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January 17, 2019 | Trillion-Dollar Deficits From Here to Eternity

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

BALTIMORE, MARYLAND – We are on our way to the future. Not that we know what will happen, but we’ve been looking at the broad patterns of history. Most likely, they will repeat themselves… and surprise everyone.

Over the last few days, we’ve looked at three of them.

First, stocks go up and down in a cycle that seems to last 30-40 years, peak to peak. Stocks have been falling since October.

Movers and shakers can move and shake the stock market. Most investors are hoping they can keep prices moving up forever. But it’s never happened. Every boom is followed by a bust.

Would it surprise you to see prices cut in half? It shouldn’t. It happened 10 years ago… and 19 years ago… and 53 years ago; on that last go-round, stocks lost 80% of their value over a 14-year slump.

Bonds go up and down in a similar cycle – but it takes twice as long.

Interest rates hit a low in the late 1940s. The next low didn’t come until 2016 – a lifetime later. Since then, bonds have been falling, too. Again, the feds can do mischief in the bond market, but they can’t stop the credit cycle.

Would it surprise you to have to refinance your house at a 10% interest rate? It shouldn’t. At the last top in yields, in 1980, homeowners were lucky to get mortgages below 18%.

There is also a political pattern. It is much less obvious. And the politicians themselves deny it; they claim they can get whatever outcome the people want.

And most citizens believe them. If things go bad, they think the “wrong” party got in office… or it made “mistakes.” They believe politicians will eventually get it right… after they’ve exhausted other possibilities.

Serenely Cynical

Here at the Diary, though, we’re serenely cynical.

We count on the sun to rise in the morning. We trust our burgers to be edible. And we expect the markets and the feds to do predictable things. In the present context, for example, there is almost no chance that the Fed will normalize interest rates.

And there is almost no chance that Congress and the White House will reduce spending or raise taxes – even to prevent a death spiral of debt and inflation. Once underway, empires, love affairs, and financial calamities have to run all the way to the end.

In America today, it is almost impossible – politically – to cut government spending or to raise taxes. That leaves debt as the only way forward.

Over the last two years, U.S. federal debt rose by about twice as much as GDP. Those were supposed to be boom years. And the House, Senate, and White House were under the control of the Republicans, who were supposed to be concerned with fiscal rectitude.

This year, the deficit is projected to be around $1 trillion. And now, with the economy sinking towards recession, markets ready to crash, and a Democratic majority in the House, hold your breath; it’s trillion-dollar deficits… and rising… from here to eternity.


Counterfeit Currency

As you know, the money system is corrupt, unfair, and misleading. Oh, Dear Reader, weren’t you paying attention?

We’ve looked at how it bids up prices for financial assets but leaves wages untouched. Feeding the new, counterfeit currency into the asset markets, we explained, the feds boosted the wealth of the rich by some $30 trillion since 1980.

The middle and lower classes, who did not own financial assets, didn’t get a penny. And today, the typical working stiff has to schlep for twice as long to pay for the typical house or pick-up truck.

“Well, if the system is so unfair,” comes the challenge, “how come it has lasted nearly half a century?”

Ah, but that’s the point, Dear Reader. The system endured because it was unfair, not in spite of it. It did the work it was meant to do on behalf of the people who ran it.

There are always some people who get control of the government and figure out how to use it for their own benefit.

That was true of the Big Man in prehistoric tribes. It was true of the chiefs, kings, and emperors who dominated governments in early historic times.

And it is true of the elites who dominate the U.S. government today. Today, the emphasis is on fraud over force. But the goal is the same: to separate the outsiders from their power, money, and status.

And to that end, no more cunning, more elegant, or more effective flimflam has ever been developed than America’s fake money system. It’s shimmied some $30 trillion from the middle classes to the elite. And not one person in 10,000 knows he’s been scammed.

But then what happens? Tune in tomorrow…




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January 17th, 2019

Posted In: Bill Bonner's Diary

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