we don’t see them rise as we move into 2022.

That’s not a prediction, just my expectation.

Further, it’s very hard for me to see gold tanking in a big way—say, falling and staying below $1,600—in this environment.

If this were to happen, I’d have to ask myself some hard questions.

That’s not where we are, however, so I’ve been happy to “buy the dip” this week. I’ve already picked up shares in one silver stock from The Independent Speculator shopping list, and have a bid on the table for another.

That’s me putting my own money where my keyboard is.

What about industrial minerals?

My outlook on inflation makes me bullish on commodities and real assets in general. I do think, however, that another wave of COVID-19 lockdowns would likely hurt energy and raw materials, if only temporarily. That doesn’t make me want to sell any now, but it does incline me to wait for lower entry prices on the next big scare—which may or may not be starting right now.

And what about mainstream investments?

That's not my area of expertise. I note, however, that bad news in the real world (the new CVOVID-19 mutation) was bad news on Wall Street today. Patterns there may be changing. 

I’ll be watching all of this closely and will update my outlook in my free, no-spam, weekly newsletter, the Speculator’s Digest.

Finally, please remember that gold and silver (or other resource stocks) are very different things from bullion. The physical metals in one’s direct control are insurance. The stocks are speculations. They serve almost polar opposite purposes.

That’s my take,



P.S. To be kept abreast of more opportunities, dangers, and issues affecting investors, please sign up for our free, no-spam, weekly Speculator’s Digest.

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