Thank you Mr President

In an article called Thank you Mr President, Bill Bonner has an amusing take on Donald Trump.

What “The Donald” understood better than the professional politicians was that democratic politics is basically a form of entertainment. It’s a sordid part of show biz – all hocus pocus… suspension of disbelief… and performance art – closer to nude mud wrestling than The Crown.

Trump, a lifelong celebrity, sensed that the role of president has little to do with geopolitical facts, mastery of the federal budget, or knowledge of history. It’s more like a reality TV show or a WWE wrestling match – with put downs, posturing and fake fights. In other words, it was right up his alley...

Mr. Trump understood, too, that the real task of government – bossing people around and ripping them off – is done by the Deep State, the cronies, the elite, and the lifers in D.C.

Bill Bonner is an astute observer. There is more than an ounce of truth to his observation that the role of the president is to provide entertainment while the real power of government is worked by the professionals in Washington. They carry on regardless of who wins the election.

However, Bill misses one key point. He does not seem to realise that the spiritual powers of evil are deeply imbedded in the Washington swamp. They control what happens, regardless of who is the Entertainer-in-Chief.

Inflation

Bill Bonner has an interesting comment about wealth transfer under loose monetary policy.

Wealth can be increased or decreased. But it takes work, savings, and time. And at any given moment, the quantities of tractors, ham sandwiches, and Van Gogh paintings are fixed.

So if the stock market added $10 trillion to the wealth of equity owners, it had to subtract $10 trillion from the wealth of people who don’t own equities. That is the essential scam, and injustice, of the fake-money system.

In an honest market, if the price of some things go up, the price of others will fall in response to the shift in demand. Under monetary expansion, the compensating price decline does not occur. Those on fixed incomes are made worse off. Also those whose wages do not keep up. I explain more at Inflation.

Tax Cuts

Bill Bonner has some interesting comments on the US tax cuts.

Here’s our simplified guide to tax reform:

• The poor have no money.
• The middle class has no lobbyists.
• The rich have no desire to pay more.

But why should giving the rich more money stimulate output? Are they having trouble making ends meet? Do they lack capital?

According to a new report by Credit Suisse, the richest 1% of the world’s population already controls half of its total wealth. They have plenty of spending money; giving them more is not going to appreciably increase consumption. And if they need more money, they can borrow at the lowest rates in history.

We’ve heard of no business in recent American history that failed… or failed to expand… because it lacked capital. On the other hand, thousands of businesses are failing because they lack customers.

Which brings us to the rest of the population – the part that isn’t rich… and has no lobbyists… the part that must earn and consume to make an economy run.

U.S. household debt hit a record of $13 trillion last quarter.

Donald Trump

Bill Bonner seems to sum up Donald Trump better than anyone.

Just a few short years ago, in 2015, Mr Scaramucci told Fox Business that Mr Trump’s palaver was “anti-American” and that he was just a “hack politician.”

That must have been the most inaccurate assessment of his future boss ever made. “The Donald” is the opposite of a hack. Hacks are reliably dull and serviceable, like a kitchen faucet. Trump is more like a loose fire hose, shooting water all over the place and soaking everyone.

Nor is Trump a politician. Politicians are smooth operators who will say whatever they need to say to get what they want. What is endearing and refreshing about Mr Trump is that he is not a politician.

As near as we can tell, the president is more like a playground bully. In and out of scrapes all his life… failed casinos, failed marriages… vulgar, indecent, and mean… he is as “The Mooch” described him – an “inherited money dude from Queens County” who somehow ended up in the White House.

And anti-American? Wrong again.

Mr. Trump captures the zeitgeist of his era better than anyone – when middle-aged Republicans long to hear the F-word in public... law-abiding Christians from Iowa can’t wait to send a drone to kill people in the Hindu Kush... and every geezer, coast to coast, seems happy to have the feds pay for his pills with money his children and grandchildren haven’t even earned yet.

Mr. Trump is a brawler. Now, he’s in the fight of his life, and he loves it.

Around him, his lackeys, sycophants, and handlers scrap for places at the table – the Goldman guys on the left, protecting the fake money system... the generals on the right, protecting the crony empire.

A third of the country loves him. A third of it hates him. And a third – the most intelligent group – doesn’t give a damn.

Meanwhile, the whole spectacle is entertaining for everyone, like a traffic accident or a nasty divorce. The press can’t take its eyes off Donald Trump.

It’s Trump. All Trump. All the time.

And more.

Donald is a lot of things. He is a skilled street fighter… a practised brawler… a lusty scrapper. But he is woefully unprepared for the battle now upon him.

The president spent his entire career building his brand – big, brash, bold… and somewhat buffoonish.

Like a professional wrestler, he was able to charm the crowds with his brawling style and winner image.

Pick fights. Say outrageous things. Stay in the public eye. Slam his opponents with scurrilous or irrelevant epithets (“Little Marco” Rubio… “Bleeding From a Facelift” Mika Brzezinski… etc.).

Substance didn’t really matter. Trump steaks? Trump University? Trump Airlines? How could any human being possibly be good at so many different things?

Of course, he couldn’t. He just had to be good at building the Trump brand. And that meant sticking to his swashbuckling, confident style.

He was even able to take his brand all the way to the White House, using the same techniques on the campaign trail that he used on his reality TV show.

And once he took office, the plan was simple. He would surround himself with the top guys from the Deep State – the moneymen and the gunmen… the Goldman guys and the generals – and he would go on being Trump.

But something went wrong.

Mr Trump seems genuinely perplexed by it... And he, the president, is doing exactly what he is supposed to do – distracting the crowds while zombies feed upon them and cronies pick their pockets.

People should be happy, he thinks. They should be enjoying the show. Instead, the battle grows more intense and mean.

And the mainstream media – which was supposed to play along by engaging in pointless, showy squabbles with the president – has turned vicious.

Redistribution

Bill Bonner writes well, and he has a sneaky sense of humour.

For instance, a robber puts a gun to our head. “Your money or your life,” says the well-read thief. And if you could engage him in conversation, you might find plenty of plausible “reasons” for the larceny.

He was abused as a child. He is a member of a disadvantaged minority. He went to public school. He needs the money more than we do. He is only stealing it to give it to the poor.

“Stealing from the rich,” he says, “will reduce wealth inequality. And since we know from reading Stiglitz, Krugman, Piketty, et al. that wealth inequality slows down growth, making everyone poorer, redistributing wealth will make us all better off. I’m just a facilitator. I’m helping to create a fairer society.”

You see immediately that the robber has a future in politics!

“The risks are lower… and the payoff is greater,” you tell him. “And the work is essentially the same – transferring wealth from the people who earn it to the people who are favored by the robber.”

Back-alley stickup men get caught... or shot... from time to time. The politician, almost never.

Instead, he is re-elected… moved from one committee post to a more powerful one… where he is able to redistribute more wealth.

And when he eventually retires, he has a job waiting for him among the plumy cronies – in the think tanks, lobbying firms, or big business.

Terrorism and Government

Bill Bonner says that the relationship between governments and terrorists is symbiotic.

Terrorists give governments an enemy to protect people against (conveniently, one that can never really win). In return, they get fame, power, money and more recruits, thanks to governments’ heavy-handed “wars” against them.

And if the history of empires is predictive, we can expect more consolidation of power in the executive branch, more rules and regulations to “protect” us from evil, more controls, more costs, more spending and more debt.

The taxpayers will grumble and groan about the increased burden, but as long a war is in the headlines, they will fall into line.

As the military gets more money, it will favor more costly weapons systems, entrenched tactics, old military technology and a more bureaucratic internal structure. It will become stronger and stronger on paper, but more vulnerable to quick-moving opponents. After fighting so many phony wars for so long, it will be incapable of defending the country in a real one.

Imperial Delusions

Bill Bonner is a “literary economist”. I admire his ability as a writer. He has some sensible things to say about economics too.

I have just started reading a complimentary copy of his book, The New Empire of Debt, written with his mate Addison Wiggin. This is what he says about empires.

At the peak, the imperial people come to believe that their system is superior, that their values are universal and that their way of life will inevitably dominate the entire world (New Empire p.10).

I have seen some great examples coming out of the Whitehouse recently.

Joe Carney condemning the planned presidential election in Syria.

A presidential referendum is a parody of democracy. It would nave not credibility or legitimacy inside Syria or outside Syria.

What about the presidential election being run in Afghanistan under the guns of 60,000 US troops. Is it legitimate, because two warlords from the northern alliance are standing.

Joe Biden sent to Ukraine to scare the Russians.

No nation should stoke instability in its neighbouring country. We call on Russia to stop supporting men hiding behind mask in unmarked uniforms sowing unrest in Eastern Ukraine.

Has he forgotten that neocon Victoria Nulands spend $5 billion dollars trying to change the government in Ukraine, then selected the new president. What is the CIA doing all over the world, not to mention Blackwater (Xe).

John Kerry on Ukraine.

You just don’t in the 21st century behave in 19th century fashion by invading another country on completely trumped up pretext in order to assert your interests.

Has he forgotten about Iraq, or Afghanistan.

Looking from the outside these comments seem like a joke, but inside the empire they make sense.

Things that are evil when you do them, are good when we do them.

Here is another imperial delusion

Imperial people believe that their society is so superior, that the rest of the world longs to be just like them, or is inevitably drawn to become like them whether they like it or not.

Bill Bonner gives an example.

The invasion of Iraq was based on the same sort of thinking: that even the grubby desert tribes want to be just like us. All we had to do was get the get the dictator off their banks and the men would start building shopping malls and the women would all start dressing like Britney Spears (New Empire p.10).

They Understood the Dangers

During 2004-07 I saw the financial industry stacking up the powder kegs that would eventually blow up. I tried on occasion to warn people. But my warnings fell on deaf ears at Lehman and elsewhere, but not for the reasons you might think.

I recall numerous conversations with senior people at various global financial firms on topics ranging from Fed policy, to the US/UK housing markets, securitisation and its potential pitfalls, the CDS tangle, and so on. One thing that is clear to me is that key people at these firms were aware for the most part what risks they were taking. They knew that it was all going to blow up someday, if not so spectacularly as it now has done. But they all believed that somehow they would be quicker and cleverer than rival firms, that they would effectively hedge themselves and they would get out first, before things got really ugly. As you well know, that sort of collective "greater fool theory" mindset is characteristic of bubbles and, if widely held, almost ensures that liquidity will dry up suddenly as markets turn for the worse.

Believe me, they knew they were playing with fire to a much greater extent than is currently acknowledged.

These words were written by a correspondent with Bill Bonner at the Daily Reckoning. The wide boys new that they were playing with fire, but they did not put the petrol away, because the money was too good. They thought that they would be clever enough to get out before it all blew up in their faces. Well they weren't and now the taxpayers are bailing them out.

Discovery

There is nothing concealed that will not be disclosed, or hidden that will not be made known (Luke 12:2).

But it takes time. Bill Bonner explains why.

For the time being, we are still in the process of ‘price discovery.’ Last year, investors suddenly realized that debtors couldn’t pay their bills…that assets weren’t worth what people paid for them…that collateral was declining in price, making many erstwhile valuable credits worthless…and that revenue streams were not sufficient to maintain whole sectors of industry and commerce. They panicked. That is why these episodes were called “panics” in the 19th century. Nobody knows which assets are good…and which are bad…. or who’s solvent and who’s not…or which businesses can survive and which can’t. Everyone tries to hold onto to what he’s got…trusting no one and nothing…until the market has time to discover proper prices for things in the new post-bubble era.

In the 19th century…up to the Panic of 1921…this all happened fairly quickly. And then the economy got up off the ground, dusted itself off, and went on its way. But since the Hoover Administration, the meddlers have intervened. Now, they try to stop the process of price discovery…by keeping zombie businesses alive…by loaning money to brain-damaged industries…and nursing the cadavers and corpses with trillions in taxpayers’ money.

Cover the Countryside with Concrete?

The Japanese experience does not make Bill Bonner enthusistic about stimulus programs.

In this morning’s paper is a front-page article describing how Japan “wasted trillions” on its various stimulus programs.

Japan’s rural areas have been paved over and filled in with roads, dams, and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s (The International Herald Tribune).

Public spending was so aggressive, it boosted Japan’s government debt to 180% of GDP – more than two times the current U.S. level. But did all that cement buy Japan out of its slump?

You be the judge. Housing prices in Japan are now back down to where they were in 1975 – nearly 90% below the late-’80s peak. And stocks? The Nikkei index is back down to where it was a quarter century ago. Stocks sell for half their book value – and they’re still considered too expensive for beaten-down, hyper-fearful Japanese investors. The downturn began in 1990. Over the following 19 years, it did more property damage than the Great Tokyo Fire of ’23 and the Enola Gay combined, wiping out wealth equal to three times the country’s GDP. This was despite interest rates at zero...and a heroic effort at Keynesian stimulation.

If America were to follow Japan’s example, it would have to leave its interest rates near zero for the next decade...and add about $10 TRILLION to its public debt. And if it got the same results, you’ll be able to sell your house in 2026 for the same price you paid in 1992.

In a nutshell,Japan’s experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists (The International Herald Tribune).

Are these, perhaps, the same economists who thought America’s super-consumption, eternal-debt economy would never fail? The same economists who thought the bankers were providing a public service, by offering so many people so much credit...and then planting their debt bombs all over the planet? The same economists who forecast rising stock prices in 2008?

Nationalising Banks

Bill Bonner has some great economic insights and he writes well. Here is an interesting quotation.

Just a few months go, ‘nationalization’ was practically a dirty word. No one – except a brain-dead Bolshevik – would have thought it desirable for a government bureaucracy to manage capitalism’s money. Now, few people can think of anything better.

Here is another.

Among the queerest financial stories of the last week was the proposal to create a ‘bad bank.’ It hardly seemed necessary. There were already dozens of them.

And the consequences.

But if the 'bad bank' idea could work, why not create a super baaaddd bank? We could use it to get rid of all our mistakes. Writers could unload their bad novels. Businessmen could sweep their errors under its broad carpet. What the heck, let people get out of bad marriages without penalty; the super baaaddd bank could pay the alimony and divorce costs.

The hitch with the bad bank idea is so obvious even a banker could spot it. If the cost of mistakes is reduced, people might make more of them. Like the rest of us, bankers are neither good nor bad, but subject to influence. Unlike metallurgy or particle physics, banking does not have a rising learning curve. It's not science. Instead, it's more like love and gambling…with a circular learning pattern. They learn…and then they forget. They get carried away in the boom upswing; then they get whacked when it turns down.

So let them have a good beating. It will give them of a lesson that will last a lifetime…and give the next generation a solid banking sector.

Housing Rescue

Bill Bonner writes well and has a delightful sense of humour. His style is blunt, but his insights into human nature are very good. Here is what he said about the housing rescue.

Yesterday, George W. Bush signed the housing bill - in which up to $300 billion is to be spent bailing out naïve homeowners, caddish mortgage lenders and Wall Street geniuses. It is packaged as a reserve against catastrophe.

If everything is hunky dory from here on, only a few billion here and there will be spent. If housing continues to sink, on the other hand, the bill starts toting up. The Congressional Budget Office gave the odds at only 1-in-20 that $100 billion of this money would be spent propping up mortgages.

We're happy to see the federal government taking some dramatic action. It reaffirms our faith in our fellow man - he's an idiot; as we knew all along. And it confirms our opinion of the political class - they're grifters, chiselers and opportunists.

Here is a case where many, many people did dumb things. Homeowners bought houses they couldn't afford. Lenders lent them the money to do it. And then investors bought the loans as if they were good investments. Naturally, the whole thing blew up.

The smartest thing to do would be to let it happen. As quickly as possible. Get it over with.

But "change" is the one thing people most don't want - not when it involves paying for past mistakes. The homeowners don't want to give up their houses. The lenders don't want to go out of business. Investors don't want to lose money. And so they all hope for a miracle. And along comes the miracle worker himself - Uncle Sam.

What makes it possible for the federal government to perform miracles..? They have to create it - out of thin air. Otherwise, they are just taking money from people who didn't make mistakes in order to keep people who did make mistakes from being forced to own up to them.

As we said yesterday, we haven't seen any real estate agents offering to return the commissions they made by selling houses to people who couldn't afford them. Nor have we seen any Wall Street slicks returning their bonuses - much of it earned by sinking people so deep in debt they could never get out. This $300 billion spending bill helps us all forgive and forget the whole thing - by making someone else pay for it.