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November 17, 2021 | A Decade of Dollar Destruction

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 – MoviePass was in the news this week because it was bought out of bankruptcy.

The idea behind the company was remarkably stupid. It was a subscription service, founded in 2011. You signed up… paid $10 a month… and you got tickets to as many movies as you wanted – in theaters.

Long before COVID-19 hit, this proved to be the wrong idea at the wrong time.

The company had no deal with the theaters. It just bought the tickets retail… losing money each time a customer wanted one.

This led to a drastic loss-reduction strategy: The company disabled its website so customers couldn’t order any more movies!

How do you like that? You have a great idea for a wealth-destroying business. Then, when it is so successful you can’t keep up with the losses, you simply stiff the customers.

Well, that technique got the company into bankruptcy court, whence it has just emerged under the direction of one of the people who created it in the first place, Stacy Spikes.

He says he has a new idea.

But the old idea at least was in tune with market realities. That is, it was absurd.

Join the Fun

When the money goes, everything goes with it. And first to go is the brain.

The Federal Reserve has held its key lending rate below the rate of inflation for almost all of the last 11 years. So, borrowers could get money, effectively, for nothing.

That was bound to soften up their frontal lobes.

In a normal world, you invest in businesses that produce goods and services – at a profit. The profit represents the extra wealth that the businesses create… and share with their owners, who use it to pay off the debt. That is how society prospers and progresses.

But in a fake-money world, why bother? It’s easier just to borrow… and join the fun. Buy back your own stock to increase your share price. Or buy your own products to increase your profits.

Or buy Shiba Inu… or an NFT. You might not make any real profits. But who cares? This is the Capital Demolition Derby.

Wreck your jalopy? No worries. At negative rates, you can just buy a new one.

And don’t worry about interest rates going up. Here’s CNBC to reassure us:

Interest rates could remain at their record lows “forever,” according to one asset manager, despite a recent rush to normalize policy by many of the world’s central banks.

GAM Investments’ Julian Howard told CNBC’s “Squawk Box Europe” last week that he believed it was “entirely consistent historically to talk about low rates forever.”

Squandered Capital

What great fun – the dents… the smashes… the close calls and narrow escapes… the trick trucks and clown drivers…

…grotesquely low interest rates, grotesquely high stock prices, MEW (mortgage equity withdrawal), NFTs, Rivian, the Elon Effect, the dog coins, and all the rest!

Too bad it makes us poorer.

It’s not because of its great weather that Switzerland is richer than Haiti. It’s because its people have accumulated capital over generations – savings, skills, infrastructure, factories, machines… and crucially, habits.

The U.S., too, boomed under a regime of honest money and limited government. But many years of fake money, fake interest rates, and empire building have taken their toll.

The American mind is mush. Manufacturing industries have left; now, it’s Asians and Mexicans who learn the critical skills.

The habit of saving money, too, has been exterminated by more than a decade of artificially low interest rates (the Federal Reserve’s key rate has been below zero almost all the time since 2009).

And now, the U.S. squanders its precious capital on government boondoggles, zombie companiesgag artjoke “money,” and dumb ideas.

Leading the Way

Probably the leader in the Capital Demolition Derby is Amazon (AMZN)… our old “river of no returns” stock.

The brightest sun in history shone on Amazon these past 18 months. The company sells stuff via the internet… and delivers it to your door (sometimes, by drone… what fun!).

What more could it hope for than a global pandemic that kept everyone at home, with government checks to spend!

And sure enough, sales soared.

But what’s this? Sales more than tripled over the last five years. And Amazon, with plenty of capital on hand, spent nearly $57 billion on new investments over the last 12 months. But its operating cash flow toted to only $54.7 billion.

And thus did Amazon show us how it works: Raise money. Spend it. Lose it. And your stock goes up.

AMZN rose from $1,900 per share at the beginning of the pandemic… to $3,540 now.

And the derby goes on. Bam! Crash! Ka-boom!





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November 17th, 2021

Posted In: Bill Bonner's Diary

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