Is The United States On The Same Calamitous Path As Yugoslavia?

Op-Ed by Brandon Smith

Of all the inflationary disasters in modern economic history, Yugoslavia’s is the one most ignored by the mainstream. To be sure, the collapse of the Eastern European nation was a slow burn, but with a big explosion at the end. Most people are familiar with the Serbian/Croatian war and the genocide that followed, but few people are familiar with the economic crisis that led to the conflict.

I am not here to present an in-depth analysis of the eventual breakup of Yugoslavia, only to examine the conditions that triggered it. I believe there are some interesting similarities to burgeoning conditions within the U.S., along with some distinct differences.

The First Stage: Inflation

President Josip Broz Tito led the nation in various capacities from 1953 to 1980. He used two powerful tools to clamp down on unrest in the ethnically-diverse nation: large-scale repression of dissenting voices using both police and military forces, and allowing regional foreign borrowing. The latter might not sound particularly important. According to the CIA’s 1983 national intelligence document Yugoslavia: An Approaching Crisis?:

Although self-management in theory permits workers to own and manage their enterprises, in fact the leaders in the six republics and two provinces… became the dominant economic decision makers. They grew increasingly protectionist and isolated from each other in pursuing local interests. Ignoring national economies of scale and ultimate profitability, they built redundant enterprises, blocked competition on the “unified market,” and granted unrealistic price increases and subsidies to favored industries. Thus, by the early 1980s inflation in the 30- to 40-percent range became chronic…

Yugoslavia’s inflation troubles were ever present, with up to 76% in price increases annually from the early 1970s to the early 1990s. In fact, the Cato Institute’s Steve Hanke calls it The World’s Greatest Unreported Hyperinflation.

Under communist rule, the nation was conditioned to cope with rising costs through the application of government subsidies (also known as stimulus). Under President Slobodan Milošević, parliament secretly ordered the Serbian National Bank (one of the nation’s regional central banks) to issue $1.4 billion in credit to Milošević’s friends. This is reminiscent of recent American stimulus efforts, 90% of which went to the top 10% wealthiest.

Overt taxation was used to fill government coffers to pick up any slack that money printing did not solve. Financing Milošević’s war machine was expensive:

More than 80% of Yugoslavia’s budget was earmarked for the military and police forces, and by December 1993 almost 95% of all government expenditures were being financed with freshly printed dinars.

As we have seen recently in Venezuela, this is a common response of countries that devolve into socialism and communism. The solution is always to increase taxes on the general public directly, while also printing more money and letting citizens deal with the indirect tax of inflation.

Government subsidies were notoriously unbalanced, as major companies received the bulk of stimulus dollars while households were given scraps from the table, which were not enough to offset price inflation as well as extremely low interest rates (some economists assert that they were negative interest rates). Large companies and banks were able to squeeze the dinar for value first, while regular citizens had to deal with increased depreciation.

Sound familiar?

In fact, it was communist leader Slobodan Milosevic’s habit of printing billions for his elitist friends that helped to trigger the eventual balkanization of Yugoslavia and the public desire to escape communist centralization.

Subsidies were applied to companies and essentials for years, and the dinar continued to lose value in domestic and international trade as the citizenry barely scraped by. By 1994, only a couple years after the fall of the Soviet Union, the country hit an epic inflation rate of 313,000,000%, with prices on goods doubling daily. Steve Hanke puts this into perspective:

“For a sense of the impact on the local population, imagine the value of your bank accounts in dollars and then move the decimal point 22 places to the left. Then try to buy something.”

This peak lasted for two years and utterly destroyed the economic fabric of the nation.

The supply chain broke down, with many producers withholding goods and raw materials because selling them today would mean taking a huge loss as the currency plunged the next day. The only place to find the items people needed was on the black market, and no one on the black market was willing to accept dinars as payment. Instead they asked for foreign currencies and hard commodities like gold and silver. Government rationing was the only other source of necessities, and this was highly unreliable.

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Another problem that was devastating to the public was the fact that many types of debt were adjusted to match the inflation rate, so escaping debts through inflation was not an option. The IMF offered intervention in the form of loans with numerous strings attached, while at the same time the UN enforced an embargo (see how that works?). However, despite the claims of Milosevic, Yugoslavia was already a collapsed nation well before outside influencers stepped in.

Parallels To Today’s U.S. Economic Situation

In the U.S. today we can see the early and middle stages of the same decline. Since the debt crisis of 2008, the U.S. (along with numerous other countries) has been relying on bailouts and stimulus dollars from central banks to kick the can of deflationary collapse down the road. This, however, has led to fiat addiction of the most grotesque kind.

In 2018, all it took was the slightest uptick in interest rates by the Federal Reserve along with moderate cuts to their balance sheet, and once again stock markets began their “taper tantrum.” The U.S. has become a fiat crackhead.

With the advent of the COVID-19 pandemic, the danger has increased a hundred-fold. Now, trillions more in stimulus have been rationalized in the name of saving the economy from the effects of the very shutdowns the government imposed. Of course, the vast majority of these pandemic relief loans have gone to major corporations, not to small businesses. And, stimulus payments to households are barely enough to offset the subsequent inflation in prices we have seen over the past year. It is getting to the point that the average American family will need regular stimulus checks just to survive (and maybe that was the plan all along).

Government officials and globalists call this “UBI” (Universal Basic Income), but it is really no different from the subsidies used by the communists in Yugoslavia to pacify and control the public. Once the public is dependent on the government for their very survival, rebellion becomes unthinkable. Of course, when hyperinflation strikes, government subsidies lose their power.

The question is, how much inflation will it take before the U.S. sees a similar balkanization and break up? My suspicion is that, unlike Yugoslavia, in America the rebellion and break up will come before hyperinflation fully takes hold.

The U.S. Isn’t Yugoslavia (Yet)

There are advantages and disadvantages that America has compared to Yugoslavia. For example, the U.S. dollar is the world reserve currency. This means that (for now) the U.S. has the ability to borrow money from almost anywhere even as it is devaluing. It can also print dollars without affecting domestic inflation quite as much because some of these dollars, whether digital or physical, are often sent overseas and held in foreign banks as reserves.

But what happens if the dollar’s world reserve status is removed or reduced, perhaps by a basket currency system like the IMF’s SDR basket? Well, all those dollars being held as Treasury bonds overseas will come flooding back to the U.S. and all our checks will get cashed at once. Hyperinflation or hyperstagflation would ensue.

All it would take is a portion of the world’s major economies to agree to a basket system for the dollar to crash. The slow burn of the U.S. collapse will mirror much of what happened in Yugoslavia, and the moderate inflation of today will be replaced with an avalanche tomorrow.

In terms of balkanization, this is already happening because of the pandemic. There are U.S. states that are seeking to assert draconian medical mandates on their citizens, following the guidelines of the Biden Administration. And, there are states that are protecting the rights and freedoms of citizens despite the pandemic. The divergence in our society cannot be denied. We are separate peoples with separate values – one side is communistic and the other side respects liberty.

Economically, conservative states are greatly outperforming leftist blue states in terms of recovery exactly because they have removed pandemic restrictions. Blue states have become stimulus dependent and will likely need even more stimulus dollars as the year progresses. With red states in defiance of the global reset and pandemic restrictions, it is only a matter of time before Biden (like Milosevic) asserts the need for “unity,” and accuses those states that want freedom of seeking to “weaken the nation.”

This will probably happen before true hyperinflation bubbles over, but in the meantime prices on goods will continue to rise exponentially. States that show fealty to the federal government will receive their subsidies (their table scraps), while defiant conservative states will be cut off completely. The fracturing of the U.S. is inevitable at this point.

This is not to say that this is a bad thing in the long run. It is a necessary outcome for economic and personal freedom to survive. But, it is important that we learn from examples in history so that we can remain prepared. Some people will claim that the U.S. and Yugoslavia are nothing alike, but we are unfortunately much closer than we should be. America is no longer a free market society, and we haven’t been for decades. We are an increasingly socialist nation with all the frailties associated with such cultures.

One defining difference that could save us is our heritage of independence and the will to return to a self reliant system. For Yugoslavia, communism was all they knew, and adapting to an alternative economy was hard to imagine. Black markets arose out of necessity, but these are merely stop gap solutions to structural decay. There has to be a revolutionary return to free markets, production and sound money for a country to rebuild, but I believe this is possible in the U.S. given at least half of Americans want this already. They don’t need to be convinced.

And, like Yugoslavia, civil war will eventually follow American balkanization, but that is a discussion for another time. It is enough for now to understand that to solve the economic decline caused by socialist and communist policies, more of the same is not the answer. More centralization is not going to fix the disasters caused by previous centralization. We need a sea change in how we view our relationship to the economy; a return to an older and BETTER way of doing things in the history of our nation. And, if we have to break up America to achieve this freer system, then so be it.

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This article was written by Brandon Smith and originally published at Birch Gold Group

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