POITOU, FRANCE – We wait for the world to fall apart.
The Dow is still more than 1,000 points below its high; so we presume the primary trend is down. Treasury yields – on the 10-year note – are near 3%… twice what they were two years ago. So we presume the primary trend for bonds is down, too.
If we’re right, we are at the beginning of a long slide… down, down, down… into chaos, destitution, and destruction.
Our working hypothesis is that General Eisenhower was right. There were two big temptations to the American Republic of the 1950s; subsequent generations gave in to both of them.
They spent their children’s and grandchildren’s money. Now, the country has a government debt of $21 trillion. That’s up from $288 billion when Ike left the White House.
And they allowed the “unwarranted influence” of the “military/industrial complex” to grow into a monster. No president, no matter how good his intentions, can stop it.
A corollary to our major hypothesis is that the rise of the Deep State (the military/industrial/social welfare/security/prison/medical care/education/bureaucrat/crony complex) was funded by the Fed’s fake-money system.
Now, investors, businesses, households, and the feds themselves have all been “faked out” by a fraudulent money system. None of them can survive a cutback in credit.
For nearly 30 years, central banks have backstopped markets and flooded the world with liquidity.
But last week, the Fed turned the screws a little further. It now targets a 2% Fed Funds Rate and claims to be on the path of “normalization.”
And the European Central Bank (ECB) made it official, too; it hasn’t quite begun tightening, but it’s got its toolbox open. And command of the ECB work crew is set to change hands next year anyway, passing on to a German engineer.
The German psyche has been scarred by its awful experience in the last century. Even though today’s Germans didn’t live through it themselves, the entire country seems to have a race memory of it.
Still preparing for hard times, the household savings rate in Germany is at least three times higher than in the sans souci U.S.
Germany’s apocalypse, too, can be described in Eisenhower’s terms – too much debt (arising from World War I)… and too much influence in the hands of the military/industrial complex.
Debt led to hyperinflation. But the damage done by Germany’s hyperinflation of the early ’20s led to far more than just wiped-out mortgages and billion-dollar cigars.
It discredited the traditional elite of the country – its institutions, its culture, and its politics. Germany had the world’s finest artists, composers, and philosophers. Its writers, engineers, and scientists were second to none.
Even in the early ’30s, Germans could still look to the East – to the madness, purges, and famines of Russia – and say to themselves: “Ah, that couldn’t happen here; we are so much more civilized.”
But by then, civilization was on the run, from the Rhine all the way to Siberia. And in Germany, the old elite was being chased out of leading posts in academia, the military, and the government.
Ruined by hyperinflation and chaos – and hounded by extremists – thousands emigrated from Germany to England and America. Those left yielded to mob spirits and rabble-rousing upstarts – communists, anarchists, and national socialists – who fought it out in the streets.
The national socialists – the Nazis – won. Even though it was prohibited by the Versailles Treaty, they quickly began building up the military/industrial complex.
Then, as Madeleine Albright phrased it, “What good is it having such a powerful military if you can’t put it to use?”
As it transpired, Germany attacked the Soviet Union. By then, the average Russkie may have hated Stalin, but he rallied to defend Mother Russia.
By the end of World War II, eight million Germans would be dead, with millions more condemned to die in prisoner-of-war camps or from starvation.
By 1945, Germany had been bombed so thoroughly that nothing much was left of its once-impressive industrial capacity.
Its farms had been starved of investment (the money went to the military) for the previous 10 years. And the country had been cut in half, with foreign troops ruling over every aspect of life.
And today, 73 years later… there are still foreign troops garrisoned on German soil… and the Germans still fear letting the money system get out of control.
They’re right to be wary of runaway money. It turns honest wage-earners into paupers, while the speculators get rich.
Worse, it gives the meddlers a source of almost unlimited financing. Then, there’s no telling what mischief they will get up to. Revolution? War? Or simply a complete economic collapse?
News also came last week that the inflation rate in Venezuela has reached 24,600%. In other words, if you bought a pack of cigarettes for $5 last June, you could expect to pay $1,230 for the same pack today.
When the money goes, everything seems to go with it. The economy, government, order, morality, right and wrong – all sink into a greasy stew where you don’t know which parts are edible and which are poisonous.
This year’s rise in oil prices was supposed to give Venezuela a little break. Oil is the country’s biggest asset and its major export. And the state-owned oil giant PDVSA was supposed to rescue the nation.
But it is too late.
The vernacular – the vast web of thoughts and deals that make up everyday life for everyday people – has been so corrupted and distorted that it can’t react normally. Venezuela can no longer take advantage of opportunities or respond to crises. The New York Times reports:
Desperate oil workers and criminals are also stripping the oil company of vital equipment, vehicles, pumps and copper wiring, carrying off whatever they can to make money. The double drain – of people and hardware – is further crippling a company that has been teetering for years yet remains the country’s most important source of income.
Wages could not keep up with inflation. The NYT highlights the case of a typical rig worker who stayed on the job for the entire month of May, yet earned only enough to buy one chicken.
No longer able to feed their children, workers walk off the job. Or drive off.
Trucks disappear. So do wrenches and copper pipes. Even with a higher oil price, income falls for the company… the state… and the remaining employees.
What’s a man to do?
Leave! Venezuelans are rushing the borders to escape, often taking little more than the clothes on their backs with them.
But wait… Americans are civilized people with full employment, a solid dollar, and a military that is bringing order to a troubled world. What possible significance could Germany 1920–1945 or Venezuela 1999–? have for us?
And Eisenhower was just an old worrywart, wasn’t he?
Editor’s Note: Today, Bill shares a picture of a “framed reminder” hanging in his office in France. 100,000 mark Reichsbank notes like the one pictured here became virtually worthless during the hyperinflation years of the Weimar Republic. At the height of hyperinflation, one U.S. dollar was worth approximately $4 trillion German marks. People burned bank notes rather than buying firewood…
ECONOMIC INSIGHT: A TALE OF TWO FORECASTS
By Joe Withrow, Head of Research, Bonner & Partners
The Trump administration projects a rosy outlook for U.S. GDP growth… but other institutions disagree.
That’s the story today as we chart the five-year GDP growth forecast from the White House against that of the Federal Reserve, the Congressional Budget Office (CBO), and the International Monetary Fund (IMF).
As you can see, Trump’s team expects GDP growth of 3% over the next five years… but the other institutions see GDP growing at roughly half that pace.
The Fed projects 1.8% GDP growth over the next five years… the CBO sees GDP growth of 1.6%… and the IMF forecasts GDP growth of only 1.4%.
The IMF echoed Bill when explaining its forecast, saying that the U.S. is poised to run massive fiscal deficits in the coming years, which will “increase the range and size of future risks.”
The IMF added that the combination of massive deficits and low unemployment has not been seen since the Lyndon Johnson administration… and that it generates a near-term boost, but will be a long-term drag on the economy.
– Joe Withrow
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After some scathing mailbags last week, Bill’s stalwarts write in with praise for the Diary…
Right on, Bill! You are seeing it for what it is. Thanks.
– Ray W.
I’ve been reading your work for 20 years, and I look forward to another 20 more. You’re the best. Reading the Diary is one of the highlights of my day.
– Ken H.
Hi Bill, I am a liberal who doesn’t agree with you on very much, but I want you to know that I look forward to your daily missives with the same eagerness as an addict looks forward to his next fix!
– Svend N.
Hi Bill, thanks for your thoughts – a bit heavy on sarcasm, but I understand where it’s coming from. The most depressing thing, though, is your Mailbag! Please keep speaking your mind and telling the truth. Not all your readers are Trump worshippers. They are just louder than us reasonable, independent thinkers with some integrity. This craze will be over soon (I hope), and these lost folks will wake up one day wondering how in hell they got suckered into this cult. Unfortunately, history tells us that this happens to “lesser minds” almost on a regular basis, at least once per century. So keep up the good work, and don’t let them intimidate you into silence or defensiveness.
– Veronika H.
The universe moves in cycles: “The pendulum swings back and forth.” All you have to do to look like a psychic genius is wait for the pendulum to swing to one extreme and predict that the opposite is about to happen. You will take all kinds of heat at first, and be ridiculed as a fool, until the pendulum starts its swing back and you are vindicated as a visionary. Trump’s pendulum is swinging to the good side at the moment… Wait for it.
– James F.
Well, it sounds like the entirety of your Diary readers has formed a mob against you! Don’t let them wear you down. I personally agree with exactly what you are saying and I am wondering, too, “Where is the party of small government?” I never really affiliated with any party before, and about five years ago, I quit thinking that the Republicans were even trying to be conservative any longer. There is no conservative party… It is a shame. So keep up the good work, keep fighting the good fight, and keep pointing out the obvious using your wit and humor. Maybe someday, more people than just me will realize the golden nugget that this newsletter is.
– Melvin E.
Bill’s skepticism is bound to be rewarded sooner or later. But, like most smart people, he’s staying in the game – even as he covers the doom bases also mentioned in When the ATMs Go Dark, a good book with great advice if you can read it.
– Michael C.
As a registered Republican, I feel very, very frustrated. We used to have great leaders like Lincoln, Eisenhower, and both Governor Tom McCall and Senator Mark Hatfield in Oregon. But now, we have Trump, McConnell, Pence, Ryan, and so many more. Things are going pretty well for many people – especially their friends – but at what cost to the country, both internally and internationally? Many times, I disagree with Bill Bonner, but with respect. It is hard to have that for the Trump worshippers.
– Russ G.
I admire the balance you seek by printing letters critical of you and your remarks. Take solace. Any sentient being can see that our current president is a shameless showman, not a statesman. He knows how to play the crowd. More than anything, he must be the center of attention. We’re living in a tragic comedy. Like all things, it will end… happily, I hope.
– Jimm R.
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